BIR Ruling No. 614-2020

TER REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE

BUREAU OF INTERNAL REVENUE

Quezon City

Section 24 D) 1 of the National Internal Revenue

Code of 1997, as amended; RA No. 3844, as amended by RA No.6657 BIR Ruling No. 353-2019

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3401 A. Mag-Arellano St. LUISA A.ESTEBAN

Bacood, Sta. Mesa, Manila

Madam:

This refers to your letter, with attachments, dated February 26, 2020, requesting for exemption from the payment of capital gains tax (CGT) relative to the disturbance compensation received by the agricultural tenant, Mr.' Hilario Delos Santos Mauricio.

Documents submitted disclosed that Luisa A. Esteban married to Leonardo Esteban, Tita Imelda A. Maquinto married to Edwin B. Maquinto, and Edna A. Dandin married to Benjamin V. Dandin (hereinafter referred to as the Landowners). are the registered owners of a parcel of land covered by Transfer Certificate of Title

Twenty-Four (11,824) square meters located at San Gabriel, Sta. Maria, Bulacan; that Tomacruz, Jr. of the Municipal Agrarian Reform Office of the Department of Agriculture (DA), Cluster 5 - Balagtas, Bocaue, Marilao, City of Meycauayan, Obando, City of San Jose del Monte, Sta. Maria and Pandi, Mr. Pedro Mauricio is the based on the`Certification dated January 28, 2020 issued by Engr. Artemio S Agricultural Lessee (Leaseholder) over a parcel of land owned by Luisa Mendoza (TCT) No. (M) containing an area of Eleven Thousand Eight Hundred

Pedro Mauricio) became his father's successor as tenant over the part/portion of the Maria, Bulacan, with an area of less; that based on the same Certification, Mr. Hilario Delos Santos Mauricio (son of Vda. De Alberto represented by Mr. Ruben Alberto located at Brgy. San Gabriel, Sta ) square meters, more or

subject parcel of land which is now covered by TCT No. M;and that the Landowners and Mr. Hilario Delos Santos agreed to terminate the above-mentioned tenancy relationship, thus, on November 27, 2019, a Deed of Assignment with Release, Waiver and Ouitclaim was executed by the Landowners in favor of Mr.

disturbance compensation, to the latter a portion of TCT No. Hilario Delos Santos, whereby the former transferred and conveved, by way of M with an area of One Thousand Eight Hundred Twenty-Four (1,824) square meters. Hence, this request.

otherwise known as the Comprehensive Agrarian Reform Law of 1988 states that: In reply, please be informed that Section 66 of Republic Act (RA) No. 6657

Transfers. - Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be "Section 66. Exemptions from Taxes and Fees of Land

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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. "

These transactions include, among others, transfer of land to a tenant as

disturbance compensation as a result of extinguishment of tenancy relationship by

reason of the reclassification or conversion of the agricultural land into non-

agricultural uses or purposes enunciated in Section 36 (1) of RA No. 3844, as

amended, viz:

"Section 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 landholding is declared by the department head

upon recommendation of the National Planning

Commission to be suited for residential, commercial

industrial or some other urban purposes: Provided,

That the agricultural lessee shall be entitled to

disturbance.compensation eguivalent to five times the average of the'gross harvests on his landholding during the last five preceding calendar years; (emphasis ours)

Only Section 35 of RA No. 3844 was expressly repealed by RA No. 6657

Hence, disturbance compensation given to a tenant due to the extinguishment of

tenancy relationship by reason of reclassification or conversion of the agricultural

land into non-agricultural uses, pursuant to Section 36 of RA No. 3844, as amended.

is still considered one of the transactions contemplated under Section 66 of RA No.

6657.1

However, in this case, while the parties agreed to terminate their agricultural tenancy relationship and convert the agricultural landholding into residential.

commercial or industrial purposes, nothing on the documents presented show that the

land was declared by the proper authorities as suited for residential, commercial,

industrial or some other urban purposes. In the absence of any proof showing that the

subject parcel of land has already been converted into non-agricultural uses, the

transfer of the same by way of disturbance compensation is not covered by RA No.

6657.

Please take note that "Ta] tax exemption represents a loss of revenue to the

State and must therefore not be lightly granted or inferred. When claimed, it must be

strictly construed against the :taxpayer, who must prove that he comes under the

exemption rather than the rule that everyone must contribute his just share in the maintenance of the government"2"He who claims tax exemptions must be able to

justify his claim or right " 3

1 BIR Ruling No. 353-19 dated June 20, 2019 2 Justice Cruz, Dissenting opinion in Maceda vs. Macaraig, G.R.No. 88291, May 31, 1991 Commissioner of Internal Revenue vs. P.J. Liener Co., Ltd., G.R.No. L-24754, July 18, 1975

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sustained as the facts established is not in accordance with what the law requires. To rule otherwise would undermine the prevailing principles for the sake of expediency. In view of the foregoing, your request for exemption from CGT cannot be

24(D)(1) of the 1997 Tax Code, as amended, is likewise subject to the documentary stamp taxes imposed under Section 188 and Section 196 of the same Code. Also, the conveyance, being a disposition of real property under Section

Please be guided accordingly.

Very truly yours.

awa

CAESAR R. DULAY Commissioner of Internal Revenue K1 037310