BIR Ruling [DA-305-98]

July 8, 1998 BIR RULING [DA-305-98] Mr. Nonato F. Inocentes No. 20 Rockville Avenue Rockville Subdivision San Bartolome, Novaliches Quezon City S i r : This refers to your letter dated March 31, 1998 stating that sometime in 1974, you bought Lot 11, Block 7 at Rockville Subdivision, San Bartolome, Novaliches, Quezon City on installment basis; that in 1977, you and your wife decided to have your own house constructed after several years of renting/living on somebody else property; that to your disappointment, you found out that your neighbors' house was mistakenly constructed on your lot (Lot 11, Block 7) instead of constructing on their lot (Lot 10, Block 7); that to avoid inconveniences to all concerned, it was agreed that the said lots will be exchanged inasmuch as your lot and that of your neighbor's are exactly the same and identical; that on August 24, 1981, a Deed of Exchange of Real Property was made and executed by and between the co-owners Irene S. Pangan and Amelia P. Santos and Nonato F. Inocentes with the marital consent of his wife, Nellie Inocentes, whereby the said co-owners Pangan and Santos being the registered owners of a parcel of land designated as Lot 10, Block 7 situated in San Bartolome, Novaliches, Quezon City, covered by TCT No. 197385 issued by the Registry of Deeds of Quezon City, transferred and conveyed the said parcel of land in favor of Nonato F. Inocentes in exchange for the parcel of land registered in the name of the latter designated as Lot 11, Block 7, likewise situated in San Bartolome, Novaliches, Quezon City without any monetary consideration; that construction of your house on Lot 10, Block 7 continued while proper documentation on the Deed of Exchange was being prepared; that clearances from the SSS must be secured because your neighbor's (Pangan/Santos') property was mortgaged to secure the loan of your neighbor with the same agency; that it took some time for the SSS to issue in your favor the said clearance due to several factors; and that you were able to secure the said clearance only last June, 1997. LexLib Based on the foregoing representations and documents submitted, you are now requesting, in effect, for a ruling exempting from the payment of capital gains tax the Deed of Exchange of Real Property you and the co-owners, Irene S. Pangan and Amelia P. Santos executed on August 14, 1981. In reply, please be informed that under then Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37 [now Section 24(D)(1) of the Tax Code of 1997], net capital gains from the sale or other disposition of real property by citizens of the Philippines or resident alien individuals shall be subject to the final income tax rates prescribed as follows: NET CAPITAL GAINS RATES on the first P100,000.00 or less 10% on any amount over P100,000.00 20% Such being the case, parties (citizen or resident alien individuals) to an exchange of real properties shall be subject to the final income tax of 10% or 20% prescribed under Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37. (BIR Ruling No. 201-87 dated July 13, 1987) cdll Considering, however, that in the instant case, the Spouses Nonato and Nellie Inocentes and the co-owners Pangan/Santos have already paid the capital gains tax and documentary stamp tax on the sale in their favor of their respective real properties in 1993 and 1995 coupled with the fact that in the construction of the house of the co-owners Pangan/Santos, the construction personnel inadvertently lay-out the house of the said co-owners Pangan/Santos on the lot (Lot 11, Block 7) owned by the Spouses Nonato and Nellie Inocentes, this Office, is therefore of the opinion that the Spouses Nonato and Nellie Inocentes as well as the co-owners, Pangan/Santos, are no longer liable to pay the capital gains tax imposed under then Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37, and the documentary stamp tax prescribed under then Section 245 of the same Code on the exchange of their aforesaid adjacent real properties without monetary consideration, in order to avoid unnecessary expenses or court litigation and to preserve peace, harmony and understanding among the homeowners in the said subdivision. (BIR Ruling No. 469-93 dated December 1, 1993) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, this ruling shall be considered null and void. aisadc Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)