May 22, 1998

DAR OPINION NO. 62-98

Atty. Crisostomo L. Miranda

No. 4-A Magalang St.

Quezon City

Dear Atty. Miranda:

This has reference to your letter dated 05 April 1998 seeking opinion on the queries posed therein, to wit:

a)         Are the heirs of the late landowner (Guadalupe Perez Nacpil) liable to pay the estate, transfer and documentary taxes on properties subjected to Operation Land Transfer (OLT) under Presidential Decree No. 27?

b)         For the purpose of payment of real estate tax, when does the duty of the registered owner to pay end and, conversely; when does the duty of the farmer-beneficiaries begin?

c)         Is the estate of the late Guadalupe Nacpil Perez liable to pay for the Capital Gains Tax by reason of the transfer of property by way of CLT, VOS or any other means, methods and schemes in favor of farmer-beneficiaries?

d)         Is the subject estate still liable to pay Capital Gains Tax and other taxes imposed by the Bureau of Internal Revenue on the compensation paid by the National Irrigation Administration as payment for the portion used for the construction of a conveyance canal by the said agency?

As culled from your letter, the subject property consists an area of 4.9244 hectares situated at Barangay Tibagan, Tarlac, Tarlac; that it is registered in the name of the late Guadalupe Perez Nacpil under Transfer Certificate of Title No. 13895 issued on 24 September 1938; that on 25 January 1983, said property had been subjected to Operation Land Transfer under P.D. No. 27 and that despite the issuance of Certificates of Land Transfer to farmer-beneficiaries they did not share the produce with the landowner and that they failed to pay the compensation of the subject property in fifteen (15) equal amortizations including the six percent (6%) interest.

Anent your first query, the obligation to pay estate, transfer and documentary taxes relative to the operation of P.D. No. 27 are imposed on either the landowners and tenants depending on the extent of their aggregate landholdings. DAR Memorandum Circular No. 5, Series of 1973 in relation to DOJ Opinion No. 35, Series of 1973 declares in unequivocal terms that with respect to tenanted rice and/or corn lands consisting an area of 100 hectares or more, the tenant farmers should pay the real property taxes assessable on the said lands regardless of whether or not land transfer certificates have been issued because by then they are deemed owners of the lands they till. However, with respect to lands with an area of less than 100 hectares, it is provided that all things considered, it would be more logical to conclude that pending implementation of P.D. No. 27 as to those lands (i.e., less than 100 hectares), the ownership of the lands remains with the present landowners, and as such, the real estate taxes should, accordingly, be paid by the landowners.

We wish to add, however, that by virtue of LOI No. 227, Series of 1974, in order to accelerate the implementation of the agrarian reform program, the present operations implementing the land reform program pursuant to P.D. No. 27 is now down to landholdings of over seven (7) hectares. This means that the tenant-farmers are now likewise deemed owners of the awarded areas in excess of the 7-hectare retention limit of a landowner. As such, they are legally bound to pay the real property taxes assessable on said lands.

Anent your second query and corollary to the first issue, it follows that the duty of the landowner to pay real estate taxes ends from the time the ownership of the subject property is deemed transferred to the farmer beneficiaries, that is, even before the issuance of Emancipation Patents (EPs). Stated otherwise, the duty of the farmer beneficiaries to pay real estate tax begins when the property in issue is subjected under the coverage of OLT pursuant to P.D. No. 27 since from that time on they are already deemed owners thereof.

Anent your third query, Presidential Decree No. 57 expressly provides that a "landowner shall be exempt from capital gains tax on the proceeds of the amortization paid him by the tenant-purchaser and likewise from income tax due on the accruing interest paid as an addition to the total cost of the land". As held by the Supreme Court in the case of Ramona R Locsin vs. Honorable Judge Vicente P. Valenzuela dated 19 February 1991, the exemption of the old landowner from the capital gains tax on the amortization payments made to him by the tenants-purchasers, under P.D. No. 57, underscores the fact, referred to above, that ownership or dominion over the land moved immediately from landowner to tenant-farmer, rather than upon completion of payment of the price of the land. In general, capital gains are realized only when the owner disposes of his property.

Anent your last query, compensation paid by the National Irrigation Administration (NIA) to landowners as payment for the portion used for the construction of a conveyance canal is not subject to capital gains tax. Specifically, only transactions which involves the disposition of property is subject to said tax. Such being the case, the compensation given to the landowners by reason of the expropriation of their landholdings is exempt from capital gains tax.

We hope to have clarified the matters with you.

Very truly yours,

(SGD.) ARTEMIO A. ADASA, JR.

Undersecretary for Legal Affairs, and Policy and Planning

Copy furnished:

OSEC

Doc. No. 98040198