BIR Ruling No. 275-15

August 24, 2015 BIR RULING NO. 275-15 Sec. 66 RA 6657; BIR Ruling No. 571-12 Heirs of Gonzalo Pascual C/o Mr. Flaviano C. Pascual Pinaod, San Ildefonso, Bulacan Attention: Mr. Flaviano C. Pascual Representative Gentlemen : This refers to your letter dated January 12, 2015 requesting exemption from the payment of capital gains tax (CGT) and documentary stamp tax (DST) on the Deed of Conveyance executed by Venerando V. Villafuerte in favor of the Heirs of Gonzalo Pascual, namely, Flaviano C. Pascual, Marcelina C. Pascual, Olimpio C. Pascual, Celerina C. Pascual, Antonio C. Pascual, Emelita C. Pascual, Robert C. Pascual and Charito C. Pascual, all represented by Mr. Flaviano C. Pascual, over a portion of land, particularly an area of Ten Thousand (10,000) square meters covered by Transfer Certificate of Title (TCT) No. 039-RT2012001634 (T-69914) conveyed as disturbance compensation under Republic Act (RA) 3844, as amended by RA 6389. Based on the documents submitted, it is shown that Venerando V. Villafuerte is the registered owner of a parcel of land, particularly described as follows: TCT No. 039-RT2012001634 (T-69914) "A PARCEL OF LAND (LOT 2256 OF THE SUBDIVISION PLAN PSD-52045, SHEET 24, BEING A PORTION OF LOT 2 DESCRIBED ON PLAN PSU-1211B-AMD., L.R.C. RECORD NO. 7605) SITUATED IN THE MUNICIPALITY OF SAN ILDEFONSO, PROVINCE OF BULACAN . . . CONTAINING AN AREA OF THIRTY FOUR THOUSAND FIVE HUNDRED FIFTY ONE (34,551.00) SQUARE METERS." that a Deed of Conveyance dated October 8, 2013 was executed by Venerando V. Villafuerte, conveying, by way of disturbance compensation, to the Heirs of Gonzalo Pascual, represented by Mr. Flaviano C. Pascual, the Ten Thousand (10,000) square meter portion of the above-described parcel of land, in conformity with the latter's right as tenants to receive disturbance compensation upon extinguishment of tenancy relationship as mandated by RA 3844, as amended by RA 6389; that per Certification dated February 6, 2015 issued by the Provincial Agrarian Reform Office (PARO) and Certification dated January 12, 2015 issued by the Municipal Agrarian Reform Office (MARO), the Ten Thousand (10,000) square meter portion of TCT No. 039-RT2012001634 (T-69914) was verified as disturbance compensation of Tenant Heirs of Gonzalo Pascual, represented by Flaviano Pascual, pursuant to RA 3844, RA 6657 and RA 9700; and that pursuant to Certification dated April 6, 2015 issued by the PARO, all the Heirs of Gonzalo Pascual are qualified tenant-beneficiaries of landowner Venerando V. Villafuerte over the ten thousand (10,000) sq. m. portion of a parcel of land covered by TCT No. 039-RT2012001634 (T-69914). CAIHTE 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 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." Conveyance by the landowner of a portion of land to the tenant by way of disturbance compensation as a result of extinguishment of tenancy relationship because of the reclassification/conversion of the agricultural land into non-agricultural land is allowed under Section 36 of RA 3844, as amended, to wit: "Sec. 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 agricultural lessor-owner or a member of his immediate family will personally cultivate the landholding or will convert the landholding, if suitably located, into residential, factory, hospital or school site or other useful non-agricultural purposes: Provided that the agricultural lessee shall be entitled to disturbance compensation equivalent to five years rental on his landholding in addition to his rights under Sections twenty-five and thirty-four, except when the land owned and leased by the agricultural lessor, is not more than five hectares, in which case instead of disturbance compensation the lessee may be entitled to an advanced notice of at least one agricultural year before ejectment proceedings are filed against him: Provided further that should the landholder not cultivate the land himself for three years or fail to substantially carry out such conversion within one year after the dispossession of the tenant, it shall be presumed that he acted in bad faith and the tenant shall have the right to demand possession of the land and recover damages for any loss incurred by him because of said dispossessions." DETACa It must be noted that 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 is still considered one of the transactions contemplated under Section 66 of RA 6657. Such being the case, the transfer of the Ten Thousand (10,000) square meter portion of TCT No. 039-RT2012001634 (T-69914) in favor of the Heirs of Gonzalo Pascual, in the form of disturbance compensation per Deed of Conveyance dated October 8, 2013, is exempt from capital gains tax and documentary stamp tax pursuant to the afore-cited provision. (BIR Ruling No. 571-12 dated September 19, 2012) 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