Non-Deductibility of the Value of the 1.2 Hectare Right of Way

July 24, 1981 BIR RULING NO. 126-81 034-h 000-00 126-81 Judge Jose C. Campos, Jr. Court of First Instance of Rizal Seventh Judicial District Branch XXX, Pasay City Dear Judge Campos : This refers to your letter dated September 18, 1980 stating that you sold your sugar plantation in Dasmarias, Cavite; that the said land was a half portion of a lot comprising an area of 39,999 hectares, Lot No. 5947, which was then owned and registered in the joint name of your father, Jose S. Campos and his brother Hermogenes S. Campos; that in 1963, these former owners executed a Deed of Donation of a Right of Way over the land in favor of the government, which donation was duly annotated in the title; that in 1969, after a judicially authorized survey, the land was divided into two equal parts, Lot No. 5947-A, which was allotted to your father, and Lot No. 5947-B, which was allotted to your uncle; that the donation of the Right of way was annotated in the respective titles to these two new lots; that subsequently, your father conveyed to you for valuable consideration Lot No. 5947-A, which was duly registered in your name; that Lot No. 5947-B remained in the name of your uncle; that your title carried the annotation of the right of way; that in 1977, the government through the Bureau of Public Highways, conducted a land survey and constructed an asphalted road leading to Puerto Azul, including in the process that portion covered by the right of way through your land; that an area of 1.2 hectares covered the right of way was taken from your property while .6 hectare was taken from your uncle's land; and that when you sold your land on an installment basis, the vendee refused to pay for the area covered by the road, so that your contract excluded this area of 1.2 hectares. cdtech You would like to know whether the value of the 1.2 hectare right of way can be deducted from the capital gains derived from the said sale of your plantation upon which the tax due from you shall be based. In reply, please be informed that our answer to your query is in the negative. From the foregoing facts, the right of way in question was already donated to the government which donation was duly registered before you acquired your land from your father. Consequently, the value of said right of way cannot be considered as part of the cost of your land which is deductible from the selling price for the purpose of determining the gain upon which the tax shall be based. cdt Very truly yours, RUBEN B. ANCHETA Acting Commissioner