BIR Ruling [UN-091-94]

March 9, 1994 BIR RULING [UN-091-94] Atty. Rodolfo C. Sigua Rm. 16 Eusebio Bldg., Gen. Hizon Ave. San Fernando, Pampanga S i r : This refers to your letter dated September 17, 1993 stating that your clients Medasto and Luzviminda Balagtas are the lawful owners of an agricultural land with an area of 4.7 hectares more or less stated at the Municipality of Calumpit, Bulacan; that the Spouses Balagtas sold said agricultural land in favor of their tenant/agricultural lessee, who is recognized as an agricultural lessee of said parcel of land appearing in the records of the Agrarian Office of Calumpit, Bulacan; and that the Office of the Provincial Agrarian Reform of the Province of Bulacan issued a certification to the effect that said office is not interposing any objection to the sale of the agricultural land of Spouses Balagtas in favor of their agricultural lessee in the person of Jocelyn A. Cantos. cdtech Based on the foregoing representation, you now request a ruling on the following queries: "1. Are my clients Spouses Balagtas land owner of the agricultural land sold to their tenant/agricultural lessee are under obligation to pay capital gains tax on the sale of their agricultural land? "2. As it is stated in Section 1, par. 1 of PD 57 & RA 6657 is there a need to secure exemption of payment of Capital Gain Tax, in the affirmative, who will issue said exemption for non payment of Capital gain tax? "3. where will payment of documentary and science tax be paid and what office will issue the necessary certification relative to the sale. In reply, please be informed that pursuant to Section 66 of Republic Act No. 6657 and Section 9 of Executive Order No. 229 quoted as follows: Republic Act No. 6657 "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 or 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." Executive Order No. 229 "SEC. 9 Voluntary offer to sell . The government shall purchase all agricultural lands, deemed productive and suitable to farmer cultivation voluntarily offered for sale to it at a valuation determined in accordance with Section 6. Such transaction shall be exempt from the payment of capital gains tax and other taxes and fees." the transactions involving transfer of ownership (under R.A. No. 6657) as well as the transactions involving voluntary offer to sell (under E.O. No. 229) are exempt from the capital gains tax and also from "other taxes". Said phrase "other taxes" includes documentary stamp tax imposed under Section 196 of the Tax Code, because documentary stamp tax is substantially a tax on the transaction rather than on the document (Op. No. 117, S of 1939, Sec. of Justice). Accordingly, as the owners and sellers of said agricultural land, the spouses Balagtas are exempt from the capital gains tax imposed under Section 21(e) of the Tax Code, as amended. The above mentioned transactions involving transfer of ownership (under R.A. No. 6657) and voluntary offer to sell (under E.O. No. 229) are likewise exempt from the payment of the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. (BIR Ruling 104-90 dated May 28, 1990) As regards your query, the Revenue District Officer concerned will not issue a certificate of exemption from the payment of the capital against tax. Instead, he will issue a certificate authorizing the transfer of property by sale, upon application by the buyer or seller, based on the fact that under the laws above-cited, the transaction is exempt from the capital gains tax. (Sec. 7, Revenue Regulations No. 13-85) aisadc Very truly yours, ALICIA P. CLEMENO Head Revenue Executive Assistant Officer-in-Charge (Legal Service)