BIR Ruling [DA-369-99]

June 25, 1999 BIR RULING [DA-369-99] Ms. Eliza L. Rivero Balagbag, Mahabang Kahoy Lejos, Indang Cavite M a d a m : This refers to your letter dated April 29, 1999 stating that Messrs. Angelino M. Legarda, Elmer U. Constante, Avelino L. Ulitin, Bernardo Bay and Ms. Lourdes L. Ulitin (First Party) are the registered co-owners of a parcel of land located at Indang, Cavite covered by TCT No. T-765765 issued by the Registry of Deeds for the Province of Cavite, containing an area of 13,565 square meters; that Ms. Emilia Pelemiano on the other hand (Second Party), is the owner in fee simple of a certain parcel of land together with the improvements thereon located at Indang, Cavite covered by OCT No. P-4299 issued by the Registry of Deeds for the Province of Cavite containing an area of 13,565 square meters; that the above-mentioned property of the First Party was originally owned by Mr. Rizal Pelemiano, the deceased brother of the Second Party, and subsequently, Rizal Pelemiano's heirs sold the said real property to the First Party by virtue of a "Kasulatan sa Bilihan ng Lupa" dated October 10, 1988; that in July 1983, the Bureau of Lands, having awarded the aforedescribed identical sizes of agricultural lands to Rizal Pelemiano and Emilia Pelemiano, however, at the point of its registration with the Registry of Deeds of the Province of Cavite, Lot 10719, heretofore granted by the DENR to Emilia Pelemiano was inadvertently registered in the name of Rizal Pelemiano under OCT No. P-4295-28, which was subsequently cancelled and a new TCT No. T-765765 registered in the name of the First Party was issued, as described above, while, simultaneously, Lot No. 10729 heretofore granted by the DENR to Rizal Pelemiano was inadvertently registered with the Registry of Deeds of Cavite in the name of Emilia Pelemiano under OCT No. P-4299; that the technical description of Lot No. 10729 erroneously appears instead of the proper and correct technical description of Lot No. 10719 apparently and obviously an inadvertent mistake in the copying of the entries; that the respective parties have been tilling and exercising their rights of possession and ownership over their respective lands, in accordance with the DENR assignment of the lots; and that on April 5, 1999, the above parties executed a Deed of Exchange without any consideration in order to correct or rectify the inadvertent mistake upon the entries in the titles. Based on the foregoing representations, you now request for a ruling that the Deed of Exchange executed by and between the First Party and the Second Party for the purpose of correcting an error, as in this case, is not subject to capital gains tax and documentary stamp tax. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales by individuals, including estates and trusts, shall be taxed at the rate of 6% based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the said Code, whichever is higher. However, since in the instant case there is no actual sale, exchange or disposition of real property, but a mere changing of the lots in question coupled with the fact that there was no consideration involved in the said exchange, this Office is of the opinion as it hereby holds that the Deed of Exchange entered into by and between First Party and Second Party is not subject to the capital gains tax imposed under the above-cited section of the Tax Code. Moreover, the said Deed of Exchange is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, since the same was executed without any valuable consideration, which under Section 185 of Regulations No. 26, otherwise known as the "Revised Documentary Stamp Tax Regulations" conveyance without valuable consideration is not taxable. However, the acknowledgment on said Deed is subject to a documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. UN115-97 dated March 19, 1997) 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, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)