Shobe_CEO » BIR Ruling No. 067-98 (May 21, 1998)

BIR Ruling No. 067-98 (May 21, 1998)

June 5th, 2009

R.A. 6657 (Sec. 66) 000-00 067-98

Ms. Gloria Solomon

Brgy. Amagbagan, Pozorrubio

Pangasinan

M a d a m :

This refers to your letter dated October 21, 1996 requesting, on behalf of Graciano and Maximino Solomon, for tax exemption of agricultural lots redeemed by them pursuant to the Department of Agrarian Reform Adjudication Board (DARAB) Decision promulgated on January 11, 1995. cda

Facts of the case as stated in the DARAB’s Decision are as follows:

Graciano Solomon and Maximino Solomon filed the complaint for redemption on January 23, 1989 alleging that the original case for redemption, was first filed on June 3, 1982 with the then Court of Industrial Relations against defendants Leonor Jovellanos and Elvira Sales as represented by Esperanza Natnat; that a counterclaim was filed on June 12, 1982 by the said defendants; that the said counterclaim was answered on July 16, 1982, where the amount of Forty Thousand Pesos (P40,000.00) was deposited as redemption price with the Clerk of Court only on January 16, 1984; that the aforesaid case was subsequently dismissed on October 11, 1988 by the Regional Trial Court, Branch 47, Urdaneta for lack of jurisdiction; that further motion for reconsideration was denied by the Court; that in view of the effectivity of Republic Act No. 6657 on June 15, 1988, the case was re-filed with the Department of Agrarian Reform Adjudication Board on the basis of the rights conferred by Section 12 of Republic Act No. 3844, as amended by said R.A. No. 6657; that in their complaint, plaintiffs-appellees alleged that they are agricultural lessees in the portion of a parcel of land owned by defendant Leonor Jovellanos and possessed by defendant Elvira Sales, represented by Esperanza Natnat; that Graciano Solomon’s farmholding is situated in Amagbagan, Pozorrubio, Pangasinan with an area of Eighteen Thousand Five Hundred Nine (18,509) square meters, more or less; that said land was the subject of a leasehold contract with Administratrix Natnat; that Maximino Solomon’s farmholding is also situated in Amagbagan with a total area of Five Thousand Five Hundred Fifty Eight (5,558) square meters, more or less; and also covered by a leasehold contract with said Administratrix; that on October 8, 1981, a Deed of Sale with pacto de retro was executed over a parcel of land by landowner Leonor Jovellanos in favor of Elvira Sales in the amount of Ten Thousand Pesos (P10,000.00) consisting of Thirty Six Thousand Five Hundred Eighty Eight (36,588) square meters, more or less, and covered by Original Certificate of Title No. 19966; that on March 25, 1982, portion of said property consisting of Twenty Five Thousand (25,000) square meters, more or less, was the subject of an Absolute Deed of Sale between Leonor Jovellanos and Elvira Sales, the latter represented by Esperanza Natnat, for a consideration of Forty Thousand Pesos (P40,000.00); that the subject portion is the land area under leasehold by the plaintiffs-appellees; that fact antecedent to the said sale was proven that Jovellanos, in her letter to the Administratrix Natnat, directed the latter to sell the portion of the leased property to lessee Graciano Solomon, who was then willing to buy the property at a higher price but Natnat withheld this information and instead clandestinely sold the same to Elvira Sales; that the execution of the aforesaid deed was without the knowledge and consent of the plaintiffs nor were they informed of the sale; and that documents, i.e., Transfer Certificate of Title and Tax Declarations submitted to this Office revealed that the aforesaid sale between landowner Jovellanos and transferee Sales was not annotated in the TCT, nor was there any change of tax declarant pertaining to the sold portion.

In reply, please be informed that pursuant to paragraph 2, Section 31 of Republic Act No. 3844, otherwise known as “An Act to Ordain the Agricultural Land Reform Code and to Institute Land Reforms in the Philippines, including the Abolition of Tenancy and the Channelling of Capital into Industry, Provide for the Necessary Implementing Agencies, Appropriate Funds Therefor and For Other Purposes”, as amended by R.A. No. 6657 (Comprehensive Agrarian Reform Law), which reads, viz:

Sec. 31. Prohibitions to the Agricultural Lessors. — It shall be unlawful for the agricultural lessors: cdlex

xxx xxx xxx

(2) To require the agricultural lessee to assume, directly or indirectly, the payment of the taxes or part thereof levied by the government on the landholding:

xxx xxx xxx”

Conversely, an agricultural lessee does not assume, whether directly or indirectly, the payment of any taxes or part thereof levied by the government.

It is noted that at the time of the effectivity of R.A. No. 6657 (CARL), the leasehold contract between landowner Leonor Jovellanos and Graciano Solomon and Maximino Solomon continued to exist. There had never been a change in the parties in so far as the Register of Deeds of Pangasinan and Department of Agrarian Reform are concerned as the sale between the Jovellanos and Sales or the subsequent leasehold contract between them were not annotated in the TCT. The necessity of registering the aforesaid contracts for the purpose of validity, in relation to Article 1409 (7) of the Civil Code of the Philippines, was strengthened by the existing proviso of Section 6 of R.A. No. 6657, viz,

“Sec. 6. Retention Limits. —

xxx xxx xxx

Upon the effectivity of this Act, any sale, disposition, lease, management contract or transfer of possession of private lands executed by the original landowner in violation of this Act shall be null and void: Provided, however, That those executed prior to this Act shall be valid only when registered with the Register of Deeds within a period of three (3) months after the effectivity of this Act. . . .” (Emphasis supplied.)

The aforequoted provision conclusively presumes that contracts entered into must first comply with the retention limits required by law, and that it further requires that the same must be registered with the Register of Deeds to be valid.

True enough, the DARAB had based its decision on Section 12 of R.A. No. 3844, the law then effective at the time of the supposed sale between landowner Jovellanos and Elvira Sales, which partially reads as follows:

“Sec. 12 Lessee’s Right of Redemption. — In case the landholding is sold to a third person without the knowledge of the agricultural lessee, the latter shall have the right to redeem the same at a reasonable price and consideration: . . .”

The DARAB, applying the aforequoted provision had ruled in favor of lessees Graciano Solomon and Maximino Solomon, and further stated that the right to redeem had not yet prescribed on the ground of technicalities, i.e., lack of notice of sale to the lessees and to the DAR when they opted to exercise their right. While the exercise by the lessees of their right to redeem was based on the said provision of R.A. 3844, obviously it had taken place only at the time when R.A. No. 6657 is already effective. The latter Act which is an amendatory comprehensive agrarian reform act, effectively made the transaction fall within its coverage. cdll

And since Section 6 of the same Act provides that the sale transaction between landowner Jovellanos and Elvira Sales not having been registered with the Register of Deeds is void, the transfer of ownership, which will actually take place under the present agrarian program, shall be governed by the provisions of the CARL, the existing agrarian legislation not inconsistent with it and merely suppletory pursuant to Section 75 of the same Act. Thus the transaction, i.e., land acquisition by an agricultural lessee through the exercise of his right of redemption under Section 12 of R.A. 3844, falling within the coverage of agrarian land reform process, shall likewise be within the scope of Section 66 of R.A. No. 6657, which states:

“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 and interest, shall be deductible from the compensation to which the owner may be entitled.”

In view of the foregoing, this Office is of the opinion as it hereby holds that the execution of a Deed of Absolute Sale over a portion of an agricultural land falling under the coverage of the agrarian reform program by vendee Elvira Sales in favor of agricultural lessees-redemptioneers, Graciano Solomon and Maximino Solomon in pursuance to the DARAB’s decision upholding the latters’ right to redeem under R.A. 3844, is exempt from capital gains tax and other taxes under Section 66 of R.A. 6657 since the transfer was made during the effectivity of the aforesaid CARL.

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 from the aforestated representations, this ruling shall be automatically considered null and void. cda

Very truly yours,

(SGD.) LIWAYWAY VINZONS-CHATO

Commissioner of Internal Revenue

Entry Filed under: Taxation