June 29, 1998
BIR RULING NO. 100-98
R.A. 6657 Sec. 98, NIRC' 97-000-00-100-98
Ms. Angelita L. Amosco
Revenue District Officer
RDO No. 57, BIR
San Pedro, Laguna
M a d a m :
This refers to your letter dated December 26, 1996 stating that Science Park of the Philippines, Inc., (SPPI), a member of Investment and Capital Corporation of the Philippines (ICCP Group), as a precondition to the purchase of a tract of agricultural land, promised to relocate the tenants thereof and further promised to rebuild/replace their destroyed residential houses on the relocation site; that, thereafter, your Office, i.e., RDO No. 57 subjected the donations of lots made by SPPI in favor of the tenants to donor's tax on stranger; that as regards the residential houses, which were built at the expense of SPPI replacing the destroyed houses, your Office did not impose the donor's tax based on the following reasons, viz:
"1. The company promised to relocate the tenants in other areas and destroyed their residential houses with the promise to rebuild/build their houses on the relocation site;"
"2. The company immediately secured a building permit in 1991 and proceed with the rebuilding/building of the said replacement houses;" cdasia
"3. The Municipal Assessor of Cabuyao, Laguna issued directly the tax declaration of the replacement houses in the name of the tenants in 1992 and 1994;
"4. The company only made the actual donation of relocation site lots last September 17, 1996."
that the documents and position paper by SPPI to this Office further disclosed that the purchased tract of land was an agricultural land covered by Comprehensive Agrarian Reform Program under R.A. 6657; that the relocation and donation of residential lots to the agricultural tenants and farm workers has been approved and cleared by the Department of Agrarian Reform (DAR) based on the information and findings gathered by the Municipal Agrarian Reform Office (MARO) in Cabuyao, Laguna relative to the application for conversion of the subject property into industrial use pursuant to E.O. No. 129-A, R.A. 6657 and Administrative Order No. 15 series of 1988; and that the findings which were significant in determining the plight of the agricultural tenants affected by the conversion and the availment of any incentive or exemption privilege under the law are as follows:
1. The property subject of conversion from agricultural land planted with sugarcane, to industrial use is registered in the name of Benita P. Navarro and situated in Bo. Diezmo, Cabuyao, Laguna with a total area of 931,539 square meters;
2. There had been 160 farm workers and about 80 families who occupied a portion of the property for residential purposes and who alleged that they had been occupying/working on the land for not less than 20 years;
3. The land was the subject of a joint venture undertaking between the landowner and land developer, Investment and Capital Corporation of the Philippines (ICCP);
4. On August 9, 1989, a referendum was conducted among the occupants/workers attended by 136 farm workers of whom 135 voted for the proposed conversion and one voted against the conversion; and
5. The land is an agricultural land fully planted with sugarcane, the direct beneficiaries of which are the farm workers, occupants and residents therein. cda
that further, records and documents submitted and filed with the DAR, as stated in the Order Approving the Conversion, revealed the following:
1. The subject property is within the Medium and Heavy industrial area delineated in the Zoning Map and Zoning Ordinance of the Municipality of Cabuyao, Laguna as certified by the Deputized Zoning Administrator, Mr. Generoso B. Opina on July 13, 1989;
2. The Property was the subject of a petition by Diezmo Farm Workers Group requesting for acquisition of said land through the Comprehensive Agrarian Reform Program;
3. However, the petitioner-farm workers/tenants later signed a "Salaysay" on July 2, 1989, attesting that they were not against the conversion of the subject land from agricultural to industrial use since they were promised by ICCP that they shall be relocated and be given a lot of 200 square meters each with a house of 36 square meters floor area, which shall be titled in their names, and furthermore, they will be given employment priority once the project materialized;
4. The subject property is included in the CALABAR Special Development Project under the Philippine Assistance Program which is included in the 1989 Investment Priority Plans of the Government.
You now request opinion on the tax treatment of the homelots and houses given by SPPI to the tenants-beneficiaries. Likewise, SPPI in its letter to this Office, is requesting that, in the event a favorable ruling is made in its favor to the above donations, taxes which had been paid therefor be incorporated as part of their future tax credits instead of tax refund.
In reply, please be informed that pursuant to Section 66 of R.A 6657, otherwise known as the "Comprehensive Agrarian Reform Law of 1988", transactions involving a transfer of ownership, like in the instant case, shall be exempted from the payment of registration fees, and other taxes for the conveyance or transfer thereof.
Applying the foregoing provision, the donation of homelots to the tenant-beneficiaries of the comprehensive agrarian reform program are therefore exempt from all taxes and fees being imposed in connection therewith.
It is noted that the sale between the landowner, i.e., Benita P. Navarro and ICCP Group through Science Park of the Philippines, Inc., the latter having acquired the land pursuant to Section 65 of the same law, and application for such conversion of land use from agricultural to industrial having initially made by them, was in accordance with Administrative Order No. 1, S. 1990. The conversion which resulted in the constructive displacement of farmers-beneficiaries shall entitle the displaced beneficiaries to a disturbance compensation and the assurance of homelots and eventual employment to be provided by the applicant/developer. The grant of these privileges to the displaced farmers-beneficiaries is a measure designed to serve as a cushion on the adverse effect of the land conversion. These privileges have, likewise, been clearly set forth as among the conditions in the petition for conversion of land use, which had been voted favorably in a referendum held by the farm workers among themselves.
The Comprehensive Agrarian Reform Program (CARP) has the very purpose of lifting up the economic status of the beneficiaries and promote social justice and to move the nation towards sound rural development and industrialization. Anent to this, the State shall, likewise provide incentives to landowners to invest the proceeds of the agrarian reform program to promote industrialization, employment and privatization of public sector enterprises. On the other hand, the feasibility of acquiring the distributable portion of the land under the program has secured the rights of the agricultural workers/beneficiaries. But while being so, the subsequent conversion of the land use from agricultural to industrial had ultimately displaced the aforesaid beneficiaries.
Thus, the State, in its effort to promote rural industrialization, had authorized land use conversion under Section 65 of R.A. 6657. The favorable vote by the affected beneficiaries and the approval of conversion of land use had effectively exempted the land from the coverage of the CARP.
Such being the case, the subsequent donation of homelots, including the building of replacement houses at the relocation site, to the displaced beneficiaries and which was made to comply with the relocation of the displaced workers as required by Administrative Order No. 1 S. 1990, is exempt from donor's tax, since, the same are deemed to be within the coverage of the comprehensive agrarian reform process. On the other hand, entitlement to disturbance compensation does not pertain to the transactions involving the transfer of ownership, but to the income/produce which were ultimately lost and has no possibility of being earned or harvested, as a result of the conversion, thus, it is subject to income tax.
Accordingly, pursuant to Section 66 of R.A. 6657, in relation to Section 65 of the Act, donations of homelots, including replacement houses built on the relocated site, made by Science Park of the Philippine, Inc. in favor of the tenants/farm workers are exempt from donor's tax imposed under Section 91 of the Tax code, as amended (now Section 98 of the Tax Code of 1997).
In connection with the request of SPPI for incorporation of any tax refund it may have as a result of this ruling to whatever future tax credits the corporation may have, please advise them to forward their claim to the Appellate Division for the issuance of a Tax Credit Certificate in their favor.
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.) LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue