BIR Ruling [DA-443-00]

December 29, 2000 BIR RULING [DA-443-00] National Housing Authority Quezon Memorial Elliptical Road Diliman, Quezon City Attention: Mr . Francisco V. Alican Officer-in-Charge West Sector-NCR Gentlemen : This refers to your letter dated June 7, 1999 requesting for a ruling as to whether or not the Deed of Exchange executed by and between Spouses Hilarion M. Palma and Gregoria Palma (Spouses Palma) and the National Housing Authority (NHA) is subject to capital gains tax and documentary stamp tax. It is represented that the NHA is a government corporation created and existing under and by virtue of Presidential Decree No. 757, as amended; that on September 6, 1993, the Board of Directors of NHA approved in its Resolution No. 2759 the acquisition of the 73.30 square meter-lot owned by Spouses Palma; that the said lot will serve as access road right-of-way for the beneficiaries of Peafrancia ZIP Project located at Paco, Manila with a zonal value of P10,000.00 per square meter or with an aggregate amount of P725,000.00; that the acquisition will be effected through land exchange with NHA's two (2) economic lots with a total area of 199.51 square meters located at Karangalan Village Project in Pasig-Cainta with a zonal value of P1,200.00 per square meter or with an aggregate amount of P239,412.00; that the difference in cost as a result of the exchange shall not be paid by NHA to the Spouses Palma; that upon the approval and issuance of Transfer Certificate of Title of the above-mentioned lot owned by Spouses Palma, such lot shall be designated as Lot 19-A containing an area of 73.30 square meters; and that the parcels of land owned by NHA reserved for land exchange are now designated as Lot 1, Block 1 and Lot 1, Block 2 with adjacent lot described as Lot 1, Block 47, Phase 2A located at Karangalan Village covered by TCT Nos. 643513, 643535 and 566005 with an aggregate area of 199.51 square meters. cCSDTI In reply, please be informed that Article 649 of the Civil Code provides: "Art. 649. The owner, or any person who by virtue of a real right may cultivate or use any immovable, which is surrounded by other immovables pertaining to other persons and without adequate outlet to a public highway, is entitled to demand a right of way through the neighboring estates, after payment of the proper indemnity. "Should this easement be established in such a manner that its use may be continuous for all the needs of the dominant estate, establishing a permanent passage, the indemnity shall consist of the value of the land occupied and the amount of the damage caused to the servient estate. "xxx xxx xxx" In applying the above-cited article in this particular case, since the beneficiaries of Peafrancia ZIP Project located at Paco, Manila, which is owned by NHA. have no access to a public road where the same is surrounded by other properties as shown in the subdivision plan. NHA has the right to demand an easement of right of way from the owner of the adjacent servient estate as a matter of law. Considering that the property of Spouses Palma is adjacent to the property of NHA and is at the point least prejudicial to them, the latter can demand from the former as a matter of law an adequate outlet for the benefit of the members in Peafrancia ZIP Project after payment of the value of that portion of land for a permanent use of the easement. However, the agreement of the parties that the acquisition by NHA of the 73.30 square meter lot owned by Spouses Palma, which will serve as access road right of way for the project beneficiaries, through land exchange with the former's two (2) economic lots is very similar to that of a voluntary exchange of properties, where this Office has consistently ruled that both parties shall be subject to the capital gains tax and documentary stamp tax based on the fair market value of their respective properties. SUCH BEING THE CASE, this Office is of the opinion as it hereby holds that the exchange of properties by Spouses Palma and the NHA shall be subject to the capital gains tax under Sec. 24(D)(1) of the Tax Code of 1997 and documentary stamp tax under Sec. 196 of the same Code based on the fair market value or zonal value of their respective properties (BIR Ruling No. 201-87 dated July 13, 1987), whichever is higher, or under Sec. 24(A) of the same Code, at the option of the taxpayer. 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. aIAHcE Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group