BIR Ruling No. 350-13

September 11, 2013 BIR RULING NO. 350-13 RA 6657; BIR Ruling No. 012-01 Cristina Mercado-Cruz Brgy. Poblacion, Sta. Maria, Bulacan Madam : This refers to your letter dated June 13, 2013 relative to your request for confirmation that the disturbance compensation in the form of land granted by Mario M. Nicolas, Jr., et al. to Ernesto M. Ortiz is exempt from taxes and all other fees. Documents submitted disclosed that Mario M. Nicolas, Jr., Ma. Lourdes N. Mendoza, Wilfredo M. Casimiro, Jocelyn C. Galang, Edgardo M. Casimiro, Buenaventura M. Casimiro, Jr., Myrna M. Macabulos, Rogaciano I. Mercado Jr., Rebecca M. Tuazon, Roberto L. Mercado and Zenaida M. Samaniego (hereinafter referred to as Owners), are the registered owners of a parcel of land, identified Lot 1132-4, CAD 351 covered by Transfer Certificate of Title (TCT) No. T-34420 P (M) issued by the Registry of Deeds for the Meycauayan Branch, Province of Bulacan. The aforesaid property is situated at Pulong Buhangin, Sta. Maria, Bulacan with an area of Thirty Six Thousand Five Hundred Seventy Five square meters (36,575 sq.m.), more or less. On April 1, 2013, a Deed of Conveyance was executed whereby the owners, thru their Attorney-in-Fact, Ma. Cristina Mercado-Cruz, transferred and conveyed by way of disturbance compensation to Ernesto M. Ortiz, Thirty Two Thousand Five Hundred Seventy Five square meters (32,575 sq.m.) portion of the above-mentioned property. The Certification No. 126'13 dated March 19, 2013 was issued by Provincial Agrarian Reform Office (PARO) of Bulacan, states that the portion of the property covered by TCT No. T-34420 P (M) is actually a disturbance compensation under Republic Act (RA) No. 6657. In reply, please be informed that since the conveyance of the owner is in the form of disturbance compensation, 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. : SHIcDT "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." In as much as the PARO has certified that the portion of the subject property was verified as disturbance compensation of tenant Ernesto M. Ortiz pursuant to RA 3844 (Agricultural Land Reform Code) and 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, 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 the Thirty Two Thousand Five Hundred Seventy Five square meters (32,575 sq.m.) portion of the covered by TCT No. T-34420 P (M) in the form of disturbance compensation is exempt from capital gains tax and documentary stamp tax pursuant to the aforecited provision. (BIR Ruling No. 012-01 dated March 14, 2001) 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