BIR Ruling No. 120-15

April 17, 2015 BIR RULING NO. 120-15 PD 1529; BIR Ruling No. 401-2013 Sps. Jose Joy N. Nepomuceno & Melissa P. Nepomuceno San Roque, Pandi Bulacan Sps. Romeo Climaco & Leonila Rodriguez San Roque, Pandi Bulacan Gentlemen : This refers to your letter dated December 2, 2011, duly indorsed by Revenue Region No. 5-Caloocan City, requesting exemption from capital gains (CGT) and documentary stamp taxes (DST) on your exchange of properties without monetary consideration. It is represented that spouses Rolando Vivas and Josefina P. Vivas executed a "Kasulatan ng Bilihang Patuluyan ng Lupa" dated January 14, 1992, wherein they sold the Lot 8, Blk. 5 of the cons. Subd. plan LRC Pcs-6723, being a Portion of the cons. of Lots 2283, 2285, 2286, 2292 & 2297, all of Sta. Maria de Pandi Est. LRC GLRO Rec. No. 8503 covered by Transfer Certificate of Title (TCT) No. T-294962 to spouses Romeo Climaco and Leonila Rodriguez and Lot 10, Blk. 5 of the cons. Subd. plan LRC Pcs-6723, being a Portion of the cons. of Lots 2283, 2285, 2292 & 2297, all of Sta. Maria de Pandi Est. LRC GLRO Rec. No. 8503 covered by TCT No. T-294963 to spouses Ernesto Velasco and Maria Bernardo. As a result, TCT No. 294962 was cancelled by TCT No. T-21862 issued in the name of the spouses Romeo Climaco and Leonila Rodriguez and TCT No. 294963 was cancelled by TCT No. T-21863 issued in the name of the spouses Ernesto Velasco and Maria Bernardo. On July 7, 1999, spouses Ernesto Velasco and Maria Bernardo sold the property covered by TCT No. T-21863 to spouses Jose Joy N. Nepomuceno & Melissa P. Nepomuceno. As a result, TCT No. 21863 was cancelled by TCT No. T-351336 (M) issued in the name of the spouses Jose Joy N. Nepomuceno & Melissa P. Nepomuceno. HEITAD It is further represented that, spouses Romeo Climaco and Leonila Rodriguez are occupying Lot 10, Blk. 5 covered by TCT T-21863 issued to spouses Jose Joy N. Nepomuceno & Melissa P. Nepomuceno and spouses Jose Joy N. Nepomuceno & Melissa P. Nepomuceno are occupying Lot 8, Blk. 5 covered by TCT No. 294962 issued to spouses Romeo Climaco and Leonila Rodriguez. To correct the erroneous registration of the properties, the parties executed a Deed of Exchange, that the TCT issued to spouses Romeo Climaco and Leonila Rodriguez must be Lot 10 and the TCT issued to spouses Jose Joy N. Nepomuceno & Melissa P. Nepomuceno must be Lot 8. The said exchange was made without any monetary consideration. In reply, please be informed that Section 2 of Presidential Decree (PD) 1529 1 partly provides: Sec. 2. Nature of registration proceedings; jurisdiction of courts. Judicial proceedings for the registration of lands throughout the Philippines shall be in rem, and shall be based on the generally accepted principles underlying the Torrens System. Courts of First Instance (now Regional Trial Courts) shall have exclusive jurisdiction over all applications for original registration of title to lands, including improvements and interests therein, and over all petitions filed after original registration of title , with power to hear and determine all questions arising upon such applications or petitions . . . . (emphasis supplied) The above provision has conferred upon the Regional Trial Court (formerly Court of First Instance) the authority to act not only on applications for original registration of title to land but also on all petitions filed after the original registration of title, with power to hear and determine all questions arising upon such applications or petitions. ( Ligon vs. Court of Appeals, et al. ; G.R. No. 107751 dated June 1, 1995) Section 108 of P.D. 1529 likewise provides that any error, mistake or omission committed in entering a certificate of title or of any memorandum thereon may be corrected only upon order of the court. Thus, any change or amendment on the land titles or in the ownership of properties should be done by seeking judicial relief since the properties are titled and registered in the names of the respective owners. (BIR Ruling No. 401-2013 dated November 7, 2013) The determination of whether or not mistake or inadvertent error attended the titling of the subject properties necessitating the exchange or conveyance thereof to the rightful owner is an issue that is within the jurisdiction of the courts. Absent such determination, there is as yet no basis in fact and in law to exempt the exchange of properties from CGT and DST imposed by Sections 24 (D) and 196 of the Tax Code, as amended. Based on the foregoing, your request for exemption from CGT and DST is hereby denied for lack of factual and legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. AMENDING AND CODIFYING THE LAWS RELATIVE TO REGISTRATION OF PROPERTY AND FOR OTHER PURPOSES.