BIR Ruling [DA-524-03]

December 19, 2003 BIR RULING [DA-524-03] 24 (D) (1); DA 145-00 Kelly Sia No. 475 El Cano Street Binondo, Manila Gentlemen : This refers to your letter dated December 10, 2003 requesting for a ruling as to whether the exchange or swapping of real properties by LauroConstrak, Inc., represented by its President Lauro Uy and you pursuant to an Order of the Housing and Land Use Regulatory Board (HLURB) in order to correct a mistake and without. any monetary consideration is not subject to capital gains tax and documentary stamp tax. It is represented that on December 22, 1995, Alexander Garcia (Mr. Garcia) and LauroConstrak, Inc. acting through its President Lauro Uy entered into a Contract to Sell for the purchase of a townhouse unit located at Lot No. 8, Block No. A (Unit A-8) for the purchase price of P3,600,000.00 payable in six (6) months; that Mr. Garcia fully paid the price as of February 22, 1996 and the possession thereof was delivered to the latter; that Mr. Garcia also purchased the unit adjoining Unit A-8, the latter tore down the division and joined the two units; that to his dismay however, Mr. Garcia later learned that the title to Lot No. 8, Block No. A was registered in the name of Kelly Sia and discovered that the numbering of the townhouse title to Lot No. 8, Block No. A was registered in the name of Kelly Sia; that this was made possible by reversing the numbering of the townhouse units in the subdivision plan submitted to the Registry of Deeds so much so that Lot No. 8, Block No. A (Unit A-8) was now described as Unit Lot 2-A; that Kelly Sia had earlier contracted with LauroConstrak, Inc. for the purchase of a townhouse unit by virtue of a Deed of Absolute Sale located at Lot No. 2 Block A, for and in consideration of P500,000.00 to which he was issued a Transfer Certificate of Title No. 7911-R issued by the Registry of Deeds for San Juan, the possession of which had long been delivered to Kelly Sia; that the proper designation of the unit purchased and possessed by Kelly Sia is now Unit A-8 and no longer Unit A-2 nor Lot No. 2, Block A; that notwithstanding, LauroConstrak, Inc. executed a Deed of Absolute Sale over Unit Lot A-2 in favor of Kelly Sia; and that Alexander Garcia filed a complaint to nullify the said Deed of Sale and the title of Kelly Sia over Unit Lot A-2; and that the HLURB in Case No. REM-A-980909-0122 ruled that "xxx xxx xxx "Directing respondents LauroConstrak and Lauro Uy to execute the Deed of Sale and deliver in favor of Kelly Sia title over Unit A-2 (Unit 8-A of the consolidated subdivision plan), free from all liens and encumbrances." In reply thereto, please be informed that since the exchange transaction is without any monetary consideration, and considering further that the execution of the exchange pursuant to an Order issued by the HLURB is merely for the purpose of correcting the mistake above-described, the exchange of realties by LauroConstrak, Inc. and you is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. Moreover, the said swapping of real properties are 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 of Exchange is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the said Code. ( BIR Ruling No. DA 145-00 dated March 10, 2000 ) ETDSAc 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, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service