Topic: Sec.

57 (A)- Withholding of Final Tax on Certain Incomes

24 – Chamber of Real Estate and Builder’s Association vs DOF Secretary Romulo and CIR Commissioner
Parayno

G.R. 160756

March 9, 2010

FACTS: Petitioners CREBA assails the validity of the RR 2-98 issued by the Bureau of Internal Revenue
(BIR) those involving creditable withholding taxes (CWT). In the said regulation, BIR provided for the
procedure on CWT and that income payments from the sale, exchange or transfer of real property,
other than capital assets, by persons residing in the Philippines and habitually engaged in the real estate
business were subjected to CWT. Petitioner contends that it cannot be subject to CWT as it is contrary to
lawfor it ignores the different treatment by RA 8424 of ordinary assets and capital assets which are
subject to FWT and that 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. Furthermore, the procedure in the regulation for CWTrequires the income recipient to file an
income tax return.

ISSUE: Whether or not the BIR erred in subjecting sale of ordinary assets to CWT?

HELD: NO, the Court ruled that the BIR has the capacity to provide for such regulations and procedure.
The Court also explained that the regulation was valid as the CWT is allowed by law under Sec. 57 (B) of
the NIRC, “require the withholding of a tax on the items of income payable to natural or juridical
persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the rate of
not less than one percent (1%) but not more than thirty-two percent (32%) thereof, which shall be
credited against the income tax liability of the taxpayer for the taxable year.” The court distinguished
the same with FWT under Sec. 57 (A), that enumerated the types of income subjected to FWT (sale of
capital assets) which are income generated in the form of real properties that return rental income,
shares of stock in a corporation that earn dividends or interest income received from savings. As the
Court stated, the provision of CWT does not categorize which type of income shall be subjected to CWT
and it encompasses any income other than those listed in 57(A). Therefore, since the law itself makes
distinctions, it is wrong to regard 57(A) and 57(B) in the same way.