Fernandez Aguja Law Firm

October 28, 2008 BIR RULING [DA-(I-032) 363-08] 24 (D) (1); DA-060-2004 dated 2/10/04 Fernandez Aguja Law Firm CPA-Lawyers Suite 5F JL Bldg., Don Jose Avila cor. Don Gil Garcia Streets, Cebu City Attention: Atty. Luna Mae F. Aguja Partner Gentlemen : This refers to your letter dated September 10, 2008 requesting on behalf of your clients, Spouses Oscar and Lurline Rodriguez, Spouses Jose and Fe Rodriguez, Spouses Lamberto and Carmelita R. Tormis and Spouses Eusebio and Erlinda Rodriguez, for a ruling that the exchange of real properties between and among your clients to correct a mistake and without consideration is not subject to the payment of capital gains tax and documentary stamp tax. It is represented that on February 8, 1996, your clients purchased a property from their mother Esperanza T. Rodriguez, particularly Lot 1485-A consisting of 9,994 square meters, more or less and covered by Transfer Certificate of Title No. (T-12575) 4333. Your clients agreed to subdivide Lot No. 1485-A among themselves as follows: Lot No. 1485-A-1 to consist of 1,577 sq. meters; Lot No. 1485-A-2 1,576 sq. meters; Lot No. 1485-A-3 with 1,576 sq. meters, Lot No. 1485-A-4 with 1,576 sq. meters, Lot No. 1485-A-5 with 1,576 sq. meters, and Lot No. 1485-A-6 with 1,577 sq. meters, and the rest of the area as Lot No. 1485-A-7 as road lot for the use of all vendees. When the above lots were subdivided, your clients have pointed out and agreed among themselves the particular lots assigned to them with reference to the road traversing along two particular lots. It was designated that the title to the two lots along Canduman Roads, particularly H. Abellana Street, shall be issued as follows: to Spouses Jose and Fe Rodriguez consisting of 1,577 sq. meters and to Spouses Eusebio and Erlinda Rodriguez consisting of 1,576 sq. meters. IDAEHT Honestly believing that the title to the lot along H. Abellana Street leading to Canduman Road was issued according to their agreement, Spouses Jose and Fe Rodriguez and Spouses Eusebio and Erlinda Rodriguez, made certain improvements on the land. Recently, however, it was discovered by your clients that there was a mistake in the issuance of the titles to the lots that were initially designated to them since the title to Lot No. 1485-A-1, which is bounded by H. Abellana Street leading to Canduman Road, was issued to Spouses Oscar and Lurline Rodriguez instead of its real owners Spouses Jose and Fe Rodriguez. Further, title to Lot No. 1485A-2, which is also bounded by H. Abellana Street leading to Canduman Road, was issued to Spouses Lamberto and Carmelita Tormis, instead of its real owners Spouses Eusebio and Erlinda Rodriguez. On the other hand, Spouses Jose and Fe Rodriguez were issued with the title to Lot No. 1485-A-6 which is located at the inner portion of Lot No. 1485-A and which was really intended for Spouses Oscar and Lurline Rodriguez. Also, Spouses Eusebio and Erlinda Rodriguez were issued with the title to Lot No. 1485-A-5 which is likewise located at the inner portion of Lot No. 1485-A and was really intended for Spouses Lamberto and Carmelita Tormis. The reason for the mistake made was the disorientation on the interpretation of the sketch plan when the Titles were requested to be issued since no road was initially drawn on such sketch plan. Thus, the correct titles were erroneously issued to the wrong persons. In view of the above and to avoid further complications, it is the desire of all the parties to rectify and correct the above mistake without any monetary consideration. Thus, Spouses Oscar and Lurline Rodriguez agreed to exchange Lot No. 1485-A-1, covered by TCT No. 41520 and consisting of 1,577 square meters, with Lot No. 1485-A-6, covered by TCT No. 41525 also consisting of 1,577 square meters, under the name of Spouses Jose and Fe Rodriguez. On the other hand, Spouses Lamberto and Carmelita R. Tormis agreed to exchange Lot No. 1485-A-2, covered by TCT No. 41521 and consisting of 1,576 square meters, with Lot No. 1485-A-5, covered by TCT 41524 also consisting of 1,576 square meters under the name of Spouses Eusebio and Erlinda M. Rodriguez. In reply, please be informed that since the foregoing 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 between Spouses Oscar and Lurline Rodriguez and Spouses Jose and Fe Rodriguez, and Spouses Lamberto and Carmelita R. Tormis and Spouses Eusebio and Erlinda Rodriguez 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 is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement 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. (DA-060-2004 dated Feb. 10, 2004) AScTaD 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