BIR Ruling No. 017-09

September 17, 2009 BIR RULING NO. 017-09 Sec. 24 (D) (1) Castro and Castro Law Office F. Timbol St., San Nicolas, Concepcion, Tarlac Attention: Atty. Yolanda C. Castro Partner Gentlemen : This refers to your letter dated May 7, 2008 requesting for a ruling on the reckoning period of the payment of capital gains and documentary stamp taxes, and waiver of the interest, surcharge and compromise penalty on a sale of property awarded by the Government Land Reform Program pursuant to DAR Administrative Order No. 08, Series of 1995. SDTIHA Documents submitted disclose that on February 27, 2006, Orlando H. Sarmiento, an Agrarian Reform Beneficiary (ARB), sold to another qualified beneficiary certain awarded agricultural lands containing an area of 1.2917 hectares and 1.3254 hectares under TCT No. 07825/CLOA No. 00298114 and TCT No. 07826/CLOA No. 00298115, respectively; that the said lands are located at Brgy. Green Village, Concepcion, Tarlac; that the Deed of Sale and other documents were submitted for approval of the request for clearance to transfer the landholdings pursuant to Administrative Order No. 08, Series of 1995, as amended, with the Office of the Regional Director, DAR-Regional Office No. 3, San Fernando, Pampanga; that the May 8, 2007 order approving the transfer and registration with the Register of Deeds became final and executory only on January 14, 2008; that upon presentation for payment of capital gains and documentary stamp taxes with the Revenue District Office of Tarlac to effect transfer of the landholdings, the said BIR District Office wanted to impose interest, surcharge and compromise penalty reckoned from the date of the Deed of Sale on February 27, 2006 up to the date of payment; and that it is your position that the proper time for the payment of capital gains tax for such transaction should be upon receipt of the Certificate of Finality of the DAR Order and that there should be no interest, surcharge or penalty that should be imposed on the taxpayer prior to such approval and that said sale transaction cannot be treated as an ordinary sale transaction where the date of the Deed of Sale is considered in the determination of the increments because an ordinary sale does not need the approval of any body or agency. In reply, please be informed that Section 27 of R.A. No. 6657 1 and the Policy Statement in the Rules and Procedures of Administrative Order No. 08, series of 1995, are quoted hereunder: "SEC. 27. Transferability of Awarded Lands. Lands acquired by beneficiaries under this Act may not be sold, transferred or conveyed except through hereditary succession, or to the government, or to the LBP, or to other qualified beneficiaries for a period of ten (10) years: Provided, however, That the children or the spouse of the transferor shall have a right to repurchase the land from the government or LBP within a period of two (2) years. Due notice of the availability of the land shall be given by the LBP to the Barangay Agrarian Reform Committee (BARC) of the barangay where the land is situated. The Provincial Agrarian Coordinating Committee (PARCCOM), as herein provided, shall, in turn, be given due notice thereof by the BARC. If the land has not yet been fully paid by the beneficiary, the right to the land may be transferred or conveyed, with prior approval of the DAR, to any heir of the beneficiary or to any other beneficiary who, as a condition for such transfer or conveyance, shall cultivate the land himself. Failing compliance herewith, the land shall be transferred to the LBP which shall give due notice of the availability of the land in the manner specified in the immediately preceding paragraph. In the event of such transfer to the LBP, the latter shall compensate the beneficiary in one lump sum for the amounts the latter has already paid, together with the value of improvements he has made on the land." xxx xxx xxx "II. POLICY STATEMENT 1. Lands award to ARBs pursuant to either P.D. 6657 may be transferred and registered by the Registrar of Deeds only after the issuance of a DAR Clearance." The afore-cited provisions simply mean that the transfer and registration with the Register of Deeds of the lands awarded to ARBs can be effected only upon the issuance of a DAR Clearance. Clearly, the law speaks of a condition precedent to be complied with before the transfer and registration by the ARB of the land with the Register of Deeds. Hence, the issuance of the DAR Clearance is neither an essential requirement for the payment of capital gains or documentary stamp taxes taxes * nor does it suspend the period within which said taxes should be paid. Moreover, the validity of the sale transaction is not dependent upon the approval of the DAR Regional Director or the issuance of the DAR Clearance. SCHIcT Based on the foregoing, this Office is of the opinion and so holds that the sale transaction executed by and between the parties involving the awarded lands under the Government Land Reform Program was valid, effective and binding in their favor at the time of execution of the Deed of Sale on February 27, 2006, thus, the reckoning period for the payment of capital gains and documentary stamp taxes, is on the date in the Deed of Sale not on the date of the Order of Finality issued by the office of the DAR Regional Director, Region No. 03, San Fernando, Pampanga. Finally, considering that the capital gains and documentary stamp taxes due on the aforesaid sale transaction at the time and date prescribed for its filing and payment pursuant to Sections 24 (D) (1) and 196, respectively, of the 1997 Tax Code, as amended, the parties are liable to pay interest, surcharge and compromise penalty in addition to the basic tax under Sections 248 (A) (1) and 249 of the same Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue Footnotes 1. Comprehensive Agrarian Reform Law of 1988, as amended.