BIR Ruling No. 250-82

September 29, 1982 BIR RULING NO. 250-82 035-c 000-71 250-82 Meer, Meer and Meer 9th Floor, PLDT Bldg. Legaspi St., Makati Metro Manila Attention: Atty . Lamberto L . Meer Gentlemen : This refers to your letter dated June 2, 1980 requesting a ruling as to the tax consequence of the Deed of Exchange executed on May 28, 1980 whereby your client, Progressive Development Corporation (Progressive), Cubao, Quezon City will exchange its real property consisting of 1,045.35 square meters and located at Gen. Roxas Avenue, Araneta Center, Cubao with a property of the National Book Store, Inc. (National) consisting of 759 square meters situated at cor. Edsa and Gen. MacArthur Avenue, also in Cubao. cdtech The property of Progressive which is covered by Transfer Certificate of Title No. 120150 consisting of 194.67 square meters and Transfer Certificate of Title No. 97757 consisting of 850.68 or a total of 1,045.35 has a fair market value of P576,169.20 per Tax Declaration No. A-001-00699, while the property of National covered by Transfer Certificate of Title No. 206652 has a fair market value of P584,430.00 per Tax Declaration No. A-001-00606, or a difference of P8,260.80. In reply thereto, I have the honor to inform you that under Section 140 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations, implementing Section 35(c) of the Tax Code, for income to be realized in exchanges of property, it is required that the property or interest in property received in exchange must be essentially different from the property or interest in property disposed of. This means that there must be a change in substance and not merely a change in form. "The fact that any real estate involved in an exchange is improved or unimproved makes no difference for such facts relate only to the grade or quality of the property and not to its kind or class. For example, an office building may be exchanged for a hotel or for developed or undeveloped land. City lots and a ranch are treated as property of like kind. So also are a city office building and a suburban house, and an unimproved lot and dwelling." (Mertens' Law of Federal Income Taxation, Vol. 3, par. 20.23). In view thereof, and since the exchange involves the exchange of real properties, and considering that, as represented, the parties will not get something fundamentally and essentially different from what they already had prior to the above described contemplated exchange, this Office believes and so holds that the parties are not subject to income tax as a result of the aforementioned transaction. cdta Very truly yours, TOMAS C. TOLEDO Acting Commissioner