Flordeliza S. Mendoza

February 18, 2009 BIR RULING [DA-(I-004) 101-09] 24 (D) (1); 196; DA-127-2001; DA-158-2001; DA-155-2002; DA-159-2002 Flordeliza S. Mendoza No. 109-B St., Claire III Subdivision Concepcion I, Marikina City Madam : This refers to your letter dated January 14, 2009 requesting for exemption from the payment of capital gains tax and documentary stamp tax on the swapping of real properties to correct a mistake and without consideration. Background Spouses Luisito R. Mendoza and Flordeliza S. Mendoza ("First Party") are the registered owners of a parcel of land situated in Marikina City, with an area of 97.50 square meters and covered by Transfer Certificate of Title (TCT) No. 194623, (hereinafter referred to as "Lot 1"). Myrna T. Salvador, ("Second Party") on the other hand, is the registered owner of a parcel of land situated in Marikina City, with an area of 97.50 square meters and covered by Transfer Certificate of Title (TCT) No. 194530, (hereinafter referred to as "Lot 2"). Originally, the whole lot covered by TCT No. N-86718 was Lot 4, Block 4, Pcs 6167. It was the mother title of now Lot 1 and 2 which was registered in the name of Spouses Luisito Mendoza and Flordeliza Mendoza. Afterwards, the said property was subdivided into two equal lots and both titled in 1991 such that Lot 4-A, TCT No. 194530 was erroneously registered in the name of Myrna T. Salvador and Lot 4-B, TCT No. 194623 was also wrongfully registered in the name of Spouses Luisito Mendoza and Flordeliza Mendoza. Before Lot 1 and 2 were titled in the names of the First and Second Parties, the First Party, in the Deed of Donation which they executed, intended that the ownership of Lot 1 shall belong to the Second Party while the ownership of Lot 2 shall belong to the First Party. However, due to inadvertence, the titles to the said properties were released and the Parties were surprised that Lot 1 was registered to the First Party and Lot 2 was registered to the Second Party. Due to the foregoing mistake, the First and Second Parties executed a Deed of Exchange on January 14, 2009 to rectify the above error wherein the parties have mutually agreed to exchange their respective properties, as follows: (1) First Party will convey Lot 1 in favor of the Second Party; and (2) Second Party will convey Lot 2 in favor of the First Party, without monetary value of any kind, each free from all liens and encumbrances. In support of your request, you submitted the following: (1) Deed of Exchange between Spouses Luisito Mendoza and Flordeliza Mendoza; (2) Affidavit executed by Flordeliza S. Mendoza; (3) Letter-Request; (4) Copy of TCT No. 194623 registered in the name of Spouses Luisito Mendoza and Flordeliza Mendoza; (5) Copy of TCT No. 194530 registered in the name of Myrna T. Salvador; and (6) Subdivision Plan. In reply, please be informed that since the exchange transaction is without any monetary consideration, and considering further that the execution of the Deed of Exchange is merely for the purpose of correcting the mistake above-described, the exchange of realties by and between Spouses Luisito Mendoza and Flordeliza Mendoza and Myrna T. Salvador is not subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, nor to the Withholding Tax imposed under Revenue Regulations No. 2-98, as amended. Furthermore, the said swapping of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended by Republic Act No. 9243. However, the notarial acknowledgment of the said Deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling Nos. DA-159-2002 dated September 12, 2002 and DA-155-2002 dated September 11, 2002) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service