BIR Ruling No. 089-13

March 5, 2013 BIR RULING NO. 089-13 RA 6657; BIR Ruling No. 012-01 Helen N. Mendoza 21 Apo St., Brgy. Sta. Teresita, Quezon City Madam : This refers to your letter dated October 31, 2012 requesting that the disturbance compensation in the form of lot to Fidel M. Galvez, Jr. is exempt from taxes and all other fees. IEAacT It appears that Helen N. Mendoza is the registered owner of parcels of land, identified as Lot No. 2199, Cad-333 covered by Original Certificate of Title (OCT) No. RT-5412 (P-11047) and Lot No. 2208, Cad-333 covered by Original Certificate of Title (OCT) No. P-11046 issued by the Registry of Deeds for the Meycauayan Branch. The aforesaid properties are situated at Brgy. Borol 2nd, Balagtas, Bulacan with an area of sixteen thousand nine hundred twenty two square meters (16,922 sq.m.) and three thousand nine hundred forty two square meters (3,942 sq.m.), respectively. On September 25, 2012, a Deed of Transfer of Real Property was executed whereby the owner transfers and conveys by way of disturbance compensation to Fidel M. Galvez, Jr. Lot 2 of consolidated subdivision plan of Lot 2199 & lot 2208 Cad-333 Bigaa Cadastre with an area of four thousand one hundred eleven square meters (4,111 sq.m.) portion of the above-mentioned property. In reply, please be informed that since the conveyance of the owner is in the form of disturbance compensation, the transfer is exempt from capital gains tax and documentary' stamp tax pursuant to Section 66 of Republic Act No. 6657 otherwise known as the "Comprehensive Agrarian Reform Law of 1988" which provides, viz. : "Sec. 66. Exemption from Taxes and Fees of Land Transfers . Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. 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 or interest, shall be deductible from the compensation to which the owner may be entitled." Attached to the records is an undated Certification from the Municipal Agrarian Reform Offices (MARO) of Balagtas, Bulacan, certifying that Lot 2 of consolidated subdivision plan of Lot 2199 & Lot 2208 Cad-333 Bigaa Cadastre with an area of four thousand one hundred eleven square meters (4,111 sq.m.) portion was verified as disturbance compensation of tenant, Fidel M. Galvez, Jr., pursuant to RA 3844 (Agricultural Land Reform Code) and RA 6657 (CARP Law). Be it noted that Section 36 (1) of RA 3844, as amended, allows disturbance compensation to a tenant in case of termination of tenancy-relationship by reason of the conversion of the agricultural land into non-agricultural uses. Only Section 35 of RA 3844 was expressly repealed by RA 6657 or the CARP Law. Thus, transfer of land to a tenant by way of disturbance compensation, as in this instance, is still considered one of the transactions contemplated under Section 66 of RA 6657. aATCDI Accordingly, the transfer by the owner of four thousand one hundred eleven square meters (4,111 sq.m.) portion of the above-mentioned properties in the form of disturbance compensation is exempt from capital gains tax and documentary stamp tax pursuant to the aforecited provision. (BIR Ruling No. 012-01 dated March 14, 2001) 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue