BIR Ruling No. 645-12

December 7, 2012 BIR RULING NO. 645-12 RA 6657; BIR Ruling No. 012-01 Demetrio S. Cruz 188 Gen. Pelagio Cruz St. Baliuag, Bulacan Sir : This refers to your letter dated October 7, 2011 duly endorsed by the Regional Director of Revenue Region No. 5-Caloocan, requesting that the disturbance compensation in the form of lots to Rolando Santos and Miguel De Guzman is exempt from taxes and all other fees. It is represented that Mr. Demetrio S. Cruz married to Natalia S. Cruz is the registered owner of a parcel of land, identified as follows: TCT No. T-134654 1) Lot 892-A of the subd. plan (LRC) Psd-79661 being a portion of lot 892, Psd-52045, Sheet LRC (GLRO), Rec. No. 7605 with an area of twenty seven thousand two hundred fifty six square meters (27,256 sq.m.), more or less. 2) Lot 500 of the subd. plan, Psd-52045, Sheet 5 being a portion of lot 2 described on plan Psd-1211-B-A and LRC Rec. No. 7605 with an area of two thousand nine hundred forty eight square meters (2,948 sq.m.), more or less. 3) Lot 697 of the subd. plan, Psd-52045, Sheet 6 being a portion of lot 2 described on plan Psu-1211b and LRC Rec. No. 7605 with an area of two thousand six hundred fifty six square meters (2,656 sq.m.), more or less. cAISTC that on June 27, 2011, a Deed of Assignment was executed whereby Mr. Demetrio S. Cruz transfers and conveys by way of disturbance compensation, to the following: 1. Rolando Santos eight thousand seven hundred fifty three square meters (8,753 sq.m.) out of twenty seven thousand two hundred fifty six square meters (27,256 sq.m.) of Lot 892-A and two thousand nine hundred forty eight square meters (2,948 sq.m.) of Lot 500, all covered by TCT No. T-134654; 2. Miguel De Guzman three thousand seventy three square meters (3,073 sq.m.) out of twenty seven thousand two hundred fifty six square meters (27,256 sq.m.) of Lot 892-A and two thousand six hundred fifty six square meters (2,656 sq.m.) of Lot 697, all covered by TCT No. T-134654. Consequently, on October 3, 2011, Department of Agrarian Reform issued a certification that it interposes no objection to the registration of the above-mentioned Deed of Assignment. Furthermore, on June 5, 2012, DAR certifies further that the Deed of Assignment dated June 27, 2011 is a "DISTURBANCE COMPENSATION" under the ambit of RA 6657 and other agrarian reforms laws. In reply, please be informed that since the conveyance of Mr. Demetrio S. Cruz in favor of Rolando Santos and Miguel De Guzman is in the form of disturbance compensation, the 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." AcICHD Attached to the records is a Certification dated 5 June 2012 from the Provincial Agrarian Reform Office (PARO) of Bulacan, certifying that the subject property was verified as disturbance compensation of tenants Rolando Santos and Miguel De Guzman pursuant to 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. Such being the case, the transfer of Mr. Demetrio S. Cruz in favor of Rolando Santos in so far as the eight thousand seven hundred fifty three square meters (8,753 sq.m.) out of twenty seven thousand two hundred fifty six square meters (27,256 sq.m.) of Lot 892-A and two thousand nine hundred forty eight square meters (2,948 sq.m.) of Lot 500, all covered by TCT No. T-134654 and Miguel De Guzman in so far as the three thousand seventy three square meters (3,073 sq.m.) out of twenty seven thousand two hundred fifty six square meters (27,256 sq.m.) of Lot 892-A and two thousand six hundred fifty six square meters (2,656 sq.m.) of Lot 697, all covered by TCT No. T-134654 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