Dr. Emerenciana Voluntad

June 27, 2018 BIR RULING NO. 1022-18 Sec. 66, RA 6657; BIR Ruling No. 645-12 Dr. Emerenciana Voluntad 849 Mauricio St. Turo, Bocaue, Bulacan Madam : This refers to your letter dated February 27, 2013 requesting exemption from the payment of capital gains tax (CGT) and documentary stamp tax (DST) pursuant to Section 66 of Republic Act (RA) 6657 otherwise known as the "Comprehensive Agrarian Reform Law of 1988." AHDacC Based on the documents submitted, it is shown that Dr. Emerenciana Voluntad is the registered owner of a parcel of land with an area of Sixteen Thousand Seven Hundred Forty Five (16,745) square meters and covered by Transfer Certificate of Title (TCT) No. T-175356 (M) of the Register of Deeds for Meycauayan Branch, Province of Bulacan. On February 15, 2012, Dr. Voluntad contracted a Geodetic Engineer to conduct a survey of the above-described parcel of land for the purpose of subdividing it into five (5) lots and such was approved by the Department of Environment and Natural Resources Land Management Services on April 11, 2012 as evidenced by Subdivision Plan No. Psd-03-193251. On February 1, 2013, a "Kasunduan" (an agreement) was executed by and between Dr. Voluntad and Herminia Mauricio Sioson transferring to the latter Lot 487-A-1, one of the five (5) subdivisions of the aforementioned property, with an area of Two Thousand Six Hundred Ninety-One (2,691) square meters as disturbance compensation. Subsequently, a Deed of Assignment was effected on December 1, 2014 to convey TCT No. 040-2014023181, covering Lot 487-A-1 mentioned in the "Kasunduan." cAaDHT The Municipal Agrarian Reform Office (MARO), Cluster 5, of the Department of Agrarian Reform issued two (2) Certifications dated December 1, 2014 and October 12, 2015 certifying that Mr. Bonifacio Mauricio (deceased), a resident of Brgy. Sta. Clara, Sta. Maria, Bulcan, was the leaseholder/tenant over a parcel of land covered by Agricultural Leasehold Contract dated January 24, 1985 located at Brgy. Sta. Clara, Sta. Maria, Bulacan, with an area of Twelve Thousand Two Hundred (12,200) square meters, more or less, owned by Simeona Reyes Voluntad (deceased). It was further certified that the object of Agricultural Leasehold Contract executed by both parties was TCT No. T-17350 registered in the name of deceased Simeona Reyes, which TCT was subsequently cancelled pursuant to the provision of Section 4, Rule 74 of the Rules of Court, and in lieu thereof, TCT No. T-178355 was issued in favor of Tomas Voluntad (husband), Emerenciana (daughter) and Guillermo (son). On July 20, 1993, a partition agreement was executed by Dr. Voluntad, et al., and in lieu thereof, TCT No. T-175356 (M) was issued in the name of Dr. Voluntad. On March 27, 2014, Dr. Voluntad divided the said parcel of land into five (5) lots based on the approved survey Plan No. Psd-03-193251 dated April 11, 2012 in which TCT No. T-040-2014023181 with an area of Two Thousand Six Hundred Ninety One (2,691) square meters more or less was assigned to Herminia Mauricio Sioson, successor tenant (daughter) of deceased tenant Bonifacio Mauricio as disturbance compensation. In reply, please be informed that transfer of real property by way of Disturbance Compensation is exempt from capital gains tax and documentary stamp tax pursuant to Section 66 of RA 6657, otherwise known as the "Comprehensive Agrarian Reform Law of 1988" which provides, viz. : IDSEAH "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." Moreover, Section 36 (1) of RA 3844, as amended by Section 7 of RA 6389, allows the disturbance compensation to the tenant as a result of extinguishment of tenancy relationship by reason of the reclassification or conversion of the agricultural land into non-agricultural uses or purposes, to wit: "Section 36. Possession of Landholding; Exceptions. Notwithstanding any agreement as to the period or future surrender, of the land, an agricultural lessee shall continue in the enjoyment and possession of his landholding except when his dispossession has been authorized by the Court in a judgment that is final and executory if after due hearing it is shown that: (1) The landholding is declared by the department head upon recommendation of the National Planning Commission to be suited for residential, commercial, industrial or some other urban purposes: Provided, That the agricultural lessee shall be entitled to disturbance compensation equivalent to five times the average of the gross harvests on his landholding during the last five preceding calendar years;" Only Section 35 of RA 3844 was expressly repealed by RA 6657. Hence, disturbance compensation given to a tenant pursuant to Section 36 of RA 3844, as amended by RA 6389, is still considered one of the transactions contemplated under Section 66 of RA 6657. AHCETa It is noted, however, that based on the Certification of Retention issued on October 16, 2012 by the Provincial Agrarian Reform Office (PARO), the lot covered by TCT No. T-175356 (M), with an area of 1.6745 hectares, is not covered by the Comprehensive Agrarian Reform Program (CARP) by virtue of its being less than five (5) hectares. Also, the document submitted failed to prove that the disturbance compensation received by Herminia Mauricio Sioson, successor tenant (daughter) of deceased tenant Bonifacio Mauricio, was a result of extinguishment of tenancy relationship because of the reclassification or conversion of the agricultural land into non-agricultural uses pursuant to Section 36 of RA 3844, as amended by RA 6389. Such being the case, the transfer of the portion of said parcel of land, covered by TCT No. T-040-2014023181, in favor of Herminia Mauricio Sioson is not within the ambit of RA No. 6657 and, thus, subject to the capital gains tax and documentary stamp tax. Please be guided accordingly. cHaCAS Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue