BIR Ruling [UN-123-94]

April 4, 1994 BIR RULING [UN-123-94] Cabaero, Katigbak, Clemente & Co., CPA's 4th Floor Saville Building 8728 Paseo de Roxas, Makati Metro Manila Attention: Mrs . Ma . Cecilia C . Katigbak Partner Gentlemen : This refers to your letter dated September 1, 1993, requesting in behalf of your client, Arjay Securities and Development, Corporation, for a ruling on the tax consequence of the conveyance of house and lot by several registered landowners to their tenant-beneficiaries by way of disturbance compensation pursuant to Administrative Order No. 15, series of 1988, authorizing the conversion of private agricultural lands to non-agricultural uses, in relation to Republic Act No. 6657 otherwise known as the Comprehensive Agrarian Reform Program (CARP). It is represented that Arjay Securities & Development Corporation (ARJAY), Laguna Estates Development Corporation (LEDC), and a number of individual landowners applied for a clearance from the Department of Agrarian Reform (DAR) to exempt their landholdings, which form one estate administered by ARJAY, from the coverage of the CARP; and to allow the development of said landholdings to non-agricultural land-uses; that in accordance with the requirements of the DAR, the management of ARJAY on one hand and the farmworkers on the estate on the other hand, entered into an agreement ("Kasunduan") registered with DAR to implement a benefit package that includes, among other features, distribution of free houses and lots for all Arjay workers; that the DAR has issued an order excluding the said landholdings from CARP and providing that the homelots and other benefits be provided to the farmworkers in line with their mutual agreement; that said houses and lots have been developed on a portion of the above mentioned landholdings, specifically on that part of the area titled to LEDC; and that the development phase had been completed and the subdivided lots which are covered by TCT Nos. 141622 to 141813 are ready for distribution to the beneficiaries. In reply, please be informed that pursuant to Section 66 of R.A. No. 6657 stating: SEC. 66. Exemptions 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." transfer of titles to houses and lots distributed to the beneficiaries as a form of disturbance compensation are exempt from the capital gains tax and also from the documentary stamp tax imposed under Section 196 of the Tax Code as amended. (BIR Ruling Nos. 104-90 dated May 29, 1990). This exemption applies not only to transfers of ownership over lands actually titled by the tenants, but also to the conveyance of house and lot by way of disturbance compensation, by the landowner-transferor to the tenant beneficiaries. Very truly yours, ALICIA P. CLEMENO Head Revenue Executive Assistant Officer-in-Charge (Legal Service)