BIR Ruling [DA-497-06]

August 15, 2006 BIR RULING [DA-497-06] Secs. 24 (D) (1); 196; 188; DA-295-2005 Ofelia & Loreto Bumanglag, Josefina V. Alamani and Conchita V. Novales #13 Paraluman St., Isidora Hills Brgy. Holy Spirit, Diliman, Quezon City Mesdames : This refers to your letter dated April 4, 2006, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration to rectify an error due to the mistake made by the vendor during his lifetime in pinpointing the correct lots for each one of you. It could be gathered from the documents submitted that you were co-owners of Lot #13 of Brgy. Matandang Balara, Quezon City; that Lot #13 was subdivided into two (2) equal parts of 225 sq. m. each and are necessarily adjacent to each other; that Lot 13-A-1 and Lot 13-A-2 which are covered by TCT No. N-282589 and TCT No. N-282590 of the Registry of Deeds for Quezon City rightfully belong to Josefina Alamani and Conchita V. Novales respectively, while Lot 13-B covered by TCT No. 87641 of the Registry of Deeds for Quezon City rightfully belongs to OFELIA and LORETO BUMANGLAG; that however, upon the instruction of the former owner of Lot 13, the late Cerilio de Leon, you, OFELIA and LORETO BUMANGLAG, immediately constructed your house on the lot pointed by the late Cerilio de Leon, which happened to be Lot 13-A; that lately you, Josefina Alamani and Conchita V. Novales, planned to erect a structure on the vacant lot which you assumed to be yours and applied for a building permit at the Quezon City Engineering Department; that the said office denied the application since upon ocular inspection, found out that there is already an existing structure on the lot supposedly belonging to you, Josefina V. Alamani and Conchita V. Novales; that Lot 13-A which is supposedly belonging to you, Josefina Alamani and Conchita V. Novales, has been occupied by Ofelia and Loreto Bumanglag; that you all wanted to exchange your lots to rectify the mistake of the late owner in pinpointing your correct lots; and that the exchange was without monetary consideration. In reply, please be informed that since the exchange transaction was without any monetary consideration, and that the execution of the Deed of Exchange is merely to correct the mistake resulting from your honest belief that you did construct a house on your lot as identified by the former owner (now deceased), the same is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the withholding tax imposed under Revenue Regulations No. 2-98, as amended. Furthermore, the said exchange of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the Notarial Acknowledgment to the said deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the same Code (BIR Ruling No. DA-068-98 dated March 2, 1998). 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. HEScID Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service