BIR Ruling No. 248-12

April 13, 2012 BIR RULING NO. 248-12 Secs. 24 (D) (1), 58 (E) Tax Code of 1997; BIR Ruling No. 067-97 National Transmission Corporation Power Center, Quezon Ave. cor. BIR Road, Diliman, Quezon City Attention: Atty. Jose Jesus P. Moreno Manager ROW & Land Management Services Dept. Gentlemen : This refers to your letter dated 06 October 2011 requesting opinion whether or not the NATIONAL TRANSMISSION CORPORATION is required to secure a Certificate Authorizing Registration (CAR) for a property over which it is merely seeking an easement of right-of-way and its annotation on the title. Documents submitted disclose that on 11 April 2011, the NATIONAL TRANSMISSION CORPORATION (TRANSCO) was granted a right-of-way affecting a parcel of land situated at San Miguel, Padre Garcia, Batangas covered by TCT No. CT-4642 that is registered in the name of Cecilia M. Valencia; that the easement of a right-of-way was for the installation and maintenance of a 500 KV Ilijan-Tayabas Transmission Line; that said easement consists of 8,437 sq.m. portion of the whole property and in consideration thereof, TRANSCO paid P117,274.00; that in order to protect the interest of the government funds and effect payment of the easement fee, TRANSCO's policy requires the affected landowner to register the right-of-way agreement with the Registry of Deeds prior to payment; that in the course of registration of the right-of-way grant, the Register of Deeds of Batangas suspended said registration due to "non presentation of Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue (BIR)" and that the BIR will determine whether the transaction is exempted or not since there is a consideration. ADCSEa In reply, please be informed that a CAR is a certification issued by the Commissioner or his duly authorized representative attesting that the transfer and conveyance of land, buildings/improvements or shares of stock arising from sale, barter or exchange have been reported and the taxes due inclusive of the documentary stamp tax, have been fully paid. In short, upon issuance by the BIR of the CAR, the taxes due on the conveyance or transfer must have been fully settled. The requirement of a CAR prior to registration with the Registry of Deeds is provided under Section 58 (E) of the Tax Code of 1997, as amended, which states as follows: "(E) Registration with Register of Deeds. No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner or his duly authorised representative has certified that such transfer has been reported, and the capital gains or creditable withholding tax, if any, has been paid: Provided, however, That the information as may be required by rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, shall be annotated by the Register of Deeds in the Transfer Certificate of Title or Condominium Certificate of Title: ..." In this case, TRANSCO is seeking to register an easement of a right-of-way granted by the landowner, Cecilia M. Valencia, for the installation and maintenance of transmission lines. Article 613 of the Civil Code of the Philippines defines an easement as: "Article 613. An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner. The immovable in favor of which the easement is established is called the dominant estate; that which is subject thereto, the servient estate. (530)" (Emphasis supplied) Articles 630 and 649 of the same Code also provides as follows: "Article 630. The owner of the servient estate retains the ownership of the portion on which the easement is established, and may use the same in such a manner as not to affect the exercise of the easement. (n)" "Article 649. The owner, or any person who by virtue of a real right may cultivate or use any immovable, which is surrounded by other immovables pertaining to other persons and without adequate outlet to a public highway, is entitled to demand a right of way through the neighboring estates, after payment of the proper indemnity. Should this easement be established in such a manner that its use may be continuous for all the needs of the dominant estate, establishing a permanent passage, the indemnity shall consist of the value of the land occupied and the amount of the damage caused to the servient estate. EADCHS In case the right of way is limited to the necessary passage for the cultivation of the estate surrounded by others and for the gathering of its crops through the servient estate without a permanent way, the indemnity shall consist in the payment of the damage caused by such encumbrance. This easement is not compulsory if the isolation of the immovable is due to the proprietor's own acts. (564a)" From the foregoing, it appears then that an easement does not involve the transfer, conveyance or disposition of any portion of the real property or its ownership. An easement of right-of-way is not a sale or transfer of real property because the owner of the servient estate retains ownership of the portion upon which the easement is established and may use the same in such a manner as not to affect the exercise of the easement. (BIR Ruling No. 067-97 dated June 5, 1997) Furthermore, the amount paid to the landowner of the servient estate is not payment in exchange for the land upon which the easement is constituted. Such being the case, the landowner (Cecilia M. Valencia) is not subject to the payment of capital gains tax as imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. It is however understood that the income derived by Cecilia M. Valencia from and as a consequence of the grant of right-of-way to TRANSCO is subject to income tax. As there is no sale, conveyance, transfer or disposition of the land registered in the name of Cecilia M. Valencia, the CAR is not required in order for TRANSCO to annotate or register the grant of right-of-way on the title of the subject property. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. CDHacE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue