Imposition of a Final Schedule Income Tax Not Applicable to Capital Gains Realized by Transferors and Transferee in Deeds of Exchange Executed and Acknowledged Before a Notary Public Before September 7, 1979

July 5, 1996 BIR RULING NO. 074-96 21 (E) 343-87 74-96 Ms. Rosemarie M. Guanio 7 Guanio Compound Maybunga, Pasig City M a d a m : This refers to your letter dated March 19, 1996 requesting for a confirmation of your opinion that the single Deed of Exchange executed by and between (1) Ms. Carmen Z. Hidalgo and Mr. Rafael Z. Hidalgo; and (2) Ms. Beatriz Hidalgo-Miranda and Carmen Z. Hidalgo can be registered without proof of payment of the capital gains tax. cdt Documentary evidence submitted shows that a Deed of Exchange was executed by and among Carmen Z. Hidalgo, Rafael Z. Hidalgo and Beatriz Z. Hidalgo-Miranda; that the properties subject of the exchange which were inherited from their mother, Rufina Zamora Vda. de Hidalgo, are the following: 1. A parcel of land situated in the District of Malate, City of Manila with an area of 752.90 square meters and covered by Transfer Certificate of Title No. 37931; and 2. A parcel of land situated in the District of Malate, City of Manila with an area of 250.90 square meters and covered by Transfer Certificate of Title No. 68498 that by virtue of the Deed of Exchange which was executed on August 8, 1978, Rafael Z. Hidalgo ceded to Carmen Z. Hidalgo his one-third share in the properties above-mentioned, covered by TCT Nos. 37931 and 68498 in exchange for the untenanted agricultural land owned by Carmen Z. Hidalgo, situated in Barrio Tuganay, Municipality of Panabo, Province of Davao with an area of 39,580 square meters and covered by Transfer Certificate of Title No. T-24730; that Beatriz Hidalgo-Miranda also ceded to Carmen Z. Hidalgo her undivided one-third share in property No. 1 covered by TCT No. 37931 registered in the Registry of Deeds of Manila in exchange for one-half share of Carmen Z. Hidalgo in the property described in No. 2 covered by TCT No. 68498 registered in the Registry of Deeds of Manila; that Carmen Z. Hidalgo agreed and ratified the Agreement of Exchange of properties with Rafael Z. Hidalgo, Jr. and Beatriz Hidalgo-Miranda; and that Carmen Z. Hidalgo by the same Deed of Exchange "agrees to forego all the obligations of Rafael Z. Hidalgo, Jr. to her and also assumes to pay all taxes which are due or may be due on the two properties of their deceased mother mentioned above." In reply, please be informed that Section 8 of Revenue Regulations No. 8-79 implementing B.P. 37 amending then Section 34(h) [now Sec. 21(e)] of the Tax Code provides as follows: "SEC. 8. Effectivity . This Regulations shall apply to transactions involving sales or dispositions of real property entered into on or after September 7, 1979. A deed of conveyance of real property acknowledged before a notary public on or after September 7, 1979, shall be deemed to be a sale or disposition of real property on or after September 7, 1979." Under the above-quoted provision of the regulations, the effectivity of the law depends on the date the deed of conveyance was acknowledged before a notary public. Hence, if the deed was acknowledged before September 7, 1979, the provisions of Batas Pambansa Blg. 37 will not be applied. Accordingly, inasmuch as the aforesaid Deed of Exchange evidencing the conveyance of the property was executed and acknowledged before a notary public on August 8, 1978 or before September 7, 1979, the provisions of then Section 34(h) of the Tax Code as amended by B.P. Blg. 37 imposing a final schedule income tax shall not be applicable to the capital gains, if any, realized by the transferors and transferee. However, proof must be presented that the capital gains realized from the said exchanges had been reported as income in the transferors 1978 Income Tax returns, and the corresponding income and documentary stamp due thereon computed in accordance with then Section 35 (before B.P. Blg. 37) in relation to Section 21 and Section 245, all of the Tax Code had been paid. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue