REPUBLIC OF THE PHILIPPINES SUPREME COURT

MANILA

CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATIONS, INC., Petitioner,

- versus - G.R. NO. 160756 THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG, and THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondents. x -----------------------------------------------x

M E M O R A N D U M

Petitioner Chamber of Real Estate and Builders' Associations, Inc. (CREBA), by counsel, most respectfully submits this Memorandum in compliance with the Honorable Court's Resolution dated 03 August 2004.

STATEMENT OF THE CASE

Before the Honorable Court is Petitioner's Petition for Certiorari and Prohibition under Sections 1 and 2, Rule 65 of the 1997 Rules of Civil Procedure to declare null and void, and prohibit implementation of, (a) Section 27(E) of the National Internal Revenue Code of 1997 which imposes a Minimum Corporate Income Tax (MCIT); (b) BIR Revenue Regulations No. 9-98 promulgated by Respondents in implementation thereof; and (c) BIR Revenue Regulations No. 2-98, Sec. 3(j) of Revenue Regulations No. 6-2001, Sections 4(a)(ii) and 4(c)(ii) of Revenue Regulations No. 7-2003 likewise promulgated by Respondents, and which provide for the collection of a Creditable Withholding Tax (CWT) on sales of real property classified as ordinary assets. An Application for a Temporary Restraining Order accompanies the Petition.

Certified copies of the challenged provisions are attached to the Petition as Annexes “A-2”, “A-3,” “A-4” and “A-1”, respectively, and made an integral part thereof.

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The MCIT and CWT have been levied, assessed and collected by the Bureau of Internal Revenue from Petitioner's members since 1998 when the aforementioned Revenue Regulations were promulgated and took effect.

The Petition challenges the imposition of the MCIT on the ground that it violates the due process clause of the Constitution, and the CWT on grounds that it is not only contrary to law but unconstitutional as well for violating the due process and equal protection clauses.

STATEMENT OF FACTS

Section 27(E) of the National Internal Revenue Code of 1997 provides, in part:

Section 27 (E). Minimum corporate income tax on domestic corporations. ~ (1) Imposition of Tax. ~ A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum income tax is greater than the tax computed under subsection (A) of this Section for the taxable year. ...xxx... (Emphasis supplied)

On 25 August 1998 the Bureau of Internal Revenue (BIR) promulgated Revenue Regulations No. 9-98, pertinent portions of which state thus:

Sec. 2.27(E). Minimum Corporate Income Tax (MCIT) on Domestic Corporations. ~ A minimum income tax (MCIT) of two percent (2%) of the gross income as of the end of the taxable period (whether calendar or fiscal year, depending on the accounting period employed) is hereby imposed upon any domestic corporation beginning the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of minimum corporate income tax is greater than the normal income tax due from such corporation. (Emphasis supplied)

On 17 April 1998, the Bureau of Internal Revenue (BIR) promulgated Revenue Regulations No. 2-98, pertinent portions of which state thus:

“Section 2.57.2. Income payment subject to creditable withholding tax and rates prescribed thereon. – Except as herein otherwise

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provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines:

...xxx... ...xxx... ...xxx...

(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of. ~

Real property, other than capital assets, sold by an individual, corporation, estate, trust, trust fund or pension fund and the seller/transferor is habitually engaged in the real estate business in accordance with the following schedule ~

Those which are exempt from a withholding tax at source as prescribed in Sec. 2.57.5 of these regulations ~ Exempt

With a selling price of five hundred thousand pesos (P500,000.00) or less ~ 1.5%

With a selling price of more than five hundred thousand pesos (P500,000.00) but not more than two million pesos (P2,000,000.00) ~ 3.0%

With a selling price of more than two million pesos (P2,000,000.00) ~ 5.0%

...xxx... ...xxx... ...xxx...

Gross selling price shall mean the consideration stated in the sales document or the fair market value determined in accordance with Section 6 (E) of the Code, as amended, whichever is higher. ...xxx...

...xxx... ...xxx... ...xxx...

Sec. 2.58.2. Registration with the Register of Deeds. – Deeds of conveyances of land or land and building/improvement thereon arising from sales, barters, or exchanges subject to the creditable expanded withholding tax shall not be recorded by the Register of Deeds unless the Commissioner or his duly authorized representative has certified that such transfers and conveyances have been reported and the expanded withholding tax, inclusive of the documentary stamp tax, due thereon have been fully paid, ...xxx...” (Emphasis supplied)

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On 31 July 2001, the BIR promulgated Revenue Regulations No. 6-01 amending certain portions of Revenue Regulations No. 2-98 but reiterating the aforequoted provisions;

On 27 December 2002, the BIR promulgated Revenue Regulations No. 7-2003, pertinent portions of which state thus:

“SEC. 4. APPLICABLE TAXES ON SALE, EXCHANGE OR OTHER DISPOSITION OF REAL PROPERTY ~...xxx...

a. In the case of individual citizens (including estates and trusts), resident aliens, and non-resident aliens engaged in trade or business in the Philippines -

...xxx... ...xxx... ...xxx...

(ii) The sale of real property located in the Philippines, classified as ordinary asset, shall be subject to the creditable withholding tax (expanded) under Sec. 2.57.2(J) of Rev. Regs. No. 2-98, as amended, based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Code, whichever is higher, and consequently, to the ordinary income tax imposed under Sec. 24 (A)(1)(c) or 25(A)(1) of the Code, as the case may be, based on net taxable income.

...xxx... ...xxx... ...xxx...

c. In the case of domestic corporations. ~

...xxx... ...xxx... ...xxx...

(ii) The sale of land and/or building classified as ordinary asset and other real property (other than land/or building treated as capital asset), regardless of the classification thereof, all of which are located in the Philippines, shall be subject to the creditable withholding tax (expanded) under Sec. 2.57.2(J) of Rev. Regs. No. 2-98, as amended, and consequently, to the ordinary income tax under Sec. 27(A) of the Code. ...xxx...” (Emphasis supplied)

STATEMENT OF THE ISSUES

Reduced to the quintessence, the issues presented in this case are as follows:

1. May Government levy an income tax where no gain or profit is realized?

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2. May Government collect an income tax on sale of ordinary assets ahead of a determination of gain or net income, via a Creditable Withholding Tax?

ARGUMENT

I

LEVYING INCOME TAX WHERE THERE IS NO REALIZED GAIN IS

UNCONSTITUTIONAL AS IT VIOLATES DUE PROCESS

Section 27(E) of the National Internal Revenue Code (NIRC) of 1997, aforequoted, imposes on domestic corporations a Minimum Corporate Income Tax (MCIT) of two percent (2%) of gross income as of the end of the taxable year.

In implementation of this provision, Respondents promulgated BIR Revenue Regulations No. 9-98 aforequoted, which provides that “the MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of minimum corporate income tax is greater than the normal income tax due from such corporation”.

We respectfully submit that this is unconstitutional. A law cannot authorize what the Constitution prohibits; and the Constitution bans any act of the State that would amount to deprivation of property without due process of law.

In Sison Jr. vs. Ancheta, 130 SCRA 655, this Honorable Court declared thus:

“The power to tax is not unconfined. Affecting as it does property rights, both the due process and equal protection clauses may be properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. ...xxx... An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power.” (Emphasis supplied)

Further, in Commissioner of Internal Revenue vs. Court of Appeals, 301 SCRA 152, this Honorable Court laid down the fundamental rule that there must be realized gain before income tax may be imposed, thus:

“The three elements in the imposition of income tax are: (1) there must be gain or profit, (2) that the gain or profit is

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realized or received, actually or constructively, and (3) it is not exempted by law or treaty from income tax. ...xxx...”

Gross income is not realized gain. In the US whence the principles of business taxation in the Philippines originated, and from where provisions of our income tax laws were replicated to a large extent, ensconced jurisprudence is clear on what constitutes “income” or “gain”, thus:

“The defined concept of income has been uniformly restricted to a gain realized or a profit derived from capital, labor, or both. 1 ...xxx... An income tax is a direct tax upon income as therein defined.” 2 (Emphasis supplied)

“Whatever may constitute income must have the essential feature of gain to the recipient. If there is no gain, there is no income. Income is nothing more nor less than realized gain. 3...xxx... It is not synonymous with receipts.” 4 (Emphasis supplied)

Further:

“In order to determine whether there has been gain or loss, and the amount of the gain if any, we must withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the commencement of the period under consideration. 5 (Emphasis supplied)

“The characteristic and distinguishing attribute of income: not a gain accruing to capital; not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital...xxx... Enrichment through increase in value

1 Keasbey & Mattison Co. v. Rothensies, 133 F.2d 894, (citing Section 22(a) of the Internal Revenue Act

of 1936; Helvering v. Bruun, 309 U.S. 461; United States v. Safety Car Heating Co, 297 U.S. 88; Douglas v. Willcuts, 296 U.S. 1; United States v. Kirby Lumber Co, 284 U.S. 1; Burnet v. Wells, 289 U.S. 670; Corliss v. Bowers, 281 U.S. 376; Miles v. Safe Deposit & Trust Co, 259 U.S. 247; Eisner v. Macomber, supra; Lynch v. Hornby, 247 U.S. 339; Southern Pac. Co. v. Lowe, 247 U.S. 330; MacLaughlin v. Harr, 3 Cir., 99 F.2d 638)

2 Keasbey, supra, citing Brushaber v. Union Pacific R. Co, 240 U.S. 1; Eisner v. Macomber, 252 U.S. 189

3 Conner v. US, 303 F.Supp. 1187 4 Ibid, citing 47 C.J.S. Internal Revenue 98, p. 226 5 Doyle v. Mitchell Bros. Co, 247 U.S. 179 (1918)

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of capital investment is not income in any proper meaning of the term.” 6 (Emphasis supplied)

In their Comment 7, Respondents contend that the foregoing authorities cited by Petitioner are inapplicable for purposes of resolving the issue presented, simply because in those cases the subject of the tax imposition was not “gross income” but other items of receipts. Respondents seem to have missed entirely the point of those cases: that they lay down the fundamental rule that whatever may constitute income, or however the item of receipt may be termed ~ be it gross income, redemption or sale of stock dividend, proceeds from the sale of timberland, reimbursement, etc. ~ such income or receipt must constitute realized gain for it to be subjected to income tax.

Respondents do not contest this fundamental principle, nor do they take issue with Petitioner on the principle that income is entirely distinct from capital, and that income refers to profit or gain arising from capital.8

Yet Respondents maintain that the MCIT and its implementing Revenue Regulations do not violate these principles, and are thus “constitutionally sound” ~ because in their view “Gross Income” already constitutes realized gain and, as such, should be used as tax base for the income tax. Respondents further maintain that the MCIT does not tax “capital”, since the cost of goods sold and other direct expenses are deducted from gross receipts to arrive at Gross Income.

In so arguing, Respondents appear to have overlooked the fact that excluded from this deduction are all other major expenditures ~ foremost of which are interest expense and administrative expenses ~ all of which represent considerable money, or “capital” in the truest sense of the word, expended not only to produce but also to sell the goods in order to realize gain.

In this country where interest rates ~ even at the present level of nine percent (9%) ~ are perennially much higher than in other countries, interest expense alone is more than enough to wipe out any expected gain. This is particularly true of Petitioner's industry which, being highly capital-intensive, is most dependent on borrowings.

That Respondents would gloss over this material fact is perhaps understandable, as this is the very fact that destroys their proposition that “Gross Income” is realized gain.

6 Eisner v. Macomber, 252 U.S. 189 7 Respondents' Comment dated 17 March 2004 8 Ibid, p. 30

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Since the Gross Income that is being taxed is not the realized gain but rather includes a considerable part of capital, the tax therefore amounts to a tax on capital. And considering the substantial amounts involved, its collection amounts to a confiscation of capital, as it precludes the sufficient restoration of expended capital value that is essential if the business is to thrive, as is its inherent right. And capital is property.

Compounding the injury a thousand fold, the tax is being imposed and collected even when there is actually a loss (or, as the assailed Regulations term it, a “zero or negative taxable income”). Clearly, this cannot be anything but highly oppressive.

There is no public purpose served when businesses are deprived of their very reason for existence ~ to realize gain ~ or worse, when they are taxed despite actual loss. It injures not only businesses but the entire nation as well that depends on businesses as its engine of growth. On the other hand, public purpose is adequately served in imposing the income tax on realized gain ~ otherwise technically referred to as net income. There is no compelling reason to depart from this fundamental rule adhered to worldwide. Having no reason, this imposition cannot be anything but manifestly arbitrary.

Respondents, however, contend that the MCIT can hardly be considered arbitrary, oppressive and confiscatory since it assumes that a corporation will have a net income of only P6.25 for every P100 of gross income.9

Precisely, the arbitrariness lies in making such an unfounded assumption ~ i.e. that a corporation is certain to realize net income or gain. No less than this Honorable Court has taken judicial cognizance of the fact that gain is never certain, when it declared in Revidad vs. NIRC, 245 SCRA 356 thus:

“In the nature of things, the possibility of incurring losses is constantly present, in greater or lesser degree, in the carrying on of business operations, since some, indeed many, of the factors which impact upon the profitability or viability of such operations may be substantially outside control”. (Emphasis supplied)

Petitioner desists from presenting a detailed accounting of individual business losses, as Respondents wish, since it is of the view that the Honorable Court ~ not being a trier of fact, and having previously taken judicial cognizance of the ever-present possibility of incurring losses ~ need no longer be burdened by belabored computations. After all, no less than the statistics of government itself

9 Ibid, p. 30

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attest to the fact that the possibility of loss has become a painful reality for almost all businesses since the 1993 and 1997 economic meltdowns.

And besides, as the earlier mentioned settled principles dictate, income tax is to be levied on realized gain, not on an assumption of gain that may be realized.

Respondents rationalize the MCIT by stating that it was introduced because of “under declaration of income or over deduction of expenses”10, and that “the continued and repeated losses after operations or its consistent de minimis net income renders its financial statements suspect.” 11 Such statement amounts to Respondents’ admission to yet another offense to the Constitution: that of indicting all businessmen as tax evaders ~ an indictment which negates the mandate on presumption of innocence.

The Honorable Court in Citibank vs. CA, 280 SCRA 459 (1997), citing Commissioner of Internal Revenue vs. TMX Sales, Inc., 205 SCRA 184 (1992), has recognized that “the Tax Code already contains several safety measures to prevent falsification of income tax returns.” If despite these there have been, as Respondents allege, many incidences that would “render financial statements suspect”, it can only mean that Respondents have been derelict in their duty to effectively implement these safeguard measures.

In effect, therefore, what Respondents are saying is that with the MCIT, they find it more convenient to remain derelict ~ and in the process offend the Constitution by penalizing businesses with oppressive impositions ~ rather than exert effort to rectify their very own failings. This is clearly an abuse of power which the Constitution does not allow.

Respondents further argue that the carry-forward feature renders the imposition reasonable. This argument fails when one considers that when a corporation is compelled to pay a tax that should not be collected in the first place ~ such as when there is actually a loss rather than a gain, thus necessitating borrowings simply to cover the tax ~ not only is it being penalized for its misfortune, but is also being condemned to suffer greater injury in terms of substantial interest costs and opportunity costs.

Respondents also point to the exemptions allowable in case of loss due to prolonged labor dispute, force majeure and “legitimate business reverses“ ~ as if to suggest that these are the only factors which impact on business profitability and viability. Respondents are seemingly unaware of the more corrosive impact of, among others, sudden spikes in interest rates, sudden peso depreciation, and

10 Ibid, p. 39 11 Ibid, p. 40

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sudden rise in the world prices of oil ~ any of which could ruin the business at any time, by driving the cost of all other production and business inputs way beyond their projected levels. That these are not reasons for allowing exemption from MCIT, only serves to further highlight its arbitrary, oppressive and confiscatory nature.

A highly oppressive, confiscatory and manifestly arbitrary imposition unquestionably amounts to a deprivation of property without due process of law which, we respectfully submit, must be struck down by this Honorable Court as being repugnant to the Constitution.

It is prayed of this Honorable Court to prohibit its implementation. For, “to repeat the accepted norm, when arbitrariness is so manifest as to compel a conclusion that there would be in effect a confiscation of property, would a judgment of nullity under this clause be difficult to avoid. It would be the duty of the courts to say that no such authority could be located if respect is to be paid to the due process guarantee.” 12

In simplest terms, an income tax is a tax on income. And there can be no tax if there is no income.

II

A WITHHOLDING TAX ON SALES OF REAL PROPERTY CLASSIFIED AS ORDINARY ASSET

IS CONTRARY TO LAW, AND UNCONSTITUTIONAL AS IT VIOLATES DUE

PROCESS AND EQUAL PROTECTION

A. IT IS CONTRARY TO LAW

BIR Revenue Regulations No. 6-01 aforequoted, amending its predecessor Revenue Regulations No. 2-98, provides that sales of real property classified as ordinary assets are subject to a Creditable Withholding Tax (CWT) ~ based on whichever is higher of the gross selling price or fair market value of the property, and collectible upon consummation of every sales transaction. This is reiterated in Revenue Regulations No. 7-2003.

12 Enrique M. Fernando, The Constitution of the Philippines, p. 536, citing Churchill v. Conception, 34

Phil 969.

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In effect, these Regulations equate “ordinary assets” with “capital assets” in that (1) they use gross selling price or fair market value as basis for the income tax, and (2) they provide for collecting the income tax per transaction ~ upon consummation of sale ~ via withholding.

This is contrary to law. For, the NIRC distinguishes between “ordinary asset” and “capital asset”, thus:

“Sec. 22(Z). The term ‘ordinary income’ includes any gain from the sale or exchange of property which is not a capital asset or property described in Section 39(A)(1). (Emphasis supplied)

Sec. 39(A)(1). The term ‘capital assets’ means property held by the taxpayer (whether or not connected with his trade or business) but does not include stock in trade of the taxpayer ...xxx... or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business ...xxx...” (Emphasis supplied)

Thus distinguished, the NIRC prescribes two separate and distinct modes of collecting the income tax in the case of capital assets on one hand, and ordinary assets on the other.

The income tax on capital assets is termed as “capital gains tax” [Sections 24(D1) and 39, NIRC]. The NIRC prescribes as basis for the tax whichever is higher of the gross selling price or fair market value of the asset or property [Section 24(D1)]. It prescribes collection of the tax upon consummation of the transaction, via withholding (Section 57A).

On the other hand, as far as ordinary assets are concerned, the NIRC under entirely separate provisions prescribes (1) the manner for computing gain from sale thereof and levying the applicable income tax, and (2) the period for collecting said tax. Thus:

1. As to the manner of computing gain or taxable income:

“Sec. 27(A). ...xxx... the term ‘gross income’ derived from business shall mean gross sales less sales returns, discounts and allowances and cost of goods sold. ‘Cost of goods sold’ shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. ...xxx... For a manufacturing concern, costs of goods sold and manufactured shall include

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all costs of production of finished goods, such as raw materials, direct labor and manufacturing overhead. ...xxx...

Sec. 42(B). Taxable income from sources within the Philippines. ~ (1) General rule. ~ From the items of gross income specified in subsection (A) of this Section, there shall be deducted the expenses, losses and other deductions properly allocated thereto and a ratable part of the expenses, interests, losses and other deductions effectively connected with the business or trade ...xxx... The remainder, if any, shall be treated in full as taxable income from sources within the Philippines. ...xxx...” (Emphasis supplied)

2. As to the manner of collecting and paying the applicable income tax:

“Sec. 51. Individual returns. ~ ...xxx... (C) When to file. – The return of any individual specified above shall be filed on or before the fifteenth day of April of each year covering income for the preceding taxable year ...xxx...

Sec. 52. Corporation returns. ~ Every corporation subject to the tax herein imposed ...xxx... shall render, in duplicate, a true and accurate quarterly income tax return and final or adjustment return in accordance with the provisions of Chapter XII of this Title ...xxx...

Sec. 56. Payment and assessment of income tax for individuals and corporations. ~ (A) Payment of tax. ~ (1) In general. ~ The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. ...xxx...

Sec. 75. Declaration of quarterly corporate income tax. ~ Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax, as prescribed in Title II of this Code, shall be levied, collected and paid ...xxx....” (Emphasis supplied)

Very clearly under the aforecited provisions: (1) the tax on income from sale of ordinary assets shall be based on net taxable income, not gross selling price or gross income or fair market value; and (2) it shall be levied, collected and paid at

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the time the return is filed ~ meaning, at the end of the taxable period ~ not at the point of each sales transaction via a withholding tax.

Under these provisions consistent with the aforecited jurisprudence, where there is no realized gain (or net taxable income), there can be no income tax. And if there is no income tax, what tax is there to withhold or collect at the time when the consideration for the sale is received?

Basic is the rule that the power of administrative officials to promulgate rules in implementation of the statute is necessarily limited to what is provided in the legislative enactment,13 and no regulation may be issued which adds to or extends the law, even if the enforcement of such law would thereby be assured or improved.14

Particularly with respect to tax statutes, this Honorable Court in a long line of cases declared thus:

“Verily, taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. ...xxx...“ (Mactan Cebu International Port Authority vs. Marcos, 261 SCRA 667, 679-680, citing Agpalo, Ruben E., Statutory Construction [1990 ed.], 216 and Sands, Dallas C., Statutes and Statutory Construction, vol. 3 [1974] 179.) “The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be presumed beyond what the applicable statute ...xxx... expressly and clearly declares. Commission of Internal Revenue vs. La Tondeña, Inc. and CTA, 5 SCRA 665, citing Manila Railroad Company vs. Collector of Customs, 52 Phil. 950 citing Republic vs. Intermediate Appellate Court, 196 SCRA 335, 340. [See also Commissioner of Internal Revenue vs. Court of Appeals, 204 SCRA 182, 189 citing Commissioner of Internal Revenue vs. Fireman’s Fund Insurance Company, et al., 148 SCRA 315 (1987)]. (Emphasis supplied)

It is most respectfully submitted that the aforecited provisions of Revenue Regulations Nos. 2-98, 6-01 and 7-2003 ~ having been promulgated not only with grave abuse of discretion amounting to lack of jurisdiction, but patently in contravention of law as well ~ must be struck down as null and void.

13 Teoxon vs. Phil. Veterans Adm., 33 SCRA 585 14 Gregorio R. Puruganan, Administrative Rule Making: Problems and Perspectives, supra, p. 72 citing

also Young vs. Rafferty, 33 Phil. 556 (1916), Olsen vs. Aldance, 43 Phil. 259 (1922)

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In their Comment, however, Respondents maintain that the CWT on sales of real property classified as ordinary assets is within the bounds of the NIRC because (1) it is authorized under Sections 244 and 57(B) thereof; (2) the assailed Regulations did not alter the tax base for the income tax; and (3) the assailed Regulations do not lump ordinary assets in the same category as capital assets.

Petitioner disagrees.

The assailed Regulations overstep the Finance Secretary’s authority to require withholding

Section 244 of the 1997 NIRC invoked by Respondents refers to the general rule-making authority of the Finance Secretary as implementor of the Tax Code. It goes without saying that such authority is circumscribed by the provisions not only of the Tax Code itself but of the Constitution as well.

Section 57 of the 1997 NIRC provides for the withholding of tax at source. Section 57(A) enumerates the incomes for which withholding of final tax may be effected; whereas the subsequent paragraph Section 57(B) authorizes the finance Secretary to require withholding of a creditable tax on items of income.

The fundamental rule on withholding of taxes is that only fixed or determinable annual or periodical income is subject to withholding.15 And this rule, we respectfully submit, applies whether what is to be withheld is a final tax or a creditable tax.

This rule is patent in the enumeration under Section 57 (A), to wit: passive incomes such as interests, royalties, prizes and other winnings (Sec. 24B1); cash/property dividends (Sec. 24B2); capital gains from sale of stock shares (Sec. 24C); capital gains from sale of real property (Sec 24D1); for nonresident alien individuals engaged in trade/business in the Philippines ~ cash/property dividends, share in the distributable net income of a partnership/joint venture/etc, interests, royalties, prizes and other winnings (Sec. 25A2) and capital gains from sale of stock shares or real property (Sec. 25A2); for nonresident alien individuals not engaged in trade or business ~ tax of 25% on entire income from all sources within the Philippines such as interest, cash/property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration emoluments, or other fixed or determinable annual or periodic, or casual gains, profits, and income, ad capital gains; for alien employees MNCs, OBUs and petroleum service contractors

15 Jose N. Nolledo, “The National Internal Revenue Code of the Philippines Annotated”, 1993 Revised

Edition, p. 429.

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~ salaries/wages/etc (Secs. 25C, 25D, 25E); passive incomes of domestic corporations ~ interest from deposits and yields on deposit substitutes (Sec. 27D1), capital gains from sale of stock shares (Sec. 27D2), income from foreign currency deposits (Sec. 27D3), and capital gains from sale of real property (Sec. 27D5); on resident foreign corporations doing business in the Philippines ~ foreign currency transactions of OBUs (Sec. 28A4); profit remittances of branch to head office (Sec. 28A5); interest from deposits and yields from deposit substitutes (Sec. A7a); income from foreign currency deposits (Sec. A7b); capital gains on sale of stock shares (Sec. A7c); on non-resident foreign corporations not engaged in business in the Philippines ~ gross income from all sources within the Philippines such as interest, dividends, royalties, rents, salaries, premiums (except insurance), annuities, emoluments, or other fixed or determinable annual, periodic or casual gains, and capital gains Sec. 28B1); gross income of non-resident cinema film owner, lessor or distributor (Sec. 28B2); gross rentals lease or charter fees of non-resident owner or lessor of vessels (Sec. 28B3), aircraft/machinery (Sec. 28B4); interest on foreign loans of non-resident foreign corporations; fringe benefits (Sec. 33); and informer’s reward (Sec. 282).

While Section 57(B) invoked by Respondents does not contain any such specific enumeration, we respectfully submit, however, that it does not represent a blanket authority for Respondents to impose withholding on just any item of income they may please. For if it were, it would have been tantamount to an undue delegation of power on the part of Congress.

“It is likewise a basic precept in statutory construction that a statute should be interpreted in harmony with the Constitution.” Paras vs. Commission on Elections, 264 SCRA 49

Further:

“Axiomatic is the rule that a provision of law must be read in harmony with the other provisions.” Veterans Federation Party vs. Commission on Elections, 342 SCRA 244 (Emphasis supplied)

Since Section 57(B) is an integral part of Section 57 which is entitled “Withholding of tax at source”, said paragraph must therefore be read in the context of the entire Section. And this entire Section is premised on the aforecited fundamental rule that only fixed or determinable annual or periodical or passive income is subject to withholding.

Income derived from sale of ordinary (or non-capital) assets, or stock in trade, in the regular course of business ~ including the realty business ~ is neither fixed, determinable, periodic, casual nor passive. This is why, we

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respectfully submit, as earlier presented, the NIRC ~ under Sections 27(a), 42(B), 51, 52, 56 and 75 ~ treats this income differently in terms of the manner and period for computing, levying and collecting the applicable income tax.

Thus, when Section 57(B) authorizes the Finance Secretary to require withholding of creditable tax on items of income, the intendment is, we respectfully submit, that such items of income shall only be those similar in nature to the items of income enumerated in the paragraph immediately preceding it, i.e., Section 57(A).

It cannot be construed as just any other item of income, otherwise it would violate the accepted rule, to wit:

“Generally, statutes levying taxes or duties are to be construed strongly against the Government and in favor of the subject or citizens, because burdens are not to be imposed or presumed to be imposed beyond what statutes expressly and clearly declare. ...xxx...” Commissioner of Internal Revenue vs. Court of Appeals, 204 SCRA 182, 189 citing Commissioner of Internal Revenue vs. Fireman’s Fund Insurance Company, et al., 148 SCRA 315 (1987) (Emphasis supplied)

Much less can this be construed that withholding is applicable to income from sale of ordinary assets, as such interpretation would be inconsistent with the letter and intent of the aforecited body of provisions governing the levying, collecting and payment of the income tax on ordinary income.

“A law cannot possibly negate in one paragraph what it grants in another.” Genaro R. Reyes Construction Inc. vs. Court of Appeals, 234 SCRA 116 (Emphasis supplied)

“It is a rule in statutory construction that every part of the statute must be interpreted with reference to the context, i.e. that every part of the statute must be considered together with the other parts, and kept subservient to the general intent of the whole enactment.” Paras vs. Commission on Elections, supra (Emphasis supplied)

Similarly, pursuant to the aforecited rules laid down by the Honorable Court, Section 58(E) ~ which Respondents invoke as authority in issuing a certificate of

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authorization for the registration of real property transactions by the Register of Deeds ~ we respectfully submit must be construed in a manner that would reconcile the same with the aforecited body of provisions, rather than with Section 57 alone.

Reduced to the quintessence, the whole of Section 57 governs withholding of income tax on fixed, or determinable annual or periodical or passive income. On the other hand, Sections 22(Z), 39A1), 27(A), 42(B), 51, 52, 56 and 75 govern the computation, levying and collecting of income tax on ordinary income, i.e., from sale of ordinary assets.

The assailed Revenue Regulations violate all these provisions by collecting a CWT (1) based on whichever is higher of the stated consideration or the fair market value; and (2) per transaction, at the time of consummation.

The cases cited by Respondents in its Comment, Citibank vs. CA, supra and Filipinas Synthetic Fiber Corporation vs. CA, 316 SCRA 480, do not support their contention that withholding of tax on ordinary income from sale of ordinary assets in the ordinary course of business is legal under the Tax Code.

For, in Citibank vs. CA, supra, the income payment in question was rental income ~ a fixed and periodic income; while in Filipinas Synthetic Fiber Corporation vs. CA, supra, the income payments were interest, royalties and guarantee fee ~ which are passive incomes. Thus, when the Honorable Court declared in Citibank that the tax on the rental payments were withheld legally, and in Filipinas Synthetic that the method of withholding tax at source is legal, clearly what the Honorable Court was upholding was the legality of withholding of tax on fixed, determinable, periodic or annual, casual or passive income.

The assailed Regulations disprove Respondents’ contention that the CWT does not alter the income tax base

Under the aforecited Sections 27(A) and 42(B) of the NIRC the tax base of the income tax on ordinary income is net taxable income ~ i.e. Gross Income (gross sales less sales returns/discounts and cost of goods sold) less “expenses, losses and other deductions properly allocated thereto and a ratable part of the expenses, interests, losses and other deductions effectively connected with the business or trade”.

Under the assailed Revenue Regulations, on the other hand, the tax base is the Gross Selling Price or total amount of consideration or its equivalent paid to the seller/owner ~ Gross Selling Price being defined therein as “the consideration stated in the sales document or the fair market value determined in accordance

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with Section 6 (E) of the Code, as amended, whichever is higher.” Res ipso loquitor.

Respondents, however, argue that the tax base was pegged on the GSP or FMV because “Section 57 of the NIRC requires the base of the withholding tax to be pegged at the income payable” and “the buyer or income payor would not know, or will not be privy to, how much the seller will have as its final net income."16

This is absurd. Regardless of what the final net income of the taxpayer may be, if any, the income payor (buyer) is bound to pay only the consideration stated in the transaction document, not the Fair Market Value. And, invariably, the Fair Market Value as determined by Respondents is much higher than this consideration ~ a fact that further highlights the arbitrary, oppressive and confiscatory nature of the imposition.

Respondents also point to the refund mechanism whereby any excess of CWT payments over the income tax payable at the end of the taxable year will be subject to refund. This is as if to say that an illegal act ~ that of collecting a tax in a manner violative of the law ~ can be rendered legal by the mere act of refunding. If a person commits theft, will returning the stolen item exonerate him or obliterate his crime?

Every time the CWT is collected ~ at every point of sale of ordinary asset ~ a violation of law is committed and grave injury is inflicted. The possibility that it may be refunded, or even the act of actually refunding it, will not obliterate such violation.

Albeit, Respondents’ touted refund mechanism is no remedy at all. No less than Citibank, supra, cited by Respondents, and many other similar cases, attest to this. In these cases the taxpayers have had to wait years for the BIR to act on their applications for refund ~ only to be eventually denied despite the merits of their claims ~ and spend more years in costly litigation praying of the Honorable Court to compel the BIR to accord them their just due.

To quote the Honorable Court in Citibank, supra:

“Heavily militating against Respondent Commissioner is the ancient principle that no one, not even the State, shall enrich oneself at the expense of another.” (Emphasis supplied)

16 Comment, p. 52

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Respondents obfuscate in contending that the assailed Regulations do not lump ordinary assets in the same category as capital assets

In their Comment, Respondents present the procedural distinctions between a final withholding tax and a creditable withholding tax, and conclude by stating that a final withholding tax is imposed on sale of capital assets, while creditable withholding tax is imposed on sale of ordinary assets.17

This is utterly baseless. Nowhere does the 1997 NIRC authorize collection of a withholding tax ~ whether final or creditable ~ on sale of ordinary assets.

The fact that the income tax on sale of ordinary assets is (1) being computed in a similar manner as the final tax on sale of capital assets, i.e. based on whichever is higher of the stated consideration or the fair market value; and (2) being collected via withholding, upon consummation of the transaction as it is with the final tax, disproves Respondents contention that ordinary assets are not, contrary to law, being treated in a similar manner as capital assets.

B.

IT IS DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS

“Income is nothing more nor less than realized gain. It is not synonymous with receipts”. 18

“A tax, for example, that would claim 80 percent of a person’s net income would be clearly oppressive and could unquestionably be struck down as a deprivation of his property without due process of law.” 19

In the case of the CWT when applied to sales of real property classified as ordinary assets, it is worse: there is not even any net income or gain to speak of in the first place, yet the income tax is already being collected ~ on the gross selling price or fair market value, to boot.

The assailed withholding tax is no mere pittance ~ at the lowest CWT rate of 1.5% on a selling price of P500,000.00 and a total number of 500 housing units

17 Ibid, p. 54 18 Conner v. US, supra 19 Isagani A. Cruz, Constitutional Law, 1993 ed. p. 85.

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sold, the total tax amounts to P3.75 Million. At the maximum rate of 5% on a selling price of P3,000,000.00 and a total of only 200 units sold, the tax amounts to a staggering P30,000 Million.

It is an amount which, in lieu of borrowings that entail additional considerable expense, may otherwise be used by the enterprise to pay labor wages, materials, cost of money and other expenses necessary to continue operating regularly.

It should not require voluminous documents and detailed computations for anyone to picture the nightmarish impact of this considerable cash outlay on the cash flow situation ~ and viability ~ of a business enterprise in this realty industry where, due to the huge investment and borrowings involved in land and housing development and its long gestation period, is highly susceptible to losses from sudden and unpredictable interest rate surges and continually spiraling development/construction costs; is the most heavily taxed among all businesses; is subject to prohibitive “up-front” regulatory fees from at least 20 government agencies ~ to name but a few factors that impact on expected gain.

In this kind of business more than in any other, gain is never assured simply by receipt of the selling price of assets sold. To reiterate this Honorable Court's explanation in Revidad vs. NIRC, 245 SCRA 356:

“In the nature of things, the possibility of incurring losses is constantly present, in greater or lesser degree, in the carrying on of business operations, since some, indeed many, of the factors which impact upon the profitability or viability of such operations may be substantially outside control”.

A classic example of factors “outside control” that “impact upon profitability” or gain, is the regional crisis that started in July 1997 that displaced and rendered bankrupt thousands of developers as a result of the sudden increase in interest rates from 18% to 38% and the depreciation of the peso from P26.50 to P54.00 to the dollar, from which to this day only a handful had recovered.

If the imposition of an income tax based on gross income is highly oppressive, confiscatory and manifestly arbitrary, it is worse ~ and even downright immoral ~ in the case of the CWT that is based on whichever is higher of the gross selling price or fair market value ~ an amount that is generally higher than the contract or selling price, and which by no stretch of imagination can be considered as gross income, much less gain or taxable net income. Unquestionably it amounts to a deprivation of property without due

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process of law ~ which, we respectfully submit, should not be allowed by this Honorable Court “if respect is to be paid to the due process guarantee.” 20

To all these, Respondents in their Comment simply argue that Petitioner’s description of the negative effects is incomplete inasmuch as it emphasizes only the cash outflow without stating the projected inflow,21 and goes on to illustrate its own projection of inflows from gross sales.

Respondent’s illustration is utterly fallacious as it is self-serving. It falsely assumes that the CWT represents the only cash outflow ~ when in fact real property sellers are burdened with numerous substantial upfront cash payments such as the VAT, numerous substantial regulatory fees, and brokers’ commissions; not to mention considerable regular outflows for cost of raw land, development and construction costs, amortization of principal and interest on loans, salaries and wages, and so on.

Be that as it may, Respondents' argument is beside the point, as cash inflow is not synonymous with realized gain.

B.

IT VIOLATES THE EQUAL PROTECTION CLAUSE

Equal protection requires that all persons or things similarly situated should be treated alike. Similar subjects, in other words, should not be treated differently, so as to give undue favor to some and unjustly discriminate against others. 22

In the same vein, as far as the standard of equal protection in taxation is concerned, this Honorable Court declared in Sison v. Ancheta, supra, thus: “all that is required is that the tax applies equally to all persons, firms and corporations placed in similar situations.”

A real estate enterprise is similar in situation to, or no different from, a manufacturing enterprise ~ in that it is involved in a continuous process of production (i.e. land acquisition, land development, housing construction) and sales. Just like any other production venture, it incurs production input costs and business expenditures on a regular and continuing basis. Its manner of producing or doing business is not much different from, for instance, the production and sale of furniture, appliances and other capital goods. The only difference is that the “goods” or stock-in trade produced and sold by a real estate enterprise are lots or house/lot units.

20 Enrique M. Fernando, supra 21 Comment, p. 57 22 Isagani A. Cruz, supra, p. 120.

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Yet, unlike the VAT and other transaction taxes which are levied on all regular businesses not otherwise exempt by law, the CWT is being levied and collected by Respondents only on real estate enterprises.

Under the assailed Revenue Regulations, income from sales of real property classified as ordinary asset is being lumped by Respondents in the same category as fixed or determinable income such as professional fees, service contractors’ fees, rentals and the like, that are subject to CWT. 23

In their Comment, Respondents explain this by contending that for purposes of the CWT, the real estate industry can be validly treated as a class different from other businesses such as manufacturing enterprises ~ despite analogous production processes ~ because of the ticket prices and the number of transactions involved.24

In so contending, Respondents appear to have overlooked the fact that other businesses produce and market similarly “high ticket” items such as heavy equipment, jewelry, furniture, appliances and other capital goods ~ the prices of which, in certain instances, are even higher than those of house or lot units. Yet these businesses are not similarly subjected to the CWT.

As far as transactions by manufacturers with the top 5000 corporations, which Respondents allege are similarly subject to the CWT, these transactions are in the nature of supply contracts. Such being the case, the income payments relative thereto fall within the category of fixed or determinable income that may be subject to withholding under the law. This is not the case with sellers of real property classified as ordinary assets.

Segregating sales of real property classified as ordinary asset from the income tax category where all other ordinary assets belong, and placing it in the income tax category of fixed fees or contractual income or capital gains to which it bears no similarity whatsoever, is anything but unfounded, unreasonable and arbitrary. It does not in any way “conform(s) to the practical dictates of justice and equity”.25

We respectfully submit that the Honorable Court cannot allow such unjust discrimination. For, under the entrenched doctrine, “where no valid distinction could be made as to the relevant conditions that call for a distinct response, there should be none as to the privileges conferred and the liabilities imposed.” 26

23 Section 2.57.2, BIR Revenue Regulations No. 6-01 24 Comment, p. 61 25 Sison v. Ancheta, supra 26 Enrique M. Fernando, supra., p. 546.

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From all the foregoing arguments it should be clear, we respectfully submit, that in promulgating the assailed Revenue Regulations Respondents acted not only with grave abuse of discretion amounting to lack of jurisdiction, but worse, in violation of the Constitution and the very law they are charged to implement.

APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Petitioner respectfully prays of the Honorable Court to issue a temporary restraining order to enjoin Respondents from further implementing and enforcing Section 27(E) of the NIRC and Revenue Regulations No. 9-98 relating to the Minimum Corporate Income Tax (MCIT), and the assailed provisions of Revenue Regulations No. 6-01, No. 7-2003, and No. 2-98 relating to the CWT, during the pendency of this case; and thereafter, to grant the Petition and make the injunction permanent.

In support of this plea, Petitioner repleads and restates the foregoing arguments.

Petitioner respectfully states further that implementation of the assailed provisions of law and Regulations is currently inflicting incalculable injury and harm upon real estate enterprises that it represents.

As earlier stated, the ever-present possibility of incurring losses that the Honorable Court recognized in Revidad vs. NIRC, supra, has already become a painful reality for almost all businesses since the 1997 economic meltdown.

As far as the CWT is concerned, Petitioner respectfully states that when the BIR first attempted to impose the same in 1989, it had strenuously objected and made plain that it would challenge the constitutionality of the imposition ~ a move that was suspended in response to the then BIR administration’s plea for cooperation and sacrifice in favor of a financially strapped government. Developers/sellers represented by herein Petitioner were then in a position to bear that sacrifice, as those were the boom years of real estate ~ and the 10% VAT on realty sales and the 2% MCIT which took effect in 1998 were then not yet in existence.

Times have changed, however. Petitioner’s industry has suffered incalculable damage from the 1997 economic catastrophe from which they have not yet recovered. The real estate market has slumped to an unprecedented low level due to the severe erosion of the people’s purchasing power. The long-expected economic recovery has not materialized. With the continuing depressed

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market, the prospect of sales needed to generate sufficient cash inflows continue to remain bleak. A host of seemingly insurmountable political, economic and peace and order problems have surfaced and multiplied.

Petitioner fears that unless Respondents are restrained from further enforcing the assailed Revenue Regulations, the housing industry may finally collapse. We beg of the Honorable Court to consider the following:

1. Unlike in the past, developers/sellers represented herein by Petitioner now have to contend with the 10% VAT on realty sales transactions which, considering the severely depressed market, cannot be passed on to buyers without losing substantial sales;

2. With the way the CWT is being implemented, in effect the rates have been increased because of the use of zonal valuation as basis, the imposition of interest and penalties on the seller, and increased documentary stamp taxes, transfer fees and registration fees on the part of the buyers;

3. The substantial disruption in cash flows because of the compounding and simultaneous payments of VAT, CWT and broker’s commissions ~ which adversely impact on developers/sellers’ ability to meet regular monthly loan repayments, construction materials, wages, and other operating expenses. This is aggravated not only by the depressed market, but also by the fact that in normal realty sales transactions, full payment of the consideration is received only after a given period ranging from two (2) months to one (1) year or longer. Spot cash sales are a rarity; and if at all availed of, require substantial discounts. Sales transactions, therefore, do not translate to immediate cash inflows. Thus, simply to be able to pay the CWT on a per transaction basis ~ on top of the 10% VAT on sales, broker’s 10% commission, regulatory fees and other disbursements/payments necessary to complete the transaction ~ substantial bank borrowings on the part of the real property seller is necessitated;

4. The clear and present danger of interest rates rising to much higher levels anytime now, because of projected heavy borrowings by the government to meet its fiscal deficit;

5. The increase in power costs spawned by the Purchased Power Adjustment (PPA), additional charges spawned by the independent power producers (IPPs), the increase in power rates to effect reimbursement of Meralco’s 28 Billion Peso refund;

6. The increase in prices of construction materials spawned by the peso depreciation;

7. The worsening level of corruption in government, by which petitioner’s industry is the worst hit;

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8. Increase in real estate taxes and regulatory fees of both the national and local governments, ranging from 200 % to 1,000 %;

9. The compounding effect of the 2% MCIT on gross income even in case of break-even or actual loss; and

10. The two hundred and thirty-three percent 233% increase in Documentary Stamps Tax on all loan instruments, which took effect this year, and which are passed on by banks and lending institutions to all loan borrowers.

As far as the MCIT is concerned, we respectfully submit that this has no place in statute books here or in any other civilized democratic society, even as it negates the Constitutional mandate on presumption of innocence.

The real estate business ~ being highly capital-intensive, long-gestating and totally subject to erratic government policies and regulations ~ is risky enough as it is. It is made doubly risky by government neglect and dereliction that have brought the economy down to its knees and allowed it to remain so for years ~ a dereliction compounded by the inanity of the CWT. Now it is a thousand fold more risky and daunting with the 2% MCIT imposed even with actual losses incurred ~ an imposition that not only adds insult to injury, but substantially penalizes misfortune as well.

The prevailing adverse conditions aforecited cannot be anything but ruinous. They all give rise to the undeniable fact that realty enterprises ~ as with all businesses ~ however hard they try to realize gain under these conditions, are incurring heavy losses instead. Countless enterprises have retrenched if not completely shut down.

This fact is highlighted by Government's own statistics, to wit: the unemployment rate now stands at 13%, from only some 1.9 Million unemployed in 1990 to more than 3.2 Million in 2001; industrial loans by the DBP plunged from a high of 49.7 Billion in 1995 to only 6.6 Billion in 2001, while real estate loans plummeted from 2.8 Billion in 1994 to only 170 Million in 2001; the number of licenses to sell issued by the Housing and Land Use Regulatory Board ~ the main indicator of land and housing development activity ~ dropped from 456,549 in 1996 to only 143,549 in 2000; Pag-IBIG housing loans dropped from 10.8 Billion in 1997 to only 3.8 Billion in 2001; and the construction sector’s contribution to GDP dropped from a high of 6.4% in 1997 to only 5% in 2001.

To paraphrase the Honorable Court, no one ~ not even Government ~ should be allowed to rise upon the ruins of others, least of all upon that of its own people.

Unless relief is granted and Respondents are restrained from enforcing the assailed provisions on the MCIT and CWT, small- and medium-scale realty

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enterprises, if not other similarly situated businesses, will definitely close shop ~ until none but the likes of the Ayalas, Ortigases, Zobels and the Chinese taipans remain.

At the other end, as far as the CWT is concerned, the relief prayed for will not prejudice Respondents or the government in any way. It will occasion no loss of revenue at all: the income tax that needs to be collected will be collected ~ albeit not on a per transaction basis as Respondents want it to be, but on a quarterly basis as the law prescribes it to be. If at all it may result in any inconvenience, it is only insofar as programming of budget releases is concerned, to coincide with the quarterly income tax payment period prescribed by law. Such inconvenience certainly would be nothing compared to the catastrophe that would ensue from proverbially “killing the goose that lays the golden egg”.

There is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law available to Petitioner, except the Petition for Certiorari and Prohibition with an Application for Temporary Restraining Order.

RELIEF

WHEREFORE, it is respectfully prayed:

(1) That pending the outcome of this proceeding, a temporary restraining order be issued enjoining Respondents from enforcing/implementing Revenue Regulations No. 9-98 dated 25 August 1998, Sections 2.57.2 (J) and 2.58.2 of Revenue Regulations No. 2-98 dated 17 April 1998, Section 3(j) of Revenue Regulations No. 6-01 dated 31 July 2001, Sections 4(a)(ii) and 4(c)(ii) of Revenue Regulations No. 7-2003 dated 27 December 2002 and all other provisions of all other Revenue Regulations referring to the imposition, assessment and collection of MCIT and CWT on sale of real property classified as ordinary asset;

(2) That judgment be rendered declaring Section 27(E) of the National Internal Revenue Code of 1997, Revenue Regulations No. 9-98 dated 25 August 1998, Sections 2.57.2 (J) and 2.58.2 of Revenue Regulations No. 2-98 dated 17 April 1998, Section 3(j) of Revenue Regulations No. 6-01 dated 31 July 2001, Sections 4(a)(ii) and 4(c)(ii) of Revenue Regulations No. 7-2003 dated 27 December 2002 and all other provisions of all other Revenue Regulations referring to the imposition, assessment and collection of MCIT and CWT on sale of real property classified as ordinary asset as null and void, and making permanent the temporary restraining order issued; and

(3) For such further or other relief as may be deemed just or equitable. Makati City for Manila, 28 September 2004.

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ISAGANI A. CRUZ Counsel for Petitioner

1504 The Centerpoint, Julia Vargas Avenue, Ortigas Center, Pasig City

Roll No. 3575 PTR No. 0439632

Issued on 16 January 2004 at Pasig City IBP No. 607091

Issued on 13 January 2004 by Manila III

MANUEL M. SERRANO Collaborating Counsel for Petitioner Room 703 Fedman Bldg, 199 Salcedo St,

Legazpi Village, Makati City Roll No. 14178

PTR No. 7013942 Issued on 06 January 2004 At Makati City

IBP No. 602887 Issued on 05 January 2004 At Makati City

COPY FURNISHED: THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO Respondent Malacañang, Manila THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR. Respondent 5th Floor, National Office Bldg., Diliman, Quezon City THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG Respondent 6th Floor, Executive Tower Bldg., Bangko Central ng Pilipinas Complex, Roxas Blvd., Manila