BIR Ruling No. 413-13

November 13, 2013 BIR RULING NO. 413-13 Section 66 of Republic Act No. 6657; BIR Ruling No. 571-12 Carmelita De Castro Poblacion, Plaridel, Bulacan Madame : This refers to the letter of your Attorney-in-Fact, 1 Anthony Joseph DC. Beltran, dated July 25, 2011 duly endorsed by the Regional Director of Revenue Region No. 5 Caloocan, requesting that the disturbance compensation in the form of a lot to Gregorio Joson, Jr. be exempt from Capital Gains Tax and Documentary Stamp Tax. It is represented that Carmelita De Castro, widow, is the registered owner of a parcel of land, identified as follows: "TCT No. 039-2011003342 A parcel of land (lot 120-A-2, of the subdivision plan (LRA) PSDS-407790 approved as a non-subdivision project, being a portion of lot 120-A, FLS-2551-D., L.R.C. CLR record no. 4821), situated in barrio of Sta. Rita Municipality of Guiguinto Province of Bulacan Island of Luzon. Bounded on the N. Points 13 to 1 by lot 117, Guiguinto Estate; on the E., points 1 to 2 by lot 120-A-3, subdivision plan; on the SE., points 2 to 3 by lot 120-C, FLS-2551-D; on the SW., & SE., points 3 to 10 by lot 128-A; on the SW., Points 10 to 11 by lot 120-B, both of FLS-2551-D; and on the NW., W., points 11 to 13 by lot 120-A-1, of the subdivision plan beginning at a point marked "1" on plan, being S. 86 deg. 31'E, 317.05M. from mon. no. 6, Guiguinto Estate (Recoleto Parcel). Thence S. 06 deg. 22'E., 119.55 M. to point 2; thence S. 72 deg. 10'W., 12.14M to point 3; thence N. 20 deg. 19'W., 13.50M. to point 4; thence N. 72 deg. 27'W., 18.60 M to point 5; thence N. 19 deg. 39'W., 10.40 M. to point 6; thence N. 52 deg. 20'W., 10.00 M. to point 7; thence S. 42 deg. 01'W., 13.50 m to point 8; thence S. 53 Deg. 48'W., 35.71 m. to point 9; thence S. 76 deg. 02'W., 16.24 m. to point 10; thence N. 20 deg. 06'W., 42.96 m. to point 11; thence N. 82 deg. 52'E., 16.08 m. to point 12; thence N. 06 deg. 22'W., 87.36 m. to point 13; thence S. 86 deg. 31'E., 94.43 m. to point of beginning an area of ten thousand eight hundred seventy (10,870) square meters, more or less. All points referred to are indicated on the plan and are marked on the ground as follows; points 3 to 11 by old PS and the rest by P.S cyl. Conc. Mons 15 x 60 cm., bearings true; Decl. 1 deg. 00'E., date of original survey, Feb. 7, 1906 and that of subdivision survey, executed by Eduardo E. Manguba Geodetic Engineer on April 25, 2009." IaHCAD On July 21, 2011, a Deed of Assignment 2 was executed whereby Carmelita De Castro transfers and conveys by way of disturbance compensation to Gregorio P. Joson, Jr. the parcel of land covered by TCT No. 039-2011003342 of the Registry of Deeds of the Province of Bulacan. In a certification dated July 19, 2013, the Department of Agrarian Reform (DAR), Cluster 7 office at Guiguinto, Bulacan certified Gregorio P. Jason, Jr. as a qualified farmer beneficiary pursuant to Presidential Decree No. 27 and the Comprehensive Agrarian Reform Program (R.A. No. 6657). 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 Republic Act (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." The records include a Certification, dated July 26, 2011, from the Municipal Agrarian Office (MARO) of Tabang, Guiguinto, Bulacan, certifying that the subject property was verified as disturbance compensation of tenant and beneficiary, Gregorio Joson, Jr. pursuant to agrarian laws. 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 in to non-agricultural land to wit: ACcEHI 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. Only Section 35 of RA 3844 was expressly repealed by RA 6657. Thus, the transfer of land by way of disturbance compensation, as in this instance, is still considered one of the transactions contemplated under Section 66 of RA 6657. Such being the case, the transfer of TCT No. 039-2011003342 by Carmelita De Castro in favor of Gregorio P. Joson, Jr., in the form of disturbance compensation, is exempt from capital gains tax and documentary stamp tax pursuant to the aforecited 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. SIcTAC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. SPA notarized by Notary Public Ma. Theresa S. Cruz-Daguna of Malolos Bulacan dated July 22, 2011 with notarial entry as follows: Doc. No. 273, Page No. 56, Book No. 16, Series of 2011. 2. Notarized by Notary Public Ma. Theresa S. Cruz-Daguna of Malolos Bulacan dated July 21, 2011 with notarial entry as follows: Doc. No. 268, Page No. 16, Book No. 16, Series of 2011.