BIR Ruling [DA-197-05]

April 21, 2005 BIR RULING [DA-197-05] 24 (D) (1); R.A. 6657; DA-205-2000 Judge Carlos Rustia 121 Matatag Street Quezon City S i r : This refers to your letter dated January 11, 2005, requesting in behalf of your son, Philip Rustia confirmation that the sale of two parcels of agricultural land which have been exempted from the coverage of operation land transfer is exempt from the payment of capital gains tax. It is represented that your son, Philip Rustia is the registered owner of two parcels of land covered by Transfer Certificates of Title No. T-5493 and T-5494 for the Registry of Deeds of Bulacan; that both parcels of agricultural land are classified as ricelands; that an Order from the then Ministry of Agrarian Reform dated January 3, 1983 excluded from Operation Land Transfer (OLT, for brevity) the said parcels of land; and that your son intends to sell the same to the tenants therein. In reply, please be informed that lands exempted from the coverage of Presidential Decree No. 27: (1) those not devoted to rice or corn crops, even if they are tenanted; and (2) those devoted to rice or corn, even if they are not tenanted. Covered land subject to Operation Land Transfer Program under P.D. No. 27 are (1) the land must be devoted to rice and corn crops, and (2) there must be a system of sharecrop or lease-tenancy obtaining therein. If neither of the above requisites are present, the landowner may apply for exemption from P.D. No. 27, if either of these requisites is absent, the land is not covered by OLT. 1 In addition, pursuant to Section 66 of Republic Act No. 6657, reading "SEC. 66. Exemptions from Taxes and Fees of Land Transfers . Transactions under this Act involving transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains tax. These transactions shall also be exempted from the payment of registration fees, all other taxes and fees for the conveyance or transfer thereof: Provided, That all arrearages in real property taxes, without penalty and interest, shall be deductible from the compensation to which the owner may be entitled." The transaction involving transfer of ownership under Republic Act No. 6657 is exempt from capital gains tax and also from "others taxes". Said phrase "other taxes" includes documentary stamp tax imposed under Section 196 of the Tax Code of 1997, because documentary stamp tax is substantially a tax on the transaction rather than on the document. 2 Since the subject parcels of land are excluded from the coverage of OLT, there is no basis for exemption from taxation. Accordingly, pursuant to an Order issued by the then Ministry of Agrarian Reform dated January 3, 1983, the subject parcels of land are excluded from the coverage of Operation Land Transfer, the transfer by Philip Rustia of the aforementioned two parcels of land in favor of the tenants therein is not exempt from the payment of capital gains tax and documentary stamp tax pursuant to the aforecited provision. TEcCHD Hence, your request that you be exempted from the payment of capital gains tax and documentary stamp tax is hereby denied for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group Footnotes 1. Daez v. The Hon. Court of Appeals , G.R. No. 133507, February 17, 2000). 2. (Op. No. 177, S. of 1939, Secretary of Justice) (BIR Ruling No. DA568-98 dated December 21, 1998, citing BIR Ruling No. 104-90 dated May 29, 1990).