BIR Ruling [DA-503-98]

November 18, 1998 BIR RULING [DA-503-98] Valdes, Valdes & Associates 4th Floor, CJV Building, 108 Aguirre St. Legaspi Village, Makati City Attention: Atty . Victoria Catherine G . Cochico Gentlemen : This refers to your letter dated March 5, 1998 stating that your clients, Spouses David O. Valdes and Elena D. Valdes, are the legal and registered owners of a parcel of land located at the Pacific Malayan Village in Alabang Muntinlupa, described as Lot No. 45, Block No. 1 (LRC) Pcs. 12745 and covered by TCT No. 185068; that the capital gains tax and documentary stamp tax were duly paid by the seller, Vivian Y. Locsin, on the sale of the aforementioned property to the Spouses Valdes; that after obtaining a building permit, the Spouses Valdes began the construction of their house; that however, by clear mistake made innocently and without malice, the Spouses Valdes inadvertently constructed their house on the adjacent lot presently owned by Amelia C. de Dios, described as Lot No. 46, Block No. 1 (LRC) Pcs. 12745 and covered by TCT No. 137682; that in an Affidavit executed by Jose S. Claudio, the president of the Pacific Malayan Village Association, which administers all village matters for the residents of Pacific Malayan Village, it is stated therein that upon Mrs. de Dios' complaint an investigation was conducted by the Village personnel and it was found out that the error was caused by the former Village Administrator who inadvertently directed and allowed the construction personnel to lay out the house of the Valdes couple on the lot of Mrs. de Dios; that in the same Affidavit, it is stated that at the instance of the officers of the Village Association and to avoid unnecessary expenses, litigation and to preserve harmony and understanding in the subdivision, Ms. Amelia de Dios and Mr. and Mrs. David O. Valdes, agreed to exchange their lots without any consideration; that both real properties subject of this planned exchange are presently mortgaged; and that you are of the opinion that your said clients are no longer liable to pay the capital gains tax and documentary stamp tax on said planned exchange of their respective lots considering that the exchange transaction in question is without any monetary consideration, and the capital gains tax aside from documentary stamp tax have already been paid by the previous owners on the sale of said realties in favor of the Spouses David and Elena Valdes in 1993 and Amelia C. de Dios in 1995 and considering further that Spouses Valdes inadvertently constructed their house and the lot owned by Amelia C. de Dios. cdtech Based on the foregoing representations and documents submitted, you are now requesting for a ruling confirming your opinion that your clients, Spouses David and Elena Valdes, as well as Amelia C. de Dios, are no longer liable to pay the capital gains tax and documentary stamp tax on the exchange of their respective properties considering that the same is without any monetary consideration and made solely to avoid unnecessary expenses, court litigation and to preserve peace and harmony among the homeowners in the subdivision as a consequence of the inadvertent construction of the house of your aforesaid clients on the lot owned by Amelia C. de Dios. 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 trust, shall be taxed at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Considering, however, that in the instant case, the Spouses David and Elena Valdes and Amelia C. de Dios 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 Spouses David and Elena Valdes, the construction personnel were inadvertently directed by the former village administrator to lay-out the house of the Spouses Valdes on the lot (Lot 46, Block 1) owned by Amelia C. de Dios, this Office, is therefore confirming your opinion that your clients, Spouses David and Elena Valdes, as well as Amelia C. de Dios, are no longer liable to pay the capital gains tax imposed under Section 24(D)(1 ) of the Tax Code of 1997, and the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997 on the proposed 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 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)