BIR Ruling No. 121-15

April 17, 2015 BIR RULING NO. 121-15 PD 1529; BIR Ruling No. 401-2013 Midjie G. Padora B93 L41 Adela St., Z5, Brgy. Rizal, Makati City Marcela L. Marchan B93 L41 Adela St., Z5, Brgy, Rizal, Makati City Mesdames : This refers to your undated letter requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. It is represented that Midjie G. Padora with Tax Identification Number 224-731-348-000 is the registered owner of a parcel of land, identified as Lot 41-A of the subd. plan Psd-0068321, being a portion of Lot 41-A, Block 93, Psd-13-00-005204 LRC Rec. No. covered by Transfer Certificate of Title (TCT) No. 221452 with an area of fifty one square meter (51 sq.m.), more or less. On the other hand, Marcela L. Marchan with Tax Identification Number 255-542-419-000 is the registered owner of a parcel of land, identified as Lot 41-B, Block 93, Psd-13-00-005204 LRC Rec. No. covered by Transfer Certificate of Title (TCT) No. 224452 with an area of fifty one square meter (51 sq.m.), more or less. However, it was found out later that there was a mistake committed in the partition of Lot 41 in the Partition Agreement dated July 1, 2005 executed by Pepito A. Impelido, Sr. (former owner of Lot 41) and Midjie G. Padora, who by negligence of the typist, erroneously encoded, such that, the title given to Pepito A. Impelido, Sr. pertained to Lot 41-B when in fact, it is Lot 41-A while the title given to Midjie G. Padora pertained to Lot 41-A when in fact, it is Lot 41-B. ATICcS In order to correct the foregoing mistake or inadvertence, Midjie G. Padora and Marcela L. Marchan (new owner) executed a Deed of Exchange dated May 18, 2012 wherein the parties agreed to exchange their respective properties with that of the other 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. ETHIDa 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.