Availment of Tax Deductions Under Section 29 (h) and Other Provisions of the Tax Code

May 21, 1998 BIR RULING NO. 061-98 Sec. 66 of R.A. 6657 000-000 061-98 Department of Agrarian Reform Elliptical Road, Diliman Quezon City Attention: Mr . Clifford C . Burkley Asst . Secretary Gentlemen : This refers to your letter dated September 12, 1997 requesting for availment of tax deductions under Section 29(h) and other provisions of the Tax Code, as amended. It is represented that Southern Luzon Coconut Oil Mills, Inc. (formerly ORCAR), a corporation organized and existing under Philippines laws, with office address at the 16th Floor, UCPB Bldg., Makati Ave., Makati City, donated four (4) parcels of agricultural land situated in the Municipalities of Mulanay and San Narciso, Province of Quezon, to the government, represented by the Department of Agrarian Reform (DAR), in support of the Comprehensive Agrarian Reform Program; that under the "WHEREAS" clauses of the Deed of Donation executed by the Donor, the Donor is the registered owner of four (4) parcels of agricultural lands located in the municipalities of Mulanay and San Narciso, Province of Quezon, which are underdeveloped, described as follows, viz: 1. TCT No. T-126841 - 183.5 hectares, San Narciso, Quezon 2. TCT No. T-87936 - 158.0 hectares, San Narciso, Quezon 3. TCT No. T-87938 - 266.7 hectares, San Narciso, Quezon 4. TCT No. T-107957 - 279.2 hectares, Mulanay, Quezon that there are many coconut farmers in the area who need assistance from the government for support services; that the 1987 Philippine Constitution mandates the State to undertake an agrarian reform program founded on the right of farmers and regular farmworkers who are landless, to own directly or collectively the lands they till, and to encourage and undertake the just distribution of all agricultural lands, taking into account ecological developmental or equity consideration, and subject to the payment of just compensation; that DAR is the government agency tasked to implement Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988 (CARL); that the Donor, concerned with the social benefit and economic welfare of the coconut farmers, agreed to donate its agricultural properties to the farmers through the Donee who is obligated to eventually distribute the donated property to qualified farmer-beneficiaries in the area; and that finally, the Donee agreed to assume all fees, capital gains tax and other taxes including the documentary stamp taxes, as well as all government fees and expenses in the registration thereof, in the name of the Donee and the farmers-beneficiaries. In this connection, you now request that the donor be allowed to avail of tax deductions pursuant to Section 29 (now Section 34 of the Tax Code of 1997) and other provisions of the Tax Code, as amended and other applicable laws. In reply, please be informed that Section 66 of Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988 provides as follows, viz: "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, and 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." (Emphasis supplied.) LLcd The above transaction has been authorized to be valid pursuant to DAR Administrative Order No. 1, Series of 1989, on the matter of Rules and Procedures Governing Land Transactions, which reads as follows, viz: "II. RULES ON VALIDITY OF LAND TRANSACTIONS "A. The following transactions are valid: "1. . . . "2. Those in favor of the government, DAR or the Land Bank of the Philippines. "3. . . ." It is presumed by this Office that by virtue of the Deed of Donation executed by Southern Luzon Coconut Oil Mills, Inc. in favor of the State through the Department of Agrarian Reform, as the Donee, the latter shall now take possession of the land and shall request the Register of Deeds to issue Transfer Certificates of Title under the name of the Republic of the Philippines, and thereafter to proceed with the redistribution of the land to the qualified beneficiaries. Meanwhile, since the above transfer in favor of the State is sanctioned by law, falling under the very purpose of the Comprehensive Agrarian Reform Program envisioned under the Comprehensive Agrarian Reform Law, the provision of Section 66 thereof, which grants tax exemptions on the like transactions involving transfer of ownership of real property shall equally apply in this case. Accordingly, your request for the availment of tax deductions under Section 29(h) and the exemption from donor's tax under Section 94 (a)(2) of the Tax Code, as amended [now Secs. 34(H) and 101(A)(2) of the Tax Code of 1997, respectively], are hereby granted. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue