CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.

,
Petitioner, vs. THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON.
ACTING SECRETARY OF FINANCE JUANITA D. AMATONG, and THE HON.
COMMISSIONER OF INTERNAL REVENUE GUILLERMOPARAYNO, JR.,Respondents.

FACTS:

In this case the petitioner, Chamber of Real Estate and Builders Associations, Inc.
(CREBA) (an association of real estate developers and builders in the Philippines) filed for
certiorari and mandamus challenging the constitutionality of Section 27 (E) of RA 8424 as well
as the revenue regulation issued by the BIR to implement the provision and those involving
creditable withholding taxes. The hon, executive secretary, Secretary Alberto Romulo, Acting
Secretary of Finance, Juanita D. Amatong, and The hon. Commissioner of the Internal
Revenue, Guillermo Parayno, Jr. were respondents to such case.

The said petitioner questions the imposition of the minimum corporate income tax
(MCIT) on corporations and creditable withholding tax (CWT) on sales of real properties
classified as ordinary assets. They argued that MCIT violates the due process clause because it
levies income tax even if there is no realized gain. In addition, they seek to to nullify Sections
2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) and (c)(ii) of
RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale
of real properties categorized as ordinary assets for the following reasons: first, they ignore the
different treatment by RA 8424 of ordinary assets and capital assets and second, respondent
Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross
selling price or fair market value of the real properties classified as ordinary assets.

ISSUE:

1. Whether or not the imposition of the MCIT on domestic corporations and the imposition
of CWT on income from sales of real properties classified as ordinary assets under RRs
2-98, 6-2001 and 7-2003, is unconstitutional.

2. Whether or not the revenue regulations are violative of the equal protection clause
because the CWT is being levied only on real estate enterprises.

RULING:

1. NO. The SC ruled that MCIT is not violative of due process and thus is not
unconstitutional. MCIT was devised as a relatively simple and effective revenue-raising
instrument compared to the normal income tax which is more difficult to control and
enforce. It is a means to ensure that everyone will make some minimum contribution to
the support of the public sector. The contention of CREBA that pegging the tax base of
 the MCIT to a corporations gross income is tantamount to a confiscation of capital
because gross income, unlike net income, is not "realized gain" is untenable. MCIT is
not a tax on capital. The MCIT is imposed on gross income which is arrived at by
deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of
goods and other direct expenses from gross sales. Clearly, the capital is not being
taxed.

Moreover, the imposition of CWT on income from sales of real properties classified as ordinary
assets, the SC ruled that it is not unconstitutional. The contention that the assailed revenue
regulations ignore the different treatment by RA 8424 of ordinary assets and capital assets is
unmeritorious. Final Withholding Tax (FWT) is imposed on the sale of capital assets. On the
other hand, CWT is imposed on the sale of ordinary assets. The inherent and substantial
differences between FWT and CWT disprove CREBAs contention that ordinary assets are
being lumped together with, and treated similarly as, capital assets in contravention of the
pertinent provisions of RA 8424.

2. NO. The taxing power has the authority to make reasonable classifications for purposes
of taxation. Inequalities which result from a singling out of one particular class for
taxation, or exemption, infringe no constitutional limitation. The real estate industry is, by
itself, a class and can be validly treated differently from other business enterprises.

Petitioner, in insisting that its industry should be treated similarly as manufacturing

enterprises, fails to realize that what distinguishes the real estate business from other
manufacturing enterprises, for purposes of the imposition of the CWT, is not their
production processes but the prices of their goods sold and the number of transactions
involved. The income from the sale of a real property is bigger and its frequency of
transaction limited, making it less cumbersome for the parties to comply with the
withholding tax scheme.

CONRADO L. TIU, JUAN T. MONTELIBANO JR. and ISAGANI M. JUNGCO, petitioners,

vs. COURT OF APPEALS, HON. TEOFISTO T. GUINGONA JR., BASES CONVERSION AND
DEVELOPMENT AUTHORITY, SUBIC BAY METROPOLITAN AUTHORITY, BUREAU OF
INTERNAL REVENUE, CITY TREASURER OF OLONGAPO and MUNICIPAL TREASURER
OF SUBIC, ZAMBALES, respondents.

FACTS:

The instant facts of this case can be traced back on March 13, 1992, when the congress, with
the approval of the President, passed into law RA 7227 entitled "An Act Accelerating the
Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion
and Development Authority for this Purpose, Providing Funds Therefore and for Other
Purposes." Section 12 thereof created the Subic Special Economic Zone and granted thereto
special privileges.
On October 26, 1994, the petitioners challenged before this Court the constitutionality of EO 97-
A for allegedly being violative of their right to equal protection of the laws. In a Resolution dated
June 27, 1995, this Court referred the matter to the Court of Appeals, pursuant to Revised
Administrative Circular No. 1-95.

Incidentally, on February 1, 1995, Proclamation No. 532 was issued by President Ramos. It
delineated the exact metes and bounds of the Subic Special Economic and Free Port Zone,
pursuant to Section 12 of RA 7227.

Court of Appeals ruled that there is no substantial difference between the provisions of EO 97-A
and Section 12 of RA 7227. In both, the Secured Area is precise and well-defined as xxx the
lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered
and defined by the 1947 Military Bases Agreement between the Philippines and the United
States of America, as amended, xxx." The appellate court concluded that such being the case,
petitioners could not claim that EO 97-A is unconstitutional, while at the same time maintaining
the validity of RA 7227.

Disagreeing, petitioners now seek before us a review of the aforecited Court of Appeals
Decision and Resolution.

ISSUE:

Whether or not EO 97-A is unconstitutional.

Ruling:

No. We rule in favor of the constitutionality and validity of the assailed EO. Said Order is not
violative of the equal protection clause; neither is it discriminatory. Rather, we find real and
substantive distinctions between the circumstances obtaining inside and those outside the Subic
Naval Base, thereby justifying a valid and reasonable classification. The fundamental right of
equal protection of the laws is not absolute, but is subject to reasonable classification. If the
groupings are characterized by substantial distinctions that make real differences, one class
may be treated and regulated differently from another. The classification must also be germane
to the purpose of the law and must apply to all those belonging to the same class. Classification,
to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law,
(3) not be limited to existing conditions only, and (4) apply equally to all members of the same
class.
It can easily be deduced that the real concern of RA 7227 is to convert the lands formerly
occupied by the US military bases into economic or industrial areas. In furtherance of such
objective, Congress deemed it necessary to extend economic incentives to attract and
encourage investors, both local and foreign. Among such enticements are:11 [ 12 (b, c, d, e &
f)] (1) a separate customs territory within the zone, (2) tax-and-duty-free importations, (3)
restructured income tax rates on business enterprises within the zone, (4) no foreign exchange
control, (5) liberalized regulations on banking and finance, and (6) the grant of resident status to
certain investors and of working visas to certain foreign executives and workers.

We believe that the classification set forth by the executive issuance does not apply merely to
existing conditions. As laid down in RA 7227, the objective is to establish a "self-sustaining,
industrial, commercial, financial and investment center" in the area. There will, therefore, be a
long-term difference between such investment center and the areas outside it. All told, the Court
holds that no undue favor or privilege was extended. The classification occasioned by EO 97-A
was not unreasonable, capricious or unfounded. To repeat, it was based, rather, on fair and
substantive considerations that were germane to the legislative purpose.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and Resolution
are hereby AFFIRMED. Costs against petitioners.

THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman

Catholic Apostolic Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-appellants.

FACTS:

Roman Catholic Apostolic Church, the plaintiff here, represented by the Bishop of Nueva
Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas,
Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the
churchyard, the convent and an adjacent lot used for a vegetable garden, containing an area off
1,624 square meters, in which there is a stable and a well for the use of the convent. In the
center is the remainder of the churchyard and the church. On the north is an old cemetery with
two of its walls still standing, and a portion where formerly stood a tower, the base of which still
be seen, containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax
on the lot adjoining the convent and the lot which formerly was the cemetery with the portion
where the tower stood.
The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of
land tax, alleging that the collection of this tax is illegal
The lower court absolved the defendants from the complaint in regard to the lot adjoining
convent and declared that the tax collected on the lot, which formerly was the cemetery and on
the portion where the lower stood, was illegal. Both parties appealed from this judgment.

ISSUE:
Whether or not the plaintiff is exempted from paying such taxes for the and such
collection by the respondent was illegal.
RULING:
YES. The exemption in favor of the convent in the payment of the land tax (sec. 344 [c]
Administrative Code) refers to the home of the parties who presides over the church and who
has to take care of himself in order to discharge his duties. In therefore must, in the sense,
include not only the land actually occupied by the church, but also the adjacent ground destined
to the ordinary incidental uses of man. Except in large cities where the density of the population
and the development of commerce require the use of larger tracts of land for buildings, a
vegetable garden belongs to a house and, in the case of a convent, it use is limited to the
necessities of the priest, which comes under the exemption.lawphi1.net
In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither
is it used for commercial purposes and, according to the evidence, is now being used as a
lodging house by the people who participate in religious festivities, which constitutes an
incidental use in religious functions, which also comes within the exemption.
The judgment appealed from is reversed in all it parts and it is held that both lots are exempt
from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such
tax, without any special pronouncement as to costs. So ordered.

REPUBLIC BANK, Petitioner, v. COURT OF TAX APPEALS AND THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.

FACTS:

This case rooted from the time that the Commissioner of Internal Revenue, the herein
respondent assessed petitioner the amounts of P1,060,615.06, plus 25% surcharge in the
amount of P265,153.76, or a total of P1,325,768.82, as 1% monthly bank reserve deficiency tax
for taxable year 1969 and P1,562,506.14, plus 25% surcharge in the amount of P390,626.53, or
a total of P1,953,132.67, as 1% monthly bank reserve deficiency tax for taxable year 1970.

In May 1973, petitioner requested through a letter a reconsideration of the assessment which
respondent denied as well in a letter (May 6, 1974). Petitioner contends that Section 249 of the
Tax Code is no longer enforceable, because Section 126 of Act 1459, which was allegedly the
basis for the imposition of the 1% reserve deficiency tax, was repealed by Section 90 of
Republic Act 337, the General Banking Act, and by Sections 100 and 101 of Republic Act 265.

ISSUE:

Whether or not section 249 of the tax code has been rendered inoperative by the repeal of
Section 126 of the Corporation Law.
RULING:

The court ruled that it is clear from the statutes then in force that there was no double taxation
involved one was a penalty and the other was a tax. At any rate, The payment of 1/10 of 1% for
incurring reserve deficiencies (Section 106, Central Bank Act) is a penalty as the primary
purpose involved is regulation, while the payment of 1% for the same violation is a tax for the
generation of revenue which is the primary purpose in this instance. Petitioner should not
complain that it is being asked to pay twice for incurring reserve deficiencies. It can always
avoid this predicament by not having reserve deficiencies.