BIR Ruling No. 108-15

April 14, 2015 BIR RULING NO. 108-15 RA 6657; BIR Ruling No. 350-13 Julito S. Fajardo 069 Cupang, Pandi, Bulacan Sir : This refers your letter dated September 30, 2013 relative to your request for confirmation that the disturbance compensation in the form of land granted by Roberto L. Manuel, Dante L. Manuel and Fortunato L. Manuel to Abraham Delos Santos is exempt from taxes and all other fees. Documents submitted disclose that Roberto L. Manuel, Dante L. Manuel and Fortunato L. Manuel are the registered owners of a parcel of land, identified as Lot 2444-B of the subd. plan, Psd-03-041887, being a portion of Lot 2444, Cad-344, Bustos Cad. LRC Rec. No. covered by Transfer Certificate of Title (TCT) No. T-9565 which is issued by the Registry of Deeds for the Province of Bulacan. The aforesaid property is situated at Brgy. Malamig, Bustos, Bulacan with an area of eight thousand two hundred seventy seven square meters (8,277 sq.m.), more or less. On September 24, 2013, a Deed of Assignment was executed, whereby the owners transferred and conveyed, by way of disturbance compensation, to Abraham Delos Santos the whole area of the above-mentioned property, as a result of the extinguishment of tenancy relationship between the parties. Certification No. 007-14 was issued by Provincial Agrarian Reform Office (PARO) of Bulacan, stating that the property covered by TCT No. T-9565 is actually a disturbance compensation under Section 66 of Republic Act (RA) No. 6657. In reply, please be informed that since the conveyance of the owner is in the form of disturbance compensation brought by the extinguishment of tenancy relationship between the parties, the transfer is exempt from capital gains tax and documentary stamp tax pursuant to Section 66 of RA 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 a Certification dated March 5, 2014 from the PARO, Bulacan, certifying that the Lot 2444-B, Psd-03-041887 with an area of eight thousand two hundred seventy seven square meters (8,277 sq.m.) was verified as disturbance compensation of tenant, Abraham Delos Santos pursuant to 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 due to extinguishment of tenancy relationship between the parties, as in this instance, is still considered one of the transactions contemplated under Section 66 of RA 6657. Accordingly, the transfer by the owners of Lot 2444-B, Psd-03-041887 with an area of eight thousand two hundred seventy seven square meters (8,277 sq.m.) covered by TCT No. T-9565 in the form of disturbance compensation is exempt from capital gains tax and documentary stamp tax pursuant to the aforecited provision. (BIR Ruling No. 350-13 dated September 11, 2013) 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