BIR Ruling No. 589-12

October 18, 2012 BIR RULING NO. 589-12 RA 6657; BIR Ruling No. 012-01 Anthony Joseph D. Beltran #1158 Mercado Street Poblacion, Bustos Bulacan Dear Mr. Beltran, This refers to your letter dated July 25, 2011, received by this Office on October 21, 2011 by way of 2nd Indorsement from Revenue Region No. 5, Caloocan dated October 7, 2011, requesting on behalf of Carmelita De Castro for exemption from the payment of capital gains tax (CGT) and documentary stamp tax (DST) on the Deed of Assignment executed by and between Carmelita De Castro, through her attorney-in-fact, Anthony Joseph D. Beltran, and Juana De Jesus Gatuz, by which a parcel of land with an area of Six Thousand Five Hundred Twelve (6,512) square meters was assigned to the latter as disturbance compensation under Republic Act (RA) 3844, as amended by RA 6389. IHCESD Based on the documents submitted, it shows that Carmelita De Castro is the registered owner of a parcel of land, particularly described as follows: TCT No. 039-2011003341 "A parcel of land (Lot 120-A-1 of the Subdivision Plan (LRA) PSD-407790 approved as a non-subdivision project, being a portion of Lot 120-A, FLS-2551-D, LRC CLR Record No. 4821) situated in Barrio of Sta. Rita, Municipality of Guiguinto, Province of Bulacan . . . containing an area of six thousand five hundred twelve (6,512) square meters, more or less." that a Deed of Assignment dated July 21, 2011 was executed by Carmelita De Castro, represented by Anthony Joseph D. Beltran, transferring by way of disturbance compensation to Juana De Jesus Gatuz the above-described parcel of land in conformity with the latter's right as tenant to receive disturbance compensation upon extinguishment of tenancy relationship as mandated by RA 3844, as amended by RA 6389; that on July 26, 2011, the Department of Agrarian Reform issued a Certification stating that a leasehold contract was executed and signed by Emilio Gatuz and Carmelita De Castro on June 30, 1994 over a portion of One (1) hectare parcel of land and was registered with the Office of the Treasurer of Guiguinto, Bulacan on July 6, 1994, with Registration No. 1471; and that the portion of the land cultivated by Emilio Gatuz with an area of Six Thousand Five Hundred Twelve (6,512) square meters, more or less, covered by TCT No. 039-2011003341, was conveyed to Juana De Jesus Gatuz as disturbance compensation, by way of Deed of Assignment, as provided by agrarian laws. In reply, please be informed that since the conveyance by Carmelita De Castro in favor of Juana De Jesus Gatuz is in the form of disturbance compensation, the said transfer is exempt from capital gains tax and documentary stamp tax pursuant to Section 66 of Republic Act 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." Be it noted that Section 36 of RA 3844, as amended, allows disturbance compensation to the tenant as a result of extinguishment of tenancy relationship by reason of the reclassification/conversion of the agricultural land into non-agricultural uses. Only Section 35 of RA 3844, as amended, is expressly repealed by RA 6657. Hence, disturbance compensation given to a tenant pursuant to Section 36 of RA 3844, as amended, is still considered one of the transactions contemplated under Section 66 of RA 6657. Such being the case, the transfer by Carmelita De Castro in favor of Juana De Jesus Gatuz of the subject parcel of land in the form of disturbance compensation is exempt from capital gains tax and documentary stamp tax pursuant to the afore-cited 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