Branch 74 of Antipolo City (Antipolo RTC).
This case, docketed
FIRST DIVISION
STA. LUCIA REALTY & DEVELOPMENT, INC., G.R. No. 166838
Petitioner,
Present:
- versus - VELASCO, JR .,*
Acting Chairperson,
LEONARDO-DE CASTRO,
CITY OF PASIG, BERSAMIN,**
Respondent, DEL CASTILLO, and
PEREZ, JJ.
MUNICIPALITY OF CAINTA, PROVINCE OF Promulgated:
RIZAL,
Intervenor. June 15, 2011
x---------------------------------------------
-------x
DECISION
LEONARDO-DE CASTRO, J.:
For review is the June 30, 2004 Decision[1] and the
January 27, 2005 Resolution[2] of the Court of Appeals in CA-G.R.
CV No. 69603, which affirmed with modification the August 10,
1998 Decision[3] and October 9, 1998 Order[4] of the Regional Trial
Court (RTC) of Pasig City, Branch 157, in Civil Case No. 65420.
Petitioner Sta. Lucia Realty & Development, Inc. (Sta.
Lucia) is the registered owner of several parcels of land with
Transfer Certificates of Title (TCT) Nos. 39112, 39110 and 38457,
all of which indicated that the lots were located in Barrio Tatlong
Kawayan, Municipality of Pasig[5] (Pasig).
The parcel of land covered by TCT No. 39112 was
consolidated with that covered by TCT No. 518403, which was
situated in Barrio Tatlong Kawayan, Municipality of Cainta,
Province of Rizal (Cainta). The two combined lots were
subsequently partitioned into three, for which TCT Nos. 532250,
598424, and 599131, now all bearing the Cainta address, were
issued.
TCT No. 39110 was also divided into two lots, becoming
TCT Nos. 92869 and 92870.
The lot covered by TCT No. 38457 was not segregated,
but a commercial building owned by Sta. Lucia East Commercial
Center, Inc., a separate corporation, was built on it.[6]
Upon Pasigs petition to correct the location stated in
TCT Nos. 532250, 598424, and 599131, the Land Registration
Court, on June 9, 1995, ordered the amendment of the TCTs to
read that the lots with respect to TCT No. 39112 were located
in Barrio Tatlong Kawayan, Pasig City.[7]
On January 31, 1994, Cainta filed a petition[8] for the
settlement of its land boundary dispute with Pasig before the RTC,
as Civil Case No. 94-3006, is still pending up to this date.
On November 28, 1995, Pasig filed a
Complaint,[9] docketed as Civil Case No. 65420, against Sta. Lucia
for the collection of real estate taxes, including penalties and
interests, on the lots covered by TCT Nos. 532250, 598424,
599131, 92869, 92870 and 38457, including the improvements
thereon (the subject properties).
Sta. Lucia, in its Answer, alleged that it had been
religiously paying its real estate taxes to Cainta, just like what its
predecessors-in-interest did, by virtue of the demands and
assessments made and the Tax Declarations issued by Cainta on
the claim that the subject properties were within its territorial
jurisdiction. Sta. Lucia further argued that since 1913, the real
estate taxes for the lots covered by the above TCTs had been paid
to Cainta.[10]
Cainta was allowed to file its own Answer-in-
Intervention when it moved to intervene on the ground that its
interest would be greatly affected by the outcome of the case. It
averred that it had been collecting the real property taxes on the
subject properties even before Sta. Lucia acquired them. Cainta
further asseverated that the establishment of the boundary
monuments would show that the subject properties are within its
metes and bounds.[11]
Sta. Lucia and Cainta thereafter moved for the
suspension of the proceedings, and claimed that the pending
petition in the Antipolo RTC, for the settlement of boundary
dispute between Cainta and Pasig, presented a prejudicial question
to the resolution of the case.[12]
The RTC denied this in an Order dated December 4,
1996 for lack of merit. Holding that the TCTs were conclusive
evidence as to its ownership and location,[13] the RTC, on August
10, 1998, rendered a Decision in favor of Pasig:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of [Pasig], ordering Sta. Lucia Realty and
Development, Inc. to pay [Pasig]:
1) P273,349.14 representing unpaid real estate taxes and penalties as
of 1996, plus interest of 2% per month until fully paid;
2) P50,000.00 as and by way of attorneys fees; and
3) The costs of suit.
Judgment is likewise rendered against the intervenor
Municipality of Cainta, Rizal, ordering it to refund to Sta. Lucia
Realty and Development, Inc. the realty tax payments improperly
collected and received by the former from the latter in the
aggregate amount of P358, 403.68.[14]
After Sta. Lucia and Cainta filed their Notices of Appeal,
Pasig, on September 11, 1998, filed a Motion for Reconsideration
of the RTCs August 10, 1998 Decision.
The RTC, on October 9, 1998, granted Pasigs motion in an
Order[15] and modified its earlier decision to include the realty
taxes due on the improvements on the subject lots:
WHEREFORE, premises considered, the plaintiffs
motion for reconsideration is hereby granted. Accordingly, the
Decision, dated August 10, 1998 is hereby modified in that the
defendant is hereby ordered to pay plaintiff the amount
of P5,627,757.07 representing the unpaid taxes and penalties on the
1
improvements on the subject parcels of land whereon real estate
taxes are adjudged as due for the year 1996.[16]
Accordingly, Sta. Lucia filed an Amended Notice of
Appeal to include the RTCs October 9, 1998 Order in its protest.
On October 16, 1998, Pasig filed a Motion for Execution
Pending Appeal, to which both Sta. Lucia and Cainta filed several
oppositions, on the assertion that there were no good reasons to
warrant the execution pending appeal.[17]
On April 15, 1999, the RTC ordered the issuance of a
Writ of Execution against Sta. Lucia.
On May 21, 1999, Sta. Lucia filed a Petition
for Certiorari under Rule 65 of the Rules of Court with the Court
of Appeals to assail the RTCs order granting the
execution. Docketed as CA-G.R. SP No. 52874, the petition was
raffled to the First Division of the Court of Appeals, which on
September 22, 2000, ruled in favor of Sta. Lucia, to wit:
WHEREFORE, in view of the foregoing, the instant petition is
hereby GIVEN DUE COURSE and GRANTED by this
Court. The assailed Order dated April 15, 1999 in Civil Case No.
65420 granting the motion for execution pending appeal and
ordering the issuance of a writ of execution pending appeal is
hereby SET ASIDE and declared NULL and VOID.[18]
The Court of Appeals added that the boundary dispute
case presented a prejudicial question which must be decided before
x x x Pasig can collect the realty taxes due over the subject
properties.[19]
Pasig sought to have this decision reversed in a Petition
for Certiorari filed before this Court on November 29, 2000, but
this was denied on June 25, 2001 for being filed out of time. [20]
Meanwhile, the appeal filed by Sta. Lucia and Cainta
was raffled to the (former) Seventh Division of the Court of
Appeals and docketed as CA-G.R. CV No. 69603. On June 30,
2004, the Court of Appeals rendered its Decision, wherein it agreed
with the RTCs judgment:
WHEREFORE, the appealed Decision is
hereby AFFIRMED with the MODIFICATION that the award of
P50,000.00 attorneys fees is DELETED.[21]
In affirming the RTC, the Court of Appeals declared that
there was no proper legal basis to suspend the
proceedings.[22] Elucidating on the legal meaning of a prejudicial
question, it held that there can be no prejudicial question when the
cases involved are both civil.[23] The Court of Appeals further held
that the elements of litis pendentia and forum shopping, as alleged
by Cainta to be present, were not met.
Sta. Lucia and Cainta filed separate Motions for
Reconsideration, which the Court of Appeals denied in a
Resolution dated January 27, 2005.
Undaunted, Sta. Lucia and Cainta filed separate Petitions
for Certiorari with this Court. Caintas petition, docketed as G.R.
No. 166856 was denied on April 13, 2005 for Caintas failure to
show any reversible error.Sta. Lucias own petition is the one
subject of this decision.[24]
In praying for the reversal of the June 30, 2004 judgment
of the Court of Appeals, Sta. Lucia assigned the following errors:
ASSIGNMENT OF ERRORS
I
THE HONORABLE COURT OF APPEALS ERRED IN
AFFIRMING [WITH MODIFICATION] THE DECISION OF
THE REGIONAL TRIAL COURT IN PASIG CITY
II.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
SUSPENDING THE CASE IN VIEW OF THE PENDENCY OF
THE BOUNDARY DISPUTE WHICH WILL FINALLY
DETERMINE THE SITUS OF THE SUBJECT PROPERTIES
III.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE PAYMENT OF REALTY TAXES
THROUGH THE MUNICIPALITY OF CAINTA WAS VALID
PAYMENT OF REALTY TAXES
IV.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT IN THE MEANTIME THAT THE
BOUNDARY DISPUTE CASE IN ANTIPOLO CITY
REGIONAL TRIAL COURT IS BEING FINALLY RESOLVED,
THE PETITIONER STA. LUCIA SHOULD BE PAYING THE
REALTY TAXES ON THE SUBJECT PROPERTIES THROUGH
THE INTERVENOR CAINTA TO PRESERVE THE STATUS
QUO.[25]
Pasig, countering each error, claims that the lower courts
correctly decided the case considering that the TCTs are clear on
their faces that the subject properties are situated in its territorial
jurisdiction. Pasig contends that the principles of litis pendentia,
forum shopping, and res judicata are all inapplicable, due to the
absence of their requisite elements. Pasig maintains that the
boundary dispute case before the Antipolo RTC is independent of
the complaint for collection of realty taxes which was filed before
the Pasig RTC. It avers that the doctrine of prejudicial question,
which has a definite meaning in law, cannot be invoked where the
two cases involved are both civil. Thus, Pasig argues, since there is
no legal ground to preclude the simultaneous hearing of both cases,
the suspension of the proceedings in the Pasig RTC is baseless.
Cainta also filed its own comment reiterating its legal
authority over the subject properties, which fall within its territorial
jurisdiction. Cainta claims that while it has been collecting the
realty taxes over the subject properties since way back 1913, Pasig
only covered the same for real property tax purposes in 1990,
1992, and 1993. Cainta also insists that there is a discrepancy
between the locational entries and the technical descriptions in the
TCTs, which further supports the need to await the settlement of
the boundary dispute case it initiated.
The errors presented before this Court can be narrowed
down into two basic issues:
1) Whether the RTC and the CA were correct in deciding Pasigs
Complaint without waiting for the resolution of the boundary
dispute case between Pasig and Cainta; and
2) Whether Sta. Lucia should continue paying its real property taxes to
Cainta, as it alleged to have always done, or to Pasig, as the
location stated in Sta. Lucias TCTs.
We agree with the First Division of the Court of Appeals
in CA-G.R. SP No. 52874 that the resolution of the boundary
dispute between Pasig and Cainta would determine which local
2
government unit is entitled to collect realty taxes from Sta.
Lucia.[26]
The Local Government Unit entitled
To Collect Real Property Taxes
The Former Seventh Division of the Court of Appeals
held that the resolution of the complaint lodged before the Pasig
RTC did not necessitate the assessment of the parties evidence on
the metes and bounds of their respective territories. It cited our
ruling in Odsigue v. Court of Appeals[27] wherein we said that a
certificate of title is conclusive evidence of both its ownership and
location.[28] The Court of Appeals even referred to specific
provisions of the 1991 Local Government Code and Act. No. 496
to support its ruling that Pasig had the right to collect the realty
taxes on the subject properties as the titles of the subject properties
show on their faces that they are situated in Pasig.[29]
Under Presidential Decree No. 464 or the Real Property
Tax Code, the authority to collect real property taxes is vested in
the locality where the property is situated:
Sec. 5. Appraisal of Real Property. All real property,
whether taxable or exempt, shall be appraised at the current and
fair market value prevailing in the locality where the property is
situated.
xxxx
Sec. 57. Collection of tax to be the responsibility of
treasurers. The collection of the real property tax and all penalties
accruing thereto, and the enforcement of the remedies provided for
in this Code or any applicable laws, shall be the responsibility of
the treasurer of the province, city or municipality where the
property is situated. (Emphases ours.)
This requisite was reiterated in Republic Act No. 7160,
also known as the 1991 the Local Government Code, to wit:
Section 201. Appraisal of Real Property. All real
property, whether taxable or exempt, shall be appraised at the
current and fair market value prevailing in the locality where the
property is situated. The Department of Finance shall promulgate
the necessary rules and regulations for the classification, appraisal,
and assessment of real property pursuant to the provisions of this
Code.
Section 233. Rates of Levy. A province or city or a
municipality within the Metropolitan Manila Area shall fix a
uniform rate of basic real property tax applicable to their
respective localities as follows: x x x. (Emphases ours.)
The only import of these provisions is that, while a local
government unit is authorized under several laws to collect real
estate tax on properties falling under its territorial jurisdiction, it is
imperative to first show that these properties are
unquestionably within its geographical boundaries.
Accentuating on the importance of delineating territorial
boundaries, this Court, in Mariano, Jr. v. Commission on
Elections[30] said:
The importance of drawing with precise strokes the
territorial boundaries of a local unit of government cannot be
overemphasized. The boundaries must be clear for they define
the limits of the territorial jurisdiction of a local government
unit. It can legitimately exercise powers of government only
within the limits of its territorial jurisdiction. Beyond these
limits, its acts are ultra vires. Needless to state, any uncertainty in
the boundaries of local government units will sow costly conflicts
in the exercise of governmental powers which ultimately will
prejudice the people's welfare. This is the evil sought to be avoided
by the Local Government Code in requiring that the land area of a
local government unit must be spelled out in metes and bounds,
with technical descriptions.[31] (Emphasis ours.)
The significance of accurately defining a local
government units boundaries was stressed in City of Pasig v.
Commission on Elections,[32] which involved the consolidated
petitions filed by the parties herein, Pasig and Cainta, against two
decisions of the Commission on Elections (COMELEC) with
respect to the plebiscites scheduled by Pasig for the ratification of
its creation of two new Barangays. Ruling on the contradictory
reliefs sought by Pasig and Cainta, this Court affirmed the
COMELEC decision to hold in abeyance the plebiscite to ratify the
creation of Barangay Karangalan; but set aside the COMELECs
other decision, and nullified the plebiscite that ratified the creation
of Barangay Napico in Pasig, until the boundary dispute before the
Antipolo RTC had been resolved. The aforementioned case held as
follows:
1. The Petition of the City of Pasig in G.R. No. 125646 is
DISMISSED for lack of merit; while
2. The Petition of the Municipality of Cainta in G.R. No. 128663 is
GRANTED. The COMELEC Order in UND No. 97-002, dated
March 21, 1997, is SET ASIDE and the plebiscite held on March
15, 1997 to ratify the creation of Barangay Napico in the City of
Pasig is declared null and void. Plebiscite on the same is ordered
held in abeyance until after the courts settle with finality the
boundary dispute between the City of Pasig and the Municipality
of Cainta, in Civil Case No. 94-3006.[33]
Clearly therefore, the local government unit entitled to
collect real property taxes from Sta. Lucia must undoubtedly show
that the subject properties are situated within its territorial
jurisdiction; otherwise, it would be acting beyond the powers
vested to it by law.
Certificates of Title as
Conclusive Evidence of Location
While we fully agree that a certificate of title is
conclusive as to its ownership and location, this does not preclude
the filing of an action for the very purpose of attacking the
statements therein. In De Pedro v. Romasan Development
Corporation,[34] we proclaimed that:
We agree with the petitioners that, generally, a certificate
of title shall be conclusive as to all matters contained therein and
conclusive evidence of the ownership of the land referred to
therein. However, it bears stressing that while certificates of title
are indefeasible, unassailable and binding against the whole world,
including the government itself, they do not create or vest
title. They merely confirm or record title already existing and
vested. They cannot be used to protect a usurper from the true
owner, nor can they be used as a shield for the commission of
fraud; neither do they permit one to enrich himself at the expense
of other.[35]
In Pioneer Insurance and Surety Corporation v. Heirs of
Vicente Coronado,[36] we set aside the lower courts ruling that the
property subject of the case was not situated in the location stated
and described in the TCT, for lack of adequate basis. Our decision
was in line with the doctrine that the TCT is conclusive evidence of
ownership and location. However, we refused to simply uphold the
veracity of the disputed TCT, and instead, we remanded the case
back to the trial court for the determination of the exact location of
3
the property seeing that it was the issue in the complaint filed
before it.[37]
In City Government of Tagaytay v. Guerrero,[38] this
Court reprimanded the City of Tagaytay for levying taxes on a
property that was outside its territorial jurisdiction, viz:
In this case, it is basic that before the City of Tagaytay
may levy a certain property for sale due to tax delinquency, the
subject property should be under its territorial jurisdiction. The city
officials are expected to know such basic principle of law. The
failure of the city officials of Tagaytay to verify if the property
is within its jurisdiction before levying taxes on the same
constitutes gross negligence.[39] (Emphasis ours.)
Although it is true that Pasig is the locality stated in the
TCTs of the subject properties, both Sta. Lucia and Cainta aver that
the metes and bounds of the subject properties, as they are
described in the TCTs, reveal that they are within Caintas
boundaries.[40] This only means that there may be a conflict
between the location as stated and the location as technically
described in the TCTs. Mere reliance therefore on the face of the
TCTs will not suffice as they can only be conclusive evidence of
the subject properties locations if both the stated and described
locations point to the same area.
The Antipolo RTC, wherein the boundary dispute case
between Pasig and Cainta is pending, would be able to best
determine once and for all the precise metes and bounds of both
Pasigs and Caintas respective territorial jurisdictions. The
resolution of this dispute would necessarily ascertain the extent and
reach of each local governments authority, a prerequisite in the
proper exercise of their powers, one of which is the power of
taxation. This was the conclusion reached by this Court in City of
Pasig v. Commission on Elections,[41] and by the First Division of
the Court of Appeals in CA-G.R. SP No. 52874. We do not see any
reason why we cannot adhere to the same logic and reasoning in
this case.
The Prejudicial Question Debate
It would be unfair to hold Sta. Lucia liable again for real
property taxes it already paid simply because Pasig cannot wait for
its boundary dispute with Cainta to be decided. Pasig has
consistently argued that the boundary dispute case is not
a prejudicial question that would entail the suspension of its
collection case against Sta. Lucia. This was also its argument
in City of Pasig v. Commission on Elections,[42] when it sought to
nullify the COMELECs ruling to hold in abeyance (until the
settlement of the boundary dispute case), the plebiscite that will
ratify its creation of Barangay Karangalan. We agreed with the
COMELEC therein that the boundary dispute case presented
a prejudicial question and explained our statement in this wise:
To begin with, we agree with the position of the
COMELEC that Civil Case No. 94-3006 involving the boundary
dispute between the Municipality of Cainta and the City of Pasig
presents a prejudicial question which must first be decided before
plebiscites for the creation of the proposed barangays may be held.
The City of Pasig argues that there is no prejudicial
question since the same contemplates a civil and criminal action
and does not come into play where both cases are civil, as in the
instant case. While this may be the general rule, this Court has
held in Vidad v. RTC of Negros Oriental, Br. 42, that, in the
interest of good order, we can very well suspend action on one
case pending the final outcome of another case closely
interrelated or linked to the first.
In the case at bar, while the City of Pasig vigorously
claims that the areas covered by the proposed Barangays
Karangalan and Napico are within its territory, it can not deny that
portions of the same area are included in the boundary dispute case
pending before the Regional Trial Court of Antipolo. Surely,
whether the areas in controversy shall be decided as within the
territorial jurisdiction of the Municipality of Cainta or the City of
Pasig has material bearing to the creation of the proposed
Barangays Karangalan and Napico. Indeed, a requisite for the
creation of a barangay is for its territorial jurisdiction to be
properly identified by metes and bounds or by more or less
permanent natural boundaries. Precisely because territorial
jurisdiction is an issue raised in the pending civil case, until and
unless such issue is resolved with finality, to define the territorial
jurisdiction of the proposed barangays would only be an exercise
in futility. Not only that, we would be paving the way for
potentially ultra vires acts of such barangays. x x x.[43] (Emphases
ours.)
It is obvious from the foregoing, that the term prejudicial
question, as appearing in the cases involving the parties herein, had
been used loosely. Its usage had been more in reference to its
ordinary meaning, than to its strict legal meaning under the Rules
of Court.[44] Nevertheless, even without the impact of the
connotation derived from the term, our own Rules of Court state
that a trial court may control its own proceedings according to its
sound discretion:
POWERS AND DUTIES OF COURTS AND JUDICIAL
OFFICERS
Rule 135
SEC. 5. Inherent powers of courts. Every court shall have power:
xxxx
(g) To amend and control its process and orders so as to make them
comformable to law and justice.
Furthermore, we have acknowledged and affirmed this
inherent power in our own decisions, to wit:
The court in which an action is pending may, in the
exercise of a sound discretion, upon proper application for a stay of
that action, hold the action in abeyance to abide the outcome of
another pending in another court, especially where the parties and
the issues are the same, for there is power inherent in every court to
control the disposition of causes (sic) on its dockets with economy
of time and effort for itself, for counsel, and for litigants. Where
the rights of parties to the second action cannot be properly
determined until the questions raised in the first action are settled
the second action should be stayed.
The power to stay proceedings is incidental to the power
inherent in every court to control the disposition of the cases on its
dockets, considering its time and effort, that of counsel and the
litigants. But if proceedings must be stayed, it must be done in
order to avoid multiplicity of suits and prevent vexatious
litigations, conflicting judgments, confusion between litigants and
courts. It bears stressing that whether or not the RTC would
suspend the proceedings in the SECOND CASE is submitted to its
sound discretion.[45]
In light of the foregoing, we hold that the Pasig RTC
should have held in abeyance the proceedings in Civil Case No.
65420, in view of the fact that the outcome of the boundary dispute
case before the Antipolo RTC will undeniably affect both Pasigs
and Caintas rights. In fact, the only reason Pasig had to file a tax
4
collection case against Sta. Lucia was not that Sta. Lucia refused to
pay, but that Sta. Lucia had already paid, albeit to another local
government unit. Evidently, had the territorial boundaries of the
contending local government units herein been delineated with
accuracy, then there would be no controversy at all.
In the meantime, to avoid further animosity, Sta. Lucia is
directed to deposit the succeeding real property taxes due on the
subject properties, in an escrow account with the Land Bank of the
Philippines.
WHEREFORE, the instant petition is GRANTED. The
June 30, 2004 Decision and the January 27, 2005 Resolution of the
Court of Appeals in CA-G.R. CV No. 69603 are SET ASIDE. The
City of Pasig and the Municipality of Cainta are both directed to
await the judgment in their boundary dispute case (Civil Case No.
94-3006), pending before Branch 74 of the Regional Trial Court in
Antipolo City, to determine which local government unit is entitled
to exercise its powers, including the collection of real property
taxes, on the properties subject of the dispute. In the meantime,
Sta. Lucia Realty and Development, Inc. is directed to deposit the
succeeding real property taxes due on the lots and improvements
covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 and
38457 in an escrow account with the Land Bank of the Philippines.
SO ORDERED.
G.R. No. 181756 June 15, 2015
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY
(MCIAA), Petitioner,
vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a clear opportunity for this Court to clarify the effects of
our two previous decisions, issued a decade apart, on the power of
local government units to collect real property taxes from airport
authorities located within their area, and the nature or the juridical
personality of said airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of
the 1997 Rules of Civil Procedure seeking to reverse and set aside
the October 8, 2007 Decision1 of the Court of Appeals (Cebu City)
in CA-G.R. SP No. 01360 and the February 12, 2008 Resolution2
denying petitioner's motion for reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport Authority (MCIAA)
was created by Congress on July 31, 1990 under Republic Act No.
69583 to "undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in
the Province of Cebu and the Lahug Airport in Cebu City x x x and
such other airports as may be established in the Province of Cebu."
It is represented in this case by the Office of the Solicitor General.
Respondent City of Lapu-Lapu is a local government unit and
political subdivision, created and existing under its own charter
with capacity to sue and be sued. Respondent Elena T. Pacaldo was
impleaded in her capacity as the City Treasurer of respondent City.
Upon its creation, petitioner enjoyed exemption from realty taxes
under the following provision of Republic Act No. 6958:
Section 14. Tax Exemptions.– The Authority shall be exempt from
realty taxes imposed by the National Government or any of its
political subdivisions, agencies and instrumentalities: Provided,
5
That no tax exemption herein granted shall extend to any
subsidiary which may be organized by the Authority.
On September 11, 1996, however, this Court rendered a decision in
Mactan-Cebu International Airport Authority v. Marcos4 (the 1996
MCIAA case) declaring that upon the effectivity of Republic Act
No. 7160 (The Local Government Code of 1991), petitioner was no
longer exempt from real estate taxes. The Court held:
Since the last paragraph of Section 234 unequivocally withdrew,
upon the effectivity of the LGC, exemptions from payment of real
property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided
in the said section, and the petitioner is, undoubtedly, a
government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn. x x x.
On January 7, 1997, respondent City issued to petitioner a
Statement of Real Estate Tax assessing the lots comprising the
Mactan International Airport in the amount of ₱162,058,959.52.
Petitioner complained that there were discrepancies in said
Statement of Real Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the
inventory of petitioner’s real properties;
(b) [S]ome of the lots were covered by two separate tax
declarations which resulted in double assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for
governmental purposes.5
Respondent City amended its billing and sent a new Statement of
Real Estate Tax to petitioner in the amount of ₱151,376,134.66.
Petitioner averred that this amount covered real estate taxes on the
lots utilized solely and exclusively for public or governmental
purposes such as the airfield, runway and taxiway, and the lots on
which they are situated.6
Petitioner paid respondent City the amount of four million pesos
(₱4,000,000.00) monthly, which was later increased to six million
pesos (₱6,000,000.00) monthly. As of December 2003, petitioner
had paid respondent City a total of ₱275,728,313.36.7
Upon request of petitioner’s General Manager, the Secretary of the
Department of Justice (DOJ) issued Opinion No. 50, Series of
1998,8 and we quote the pertinent portions of said Opinion below:
You further state that among the real properties deemed transferred
to MCIAA are the airfield, runway, taxiway and the lots on which
the runway and taxiway are situated, the tax declarations of which
were transferred in the name of the MCIAA. In 1997, the City of
Lapu-Lapu imposed real estate taxes on these properties invoking
the provisions of the Local Government Code.
It is your view that these properties are not subject to real property
tax because they are exclusively used for airport purposes. You
said that the runway and taxiway are not only used by the
commercial airlines but also by the Philippine Air Force and other
government agencies. As such and in conjunction with the above
interpretation of Section 15 of R.A. No. 6958, you believe that
these properties are considered owned by the Republic of the
Philippines. Hence, this request for opinion.
The query is resolved in the affirmative. The properties used for
airport purposes (i.e. airfield, runway, taxiway and the lots on
which the runway and taxiway are situated) are owned by the
Republic of the Philippines.

xxxx
Under the Law on Public Corporations, the legislature has
complete control over the property which a municipal corporation
has acquired in its public or governmental capacity and which is
devoted to public or governmental use. The municipality in dealing
with said property is subject to such restrictions and limitations as
the legislature may impose. On the other hand, property which a
municipal corporation acquired in its private or proprietary
capacity, is held by it in the same character as a private individual.
Hence, the legislature in dealing with such property, is subject to
the constitutional restrictions concerning property (Martin, Public
Corporations [1997], p. 30; see also Province of Zamboanga del
[Norte] v. City of Zamboanga [131 Phil. 446]). The same may be
said of properties transferred to the MCIAA and used for airport
purposes, such as those involved herein. Since such properties are
of public dominion, they are deemed held by the MCIAA in trust
for the Government and can be alienated only as may be provided
by law.
Based on the foregoing, it is our considered opinion that the
properties used for airport purposes, such as the airfield, runway
and taxiway and the lots on which the runway and taxiway are
located, are owned by the State or by the Republic of the
Philippines and are merely held in trust by the MCIAA,
notwithstanding that certificates of titles thereto may have been
issued in the name of the MCIAA. (Emphases added.)
Based on the above DOJ Opinion, the Department of Finance
issued a 2nd Indorsement to the City Treasurer of Lapu-Lapu dated
August 3, 1998,9 which reads:
The distinction as to which among the MCIAA properties are still
considered "owned by the State or by the Republic of the
Philippines," such as the resolution in the above-cited DOJ Opinion
No. 50, for purposes of real property tax exemption is hereby
deemed tenable considering that the subject "airfield, runway,
taxiway and the lots on which the runway and taxiway are situated"
appears to be the subject of real property tax assessment and
collection of the city government of Lapu-Lapu, hence, the same
are definitely located within the jurisdiction of Lapu-Lapu City.
Moreover, then Undersecretary Antonio P. Belicena of the
Department of Finance, in his 1st Indorsement dated May 18,
1998, advanced that "this Department (DOF) interposes no
objection to the request of Mactan Cebu International Airport
Authority for exemption from payment of real property tax on the
property used for airport purposes" mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the
assessment of the subject airfield, runway, taxiway and the lots on
which the runway and taxiway are situated, from the "Taxable
Roll" to the "Exempt Roll" of real properties.
The City Treasurer thereat should be informed on the action taken
for his immediate appropriate action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a
Statement of Real Property Tax Balances up to the year 2002
reflecting the amount of ₱246,395,477.20. Petitioner claimed that
the statement again included the lots utilized solely and exclusively
for public purpose such as the airfield, runway, and taxiway and
the lots on which these are built. Respondent Pacaldo then issued
Notices of Levy on 18 sets of real properties of petitioner.10
Petitioner filed a petition for prohibition11 with the Regional Trial
Court (RTC) of Lapu-Lapu City with prayer for the issuance of a
temporary restraining order (TRO) and/or a writ of preliminary
injunction, docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-
Lapu City then issued a 72-hour TRO. The petition for prohibition
sought to enjoin respondent City from issuing a warrant of levy
6
against petitioner’s properties and from selling them at public
auction for delinquency in realty tax obligations. The petition
likewise prayed for a declaration that the airport terminal building,
the airfield, runway, taxiway and the lots on which they are
situated are exempted from real estate taxes after due hearing.
Petitioner based its claim of exemption on DOJ Opinion No. 50.
The RTC issued an Order denying the motion for extension of the
TRO. Thus, on December10, 2003, respondent City auctioned 27
of petitioner’s properties. As there was no interested bidder who
participated in the auction sale, respondent City forfeited and
purchased said properties. The corresponding Certificates of Sale
of Delinquent Property were issued to respondent City.12
Petitioner claimed before the RTC that it had discovered that
respondent City did not pass any ordinance authorizing the
collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued
that without the corresponding tax ordinances, respondent City
could not impose and collect real property tax, an additional tax for
the SEF, and penalty interest from petitioner.13
The RTC issued an Order14 on December 28, 2004 granting
petitioner’s application for a writ of preliminary injunction. The
pertinent portions of the Order are quoted below:
The supervening legal issue has rendered it imperative that the
matter of the consolidation of the ownership of the auctioned
properties be placed on hold. Furthermore, it is the view of the
Court that great prejudice and damage will be suffered by
petitioner if it were to lose its dominion over these properties now
when the most important legal issue has still to be resolved by the
Court. Besides, the respondents and the intervenor have not
sufficiently shown cause why petitioner’s application should not be
granted.
WHEREFORE, the foregoing considered, petitioner’s application
for a writ of preliminary injunction is granted. Consequently, upon
the approval of a bond in the amount of one million pesos
(₱1,000,000.00), let a writ of preliminary injunction issue
enjoining the respondents, the intervenor, their agents or persons
acting in [their] behalf, to desist from consolidating and exercising
ownership over the properties of the petitioner.
However, upon motion of respondents, the RTC lifted the writ of
preliminary injunction in an Order15 dated December 5, 2005. The
RTC reasoned as follows:
The respondent City, in the courseof the hearing of its motion,
presented to this Court a certified copy of its Ordinance No. 44
(Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25
whereof authorized the collection of a rate of one and one-half (1
1/2) [per centum] from owners, executors or administrators of any
real estate lying within the jurisdiction of the City of Lapu-Lapu,
based on the assessed value as shown in the latest revision.
Though this ordinance was enacted prior to the effectivity of
Republic Act No. 7160 (Local Government Code of 1991), to the
mind of the Court this ordinance is still a valid and effective
ordinance in view of Sec. 529 of RA 7160 x x x [and the]
Implementing Rules and Regulations of RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates
prescribed by RA 7160, though the 25% penalty collected is higher
than the 2% interest allowed under Sec. 255 of the said law which
provides:
In case of failure to pay the basic real property tax or any other tax
levied under this Title upon the expiration of the periods as
provided in Section 250, or when due, as the case may be, shall
subject the taxpayer to the payment of interest at the rate of two
percent (2%) per month on the unpaid amount or a fraction thereof,
until the delinquent tax shall have been fully paid: Provided,
however, That in no case shall the total interest on the unpaid tax
or portion thereof exceed thirty-six (36) months.
This difference does not however detract from the essential
enforceability and effectivity of Ordinance No. 44 pursuant to
Section 529 of RA 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the
unpaid tax. Consequently, respondent City [has] to recompute the
petitioner’s tax liability.
It is also the Court’s perception that respondent City can still
collect the additional 1% tax on real property without an ordinance
to this effect. It may be recalled that Republic Act No. 5447 has
created the Special Education Fund which is constituted from the
proceeds of the additional tax on real property imposed by the law.
Respondent City has collected this tax as mandated by this law
without any ordinance for the purpose, as there is no need for it.
Even when RA 5447 was amended by PD 464 (Real Property Tax
Code), respondent City had continued to collect the tax, as it used
to.
It is true that RA 7160 has repealed RA 5447, but what has been
repealed are only Section 3, a(3) and b(2) which concern the
allocation of the additional tax, considering that under RA 7160,
the proceeds of the additional 1% tax on real property accrue
exclusively to the Special Education Fund. Nevertheless, RA 5447
has not been totally repealed; there is only a partial repeal.
It may be observed that there is no requirement in RA 7160 that an
ordinance be enacted to enable the collection of the additional 1%
tax. This is so since RA 5447 is still in force and effect, and the
declared policy of the government in enacting the law, which is to
contribute to the financial support of the goals of education as
provided in the Constitution, necessitates the continued and
uninterrupted collection of the tax. Considering that this is a tax of
far-reaching importance, to require the passage of an ordinance in
order that the tax may be collected would be to place the collection
of the tax at the option of the local legislature. This would run
counter to the declared policy of the government when the SEF
was created and the tax imposed.
As regards the allegation of respondents that this Court has no
jurisdiction to entertain the instant petition, the Court deems it
proper, at this stage of the proceedings, not to treat this issue, as it
involves facts which are yet to be established.
x x x [T]he Court’s issuance of a writ of preliminary injunction
may appear to be a futile gesture in the light of Section 263 of RA
7160. x x x.
xxxx
It would seem from the foregoing provisions, that once the
taxpayer fails to redeem within the one-year period, ownership
fully vests on the local government unit concerned. Thus, when in
the present case petitioner failed to redeem the parcels of land
acquired by respondent City, the ownership thereof became fully
vested on respondent City without the latter having to perform any
other acts to perfect its ownership. Corollary thereto, ownership on
the part of respondent City has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations,
respondents’ motion for reconsideration is granted, and the order of
this Court dated December 28, 2004 is hereby reconsidered.
Consequently, the writ of preliminary injunction issued by this
Court is hereby lifted.
7
Aggrieved, petitioner filed a petition for certiorari16 with the Court
of Appeals (Cebu City), with urgent prayer for the issuance of a
TRO and/or writ of preliminary injunction, docketed as CA-G.R.
SP No. 01360. The Court of Appeals (Cebu City) issued a TRO17
on January 5, 2006 and shortly thereafter, issued a writ of
preliminary injunction18 on February 17, 2006.
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated the questioned
Decision on October 8, 2007, holding that petitioner is a
government-owned or controlled corporation and its properties are
subject to realty tax. The dispositive portion of the questioned
Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered by us as follows:
a. We DECLARE the airport terminal building, the airfield,
runway, taxiway and the lots on which they are situated NOT
EXEMPT from the real estate tax imposed by the respondent City
of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate
tax, the additional levy for the Special Education Fund and the
penalty interest as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code, respondent city can
only collect an interest of 2% per month on the unpaid tax which
total interest shall, in no case, exceed thirty-six (36) months; c. We
DECLARE the sale in public auction of the aforesaid properties
and the eventual forfeiture and purchase of the subject property by
the respondent City of Lapu-Lapu as NULL and VOID. However,
petitioner MCIAA’s property is encumbered only by a limited lien
possessed by the respondent City of Lapu-Lapu in accord with
Section 257 of the Local Government Code.19 Petitioner filed a
Motion for Partial Reconsideration20 of the questioned Decision
covering only the portion of said decision declaring that petitioner
is a GOCC and, therefore, not exempt from the realty tax and
special education fund imposed by respondent City. Petitioner
cited Manila International Airport Authority v. Court of Appeals21
(the 2006 MIAA case) involving the City of Parañaque and the
Manila International Airport Authority. Petitioner claimed that it
had been described by this Court as a government instrumentality,
and that it followed "as a logical consequence that petitioner is
exempt from the taxing powers of respondent City of Lapu-
Lapu."22 Petitioner alleged that the 1996 MCIAA case had been
overturned by the Court in the 2006 MIAA case. Petitioner thus
prayed that it be declared exempt from paying the realty tax,
special education fund, and interest being collected by respondent
City.
On February 12, 2008, the Court of Appeals denied petitioner’s
motion for partial reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the precedent
established in the 1996 MCIAA case and refused to apply the 2006
MIAA case. The Court of Appeals wrote in the questioned
Decision: "We find that our position is in line with the coherent
and cohesive interpretation of the relevant provisions of the Local
Government Code on local taxation enunciated in the [1996
MCIAA] case which to our mind is more elegant and rational and
provides intellectual clarity than the one provided by the Supreme
Court in the [2006] MIAA case."23
In the questioned Decision, the Court of Appeals held that
petitioner’s airport terminal building, airfield, runway, taxiway,
and the lots on which they are situated are not exempt from real
estate tax reasoning as follows:
Under the Local Government Code (LGC for brevity), enacted
pursuant to the constitutional mandate of local autonomy, all
natural and juridical persons, including government-owned or
controlled corporations (GOCCs), instrumentalities and agencies,
are no longer exempt from local taxes even if previously granted
an exemption. The only exemptions from local taxes are those
specifically provided under the Code itself, or those enacted
through subsequent legislation.
Thus, the LGC, enacted pursuant to Section 3, Article X of the
Constitution, provides for the exercise by local government units of
their power to tax, the scope thereof or its limitations, and the
exemptions from local taxation.
Section 133 of the LGC prescribes the common limitations on the
taxing powers of local government units. x x x.
xxxx
The above-stated provision, however, qualified the exemption of
the National Government, its agencies and instrumentalities from
local taxation with the phrase "unless otherwise provided herein."
Section 232 of the LGC provides for the power of the local
government units (LGUs for brevity) to levy real property tax. x x
x.
xxxx
Section 234 of the LGC provides for the exemptions from payment
of real property taxes and withdraws previous exemptions granted
to natural and juridical persons, including government-owned and
controlled corporations, except as provided therein. x x x.
xxxx
Section 193 of the LGC is the general provision on withdrawal of
tax exemption privileges. x x x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of
the Supreme Court in the 2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the
power of the LGUs to tax the National Government, its agencies
and instrumentalities as the same is qualified by Sections 193, 232
and 234 which "otherwise provided"; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)
The Court of Appeals ratiocinated in the following manner:
Pursuant to the explicit provision of Section 193 of the LGC,
exemptions previously enjoyed by persons, whether natural or
juridical, like the petitioner MCIAA, are deemed withdrawn upon
the effectivity of the Code. Further, the last paragraph of Section
234 of the Code also unequivocally withdrew, upon the Code’s
effectivity, exemptions from payment of real property taxes
previously granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided
in the said section. Petitioner MCIAA, undoubtedly a juridical
person, it follows that its exemption from such tax granted under
Section 14 of R.A. 6958 has been withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is acknowledged that, under
Section 133 of the LGC, instrumentalities were generally exempt
from all forms of local government taxation, unless otherwise
provided in the Code. On the other hand, Section 232 "otherwise
provided" insofar as it allowed local government units to levy an
ad valorem real property tax, irrespective of who owned the
8
property. At the same time, the imposition of real property taxes
under Section 232 is, in turn, qualified by the phrase "not
hereinafter specifically exempted." The exemptions from real
property taxes are enumerated in Section 234 of the Code which
specifically states that only real properties owned by the Republic
of the Philippines or any of its political subdivisions are exempted
from the payment of the tax. Clearly, instrumentalities or GOCCs
do not fall within the exceptions under Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing
the national government, its agencies and instrumentalities under
Section 133 is qualified by Sections 232 and 234, and accordingly,
the only relevant exemption now applicable to these bodies is what
is now provided under Section 234(a) of the Code. It may be noted
that the express withdrawal of previously granted exemptions to
persons from the payment of real property tax by the LGC does not
even make any distinction as to whether the exempt person is a
governmental entity or not. As Sections 193 and 234 of the Code
both state, the withdrawal applies to "all persons, including
GOCCs," thus encompassing the two classes of persons recognized
under our laws, natural persons and juridical persons.
xxxx
The question of whether or not petitioner MCIAA is an
instrumentality or a GOCC has already been lengthily but soundly,
cogently and lucidly answered in the [1996 MCIAA] case x x x.
xxxx
Based on the foregoing, the claim of the majority of the Supreme
Court in the [2006 MIAA] case that MIAA (and also petitioner
MCIAA) is not a government-owned or controlled corporation but
an instrumentality based on Section 2(10) of the Administrative
Code of 1987 appears to be unsound. In the [2006 MIAA] case, the
majority justifies MIAA’s purported exemption on Section
133(o)of the Local Government Code which places "agencies and
instrumentalities: as generally exempt from the taxation powers of
the LGUs. It further went on to hold that "By express mandate of
the Local Government Code, local governments cannot impose any
kind of tax on national government instrumentalities like the
MIAA." x x x.26 (Citations omitted.)
The Court of Appeals further cited Justice Tinga’s dissent in the
2006 MIAA case as well as provisions from petitioner MCIAA’s
charter to show that petitioner is a GOCC.27 The Court of Appeals
wrote:
These cited provisions establish the fitness of the petitioner
MCIAA to be the subject of legal relations. Under its charter, it has
the power to acquire, possess and incur obligations. It also has the
power to contract in its own name and to acquire title to movable
or immovable property. More importantly, it may likewise exercise
powers of a corporation under the Corporation Code. Moreover,
based on its own allegation, it even recognized itself as a GOCC
when it alleged in its petition for prohibition filed before the lower
court that it "is a body corporate organized and existing under
Republic Act No. 6958 x x x."
We also find to be not meritorious the assertion of petitioner
MCIAA that the respondent city can no longer challenge the tax-
exempt character of the properties since it is estopped from doing
so when respondent City of Lapu-Lapu, through its former mayor,
Ernest H. Weigel, Jr., had long ago conceded that petitioner’s
properties are exempt from real property tax.
It is not denied by the respondent city that it considered, through its
former mayor, Ernest H. Weigel, Jr., petitioner’s subject properties,
specifically the runway and taxiway, as exempt from taxes.
However, as astutely pointed out by the respondent city it "can
never be in estoppel, particularly in matters involving taxes. It is a
well-known rule that erroneous application and enforcement of the
law by public officers do not preclude subsequent correct
application of the statute, and that the Government is never
estopped by mistake or error on the part of its agents."28 (Citations
omitted.)
The Court of Appeals established the following:
a) [R]espondent City was able to prove and establish that it has a
valid and existing ordinance for the imposition of realty tax against
petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special
Education Fund (SEF) is authorized by law, Republic Act No.
5447; and
c) [T]he collection of penalty interest for delinquent taxes is not
only authorized by law but is likewise [sanctioned] by respondent
City’s ordinance.29
The Court of Appeals likewise held that respondent City has a
valid and existing local tax ordinance, Ordinance No. 44, or the
Omnibus Tax Ordinance of Lapu-Lapu City, which provided for
the imposition of real property tax. The relevant provision reads:
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2)
percentum shall be collected from owners, executors or
administrators of any real estate lying within the territorial
jurisdiction of the City of Lapu-Lapu, based on the assessed value
as shown in the latest revision.30
The Court of Appeals found that even if Ordinance No. 44 was
enacted prior to the effectivity of the LGC, it remained in force and
effect, citing Section 529 of the LGC and Article 278 of the LGC’s
Implementing Rules and Regulations.31
As regards the Special Education Fund, the Court of Appeals held
that respondent City can still collect the additional 1% tax on real
property even without an ordinance to this effect, as this is
authorized by Republic Act No. 5447, as amended by Presidential
Decree No. 464 (the Real Property Tax Code), which does not
require an enabling tax ordinance. The Court of Appeals affirmed
the RTC’s ruling that Republic Act No. 5447 was still in force and
effect notwithstanding the passing of the LGC, as the latter only
partially repealed the former law. What Section 534 of the LGC
repealed was Section 3 a(3) and b(2) of Republic Act No. 5447,
and not the entire law that created the Special Education Fund.32
The repealed provisions referred to allocation of taxes on Virginia
type cigarettes and duties on imported leaf tobacco and the
percentage remittances to the taxing authority concerned. The
Court of Appeals, citing The Commission on Audit of the Province
of Cebu v. Province of Cebu,33 held that "[t]he failure to add a
specific repealing clause particularly mentioning the statute to be
repealed indicates that the intent was not to repeal any existing law
on the matter, unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and the old laws."34 The
Court of Appeals quoted the RTC’s discussion on this issue, which
we reproduce below:
It may be observed that there is no requirement in RA 7160 that an
ordinance be enacted to enable the collection of the additional 1%
tax. This is so since R.A. 5447 is still in force and effect, and the
declared policy of the government in enacting the law, which is to
contribute to the financial support of the goals of education as
provided in the Constitution, necessitates the continued and
uninterrupted collection of the tax. Considering that this is a tax of
far-reaching importance, to require the passage of an ordinance in
order that the tax may be collected would be to place the collection
of the tax at the option of the local legislature. This would run
9
counter to the declared policy of the government when the SEF
was created and the tax imposed.35 Regarding the penalty interest,
the Court of Appeals found that Section 30 of Ordinance No. 44 of
respondent City provided for a penalty surcharge of 25% of the tax
due for a given year. Said provision reads:
Section 30. – PENALTY FOR FAILURE TO PAY TAX. – Failure
to pay the tax provided for under this Chapter within the time fixed
in Section 27, shall subject the taxpayer to a surcharge of twenty-
five percent (25%), without interest.36
The Court of Appeals however declared that after the effectivity of
the Local Government Code, the respondent City could only
collect penalty surcharge up to the extent of 72%, covering a
period of three years or 36 months, for the entire delinquent
property.37 This was lower than the 25% per annum surcharge
imposed by Ordinance No. 44.38 The Court of Appeals affirmed
the findings of the RTC in the decision quoted below:
The tax collected under Ordinance No. 44 is within the rates
prescribed by RA 7160, though the 25% penalty collected is higher
than the 2% allowed under Sec. 255 of the said law which
provides:
xxxx
This difference does not however detract from the essential
enforceability and effectivity of Ordinance No. 44 pursuant to
Section 529 of RA No. 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the
unpaid tax. Consequently, respondent city will have to [recompute]
the petitioner’s tax liability.39
It is worthy to note that the Court of Appeals nevertheless held that
even if it is clear that respondent City has the power to impose real
property taxes over petitioner, "it is also evident and categorical
that, under Republic Act No. 6958, the properties of petitioner
MCIAA may not be conveyed or transferred to any person or entity
except to the national government."40 The relevant provisions of
the said law are quoted below:
Section 4. Functions, Powers and Duties.– The Authority shall
have the following functions, powers and duties:
xxxx
(e) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property
of whatever kind and nature, whether movable or immovable, or
any interest therein: Provided, That any asset located in the Mactan
International Airport important to national security shall not be
subject to alienation or mortgage by the Authority nor to transfer to
any entity other than the National Government[.]
Section 13. Borrowing Power.– The Authority may, in accordance
with Section 21, Article XII of the Constitution and other existing
laws, rules and regulations on local or foreign borrowing, raise
funds, either from local or international sources, by way of loans,
credit or securities, and other borrowing instruments with the
power to create pledges, mortgages and other voluntary liens or
encumbrances on any of its assets or properties, subject to the prior
approval of the President of the Philippines.
All loans contracted by the Authority under this section, together
with all interests and other sums payable in respect thereof, shall
constitute a charge upon all the revenues and assets of the
Authority and shall rank equally with one another, but shall have
priority over any other claim or charge on the revenue and assets of
the Authority: Provided, That this provision shall not be construed
as a prohibition or restriction on the power of the Authority to
create pledges, mortgages and other voluntary liens or
encumbrances on any asset or property of the Authority. The
payment of the loans or other indebtedness of the Authority may be
guaranteed by the National Government subject to the approval of
the President of the Philippines.
The Court of Appeals concluded that "it is clear that petitioner
MCIAA is denied by its charter the absolute right to dispose of its
property to any person or entity except to the national government
and it is not empowered to obtain loans or encumber its property
without the approval of the President."41 The questioned Decision
contained the following conclusion:
With the advent of RA 7160, the Local Government Code, the
power to tax is no longer vested exclusively on Congress. LGUs,
through its local legislative bodies, are now given direct authority
to levy taxes, fees and other charges pursuant to Article X, Section
5 of the 1987 Constitution. And one of the most significant
provisions of the LGC is the removal of the blanket inclusion of
instrumentalities and agencies of the national government from the
coverage of local taxation. The express withdrawal by the Code of
previously granted exemptions from realty taxes applied to
instrumentalities and government-owned or controlled corporations
(GOCCs) such as the petitioner Mactan-Cebu International Airport
Authority. Thus, petitioner MCIAA became a taxable person in
view of the withdrawal of the realty tax exemption that it
previously enjoyed under Section 14 of RA No. 6958 of its charter.
As expressed and categorically held in the Mactan case, the
removal and withdrawal of tax exemptions previously enjoyed by
persons, natural or juridical, are consistent with the State policy to
ensure autonomy to local governments and the objective of the
Local Government Code that they enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development
as self-reliant communities and make them effective partners in the
attainment of national goals.
However, in the case at bench, petitioner MCIAA’s charter
expressly bars the alienation or mortgage of its property to any
person or entity except to the national government. Therefore,
while petitioner MCIAA is a taxable person for purposes of real
property taxation, respondent City of Lapu-Lapu is prohibited from
seizing, selling and owning these properties by and through a
public auction in order to satisfy petitioner MCIAA’s tax
liability.42 (Citations omitted.)
In the questioned Resolution that affirmed its questioned Decision,
the Court of Appeals denied petitioner’s motion for reconsideration
based on the following grounds:
First, the MCIAA case remains the controlling law on the matter as
the same is the established precedent; not the MIAA case but the
MCIAA case since the former, as keenly pointed out by the
respondent City of Lapu-Lapu, has not yet attained finality as there
is still yet a pending motion for reconsideration filed with the
Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in
the MIAA case cannot be similarly invoked in the case at bench.
The said case cannot be considered as the "law of the case." The
"law of the case" doctrine has been defined as that principle under
which determinations of questions of law will generally be held to
govern a case throughout all its subsequent stages where such
determination has already been made on a prior appeal to a court of
last resort. It is merely a rule of procedure and does not go to the
power of the court, and will not be adhered to where its application
will result in an unjust decision. It relates entirely to questions of
law, and is confined in its operation to subsequent proceedings in
the same case. According to said doctrine, whatever has been
irrevocably established constitutes the law of the case only as to
the same parties in the same case and not to different parties in an
10
entirely different case. Besides, pending resolution of the aforesaid
motion for reconsideration in the MIAA case, the latter case has
not irrevocably established anything.
Thus, after a thorough and judicious review of the allegations in
petitioner’s motion for reconsideration, this Court resolves to deny
the same as the matters raised therein had already been
exhaustively discussed in the decision sought to be reconsidered,
and that no new matters were raised which would warrant the
modification, much less reversal, thereof.43 (Emphasis added,
citations omitted.)
PETITIONER’S THEORY
Petitioner is before us now claiming that this Court, in the 2006
MIAA case, had expressly declared that petitioner, while vested
with corporate powers, is not considered a government-owned or
controlled corporation, but is a government instrumentality like the
Manila International Airport Authority (MIAA), Philippine Ports
Authority (PPA), University of the Philippines, and Bangko Sentral
ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from
real estate taxes imposed by respondent City.44 Petitioner alleges
that Republic Act No. 6958 placed "a limitation on petitioner’s
administration of its assets and properties" as it provides under
Section 4(e) that "any asset in the international airport important to
national security cannot be alienated or mortgaged by petitioner or
transferred to any entity other than the National Government."45
Thus, petitioner claims that the Court of Appeals (Cebu City)
gravely erred in disregarding the following:
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS
EXPRESSLY DECLARED BY THE HONORABLE COURT IN
THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING
REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY
OF LAPULAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE
AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,
TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE
SITUATED, ARE EXEMPT FROM REAL PROPERTY TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE
REAL PROPERTY TAX WITHOUT ANY APPROPRIATE
ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN
ADDITIONAL 1% TAX FOR THE SPECIAL EDUCATION
FUND IN THE ABSENCE OF ANY CORRESPONDING
ORDINANCE.
V
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE
ANY INTEREST SANSANY ORDINANCE MANDATING ITS
IMPOSITION.46
Petitioner claims the following similarities with MIAA:
1. MCIAA belongs to the same class and performs identical
functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic
airport in Paranaque City for public use, while MCIAA was
organized to operate the international and domestic airport in
Mactan for public use.
4. Both are attached agencies of the Department of Transportation
and Communications.47
Petitioner compares its charter (Republic Act No. 6958) with that
of MIAA (Executive Order No. 903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila International Airport Authority.
There is hereby established a body corporate to be known as the
Manila International Airport Authority which shall be attached to
the Ministry of Transportation and Communications. The principal
office of the Authority shall be located at the New Manila
International Airport. The Authority may establish such offices,
branches, agencies or subsidiaries as it may deem proper and
necessary; x x x.
Section 2 of Republic Act No. 6958 reads:
Section 2. Creation of the Mactan-Cebu International Airport
Authority.– There is hereby established a body corporate to be
known as the Mactan-Cebu International Airport Authority which
shall be attached to the Department of Transportation and
Communications. The principal office of the Authority shall be
located at the Mactan International Airport, Province of Cebu.
The Authority may have such branches, agencies or subsidiaries as
it may deem proper and necessary.
As to MIAA’s purposes and objectives, Section 4 of Executive
Order No. 903 reads:
Sec. 4. Purposes and Objectives. The Authority shall have the
following purposes and objectives:
(a) To help encourage and promote international and domestic air
traffic in the Philippines as a means of making the Philippines a
center of international trade and tourism and accelerating the
development of the means of transportation and communications in
the country;
(b) To formulate and adopt for application in the Airport
internationally acceptable standards of airport accommodation and
service; and
(c) To upgrade and provide safe, efficient, and reliable airport
facilities for international and domestic air travel.
Petitioner claims that the above purposes and objectives are
analogous to those enumerated in its charter, specifically Section 3
of Republic Act No. 6958, which reads:
Section 3. Primary Purposes and Objectives.– The Authority shall
principally undertake the economical, efficient and effective
control, management and supervision of the Mactan International
Airport in the Province of Cebu and the Lahug Airport in Cebu
City, hereinafter collectively referred to as the airports, and such
other airports as may be established in the Province of Cebu. In
addition, it shall have the following objectives:
(a) To encourage, promote and develop international and domestic
air traffic in the central Visayas and Mindanao regions as a means
of making the regions centers of international trade and tourism,
11
and accelerating the development of the means of transportation
and communications in the country; and
(b) To upgrade the services and facilities of the airports and to
formulate internationally acceptable standards of airport
accommodation and service.
The powers, functions and duties of MIAA under Section 5 of
Executive Order No. 903 are:
Sec. 5. Functions, Powers and Duties. The Authority shall have the
following functions, powers and duties:
(a) To formulate, in coordination with the Bureau of Air
Transportation and other appropriate government agencies, a
comprehensive and integrated policy and program for the Airport
and to implement, review and update such policy and program
periodically;
(b) To control, supervise, construct, maintain, operate and provide
such facilities or services as shall be necessary for the efficient
functioning of the Airport;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the
Airport, and to control and/or supervise as may be necessary the
construction of any structure or the rendition of any services within
the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from
time to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property
of whatever kind and nature, whether movable or immovable, or
any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its
purposes and objectives;
(k) To levy, and collect dues, charges, fees or assessments for the
use of the Airport premises, works, appliances, facilities or
concessions or for any service provided by the Authority, subject
to the approval of the Minister of Transportation and
Communications in consultation with the Minister of Finance, and
subject further to the provisions of Batas Pambansa Blg. 325 where
applicable;
(l) To invest its idle funds, as it may deem proper, in government
securities and other evidences of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within
the Airport and the approaches thereof, which shall include but
shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft
on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the
care, convenience and security of passengers, visitors and other
airport users; and

(4) Sorting, weighing, measuring, warehousing or handling of
baggage and goods.
(n) To perform such other acts and transact such other business,
directly or indirectly necessary, incidental or conducive to the
attainment of the purposes and objectives of the Authority,
including the adoption of necessary measures to remedy congestion
in the Airport; and
(o) To exercise all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with
the provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and
duties under Section 4 of Republic Act No. 6958, as shown in the
provision quoted below:
Section 4. Functions, Powers and Duties.– The Authority shall
have the following functions, powers and duties:
(a) To formulate a comprehensive and integrated development
policy and program for the airports and to implement, review and
update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide
such facilities or services as shall be necessary for the efficient
functioning of the airports;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the
airports, and to control and supervise the construction of any
structure or the rendition of any service within the airports;
(d) To exercise all the powers of a corporation under the
Corporation Code of the Philippines, insofar as those powers are
not inconsistent with the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property
of whatever kind and nature, whether movable or immovable, or
any interest therein: Provided, That any asset located in the Mactan
International Airport important to national security shall not be
subject to alienation or mortgage by the Authority nor to transfer to
any entity other than the National Government;
(f) To exercise the power of eminent domain in the pursuit of its
purposes and objectives;
(g) To levy and collect dues, charges, fees or assessments for the
use of airport premises, works, appliances, facilities or
concessions, or for any service provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by
the Authority relative to the use of airport premises for such
measures as may be necessary to make the Authority more
effective and efficient in the discharge of its assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government
securities and other evidences of indebtedness; and
(j) To provide services, whether on its own or otherwise, within the
airports and the approaches thereof as may be necessary or in
connection with the maintenance and operation of the airports and
their facilities.
Petitioner claims that like MIAA, it has police authority within its
premises, as shown in their respective charters quoted below:
EO 903, Sec. 6. Police Authority. — The Authority shall have the
power to exercise such police authority as may be necessary within
12
its premises to carry out its functions and attain its purposes and
objectives, without prejudice to the exercise of functions within the
same premises by the Ministry of National Defense through the
Aviation Security Command (AVSECOM) as provided in LOI
961: Provided, That the Authority may request the assistance of
law enforcement agencies, including request for deputization as
may be required. x x x.
R.A. No. 6958, Section 5. Police Authority.– The Authority shall
have the power to exercise such police authority as may be
necessary within its premises or areas of operation to carry out its
functions and attain its purposes and objectives: Provided, That the
Authority may request the assistance of law enforcement agencies,
including request for deputization as may be required. x x x.
Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law,
rules and regulations (Section 15, Executive Order No. 903;
Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21,
Executive Order No. 903; Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President
an annual report generally dealing with their activities and
operations (Section 14, Executive Order No. 903; Section 11,
Republic Act No. 6958); and
4. Both have borrowing power subject to the approval of the
President (Section 16, Executive Order No. 903; Section 13,
Republic Act No. 6958).48
Petitioner suggests that it is because of its similarity with MIAA
that this Court, in the 2006 MIAA case, placed it in the same class
as MIAA and considered it as a government instrumentality.
Petitioner submits that since it is also a government instrumentality
like MIAA, the following conclusion arrived by the Court in the
2006 MIAA case is also applicable to petitioner:
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and
not a government-owned or controlled corporation. Under Section
133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The
only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands
and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are properties of
public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and
seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject
to execution or foreclosure sale.49 (Emphases added.)
Petitioner insists that its properties consisting of the airport
terminal building, airfield, runway, taxiway and the lots on which
they are situated are not subject to real property tax because they
are actually, solely and exclusively used for public purposes.50
They are indispensable to the operation of the Mactan International
Airport and by their very nature, these properties are exempt from
tax. Said properties belong to the State and are merely held by
petitioner in trust. As earlier mentioned, petitioner claims that these
properties are important to national security and cannot be
alienated, mortgaged, or transferred to any entity except the
National Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying real property taxes as it
is a government instrumentality;
b) Declaring respondent City of Lapu-Lapu as bereft of any
authority to levy and collect the basic real property tax, the
additional tax for the SEF and the penalty interest for its failure to
pass the corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of
petitioner as exempt from real property taxes as they are used
solely and exclusively for public purpose.51
In its Consolidated Reply filed through the OSG, petitioner claims
that the 2006 MIAA ruling has overturned the 1996 MCIAA
ruling. Petitioner cites Justice Dante O. Tinga’s dissent in the
MIAA ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the
rationale and ruling in Mactan. The majority provides for a wildly
different interpretation of Section 133, 193 and 234 of the Local
Government Code than that employed by the Court in Mactan.
Moreover, the parties in Mactan and in this case are similarly
situated, as can be obviously deducted from the fact that both
petitioners are airport authorities operating under similarly worded
charters. And the fact that the majority cites doctrines contrapuntal
to the Local Government Code as in Basco and Maceda evinces an
intent to go against the Court’s jurisprudential trend adopting the
philosophy of expanded local government rule under the Local
Government Code.
x x x The majority is obviously inconsistent with Mactan and there
is no way these two rulings can stand together. Following basic
principles in statutory construction, Mactan will be deemed as
giving way to this new ruling.
xxxx
There is no way the majority can be justified unless Mactan is
overturned. The MCIAA and the MIAA are similarly situated.
They are both, as will be demonstrated, GOCCs, commonly
engaged in the business of operating an airport. They are the
owners of airport properties they respectively maintain and hold
title over these properties in their name. These entities are both
owned by the State, and denied by their respective charters the
absolute right to dispose of their properties without prior approval
elsewhere. Both of them are not empowered to obtain loans or
encumber their properties without prior approval the prior approval
of the President.52 (Citations omitted.)
Petitioner likewise claims that the enactment of Ordinance No.
070-2007 is an admission on respondent City’s part that it must
have a tax measure to be able to impose a tax or special
assessment. Petitioner avers that assuming that it is a non-exempt
entity or that its airport lands and buildings are not exempt, it was
only upon the effectivity of Ordinance No. 070-2007 on January
1,2008 that respondent City could properly impose the basic real
property tax, the additional tax for the SEF, and the interest in case
of nonpayment.53
Petitioner filed its Memorandum54 on June 17, 2009.
13
RESPONDENTS’ THEORY
In their Comment,55 respondents point out that petitioner partially
moved for a reconsideration of the questioned Decision only as to
the issue of whether petitioner is a GOCC or not. Thus,
respondents declare that the other portions of the questioned
decision had already attained finality and ought not to be placed in
issue in this petition for certiorari. Thus, respondents discussed the
other issues raised by petitioner with reservation as to this
objection. Respondents summarized the issues and the grounds
relied upon as follows:
STATEMENT OF THE ISSUES
WHETHER OR NOT PETITIONER IS A GOVERNMENT
INSTRUMENTALITY EXEMPT FROM PAYING REAL
PROPERTY TAXES
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE]
REALTY TAX, SPECIAL EDUCATION FUND AND
PENALTY INTEREST
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING,
AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE LOTS
ON WHICH THEY ARE SITUATED ARE EXEMPT FROM
REALTY TAXES
GROUNDS RELIED UPON
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM
REALTY TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT
EXEMPT FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY
WARRANTING INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE
LGC56
Respondents claim that "the mere mention of MCIAA in the MIAA
v. [Court of Appeals] case does not make it the controlling case on
the matter."57 Respondents further claim that the 1996 MCIAA
case where this Court held that petitioner is a GOCC is the
controlling jurisprudence. Respondents point out that petitioner and
MIAA are two very different entities. Respondents argue that
petitioner is a GOCC contrary to its assertions, based on its Charter
and on DOJ Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an
instrumentality of the government, still the following statement in
the 1996 MCIAA case applies:
Besides, nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no
one can doubt its wisdom.58 Respondents argue that MCIAA
properties such as the terminal building, taxiway and runway are
not exempt from real property taxation. As discussed in the 1996
MCIAA case, Section 234 of the LGC omitted GOCCs such as
MCIAA from entities enjoying tax exemptions. Said decision also
provides that the transfer of ownership of the land to petitioner was
absolute and petitioner cannot evade payment of taxes.59
Even if the following issues were not raised by petitioner in its
motion for reconsideration of the questioned Decision, and thus the
ruling pertaining to these issues in the questioned decision had
become final, respondents still discussed its side over its objections
as to the propriety of bringing these up before this Court.
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233, 255)
and its IRR (Sections 241, 247).
b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or the
Omnibus Tax Ordinance, wherein the imposition of real property
tax was made. This Ordinance was in force and effect by virtue of
Article 278 of the IRR of Republic Act No. 7160.60
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City
Revenue Code, imposed real property taxes, special education fund
and further provided for the payment of interest and surcharges.
Thus, the issue is passé and is moot and academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for the
collection of the SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy,
imposition and collection need not be covered by ordinance.
Besides, the City has enacted the Revenue Code containing
provisions for the levy and collection of the SEF.61
Furthermore, respondents aver that:
1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the denial
of the writ of preliminary injunction by the RTC and the Court of
Appeals. Petitioner failed to show irreparable injury.
b. Comparing the alleged damage that may be caused petitioner
and the direct affront and challenge against the power to tax, which
is an attribute of sovereignty, it is but appropriate that injunctive
relief should be denied.
2. Petitioner did not comply with LGC provisions on payment
under protest.
a. Petitioner should have protested the tax imposition as provided
in Article 285 of the IRR of Republic Act No. 7160. Section 252 of
Republic Act No. 716062 requires that the taxpayer’s protest can
only be entertained if the tax is first paid under protest.63
Respondents submitted their Memorandum64 on June 30, 2009,
wherein they allege that the 1996 MCIAA case is still good law, as
shown by the following cases wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment
Appeals of Batangas [545 Phil. 92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549
Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil.
785 (2008)]; and
14
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492
(2009)].
Respondents assert that the constant reference to the 1996 MCIAA
case "could hardly mean that the doctrine has breathed its last" and
that the 1996 MCIAA case stands as precedent and is controlling
on petitioner MCIAA.65
Respondents allege that the issue for consideration is whether it is
proper for petitioner to raise the issue of whether it is not liable to
pay real property taxes, special education fund (SEF), interests
and/or surcharges.66 Respondents argue that the Court of Appeals
was correct in declaring petitioner liable for realty taxes, etc., on
the terminal building, taxiway, and runway. Respondent City relies
on the following grounds:
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner
MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local
Government Code of 1991 authorizes the collection of real
property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public
Dominion and are not exempt from realty taxes, special education
fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and
Special Education Fund from MCIAA; [and]
6. Estoppel does not lie against the government.67
THIS COURT’S RULING
The petition has merit. The petitioner is an instrumentality of the
government; thus, its properties actually, solely and exclusively
used for public purposes, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they are
situated, are not subject to real property tax and respondent City is
not justified in collecting taxes from petitioner over said properties.
DISCUSSION
The Court of Appeals (Cebu City) erred in declaring that the 1996
MCIAA case still controls and that petitioner is a GOCC. The 2006
MIAA case governs.
The Court of Appeals’ reliance on the 1996 MCIAA case is
misplaced and its staunch refusal to apply the 2006 MIAA case is
patently erroneous. The Court of Appeals, finding for respondents,
refused to apply the ruling in the 2006 MIAA case on the premise
that the same had not yet reached finality, and that as far as
MCIAA is concerned, the 1996 MCIAA case is still good law.68
While it is true, as respondents allege, that the 1996 MCIAA case
was cited in a long line of cases,69 still, in 2006, the Court en banc
decided a case that in effect reversed the 1996 Mactan ruling. The
2006 MIAA case had, since the promulgation of the questioned
Decision and Resolution, reached finality and had in fact been
either affirmed or cited in numerous cases by the Court.70 The
decision became final and executory on November 3, 2006.71
Furthermore, the 2006 MIAA case was decided by the Court en
banc while the 1996 MCIAA case was decided by a Division.
Hence, the 1996 MCIAA case should be read in light of the
subsequent and unequivocal ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that MIAA’s airport
lands and buildings are exempt from real estate tax imposed by
local governments; that it is not a GOCC but an instrumentality of
the national government, with its real properties being owned by
the Republic of the Philippines, and these are exempt from real
estate tax. Specifically referring to petitioner, we stated as follows:
Many government instrumentalities are vested with corporate
powers but they do not become stock or non-stock corporations,
which is a necessary condition before an agency or instrumentality
is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines and
Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not
government-owned or controlled corporations in the strict sense as
understood under the Administrative Code, which is the governing
law defining the legal relationship and status of government
entities.72 (Emphases ours.)
In the 2006 MIAA case, the issue before the Court was "whether
the Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws."73 We quote the extensive
discussion of the Court that led to its finding that MIAA’s lands
and buildings were exempt from real estate tax imposed by local
governments:
First, MIAA is not a government-owned or controlled corporation
but an instrumentality of the National Government and thus
exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from
real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
xxxx
There is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA is
not a government-owned or controlled corporation. Section 2(13)
of the Introductory Provisions of the Administrative Code of 1987
defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. - x x x (13) Government-owned
or controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public
needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its capital stock: x x
x.
A government-owned or controlled corporation must be "organized
as a stock or non-stock corporation." MIAA is not organized as a
stock or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is
divided into shares.
Section 3 of the Corporation Code defines a stock corporation as
one whose "capital stock is divided into shares and x x x authorized
to distribute to the holders of such shares dividends x x x." MIAA
has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock
corporation.
15
MIAA is also not a non-stock corporation because it has no
members. Section 87 of the Corporation Code defines a non-stock
corporation as "one where no part of its income is distributable as
dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will
not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of
its annual gross operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA
does not qualify as a government-owned or controlled corporation.
What then is the legal status of MIAA within the National
Government?
MIAA is a government instrumentality vested with corporate
powers to perform efficiently its governmental functions. MIAA is
like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers. Section 2(10) of the
Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. - x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x.
When the law vests in a government instrumentality corporate
powers, the instrumentality does not become a corporation. Unless
the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers. Thus,
MIAA exercises the governmental powers of eminent domain,
police authority and the levying of fees and charges. At the same
time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with
the provisions of this Executive Order."
Likewise, when the law makes a government instrumentality
operationally autonomous, the instrumentality remains part of the
National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body" will
make its operation more "financially viable."
Many government instrumentalities are vested with corporate
powers but they do not become stock or non-stock corporations,
which is a necessary condition before an agency or instrumentality
is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines and
Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not
government-owned or controlled corporations in the strict sense as
understood under the Administrative Code, which is the governing
law defining the legal relationship and status of government
entities.74 (Emphases ours, citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation
on the taxing power of the local governments as against the
national government or its instrumentality:
A government instrumentality like MIAA falls under Section
133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units.- Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities and local government units. x x
x.
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power to
tax. While the 1987 Constitution now includes taxation as one of
the powers of local governments, local governments may only
exercise such power "subject to such guidelines and limitations as
the Congress may provide."
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any
doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants
an exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the
national government instrumentality. x x x.
xxxx
There is, moreover, no point in national and local governments
taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether such
power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that
"unless otherwise provided" in the Code, local governments cannot
tax national government instrumentalities. x x x.75 (Emphases
ours, citations omitted.)
The Court emphasized that the airport lands and buildings of
MIAA are owned by the Republic and belong to the public domain.
The Court said:
16
The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic of the
Philippines. x x x.
xxxx
No one can dispute that properties of public dominion mentioned
in Article 420 of the Civil Code, like "roads, canals, rivers,
torrents, ports and bridges constructed by the State," are owned by
the State. The term "ports" includes seaports and airports. The
MIAA Airport Lands and Buildings constitute a "port" constructed
by the State. Under Article 420 of the Civil Code, the MIAA
Airport Lands and Buildings are properties of public dominion and
thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because
they are used by the public for international and domestic travel
and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. x x x.
xxxx
The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for
public use. Such fees are often termed user’s tax. This means
taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the
particular public facility. A user’s tax is more equitable - a
principle of taxation mandated in the 1987 Constitution.
The Airport Lands and Buildings of MIAA x x x are properties of
public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State
or the Republic of the Philippines.76 (Emphases supplied, citations
omitted.)
The Court also held in the 2006 MIAA case that airport lands and
buildings are outside the commerce of man.
As properties of public dominion, the Airport Lands and Buildings
are outside the commerce of man. The Court has ruled repeatedly
that properties of public dominion are outside the commerce of
man. As early as 1915, this Court already ruled in Municipality of
Cavite v. Rojas that properties devoted to public use are outside the
commerce of man, thus:
xxxx
The Civil Code, Article 1271, prescribes that everything which is
not outside the commerce of man may be the object of a contract, x
x x.
xxxx
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an auction
sale.
Properties of public dominion, being for public use, are not subject
to levy, encumbrance or disposition through public or private sale.
Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public
policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Parañaque can foreclose and
compel the auction sale of the 600-hectare runway of the MIAA
for non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the
President must first withdraw from public use the Airport Lands
and Buildings. x x x.
xxxx
Thus, unless the President issues a proclamation withdrawing the
Airport Lands and Buildings from public use, these properties
remain properties of public dominion and are inalienable. Since the
Airport Lands and Buildings are inalienable in their present status
as properties of public dominion, they are not subject to levy on
execution or foreclosure sale. As long as the Airport Lands and
Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain
for public use, and to withdraw such public use, is reiterated in
Section 14, Chapter 4, Title I, Book III of the Administrative Code
of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private
Domain of the Government. - (1) The President shall have the
power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of
which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
xxxx
There is no question, therefore, that unless the Airport Lands and
Buildings are withdrawn by law or presidential proclamation from
public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.77
Thus, the Court held that MIAA is "merely holding title to the
Airport Lands and Buildings in trust for the Republic. [Under]
Section 48, Chapter 12, Book I of the Administrative Code [which]
allows instrumentalities like MIAA to hold title to real properties
owned by the Republic."78
The Court in the 2006 MIAA case cited Section 234(a) of the
Local Government Code and held that said provision exempts from
real estate tax any "[r]eal property owned by the Republic of the
Philippines."79 The Court emphasized, however, that "portions of
the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax." The Court further
held:
This exemption should be read in relation with Section 133(o) of
the same Code, which prohibits local governments from imposing
"[t]axes, fees or charges of any kind on the National Government,
its agencies and instrumentalities x x x." The real properties owned
by the Republic are titled either in the name of the Republic itself
or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned
by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real
estate tax.
The Republic may grant the beneficial use of its real property to an
agency or instrumentality of the national government. This
happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the
real property. Such arrangement does not result in the loss of the
tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax
exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a
government instrumentality, is not a taxable person under Section
17
133(o) of the Local Government Code. Thus, even if we assume
that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA
leases to private entities are not exempt from real estate tax. For
example, the land area occupied by hangars that MIAA leases to
private corporations is subject to real estate tax. In such a case,
MIAA has granted the beneficial use of such land area for a
consideration to a taxable person and therefore such land area is
subject to real estate tax. x x x.80
Significantly, the Court reiterated the above ruling and applied the
same reasoning in Manila International Airport Authority v. City of
Pasay,81 thus:
The only difference between the 2006 MIAA case and this case is
that the 2006 MIAA case involved airport lands and buildings
located in Parañaque City while this case involved airport lands
and buildings located in Pasay City. The 2006 MIAA case and this
case raised the same threshold issue: whether the local government
can impose real property tax on the airport lands, consisting mostly
of the runways, as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of "instrumentality" under Section 2(10) of the
Introductory Provisions of the Administrative Code of 1987 uses
the phrase "includes x x x government-owned or controlled
corporations" which means that a government "instrumentality"
may or may not be a "government-owned or controlled
corporation." Obviously, the term government "instrumentality" is
broader than the term "government-owned or controlled
corporation." x x x.
xxxx
The fact that two terms have separate definitions means that while
a government "instrumentality" may include a "government-owned
or controlled corporation," there may be a government
"instrumentality" that will not qualify as a "government-owned or
controlled corporation."
A close scrutiny of the definition of "government-owned or
controlled corporation" in Section 2(13) will show that MIAA
would not fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a "government-owned or
controlled corporation." x x x.
xxxx
Thus, MIAA is not a government-owned or controlled corporation
but a government instrumentality which is exempt from any kind
of tax from the local governments. Indeed, the exercise of the
taxing power of local government units is subject to the limitations
enumerated in Section 133 of the Local Government Code. Under
Section 133(o) of the Local Government Code, local government
units have no power to tax instrumentalities of the national
government like the MIAA. Hence, MIAA is not liable to pay real
property tax for the NAIA Pasay properties. Furthermore, the
airport lands and buildings of MIAA are properties of public
dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real
property to a taxable person, the specific property leased becomes
subject to real property tax. In this case, only those portions of the
NAIA Pasay properties which are leased to taxable persons like
private parties are subject to real property tax by the City of Pasay.
(Emphases added, citations omitted.)
The Court not only mentioned petitioner MCIAA as similarly
situated as MIAA. It also mentioned several other government
instrumentalities, among which was the Philippine Fisheries
Development Authority. Thus, applying the 2006 MIAA ruling, the
Court, in Philippine Fisheries Development Authority v. Court of
Appeals,82 held:
On the basis of the parameters set in the MIAA case, the Authority
should be classified as an instrumentality of the national
government. As such, it is generally exempt from payment of real
property tax, except those portions which have been leased to
private entities.
In the MIAA case, petitioner Philippine Fisheries Development
Authority was cited as among the instrumentalities of the national
government. x x x.
xxxx
Indeed, the Authority is not a GOCC but an instrumentality of the
government. The Authority has a capital stock but it is not divided
into shares of stocks. Also, it has no stockholders or voting shares.
Hence, it is not a stock corporation. Neither [is it] a non-stock
corporation because it has no members.
The Authority is actually a national government instrumentality
which is defined as an agency of the national government, not
integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. When the law
vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers.
Thus, the Authority which is tasked with the special public
function to carry out the government’s policy "to promote the
development of the country’s fishing industry and improve the
efficiency in handling, preserving, marketing, and distribution of
fish and other aquatic products," exercises the governmental
powers of eminent domain, and the power to levy fees and charges.
At the same time, the Authority exercises "the general corporate
powers conferred by laws upon private and government-owned or
controlled corporations."
xxxx
In light of the foregoing, the Authority should be classified as an
instrumentality of the national government which is liable to pay
taxes only with respect to the portions of the property, the
beneficial use of which were vested in private entities. When local
governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Thus, the real property tax assessments issued by the City of Iloilo
should be upheld only with respect to the portions leased to private
persons.1âwphi1 In case the Authority fails to pay the real property
taxes due thereon, said portions cannot be sold at public auction to
satisfy the tax delinquency. x x x.
xxxx
In sum, the Court finds that the Authority is an instrumentality of
the national government, hence, it is liable to pay real property
18
taxes assessed by the City of Iloilo on the IFPC only with respect
to those portions which are leased to private entities.
Notwithstanding said tax delinquency on the leased portions of the
IFPC, the latter or any part thereof, being a property of public
domain, cannot be sold at public auction. This means that the City
of Iloilo has to satisfy the tax delinquency through means other
than the sale at public auction of the IFPC. (Citations omitted.)
Another government instrumentality specifically mentioned in the
2006 MIAA case was the Philippine Ports Authority (PPA). Hence,
in Curata v. Philippine Ports Authority,83 the Court held that the
PPA is similarly situated as MIAA, and ruled in this wise:
This Court’s disquisition in Manila International Airport Authority
v. Court of Appeals –– ruling that MIAA is not a government-
owned and/or controlled corporation (GOCC), but an
instrumentality of the National Government and thus exempt from
local taxation, and that its real properties are owned by the
Republic of the Philippines –– is instructive. x x x. These findings
are squarely applicable to PPA, as it is similarly situated as MIAA.
First, PPA is likewise not a GOCC for not having shares of stocks
or members. Second, the docks, piers and buildings it administers
are likewise owned by the Republic and, thus, outside the
commerce of man. Third, PPA is a mere trustee of these properties.
Hence, like MIAA, PPA is clearly a government instrumentality,
an agency of the government vested with corporate powers to
perform efficiently its governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA
partake of government funds, and such may not be garnished
absent an allocation by its Board or by statutory grant. If the PPA
funds cannot be garnished and its properties, being government
properties, cannot be levied via a writ of execution pursuant to a
final judgment, then the trial court likewise cannot grant
discretionary execution pending appeal, as it would run afoul of the
established jurisprudence that government properties are exempt
from execution. What cannot be done directly cannot be done
indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and
City Assessor of the City of Manila84 the Court found that the
GSIS was also a government instrumentality and not a GOCC,
applying the 2006 MIAA case even though the GSIS was not
among those specifically mentioned by the Court as similarly
situated as MIAA. The Court said:
GSIS an instrumentality of the National Government
Apart from the foregoing consideration, the Court’s fairly recent
ruling in Manila International Airport Authority v. Court of
Appeals, a case likewise involving real estate tax assessments by a
Metro Manila city on the real properties administered by MIAA,
argues for the non-tax liability of GSIS for real estate taxes. x x x.
xxxx
While perhaps not of governing sway in all fours inasmuch as what
were involved in Manila International Airport Authority, e.g.,
airfields and runways, are properties of the public dominion and,
hence, outside the commerce of man, the rationale underpinning
the disposition in that case is squarely applicable to GSIS, both
MIAA and GSIS being similarly situated. First, while created
under CA 186 as a non-stock corporation, a status that has
remained unchanged even when it operated under PD 1146 and RA
8291, GSIS is not, in the context of the aforequoted Sec. 193 of the
LGC, a GOCC following the teaching of Manila International
Airport Authority, for, like MIAA, GSIS’s capital is not divided
into unit shares. Also, GSIS has no members to speak of. And by
members, the reference is to those who, under Sec. 87 of the
Corporation Code, make up the non-stock corporation, and not to
the compulsory members of the system who are government
employees. Its management is entrusted to a Board of Trustees
whose members are appointed by the President.
Second, the subject properties under GSIS’s name are likewise
owned by the Republic. The GSIS is but a mere trustee of the
subject properties which have either been ceded to it by the
Government or acquired for the enhancement of the system. This
particular property arrangement is clearly shown by the fact that
the disposal or conveyance of said subject properties are either
done by or through the authority of the President of the Philippines.
x x x. (Emphasis added, citations omitted.)
All the more do we find that petitioner MCIAA, with its many
similarities to the MIAA, should be classified as a government
instrumentality, as its properties are being used for public
purposes, and should be exempt from real estate taxes. This is not
to derogate in any way the delegated authority of local government
units to collect realty taxes, but to uphold the fundamental
doctrines of uniformity in taxation and equal protection of the
laws, by applying all the jurisprudence that have exempted from
said taxes similar authorities, agencies, and instrumentalities,
whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but
it is not a stock or non-stock corporation, which is a necessary
condition before an agency or instrumentalityis deemed a
government-owned or controlled corporation. Like MIAA,
petitioner MCIAA has capital under its charter but it is not divided
into shares of stock. It also has no stockholders or voting shares.
Republic Act No. 6958 provides:
Section 9. Capital.– The [Mactan-Cebu International Airport]
Authority shall have an authorized capital stock equal to and
consisting of:
(a) The value of fixed assets (including airport facilities, runways
and equipment) and such other properties, movable and
immovable, currently administered by or belonging to the airports
as valued on the date of the effectivity of this Act;
(b) The value of such real estate owned and/or administered by the
airports; and
(c) Government contribution in such amount as may be deemed an
appropriate initial balance.1âwphi1 Such initial amount, as
approved by the President of the Philippines, which shall be more
or less equivalent to six (6) months working capital requirement of
the Authority, is hereby authorized to be appropriated in the
General Appropriations Act of the year following its enactment
into law. Thereafter, the government contribution to the capital of
the Authority shall be provided for in the General Appropriations
Act.
Like in MIAA, the airport lands and buildings of MCIAA are
properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to
the State or the Republic of the Philippines, and are outside the
commerce of man. This, unless petitioner leases its real property to
a taxable person, the specific property leased becomes subject to
real property tax; in which case, only those portions of petitioner’s
properties which are leased to taxable persons like private parties
are subject to real property tax by the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and
conclusions of the Court in the 2006 MIAA case, and we quote:
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions of
the Administrative Code because it is not organized as a stock or
non-stock corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the 1987
19
Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested
with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is
not subject to any kind of tax by local governments under Section
133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under the Local Government Code.
Such exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public dominion.
Properties of public dominion are owned by the State or the
Republic. x x x.
xxxx
The term "ports x x x constructed by the State" includes airports
and seaports. The Airport Lands and Buildings of MIAA are
intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the
Airport Lands and Buildings are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are
owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and
not a government-owned or controlled corporation. Under Section
133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The
only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands
and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are properties of
public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and
seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject
to execution or foreclosure sale.85 (Emphases added.)
WHEREFORE, we hereby GRANT the petition. We REVERSE
and SET ASIDE the Decision dated October 8, 2007 and the
Resolution dated February 12, 2008 of the Court of Appeals (Cebu
City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:
1. Petitioner's properties that are actually, solely and exclusively
used for public purpose, consisting of the airport terminal building,
airfield, runway, taxiway and the lots on which they are situated,
EXEMPT from real property tax imposed by the City of Lapu-
Lapu.
2. VOID all the real property tax assessments, including the
additional tax for the special education fund and the penalty
interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioner's
properties, except the assessment covering the portions that
petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioner's
properties and the eventual forfeiture and purchase of the said
properties by respondent City of Lapu-Lapu. We likewise declare
VOID the corresponding Certificates of Sale of Delinquent
Property issued to respondent City of Lapu-Lapu.
SO ORDERED.
G.R. No. 212920, September 16, 2015
COMMISSIONER OF INTERNAL
REVENUE, Petitioner, v. NIPPON EXPRESS (PHILS.)
CORPORATION, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated December 18, 2013 and the Resolution3 dated June
10, 2014 of the Court of Tax Appeals (CTA) En Banc in CTA EB
No. 924, which affirmed the Resolution4 dated July 31, 2012 of the
CTA Third Division (CTA Division) in CTA Case No. 6967,
granting respondent Nippon Express (Phils.) Corporation's
(Nippon) motion to withdraw petition for review5 (motion to
withdraw).
The Facts
Nippon is a domestic corporation duly organized and existing
under Philippine laws which is primarily engaged in the business
of freight forwarding, namely, in the international and domestic air
and sea freight and cargo forwarding, hauling, carrying, handling,
distributing, loading, and unloading general cargoes and all classes
of goods, wares, and merchandise, and the operation of container
depots, warehousing, storage, hauling, and packing facilities. 6 It is
a Value-Added Tax (VAT) registered entity with Tax Identification
No. VAT Registration No. 004-669-434-000.7 As such, it filed its
quarterly VAT returns for the year 2002 on April 25, 2002, July
25, 2002, October 25, 2002, and January 27, 2003, respectively. 8 It
maintained that during the said period it incurred input VAT
attributable to its zero-rated sales in the amount of P28,405,167.60,
from which only P3,760,660.74 was applied as tax credit, thus,
reflecting refundable excess input VAT in the amount of
P24,644,506.86.9
On April 22, 2004, Nippon filed an administrative claim for
refund10 of its unutilized input VAT in the amount of
P24,644,506.86 for the year 2002 before the Bureau of Internal
Revenue (BIR).11 A day later, or on April 23, 2004, it filed a
judicial claim for tax refund, by way of petition for
review,12 before the CTA, docketed as CTA Case No. 6967.13
For its part, petitioner the Commissioner of Internal Revenue (CIR)
asserted, inter alia, that the amounts being claimed by Nippon as
unutilized input VAT were not properly documented, hence,
should be denied.14
Proceedings Before the CTA Division
In aDecision15 dated August 10, 2011, the CTA Division partially
granted Nippon's claim for tax refund, and thereby ordered the CIR
to issue a tax credit certificate in the reduced amount of
P2,614,296.84, representing its unutilized input VAT which was
attributable to its zero-rated sales.16 It found that while Nippon
timely filed its administrative and judicial claims within the two
(2)-year prescriptive period,17 it, however, failed to show that the
recipients of its services - which, in this case, were mostly
Philippine Economic Zone Authority registered enterprises - were
non-residents "doing business outside the Philippines."
Accordingly, it concluded that Nippon's purported sales therefrom
could not qualify as zero-rated sales, hence, the reduction in the
amount of tax credit certificate claimed.18
20
Before its receipt of the August 10, 2011 Decision, or on August
12, 2011, Nippon filed a motion to withdraw,19 considering that
the BIR, acting on its administrative claim, already issued a tax
credit certificate in the amount of P21,675,128.91 on July 27, 2011
(July 27, 2011 Tax Credit Certificate).
Separately, the CIR moved for reconsideration20 of the August 10,
2011 Decision and filed its comment/opposition21 to Nippon's
motion to withdraw, claiming that: (a) the CTA Division had
already resolved the factual issue pertaining to Nippon's
entitlement to a tax credit certificate, which, after trial, was proven
to be only in the amount of P2,614,296.84; (b) the issuance of the
July 27, 2011 Tax Credit Certificate was bereft of factual and legal
bases, and prejudicial to the interest of the government; and (c)
Nippon's motion to withdraw was "tantamount to [a] withdrawal
and abandonment of its [mjotion for [reconsideration also filed in
this case."22
Thereafter, Nippon, which maintained that it only had notice of the
August 10, 2011 Decision on August 16, 2011,23 likewise sought
for reconsideration,24 praying that the CTA Division set aside its
August 10, 2011 Decision and render judgment ordering the CIR to
issue a tax credit certificate in the full amount of P24,644,506.86,
or in the alternative, grant its motion to withdraw.25cralawred
In a Resolution dated July 31, 2012,26 the CTA Division granted
Nippon's motion to withdraw and, thus, considered the case closed
and terminated.27 It found that pursuant to Revenue
Memorandum Circular No. 49-03 (RMC No. 49-03) dated
August 15, 2003, Nippon correctly availed of the proper remedy
notwithstanding the promulgation of the August 10, 2011 Decision.
It added that in approving the withdrawal of Nippon's petition for
review, it exercised its discretionary authority under Section 3,
Rule 50 of the Rules of Court after due consideration of the reasons
proffered by Nippon, namely: (a) that the parties had already
arrived at a reasonable settlement of the issues; (b) further legal
and related costs would be avoided; and (c) the court's time and
resources would be saved.28
Aggrieved, the CIR elevated29 its case to the CTA En Banc.
The CTA En Banc Ruling
In a Decision30 dated December 18, 2013, the CTA En
Banc affirmed the July 31, 2012 Resolution of the CTA Division
granting Nippon's motion to withdraw.31 It debunked the CIR's
assertions that Nippon failed to comply with the requirements set
forth in RMC No. 49-03 - i.e., that Nippon failed to notify the BIR
that it agreed with its findings and to file the necessary motion
before the CTA Division prior to the promulgation of its Decision -
noting that RMC No. 49-03 did not expressly require a taxpayer to
inform the BIR of its assent nor prescribe a definite period for
filing a motion to withdraw. It also observed that the CIR did not
deny the existence and issuance of the July 27, 2011 Tax Credit
Certificate. In this regard, the same may be taken judicial notice of,
and the need for its formal offer dispensed with.32
The CIR moved for partial reconsideration33 which was, however,
denied by the CTA En Banc in a Resolution34 dated June 10, 2014;
hence, this petition.
The Issue Before the Court
The core issue in this case is whether the CTA properly granted
Nippon's motion to withdraw.
The Court's Ruling
The petition is meritorious.
A perusal of the Revised Rules of the Court of Tax
Appeals35 (RRCTA) reveals the lack of provisions governing the
procedure for the withdrawal of pending appeals before the CTA.
Hence, pursuant to Section 3, Rule 1 of the RRCTA, the Rules of
Court shall suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in
the Philippines shall apply suppletorily to these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate
procedure in the CA under Rules 42, 43, 44, and 46 of the Rules of
Court which are equally adopted in the RRCTA36 - states that when
the case is deemed submitted for resolution, withdrawal of appeals
made after the filing of the appellee's brief may still be allowed in
the discretion of the court:
RULE 50
DISMISSAL OF APPEAL
xxxx
Section 3. Withdrawal of appeal. � An appeal may be withdrawn
as of right at any time before the filing of the appellee's
brief. Thereafter, the withdrawal may be allowed in the
discretion of the court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011
Tax Credit Certificate, Nippon filed a motion to withdraw the case,
proffering that:
Having arrived at a reasonable settlement of the issues with the
[CIR]/BIR, and to avoid incurring further legal and related costs,
not to mention the time and resources of [the CTA], [Nippon] most
respectfully moves for the withdrawal of its Petition for Review. 37
Finding the aforementioned grounds to be justified, the CTA
Division allowed the withdrawal of Nippon's appeal thereby
ordering the case closed and terminated, notwithstanding the fact
that the said motion was filed after the promulgation of its August
10, 2011 Decision.
While it is true that the CTA Division has the prerogative to grant a
motion to withdraw under the authority of the foregoing legal
provisions, the attendant circumstances in this case should have
incited it to act otherwise.
First, it should be pointed out that the August 10, 2011 Decision
was rendered by the CTA Division after a full-blown hearing in
which the parties had already ventilated their claims. Thus, the
findings contained therein were the results of an exhaustive study
of the pleadings and a judicious evaluation of the evidence
submitted by the parties, as well as the report of the commissioned
certified public accountant. In Reyes v. Commission on
Elections,38 the Court only noted, and did not grant, a motion to
withdraw the petition filed after it had already acted on said
petition, ratiocinating in the following wise:
It may well be in order to remind petitioner that jurisdiction, once
acquired, is not lost upon the instance of the parties, but continues
until the case is terminated. When petitioner filed her Petition
for Certiorari jurisdiction vested in the Court and, in fact, the
Court exercised such jurisdiction when it acted on the petition.
Such jurisdiction cannot be lost by the unilateral withdrawal of the
petition by petitioner.39
The primary reason, however, that militates against the granting of
the motion to withdraw is the fact that the CTA Division, in its
August 10, 2011 Decision, had already determined that Nippon
was only entitled to refund the reduced amount
of P2,614,296.84 since it failed to prove that the recipients of its
services were non-residents "doing business outside the
Philippines"; hence, Nippon's purported sales therefrom could not
qualify as zero-rated sales, necessitating the reduction in the
amount of refund claimed. Markedly different from this is the
BIR's determination that Nippon should receive P21,675,128.91 as
per the July 27, 2011 Tax Credit Certificate, which is, in
all, P19,060,832.07 larger than the amount found due by the CTA
Division. Therefore, as aptly pointed out by Associate Justice
Teresita J. Leonardo-De Castro during the deliberations on this
case, the massive discrepancy alone between the administrative
and judicial determinations of the amount to be refunded to Nippon
should have already raised a red flag to the CTA Division. Clearly,
21
the interest of the government, and, more significantly, the public,
will be greatly prejudiced by the erroneous grant of refund - at a
substantial amount at that - in favor of Nippon. Hence, under these
circumstances, the CTA Division should not have granted the
motion to withdraw.
In this relation, it deserves mentioning that the CIR is not estopped
from assailing the validity of the July 27, 2011 Tax Credit
Certificate which was issued by her subordinates in the BIR. In
matters of taxation, the government cannot be estopped by the
mistakes, errors or omissions of its agents for upon it depends the
ability of the government to serve the people for whose benefit
taxes are collected.40
Finally, the Court has observed that based on the records, Nippon's
administrative claim for the first taxable quarter of 2002 which
closed on March 31, 2002 was already time-barred41 for being filed
on April 22, 2004, or beyond the two (2)-year prescriptive period
pursuant to Section 112(A)42 of the National Internal Revenue
Code of 1997. Although prescription was not raised as an issue, it
is well-settled that if the pleadings or the evidence on record show
that the claim is barred by prescription, the Court may motu
proprio order its dismissal on said ground.43
All told, the CTA committed a reversible error in granting
Nippon's motion to withdraw. The August 10, 2011 Decision of the
CTA Division should therefore be reinstated, without prejudice,
however, to the right of either party to appeal the same in
accordance with the RRCTA.
WHEREFORE, the petition is GRANTED. The Decision dated
December 18, 2013 and the Resolution dated June 10, 2014 of the
Court of Tax Appeals En Banc in CTA EB Case No. 924 are
hereby SET ASIDE. The Decision dated August 10, 2011 of the
Court of Tax Appeals Third Division in CTA Case No. 6967
is REINSTATED, without prejudice, however, to the right of
either party to appeal the same in accordance with the Revised
Rules of the Court of Tax Appeals.
SO ORDERED.chanroblesvirtuallawlibrary
COMMISSION OF INTERNAL REVENUE, G.R. No. 1703
Petitioner,
Present:
CARPIO, J., C
- versus - LEONARDO-D
PERALTA,
MENDOZA, an
SERENO,** JJ.
AQUAFRESH SEAFOODS, INC., Promulgated:
Respondent.
October 20, 20
x-------------------------------------------------------------------------------
----------x
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari,[1] under
Rule 45 of the Rules of Court, seeking to set aside the November 9,
2005 Decision[2] of the Court of Tax Appeals (CTA) En Banc in
CTA-E.B. No. 77. The CTA En Banc affirmed the December 22,
2004 Decision of the CTA First Division.
The facts of the case are as follows:
On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to
Philips Seafoods, Inc. two parcels of land, including improvements
thereon, located at Barrio Banica, Roxas City, for the consideration
of Three Million One Hundred Thousand Pesos (Php 3,100,
000.00). Said properties were covered under Transfer Certificate of
Titles Nos. T-21799 and T-21804.
Respondent then filed a Capital Gains Tax Return/Application for
Certification Authorizing Registration and paid the amount of
Php186,000.00, representing the Capital Gains Tax (CGT) and the
amount of Php46,500.00, representing the Documentary Stamp
Tax (DST) due from the said sale. Subsequently, Revenue District
Officer Gil G. Tabanda issued Certificate Authorizing Registration
No. 1071477.
The Bureau of Internal Revenue (BIR), however, received a report
that the lots sold were undervalued for taxation purposes. This
prompted the Special Investigation Division (SID) of the BIR to
conduct an occular inspection over the properties. After the
investigation, the SID concluded that the subject properties were
commercial with a zonal value of Php2,000.00 per square meter.
On September 15, 2000, Regional Director Leonardo Q. Sacamos
(Director Sacamos) of the Revenue Region Iloilo City sent two
Assessment Notices apprising respondent of CGT and DST
defencies in the sum of Php1,372,171.46 and Php356,267.62,
respectively. Director Sacamos relied on the findings of the SID
that the subject properties were commercial with a zonal valuation
of Php2,000.00 per square meter.
On October 1, 2000, respondent sent a letter protesting the
assessments made by Director Sacamos. On December 1, 2000,
Director Sacamos denied respondent's protest for lack of legal
basis. Respondent appealed, but the same was denied with finality
on February 13, 2002.
On March 19, 2002, respondent filed a petition for review[3] before
the CTA seeking the reversal of the denial of its protest. The main
thrust of respondent's petition was that the subject properties were
located in BarrioBanica, Roxas, where the pre-defined zonal value
was Php650.00 per square meter based on the Revised Zonal
Values of Real Properties in the City of Roxas under Revenue
District Office No. 72 Roxas City (1995 Revised Zonal Values of
Real Properties). Respondent asserted that the subject properties
were classified as RR or residential and not commercial.
Respondent argued that since there was already a pre-defined zonal
value for properties located in Barrio Banica, the BIR officials had
no business re-classifying the subject properties to commercial.
On December 22, 2004, the CTA promulgated a Decision[4] ruling
in favor of respondent, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, respondent's assessments for
deficiency capital against tax and documentary stamp taxes are
hereby CANCELLED and SET ASIDE. x x x
SO ORDERED.[5]
Ruling in favor of respondent, the CTA opined that that the
existing Revised Zonal Values in the City of Roxas should prevail
for purposes of determining respondent's tax liabilities, thus:
While respondent is given the authority to determine the fair
market value of the subject properties for the purpose of computing
internal revenue taxes, such authority is not without restriction or
limitation. The first sentence of Section 6(E) sets the limitation
or condition in the exercise of such power by requiring
respondent to consult with competent appraisers both from
private and public sectors. As there was no re-evaluation and no
22
revision of the zonal values of the subject properties in Roxas City
at the time of the sale, respondent cannot unilaterally determine the
zonal values of the subject properties by invoking his powers of
obtaining information and making assessments under Sections 5
and 6 of the NIRC. The existing Revised Zonal Values of Real
Properties in the City of Roxas shall prevail for the purpose of
determining the proper tax liabilities of petitioner.[6]
Petitioner Commissioner of Internal Revenue filed a Motion for
Reconsideration, which was, however, denied by the CTA in a
Resolution[7] dated April 4, 2005.
Petitioner then appealed to the CTA En Banc.
In a Decision dated November 9, 2005, the CTA En
Banc dismissed petitioner's appeal, the dispositive portion of which
reads:
WHEREFORE, premises considered, the Petition for
Review is DISMISSED for lack of merit.
SO ORDERED.[8]
The CTA En Banc ruled that the 1995 Revised Zonal Values of
Real Properties should prevail. Said court relied on Section 6 (E) of
the National Internal Revenue Code (NIRC) which requires
consultation from appraisers, from both the public and private
sectors, in fixing the zonal valuation of properties. The CTA En
Banc held that petitioner failed to prove any amendment effected
on the 1995 Revised Zonal Values of Real Properties at the time of
the sale of the subject properties.
Hence, herein petition, with petitioner raising the following issues
for this Court's resolution, to wit:
I.
WHETHER OR NOT THE REQUIREMENT OF
CONSULTATION WITH COMPETENT APPRAISERS BOTH
FROM THE PRIVATE AND PUBLIC SECTORS IN
DETERMINING THE FAIR MARKET VALUE OF THE
SUBJECT LOTS IS APPLICABLE IN THE CASE AT BAR.
II.
WHETHER OR NOT THE COURT OF TAX APPEALS EN
BANC COMMITTED GRAVE ERROR IN APPLYING THE
FAIR MARKET VALUE BASED ON THE ZONAL
VALUATION OF A RESIDENTIAL LAND AS TAX BASE IN
THE COMPUTATION OF CAPITAL GAINS TAX AND
DOCUMENTARY STAMP TAX DEFICIENCIES OF
RESPONDENT.[9]
The petition is not meritorious. The issues being interrelated, this
Court shall discuss the same in seriatim.
Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%)
percent is imposed on the gains presumed to have been realized in
the sale, exchange or disposition of lands and/or buildings which
are not actively used in the business of a corporation and which are
treated as capital assets based on the gross selling price or fair
market value as determined in accordance with Section 6(E) of the
NIRC, whichever is higher.
On the other hand, under Section 196 of the NIRC, DST is based
on the consideration contracted to be paid or on its fair market
value determined in accordance with Section 6(E) of the NIRC,
whichever is higher.
Thus, in determining the value of CGT and DST arising from the
sale of a property, the power of the CIR to assess is subject to
Section 6(E) of the NIRC, which provides:
Section 6. Power of the Commissioner to Make Assessments and
Prescribe Additional Requirements for Tax Administration and
Enforcement. -
xxxx
(E) Authority of the Commissioner to Prescribe Real Property
Values The Commissioner is hereby authorized to divide the
Philippines into different zones or area and shall,
upon consultation with competent appraisers both from the
private and public sectors, determine the fair market value of real
properties located in each zone or area. For purposes of computing
internal revenue tax, the value of the property shall be, whichever
is higher of:
(1) the fair market value as determined by the
Commissioner; or
(2) the fair market value as shown in the schedule of values
of the Provincial and City Assessors.
While the CIR has the authority to prescribe real property values
and divide the Philippines into zones, the law is clear that the same
has to be done upon consultation with competent appraisers both
from the public and private sectors. It is undisputed that at the time
of the sale of the subject properties found in Barrio Banica, Roxas
City, the same were classified as RR, or residential, based on the
1995 Revised Zonal Value of Real Properties. Petitioner, thus,
cannot unilaterally change the zonal valuation of such properties to
commercial without first conducting a re-evaluation of the zonal
values as mandated under Section 6(E) of the NIRC.
Petitioner argues, however, that the requirement of consultation
with competent appraisers is mandatory only when it is prescribing
real property values that is when a formulation or change is made
in the schedule of zonal values. Petitioner also contends that what
it did in the instant case was not to prescribe the zonal value, but
merely classify the same as commercial and apply the
corresponding zonal value for such classification based on the
existing schedule of zonal values in Roxas City.[10]
We disagree.
To this Court's mind, petitioner's act of re-classifying the subject
properties from residential to commercial cannot be done without
first complying with the procedures prescribed by law. It bears to
stress that ALL the properties in Barrio Banica were classified as
residential, under the 1995 Revised Zonal Values of Real
Properties. Thus, petitioner's act of classifying the subject
properties involves a re-classification and revision of the
prescribed zonal values.
In addition, Revenue Memorandum No. 58-69 provides for the
procedures on the establishment of the zonal values of real
properties, viz.:
(1) The submission or review by the Revenue District
Offices Sub-Technical Committee of the schedule of recommended
zonal values to the TCRPV;
(2) The evaluation by TCRPV of the submitted schedule
of recommended zonal values of real properties;
(3) Except in cases of correction or adjustment, the
TCRPV finalizes the schedule and submits the same to the
Executive Committee on Real Property Valuation (ECRPV);
(3) Upon approval of the schedule of zonal
values by the ECRPV, the same is embodied in a Department
Order for implementation and signed by the Secretary of Finance.
Thereafter, the schedule takes effect (15) days after its publication
in the Official Gazette or in any newspaper of general circulation.
Petitioner failed to prove that it had complied with Revenue
Memorandum No. 58-69 and that a revision of the 1995 Revised
23
Zonal Values of Real Properties was made prior to the sale of the
subject properties. Thus, notwithstanding petitioner's disagreement
to the classification of the subject properties, the same must be
followed for purposes of computing the CGT and DST. It bears
stressing, and as observed by the CTA En Banc, that the 1995
Revised Zonal Values of Real Properties was drafted by petitioner,
BIR personnel, representatives from the Department of Finance,
National Tax Research Center, Institute of Philippine Real Estate
Appraisers and Philippine Association of Realtors Board, which
duly satisfied the requirement of consultation with public and
private appraisers.[11]
Petitioner contends, nevertheless, that its act of classifying the
subject properties based on actual use was in accordance with
guidelines number 1-b and 2 as set forth in Certain Guidelines in
the Implementation of Zonal Valuation of Real Properties for RDO
72 Roxas City (Zonal Valuation Guidelines).[12]
Section 1 (b) of the Zonal Valuation Guidelines reads:
1. No zonal value has been prescribed for a
particular classification of real property.
Where in the approved schedule of zonal values for a particular
barangay -
xxxx
b) No zonal value has been prescribed for a particular
classification of real property in one barangay, the zonal value
prescribed for the same classification of real property located in an
adjacent barangay of similar conditions shall be used.
Section 1 (b) does not apply to the case at bar for the simple reason
that said proviso operates only when no zonal valuation has been
prescribed. The properties located in Barrio Banica, Roxas City
were already subject to a zonal valuation, a fact which even
petitioner has admitted in its petition, thus:
It must be noted that under the schedule of zonal values, Barangay
Banica, where the subject lots are situated, has a single
classification only that of a residential area. Accordingly, it has a
prescribed zonal value of Php650.00 per square meter.[13]
Petitioner, however, also relies on Section 2 (a) of the Zonal
Valuation Guidelines, to justify its action. Said section states:
2. Predominant Use of Property.
a) All real properties, regardless of actual use, located in a
street/barangay zone, the use of which are predominantly
commercial shall be classified as Commercial for purposes of
zonal valuation.
In BIR Ruling No. 041-2001, issued on September 18, 2001, the
BIR tackled the application of a provision which is identical to
Section 2 (a) of the Zonal Valuation Guidelines. BIR Ruling No.
041-2001 involved a request by the Iglesia Ni Cristo that the re-
computation of CGT and DST based on the predominant use of the
real properties located at Mindanao Avenue, Quezon City, be set
aside. In said case, the Iglesia ni Cristo paid the CGT and DST
based on the zonal value of residential lots in Quezon City. The
Revenue District Officer, however, ordered a re-computation of the
CGT and DST based on the ground that the real property is located
in a predominantly commercial area and must be classified as
commercial for purposes of zonal valuation. The BIR ruled in
favor of Iglesia ni Cristo stating that Certain Guidelines in the
Implementation of Zonal Valuation of Real Properties for RDO
No. 38, applying the predominant use of property as the basis for
the computation of the Capital Gains and Documentary Stamp
Taxes, shall apply only when the real property is located in an
area or zone where the properties are not yet classified and
their respective zonal valuation are not yet determined. The
pertinent portion of BIR Ruling No. 041-2001 reads:
In reply, please be informed that this Office finds your request
meritorious. The number 2 guideline laid down in Certain
Guidelines in the implementation of Zonal valuation of Real
Properties for RDO No. 38- North Quezon City xxx does not apply
to this case.
Number 2 of the CERTAIN GUIDELINES IN THE
IMPLEMENTATION OF ZONAL VALUATION OF REAL
PROPERTIES FOR RD NO. 38 NORTH QUEZON CITY
provides:
2. PREDOMINANT USE OF PROPERTY:
ALL REAL PROPERTIES REGARDLESS OF ACTUAL
USE, LOCATED IN A STREET/BARANGAY ZONE, THE
USE OF WHICH ARE PREDOMINANTLY COMMERCIAL
SHALL BE CLASSIFIED AS 'COMMERICIAL'FOR
PURPOSES OF ZONAL VALUATION.
It is the considered opinion of this Office that the guideline
applies when the real property is located in an area or zone
where the properties are not yet classified and their respective
zonal valuation are not yet determined.
In the instant case, however, the classification and valuation of
the properties located in Mindanao Avenue, Bagong Bantay,
have already been determined. Under Department of Finance
Order No. 6-2000, the properties along Mindanao Avenue had
already been classified as residential and commercial. The zonal
valuation thereof had already been determined. x x x Therefore,
the Revenue District Officer of RDO No. 38 has no discretion
to determine the classification or valuation of the properties
located in the pertinent area. The computation of the capital
gains and documentary stamp taxes shall be based on the zonal of
residential properties located at Mindanao Avenue, Bago Bantay,
Quezon City.[14]
Based on the foregoing, this Court need not belabour on the
applicability of Section 2 (a), as the BIR itself has already ruled
that the same shall apply only when the real property is located in
an area or zone where the properties are not yet classified and their
respective zonal valuation are not yet determined. As mentioned
earlier, the subject properties were already part of the 1995
Revised Zonal Value of Real Properties which classified the same
as residential with a zonal value of Php650.00 per square
meter; thus, Section 2 (a) clearly has no application.
This Court agrees with the observation of the CTA that zonal
valuation was established with the objective of having an efficient
tax administration by minimizing the use of discretion in the
determination of the tax based on the part of the administrator on
one hand and the taxpayer on the other hand.[15] Zonal value is
determined for the purpose of establishing a more realistic basis for
real property valuation. Since internal revenue taxes, such as CGT
and DST, are assessed on the basis of valuation, the zonal
valuation existing at the time of the sale should be taken into
account.[16]
If petitioner feels that the properties in Barrio Banica should also
be classified as commercial, then petitioner should work for its
revision in accordance with Revenue Memorandum Order No. 58-
69. The burden was on petitioner to prove that the classification
and zonal valuation in Barrio Banica have been revised in
accordance with the prevailing memorandum. In the absence of
proof to the contrary, the 1995 Revised Zonal Values of Real
Properties must be followed.
Lastly, this Court takes note of the wording of Section 2 (b) of the
Zonal Valuation Guidelines, to wit:
24
2. Predominant Use of Property.
b) The predominant use of other classification of properties located
in a street/barangay zone, regardless of actual use shall be
considered for purposes of zonal valuation.
Based thereon, this Court rules that even assuming arguendo that
the subject properties were used for commercial purposes, the same
remains to be residential for zonal value purposes. It appears that
actual use is not considered for zonal valuation, but the
predominant use of other classification of properties located in the
zone. Again, it is undisputed that the entire Barrio Banica has been
classified as residential.
WHEREFORE, premises considered, the petition is denied. The
November 9, 2005 Decision of the Court of Tax Appeals En Banc,
in CTA-E.B. No. 77, is hereby AFFIRMED.
SO ORDERED.
G.R. No. 196596
COMMISSIONER OF INTERNAL REVENUE, Petitioner
vs.
DE LA SALLE UNIVERSITY, INC., Respondent
x-----------------------x
G.R. No. 198841
DE LA SALLE UNIVERSITY INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x-----------------------x
G.R. No. 198941
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
DE LA SALLE UNIVERSITY, INC., Respondent.
DECISION
BRION, J.:
Before the Court are consolidated petitions for review on
certiorari:1
1. G.R. No. 196596 filed by the Commissioner of Internal Revenue
(Commissioner) to assail the December 10, 2010 decision and
March 29, 2011 resolution of the Court of Tax Appeals (CTA) in
En Banc Case No. 622;2
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU)
to assail the June 8, 2011 decision and October 4, 2011 resolution
in CTA En Banc Case No. 671;3 and
3. G.R. No. 198941 filed by the Commissioner to assail the June 8,
2011 decision and October 4, 2011 resolution in CTA En Banc
Case No. 671.4
G.R. Nos. 196596, 198841 and 198941 all originated from CTA
Special First Division (CTA Division) Case No. 7303. G.R. No.
196596 stemmed from CTA En Banc Case No. 622 filed by the
Commissioner to challenge CTA Case No. 7303. G.R. No. 198841
and 198941 both stemmed from CTA En Banc Case No. 671 filed
by DLSU to also challenge CTA Case No. 7303.
The Factual Antecedents
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to
DLSU Letter of Authority (LOA) No. 2794 authorizing its revenue
officers to examine the latter's books of accounts and other
accounting records for all internal revenue taxes for the period
Fiscal Year Ending 2003 and Unverified Prior Years.5
On May 19, 2004, BIR issued a Preliminary Assessment Notice to
DLSU.6
Subsequently on August 18, 2004, the BIR through a Formal Letter
of Demand assessed DLSU the following deficiency taxes: (1)
income tax on rental earnings from restaurants/canteens and
bookstores operating within the campus; (2) value-added tax (VAI)
on business income; and (3) documentary stamp tax (DSI) on loans
and lease contracts. The BIR demanded the payment of
₱17,303,001.12, inclusive of surcharge, interest and penalty for
taxable years 2001, 2002 and 2003.7
DLSU protested the assessment. The Commissioner failed to act on
the protest; thus, DLSU filed on August 3, 2005 a petition for
review with the CTA Division.8
DLSU, a non-stock, non-profit educational institution, principally
anchored its petition on Article XIV, Section 4 (3) of the
Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. xxx.
On January 5, 2010, the CTA Division partially granted DLSU's
petition for review. The dispositive portion of the decision reads:
WHEREFORE, the Petition for Review is PARTIALLY
GRANTED. The DST assessment on the loan transactions of
[DLSU] in the amount of ₱1,1681,774.00 is hereby CANCELLED.
However, [DLSU] is ORDERED TO PAY deficiency income tax,
VAT and DST on its lease contracts, plus 25% surcharge for the
fiscal years 2001, 2002 and 2003 in the total amount of
₱18,421,363.53 ... xxx.
In addition, [DLSU] is hereby held liable to pay 20% delinquency
interest on the total amount due computed from September 30,
2004 until full payment thereof pursuant to Section 249(C)(3) of
the [National Internal Revenue Code]. Further, the compromise
penalties imposed by [the Commissioner] were excluded, there
being no compromise agreement between the parties.
SO ORDERED.9
Both the Commissioner and DLSU moved for the reconsideration
of the January 5, 2010 decision.10 On April 6, 2010, the CTA
Division denied the Commissioner's motion for reconsideration
while it held in abeyance the resolution on DLSU's motion for
reconsideration.11
On May 13, 2010, the Commissioner appealed to the CTA En
Banc (CTA En Banc Case No. 622) arguing that DLSU's use of its
revenues and assets for non-educational or commercial purposes
removed these items from the exemption coverage under the
Constitution.12
On May 18, 2010, DLSU formally offered to the CTA Division
supplemental pieces of documentary evidence to prove that its
rental income was used actually, directly and exclusively for
educational purposes.13 The Commissioner did not promptly
object to the formal offer of supplemental evidence despite
notice.14
On July 29, 2010, the CTA Division, in view of the supplemental
evidence submitted, reduced the amount of DLSU's tax
25
deficiencies. The dispositive portion of the amended decision
reads:
WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is
hereby PARTIALLY GRANTED. [DLSU] is hereby ORDERED
TO PAY for deficiency income tax, VAT and DST plus 25%
surcharge for the fiscal years 2001, 2002 and 2003 in the total
adjusted amount of ₱5,506,456.71 ... xxx.
In addition, [DLSU] is hereby held liable to pay 20% per annum
deficiency interest on the ... basic deficiency taxes ... until full
payment thereof pursuant to Section 249(B) of the [National
Internal Revenue Code] ... xxx.
Further, [DLSU] is hereby held liable to pay 20% per annum
delinquency interest on the deficiency taxes, surcharge and
deficiency interest which have accrued ... from September 30, 2004
until fully paid.15
Consequently, the Commissioner supplemented its petition with
the CTA En Banc and argued that the CTA Division erred in
admitting DLSU's additional evidence.16
Dissatisfied with the partial reduction of its tax liabilities, DLSU
filed a separate petition for review with the CTA En Banc (CTA
En Banc Case No. 671) on the following grounds: (1) the entire
assessment should have been cancelled because it was based on an
invalid LOA; (2) assuming the LOA was valid, the CTA Division
should still have cancelled the entire assessment because DLSU
submitted evidence similar to those submitted by Ateneo De
Manila University (Ateneo) in a separate case where the CTA
cancelled Ateneo's tax assessment;17 and (3) the CTA Division
erred in finding that a portion of DLSU's rental income was not
proved to have been used actually, directly and exclusively for
educational purposes.18
The CTA En Banc Rulings
CTA En Banc Case No. 622
The CTA En Banc dismissed the Commissioner's petition for
review and sustained the findings of the CTA Division.19
Tax on rental income
Relying on the findings of the court-commissioned Independent
Certified Public Accountant (Independent CPA), the CTA En Banc
found that DLSU was able to prove that a portion of the assessed
rental income was used actually, directly and exclusively for
educational purposes; hence, exempt from tax.20 The CTA En
Banc was satisfied with DLSU's supporting evidence confirming
that part of its rental income had indeed been used to pay the loan
it obtained to build the university's Physical Education – Sports
Complex.21
Parenthetically, DLSU's unsubstantiated claim for exemption, i.e.,
the part of its income that was not shown by supporting documents
to have been actually, directly and exclusively used for educational
purposes, must be subjected to income tax and VAT.22
DST on loan and mortgage transactions
Contrary to the Commissioner's contention, DLSU froved its
remittance of the DST due on its loan and mortgage documents.23
The CTA En Banc found that DLSU's DST payments had been
remitted to the BIR, evidenced by the stamp on the documents
made by a DST imprinting machine, which is allowed under
Section 200 (D) of the National Internal Revenue Code (Tax
Code)24 and Section 2 of Revenue Regulations (RR) No. 15-
2001.25
Admissibility of DLSU's supplemental evidence
The CTA En Banc held that the supplemental pieces of
documentary evidence were admissible even if DLSU formally
offered them only when it moved for reconsideration of the CTA
Division's original decision. Notably, the law creating the CTA
provides that proceedings before it shall not be governed strictly by
the technical rules of evidence.26
The Commissioner moved but failed to obtain a reconsideration of
the CTA En Banc's December 10, 2010 decision.27 Thus, she
came to this court for relief through a petition for review on
certiorari (G.R. No. 196596).
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for review
and further reduced its tax liabilities to ₱2,554,825.47 inclusive of
surcharge.28
On the validity of the Letter of Authority
The issue of the LOA' s validity was raised during trial;29 hence,
the issue was deemed properly submitted for decision and
reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA should
cover only one taxable period and that the practice of issuing a
LOA covering audit of unverified prior years is prohibited.30 The
prohibition is consistent with Revenue Memorandum Order
(RMO) No. 43-90, which provides that if the audit includes more
than one taxable period, the other periods or years shall be
specifically indicated in the LOA.31
In the present case, the LOA issued to DLSU is for Fiscal Year
Ending 2003 and Unverified Prior Years. Hence, the assessments
for deficiency income tax, VAT and DST for taxable years 2001
and 2002 are void, but the assessment for taxable year 2003 is
valid.32
On the applicability of the Ateneo case
The CTA En Banc held that the Ateneo case is not a valid
precedent because it involved different parties, factual settings,
bases of assessments, sets of evidence, and defenses.33
On the CTA Division's appreciation of the evidence
The CTA En Banc affirmed the CTA Division's appreciation of
DLSU' s evidence. It held that while DLSU successfully proved
that a portion of its rental income was transmitted and used to pay
the loan obtained to fund the construction of the Sports Complex,
the rental income from other sources were not shown to have been
actually, directly and exclusively used for educational purposes.34
Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No.
198841) and the Commissioner (G.R. No. 198941) came to this
Court for relief.
The Consolidated Petitions
G.R. No. 196596
The Commissioner submits the following arguments:
First, DLSU's rental income is taxable regardless of how such
income is derived, used or disposed of.35 DLSU's operations of
canteens and bookstores within its campus even though exclusively
serving the university community do not negate income tax
liability.36
26
The Commissioner contends that Article XIV, Section 4 (3) of the
Constitution must be harmonized with Section 30 (H) of the Tax
Code, which states among others, that the income of whatever kind
and character of [a non-stock and non-profit educational
institution] from any of [its] properties, real or personal, or from
any of [its] activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed
by this Code.37
The Commissioner argues that the CTA En Banc misread and
misapplied the case of Commissioner of Internal Revenue v.
YMCA38 to support its conclusion that revenues however
generated are covered by the constitutional exemption, provided
that, the revenues will be used for educational purposes or will be
held in reserve for such purposes.39
On the contrary, the Commissioner posits that a tax-exempt
organization like DLSU is exempt only from property tax but not
from income tax on the rentals earned from property.40 Thus,
DLSU's income from the leases of its real properties is not exempt
from taxation even if the income would be used for educational
purposes.41
Second, the Commissioner insists that DLSU did not prove the fact
of DST payment42 and that it is not qualified to use the On-Line
Electronic DST Imprinting Machine, which is available only to
certain classes of taxpayers under RR No. 9-2000.43
Finally, the Commissioner objects to the admission of DLSU's
supplemental offer of evidence. The belated submission of
supplemental evidence reopened the case for trial, and worse,
DLSU offered the supplemental evidence only after it received the
unfavorable CTA Division's original decision.44 In any case,
DLSU's submission of supplemental documentary evidence was
unnecessary since its rental income was taxable regardless of its
disposition.45
G.R. No. 198841
DLSU argues as that:
First, RMO No. 43-90 prohibits the practice of issuing a LOA with
any indication of unverified prior years. A LOA issued contrary to
RMO No. 43-90 is void, thus, an assessment issued based on such
defective LOA must also be void.46
DLSU points out that the LOA issued to it covered the Fiscal Year
Ending 2003 and Unverified Prior Years. On the basis of this
defective LOA, the Commissioner assessed DLSU for deficiency
income tax, VAT and DST for taxable years 2001, 2002 and
2003.47 DLSU objects to the CTA En Banc's conclusion that the
LOA is valid for taxable year 2003. According to DLSU, when
RMO No. 43-90 provides that:
The practice of issuing [LOAs] covering audit of 'unverified prior
years' is hereby prohibited.
it refers to the LOA which has the format "Base Year + Unverified
Prior Years." Since the LOA issued to DLSU follows this format,
then any assessment arising from it must be entirely voided.48
Second, DLSU invokes the principle of uniformity in taxation,
which mandates that for similarly situated parties, the same set of
evidence should be appreciated and weighed in the same
manner.49 The CTA En Banc erred when it did not similarly
appreciate DLSU' s evidence as it did to the pieces of evidence
submitted by Ateneo, also a non-stock, non-profit educational
institution.50
G.R. No. 198941
The issues and arguments raised by the Commissioner in G.R. No.
198941 petition are exactly the same as those she raised in her: (1)
petition docketed as G.R. No. 196596 and (2) comment on DLSU's
petition docketed as G.R. No. 198841.51
Counter-arguments
DLSU's Comment on G.R. No. 196596
First, DLSU questions the defective verification attached to the
petition.52
Second, DLSU stresses that Article XIV, Section 4 (3) of the
Constitution is clear that all assets and revenues of non-stock, non-
profit educational institutions used actually, directly and
exclusively for educational purposes are exempt from taxes and
duties.53
On this point, DLSU explains that: (1) the tax exemption of non-
stock, non-profit educational institutions is novel to the 1987
Constitution and that Section 30 (H) of the 1997 Tax Code cannot
amend the 1987 Constitution;54 (2) Section 30 of the 1997 Tax
Code is almost an exact replica of Section 26 of the 1977 Tax Code
-with the addition of non-stock, non-profit educational institutions
to the list of tax-exempt entities; and (3) that the 1977 Tax Code
was promulgated when the 1973 Constitution was still in place.
DLSU elaborates that the tax exemption granted to a private
educational institution under the 1973 Constitution was only for
real property tax. Back then, the special tax treatment on income of
private educational institutions only emanates from statute, i.e., the
1977 Tax Code. Only under the 1987 Constitution that exemption
from tax of all the assets and revenues of non-stock, non-profit
educational institutions used actually, directly and exclusively for
educational purposes, was expressly and categorically enshrined.55
DLSU thus invokes the doctrine of constitutional supremacy,
which renders any subsequent law that is contrary to the
Constitution void and without any force and effect.56 Section 30
(H) of the 1997 Tax Code insofar as it subjects to tax the income of
whatever kind and character of a non-stock and non-profit
educational institution from any of its properties, real or personal,
or from any of its activities conducted for profit regardless of the
disposition made of such income, should be declared without force
and effect in view of the constitutionally granted tax exemption on
"all revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational
purposes."57
DLSU further submits that it complies with the requirements
enunciated in the YMCA case, that for an exemption to be granted
under Article XIV, Section 4 (3) of the Constitution, the taxpayer
must prove that: (1) it falls under the classification non-stock, non-
profit educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly and exclusively
for educational purposes.58 Unlike YMCA, which is not an
educational institution, DLSU is undisputedly a non-stock, non-
profit educational institution. It had also submitted evidence to
prove that it actually, directly and exclusively used its income for
educational purposes.59
DLSU also cites the deliberations of the 1986 Constitutional
Commission where they recognized that the tax exemption was
granted "to incentivize private educational institutions to share with
the State the responsibility of educating the youth."60
Third, DLSU highlights that both the CTA En Banc and Division
found that the bank that handled DLSU' s loan and mortgage
transactions had remitted to the BIR the DST through an
imprinting machine, a method allowed under RR No. 15-2001.61
27
In any case, DLSU argues that it cannot be held liable for DST
owing to the exemption granted under the Constitution.62
Finally, DLSU underscores that the Commissioner, despite notice,
did not oppose the formal offer of supplemental evidence. Because
of the Commissioner's failure to timely object, she became bound
by the results of the submission of such supplemental evidence.63
The CIR's Comment on G.R. No. 198841
The Commissioner submits that DLSU is estopped from
questioning the LOA's validity because it failed to raise this issue
in both the administrative and judicial proceedings.64 That it was
asked on cross-examination during the trial does not make it an
issue that the CTA could resolve.65 The Commissioner also
maintains that DLSU's rental income is not tax-exempt because an
educational institution is only exempt from property tax but not
from tax on the income earned from the property.66
DLSU's Comment on G.R. No. 198941
DLSU puts forward the same counter-arguments discussed
above.67 In addition, DLSU prays that the Court award attorney's
fees in its favor because it was constrained to unnecessarily retain
the services of counsel in this separate petition.68
Issues
Although the parties raised a number of issues, the Court shall
decide only the pivotal issues, which we summarize as follows:
I. Whether DLSU' s income and revenues proved to have been used
actually, directly and exclusively for educational purposes are
exempt from duties and taxes;
II. Whether the entire assessment should be voided because of the
defective LOA;
III. Whether the CTA correctly admitted DLSU's supplemental
pieces of evidence; and
IV. Whether the CTA's appreciation of the sufficiency of DLSU's
evidence may be disturbed by the Court.
Our Ruling
As we explain in full below, we rule that:
I. The income, revenues and assets of non-stock, non-profit
educational institutions proved to have been used actually, directly
and exclusively for educational purposes are exempt from duties
and taxes.
II. The LOA issued to DLSU is not entirely void. The assessment
for taxable year 2003 is valid.
III. The CTA correctly admitted DLSU's formal offer of
supplemental evidence; and
IV. The CTA's appreciation of evidence is conclusive unless the
CTA is shown to have manifestly overlooked certain relevant facts
not disputed by the parties and which, if properly considered,
would justify a different conclusion.
The parties failed to convince the Court that the CTA overlooked
or failed to consider relevant facts. We thus sustain the CTA En
Banc's findings that:
a. DLSU proved that a portion of its rental income was used
actually, directly and exclusively for educational purposes; and
b. DLSU proved the payment of the DST through its bank's on-line
imprinting machine.
I. The revenues and assets of non-stock,
non-profit educational institutions
proved to have been used actually,
directly, and exclusively for educational
purposes are exempt from duties and
taxes.
DLSU rests it case on Article XIV, Section 4 (3) of the 1987
Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such
institutions, their assets shall be disposed of in the manner
provided by law.
Proprietary educational institutions, including those cooperatively
owned, may likewise be entitled to such exemptions subject to the
limitations provided by law including restrictions on dividends and
provisions for reinvestment. [underscoring and emphasis supplied]
Before fully discussing the merits of the case, we observe that:
First, the constitutional provision refers to two kinds of educational
institutions: (1) non-stock, non-profit educational institutions and
(2) proprietary educational institutions.69
Second, DLSU falls under the first category. Even the
Commissioner admits the status of DLSU as a non-stock, non-
profit educational institution.70
Third, while DLSU's claim for tax exemption arises from and is
based on the Constitution, the Constitution, in the same provision,
also imposes certain conditions to avail of the exemption. We
discuss below the import of the constitutional text vis-a-vis the
Commissioner's counter-arguments.
Fourth, there is a marked distinction between the treatment of non-
stock, non-profit educational institutions and proprietary
educational institutions. The tax exemption granted to non-stock,
non-profit educational institutions is conditioned only on the
actual, direct and exclusive use of their revenues and assets for
educational purposes. While tax exemptions may also be granted to
proprietary educational institutions, these exemptions may be
subject to limitations imposed by Congress.
As we explain below, the marked distinction between a non-stock,
non-profit and a proprietary educational institution is crucial in
determining the nature and extent of the tax exemption granted to
non-stock, non-profit educational institutions.
The Commissioner opposes DLSU's claim for tax exemption on
the basis of Section 30 (H) of the Tax Code. The relevant text
reads:
The following organizations shall not be taxed under this Title
[Tax on
Income] in respect to income received by them as such:
xxxx
(H) A non-stock and non-profit educational institution
xxxx
28
Notwithstanding the provisions in the preceding paragraphs, the
income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the
disposition made of such income shall be subject to tax imposed
under this Code. [underscoring and emphasis supplied]
The Commissioner posits that the 1997 Tax Code qualified the tax
exemption granted to non-stock, non-profit educational institutions
such that the revenues and income they derived from their assets,
or from any of their activities conducted for profit, are taxable even
if these revenues and income are used for educational purposes.
Did the 1997 Tax Code qualify the tax exemption constitutionally-
granted to non-stock, non-profit educational institutions?
We answer in the negative.
While the present petition appears to be a case of first
impression,71 the Court in the YMCA case had in fact already
analyzed and explained the meaning of Article XIV, Section 4 (3)
of the Constitution. The Court in that case made doctrinal
pronouncements that are relevant to the present case.
The issue in YMCA was whether the income derived from rentals
of real property owned by the YMCA, established as a "welfare,
educational and charitable non-profit corporation," was subject to
income tax under the Tax Code and the Constitution.72
The Court denied YMCA's claim for exemption on the ground that
as a charitable institution falling under Article VI, Section 28 (3) of
the Constitution,73 the YMCA is not tax-exempt per se; " what is
exempted is not the institution itself... those exempted from real
estate taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or
educational purposes."74
The Court held that the exemption claimed by the YMCA is
expressly disallowed by the last paragraph of then Section 27 (now
Section 30) of the Tax Code, which mandates that the income of
exempt organizations from any of their properties, real or personal,
are subject to the same tax imposed by the Tax Code, regardless of
how that income is used. The Court ruled that the last paragraph of
Section 27 unequivocally subjects to tax the rent income of the
YMCA from its property.75
In short, the YMCA is exempt only from property tax but not from
income tax.
As a last ditch effort to avoid paying the taxes on its rental income,
the YMCA invoked the tax privilege granted under Article XIV,
Section 4 (3) of the Constitution.
The Court denied YMCA's claim that it falls under Article XIV,
Section 4 (3) of the Constitution holding that the term educational
institution, when used in laws granting tax exemptions, refers to
the school system (synonymous with formal education); it includes
a college or an educational establishment; it refers to the
hierarchically structured and chronologically graded learnings
organized and provided by the formal school system.76
The Court then significantly laid down the requisites for availing
the tax exemption under Article XIV, Section 4 (3), namely: (1) the
taxpayer falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted
from taxation is used actually, directly and exclusively for
educational purposes.77
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without
force and effect with respect to non-stock, non-profit educational
institutions, provided, that the non-stock, non-profit educational
institutions prove that its assets and revenues are used actually,
directly and exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non-
profit educational institutions, is not subject to limitations imposed
by law.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions is conditioned only
on the actual, direct and exclusive use of
their assets, revenues and income78 for
educational purposes.
We find that unlike Article VI, Section 28 (3) of the Constitution
(pertaining to charitable institutions, churches, parsonages or
convents, mosques, and non-profit cemeteries), which exempts
from tax only the assets, i.e., "all lands, buildings, and
improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes ... ," Article XIV,
Section 4 (3) categorically states that "[a]ll revenues and assets ...
used actually, directly, and exclusively for educational purposes
shall be exempt from taxes and duties."
The addition and express use of the word revenues in Article XIV,
Section 4 (3) of the Constitution is not without significance.
We find that the text demonstrates the policy of the 1987
Constitution, discernible from the records of the 1986
Constitutional Commission79 to provide broader tax privilege to
non-stock, non-profit educational institutions as recognition of
their role in assisting the State provide a public good. The tax
exemption was seen as beneficial to students who may otherwise
be charged unreasonable tuition fees if not for the tax exemption
extended to all revenues and assets of non-stock, non-profit
educational institutions.80
Further, a plain reading of the Constitution would show that Article
XIV, Section 4 (3) does not require that the revenues and income
must have also been sourced from educational activities or
activities related to the purposes of an educational institution. The
phrase all revenues is unqualified by any reference to the source of
revenues. Thus, so long as the revenues and income are used
actually, directly and exclusively for educational purposes, then
said revenues and income shall be exempt from taxes and duties.81
We find it helpful to discuss at this point the taxation of revenues
versus the taxation of assets.
Revenues consist of the amounts earned by a person or entity from
the conduct of business operations.82 It may refer to the sale of
goods, rendition of services, or the return of an investment.
Revenue is a component of the tax base in income tax,83 VAT,84
and local business tax (LBT).85
Assets, on the other hand, are the tangible and intangible properties
owned by a person or entity.86 It may refer to real estate, cash
deposit in a bank, investment in the stocks of a corporation,
inventory of goods, or any property from which the person or
entity may derive income or use to generate the same. In Philippine
taxation, the fair market value of real property is a component of
the tax base in real property tax (RPT).87 Also, the landed cost of
imported goods is a component of the tax base in VAT on
importation88 and tariff duties.89
Thus, when a non-stock, non-profit educational institution proves
that it uses its revenues actually, directly, and exclusively for
educational purposes, it shall be exempted from income tax, VAT,
29
and LBT. On the other hand, when it also shows that it uses its
assets in the form of real property for educational purposes, it shall
be exempted from RPT.
To be clear, proving the actual use of the taxable item will result in
an exemption, but the specific tax from which the entity shall be
exempted from shall depend on whether the item is an item of
revenue or asset.
To illustrate, if a university leases a portion of its school building
to a bookstore or cafeteria, the leased portion is not actually,
directly and exclusively used for educational purposes, even if the
bookstore or canteen caters only to university students, faculty and
staff.
The leased portion of the building may be subject to real property
tax, as held in Abra Valley College, Inc. v. Aquino.90 We ruled in
that case that the test of exemption from taxation is the use of the
property for purposes mentioned in the Constitution. We also held
that the exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes.
In concrete terms, the lease of a portion of a school building for
commercial purposes, removes such asset from the property tax
exemption granted under the Constitution.91 There is no
exemption because the asset is not used actually, directly and
exclusively for educational purposes. The commercial use of the
property is also not incidental to and reasonably necessary for the
accomplishment of the main purpose of a university, which is to
educate its students.
However, if the university actually, directly and exclusively uses
for educational purposes the revenues earned from the lease of its
school building, such revenues shall be exempt from taxes and
duties. The tax exemption no longer hinges on the use of the asset
from which the revenues were earned, but on the actual, direct and
exclusive use of the revenues for educational purposes.
Parenthetically, income and revenues of non-stock, non-profit
educational institution not used actually, directly and exclusively
for educational purposes are not exempt from duties and taxes. To
avail of the exemption, the taxpayer must factually prove that it
used actually, directly and exclusively for educational purposes the
revenues or income sought to be exempted.
The crucial point of inquiry then is on the use of the assets or on
the use of the revenues. These are two things that must be viewed
and treated separately. But so long as the assets or revenues are
used actually, directly and exclusively for educational purposes,
they are exempt from duties and taxes.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions, unlike the exemption
that may be availed of by proprietary
educational institutions, is not subject to
limitations imposed by law.
That the Constitution treats non-stock, non-profit educational
institutions differently from proprietary educational institutions
cannot be doubted. As discussed, the privilege granted to the
former is conditioned only on the actual, direct and exclusive use
of their revenues and assets for educational purposes. In clear
contrast, the tax privilege granted to the latter may be subject to
limitations imposed by law.
We spell out below the difference in treatment if only to highlight
the privileged status of non-stock, non-profit educational
institutions compared with their proprietary counterparts.
While a non-stock, non-profit educational institution is classified
as a tax-exempt entity under Section 30 (Exemptions from Tax on
Corporations) of the Tax Code, a proprietary educational
institution is covered by Section 27 (Rates of Income Tax on
Domestic Corporations).
To be specific, Section 30 provides that exempt organizations like
non-stock, non-profit educational institutions shall not be taxed on
income received by them as such.
Section 27 (B), on the other hand, states that "[p]roprietary
educational institutions ... which are nonprofit shall pay a tax of ten
percent (10%) on their taxable income .. . Provided, that if the
gross income from unrelated trade, business or other activity
exceeds fifty percent (50%) of the total gross income derived by
such educational institutions ... [the regular corporate income tax of
30%] shall be imposed on the entire taxable income ... "92
By the Tax Code's clear terms, a proprietary educational institution
is entitled only to the reduced rate of 10% corporate income tax.
The reduced rate is applicable only if: (1) the proprietary
educational institution is nonprofit and (2) its gross income from
unrelated trade, business or activity does not exceed 50% of its
total gross income.
Consistent with Article XIV, Section 4 (3) of the Constitution,
these limitations do not apply to non-stock, non-profit educational
institutions.
Thus, we declare the last paragraph of Section 30 of the Tax Code
without force and effect for being contrary to the Constitution
insofar as it subjects to tax the income and revenues of non-stock,
non-profit educational institutions used actually, directly and
exclusively for educational purpose. We make this declaration in
the exercise of and consistent with our duty93 to uphold the
primacy of the Constitution.94
Finally, we stress that our holding here pertains only to non-stock,
non-profit educational institutions and does not cover the other
exempt organizations under Section 30 of the Tax Code.
For all these reasons, we hold that the income and revenues of
DLSU proven to have been used actually, directly and exclusively
for educational purposes are exempt from duties and taxes.
II. The LOA issued to DLSU is
not entirely void. The
assessment for taxable year
2003 is valid.
DLSU objects to the CTA En Banc 's conclusion that the LOA is
valid for taxable year 2003 and insists that the entire LOA should
be voided for being contrary to RMO No. 43-90, which provides
that if tax audit includes more than one taxable period, the other
periods or years shall be specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue officer to
examine the books of account and other accounting records of the
taxpayer in order to determine the taxpayer's correct internal
revenue liabilities95 and for the purpose of collecting the correct
amount of tax,96 in accordance with Section 5 of the Tax Code,
which gives the CIR the power to obtain information, to
summon/examine, and take testimony of persons. The LOA
commences the audit process97 and informs the taxpayer that it is
under audit for possible deficiency tax assessment.
Given the purposes of a LOA, is there basis to completely nullify
the LOA issued to DLSU, and consequently, disregard the BIR and
the CTA's findings of tax deficiency for taxable year 2003?
We answer in the negative.
30
The relevant provision is Section C of RMO No. 43-90, the
pertinent portion of which reads:
3. A Letter of Authority [LOA] should cover a taxable period not
exceeding one taxable year. The practice of issuing [LO As]
covering audit of unverified prior years is hereby prohibited. If the
audit of a taxpayer shall include more than one taxable period, the
other periods or years shall be specifically indicated in the
[LOA].98
What this provision clearly prohibits is the practice of issuing
LOAs covering audit of unverified prior years. RMO 43-90 does
not say that a LOA which contains unverified prior years is void. It
merely prescribes that if the audit includes more than one taxable
period, the other periods or years must be specified. The provision
read as a whole requires that if a taxpayer is audited for more than
one taxable year, the BIR must specify each taxable year or taxable
period on separate LOAs.
Read in this light, the requirement to specify the taxable period
covered by the LOA is simply to inform the taxpayer of the extent
of the audit and the scope of the revenue officer's authority.
Without this rule, a revenue officer can unduly burden the taxpayer
by demanding random accounting records from random unverified
years, which may include documents from as far back as ten years
in cases of fraud audit.99
In the present case, the LOA issued to DLSU is for Fiscal Year
Ending 2003 and Unverified Prior Years. The LOA does not
strictly comply with RMO 43-90 because it includes unverified
prior years. This does not mean, however, that the entire LOA is
void.
As the CTA correctly held, the assessment for taxable year 2003 is
valid because this taxable period is specified in the LOA. DLSU
was fully apprised that it was being audited for taxable year 2003.
Corollarily, the assessments for taxable years 2001 and 2002 are
void for having been unspecified on separate LOAs as required
under RMO No. 43-90.
Lastly, the Commissioner's claim that DLSU failed to raise the
issue of the LOA' s validity at the CTA Division, and thus, should
not have been entertained on appeal, is not accurate.
On the contrary, the CTA En Banc found that the issue of the
LOA's validity came up during the trial.100 DLSU then raised the
issue in its memorandum and motion for partial reconsideration
with the CTA Division. DLSU raised it again on appeal to the CTA
En Banc. Thus, the CTA En Banc could, as it did, pass upon the
validity of the LOA.101 Besides, the Commissioner had the
opportunity to argue for the validity of the LOA at the CTA En
Banc but she chose not to file her comment and memorandum
despite notice.102
III.The CTA correctly admitted
the supplemental evidence
formally offered by DLSU.
The Commissioner objects to the CTA Division's admission of
DLSU's supplemental pieces of documentary evidence.
To recall, DLSU formally offered its supplemental evidence upon
filing its motion for reconsideration with the CTA Division.103
The CTA Division admitted the supplemental evidence, which
proved that a portion of DLSU's rental income was used actually,
directly and exclusively for educational purposes. Consequently,
the CTA Division reduced DLSU's tax liabilities.
We uphold the CTA Division's admission of the supplemental
evidence on distinct but mutually reinforcing grounds, to wit: (1)
the Commissioner failed to timely object to the formal offer of
supplemental evidence; and (2) the CTA is not governed strictly by
the technical rules of evidence.
First, the failure to object to the offered evidence renders it
admissible, and the court cannot, on its own, disregard such
evidence.104
The Court has held that if a party desires the court to reject the
evidence offered, it must so state in the form of a timely objection
and it cannot raise the objection to the evidence for the first time
on appeal.105 Because of a party's failure to timely object, the
evidence offered becomes part of the evidence in the case. As a
consequence, all the parties are considered bound by any outcome
arising from the offer of evidence properly presented.106
As disclosed by DLSU, the Commissioner did not oppose the
supplemental formal offer of evidence despite notice.107 The
Commissioner objected to the admission of the supplemental
evidence only when the case was on appeal to the CTA En Banc.
By the time the Commissioner raised her objection, it was too late;
the formal offer, admission and evaluation of the supplemental
evidence were all fait accompli.
We clarify that while the Commissioner's failure to promptly
object had no bearing on the materiality or sufficiency of the
supplemental evidence admitted, she was bound by the outcome of
the CTA Division's assessment of the evidence.108
Second, the CTA is not governed strictly by the technical rules of
evidence. The CTA Division's admission of the formal offer of
supplemental evidence, without prompt objection from the
Commissioner, was thus justified.
Notably, this Court had in the past admitted and considered
evidence attached to the taxpayers' motion for
reconsideration.1âwphi1
In the case of BPI-Family Savings Bank v. Court of Appeals,109
the tax refund claimant attached to its motion for reconsideration
with the CT A its Final Adjustment Return. The Commissioner, as
in the present case, did not oppose the taxpayer's motion for
reconsideration and the admission of the Final Adjustment
Return.110 We thus admitted and gave weight to the Final
Adjustment Return although it was only submitted upon motion for
reconsideration.
We held that while it is true that strict procedural rules generally
frown upon the submission of documents after the trial, the law
creating the CTA specifically provides that proceedings before it
shall not be governed strictly by the technical rules of evidence111
and that the paramount consideration remains the ascertainment of
truth. We ruled that procedural rules should not bar courts from
considering undisputed facts to arrive at a just determination of a
controversy.112
We applied the same reasoning in the subsequent cases of Filinvest
Development Corporation v. Commissioner of Internal
Revenue113 and Commissioner of Internal Revenue v. PERF
Realty Corporation,114 where the taxpayers also submitted the
supplemental supporting document only upon filing their motions
for reconsideration.
Although the cited cases involved claims for tax refunds, we also
dispense with the strict application of the technical rules of
evidence in the present tax assessment case. If anything, the liberal
application of the rules assumes greater force and significance in
the case of a taxpayer who claims a constitutionally granted tax
exemption. While the taxpayers in the cited cases claimed refund
of excess tax payments based on the Tax Code,115 DLSU is
claiming tax exemption based on the Constitution. If liberality is
31
afforded to taxpayers who paid more than they should have under a
statute, then with more reason that we should allow a taxpayer to
prove its exemption from tax based on the Constitution.
Hence, we sustain the CTA's admission of DLSU's supplemental
offer of evidence not only because the Commissioner failed to
promptly object, but more so because the strict application of the
technical rules of evidence may defeat the intent of the
Constitution.
IV. The CTA's appreciation of
evidence is generally binding on
the Court unless compelling
reasons justify otherwise.
It is doctrinal that the Court will not lightly set aside the
conclusions reached by the CTA which, by the very nature of its
function of being dedicated exclusively to the resolution of tax
problems, has developed an expertise on the subject, unless there
has been an abuse or improvident exercise of authority.116 We
thus accord the findings of fact by the CTA with the highest
respect. These findings of facts can only be disturbed on appeal if
they are not supported by substantial evidence or there is a
showing of gross error or abuse on the part of the CTA. In the
absence of any clear and convincing proof to the contrary, this
Court must presume that the CTA rendered a decision which is
valid in every respect.117
We sustain the factual findings of the CTA.
The parties failed to raise credible basis for us to disturb the CTA's
findings that DLSU had used actually, directly and exclusively for
educational purposes a portion of its assessed income and that it
had remitted the DST payments though an online imprinting
machine.
a. DLSU used actually, directly, and exclusively for educational
purposes a portion of its assessed income.
To see how the CTA arrived at its factual findings, we review the
process undertaken, from which it deduced that DLSU successfully
proved that it used actually, directly and exclusively for
educational purposes a portion of its rental income.
The CTA reduced DLSU' s deficiency income tax and VAT
liabilities in view of the submission of the supplemental evidence,
which consisted of statement of receipts, statement of disbursement
and fund balance and statement of fund changes.118
These documents showed that DLSU borrowed ₱93.86 Million,119
which was used to build the university's Sports Complex. Based on
these pieces of evidence, the CTA found that DLSU' s rental
income from its concessionaires were indeed transmitted and used
for the payment of this loan. The CTA held that the degree of
preponderance of evidence was sufficiently met to prove actual,
direct and exclusive use for educational purposes.
The CTA also found that DLSU's rental income from other
concessionaires, which were allegedly deposited to a fund (CF-
CPA Account),120 intended for the university's capital projects,
was not proved to have been used actually, directly and exclusively
for educational purposes. The CTA observed that "[DLSU] ...
failed to fully account for and substantiate all the disbursements
from the [fund]." Thus, the CTA "cannot ascertain whether rental
income from the [other] concessionaires was indeed used for
educational purposes."121
To stress, the CTA's factual findings were based on and supported
by the report of the Independent CPA who reviewed, audited and
examined the voluminous documents submitted by DLSU.
Under the CTA Revised Rules, an Independent CPA's functions
include: (a) examination and verification of receipts, invoices,
vouchers and other long accounts; (b) reproduction of, and
comparison of such reproduction with, and certification that the
same are faithful copies of original documents, and pre-marking of
documentary exhibits consisting of voluminous documents; (c)
preparation of schedules or summaries containing a chronological
listing of the numbers, dates and amounts covered by receipts or
invoices or other relevant documents and the amount(s) of taxes
paid; (d) making findings as to compliance with substantiation
requirements under pertinent tax laws, regulations and
jurisprudence; (e) submission of a formal report with certification
of authenticity and veracity of findings and conclusions in the
performance of the audit; (f) testifying on such formal report; and
(g) performing such other functions as the CTA may direct.122
Based on the Independent CPA's report and on its own appreciation
of the evidence, the CTA held that only the portion of the rental
income pertaining to the substantiated disbursements (i.e., proved
by receipts, vouchers, etc.) from the CF-CPA Account was
considered as used actually, directly and exclusively for
educational purposes. Consequently, the unaccounted and
unsubstantiated disbursements must be subjected to income tax and
VAT.123
The CTA then further reduced DLSU's tax liabilities by cancelling
the assessments for taxable years 2001 and 2002 due to the
defective LOA.124
The Court finds that the above fact-finding process undertaken by
the CTA shows that it based its ruling on the evidence on record,
which we reiterate, were examined and verified by the Independent
CPA. Thus, we see no persuasive reason to deviate from these
factual findings.
However, while we generally respect the factual findings of the
CTA, it does not mean that we are bound by its conclusions. In the
present case, we do not agree with the method used by the CTA to
arrive at DLSU' s unsubstantiated rental income (i.e., income not
proved to have been actually, directly and exclusively used for
educational purposes).
To recall, the CTA found that DLSU earned a rental income of
₱l0,610,379.00 in taxable year 2003.125 DLSU earned this income
from leasing a portion of its premises to: 1) MTG-Sports Complex,
2) La Casita, 3) Alarey, Inc., 4) Zaide Food Corp., 5) Capri
International, and 6) MTO Bookstore.126
To prove that its rental income was used for educational purposes,
DLSU identified the transactions where the rental income was
expended, viz.: 1) ₱4,007,724.00127 used to pay the loan obtained
by DLSU to build the Sports Complex; and 2) ₱6,602,655.00
transferred to the CF-CPA Account.128
DLSU also submitted documents to the Independent CPA to prove
that the ₱6,602,655.00 transferred to the CF-CPA Account was
used actually, directly and exclusively for educational purposes.
According to the Independent CPA' findings, DLSU was able to
substantiate disbursements from the CF-CPA Account amounting
to ₱6,259,078.30.
Contradicting the findings of the Independent CPA, the CTA
concluded that out of the ₱l0,610,379.00 rental income,
₱4,841,066.65 was unsubstantiated, and thus, subject to income tax
and VAT.129
The CTA then concluded that the ratio of substantiated
disbursements to the total disbursements from the CF-CPA
Account for taxable year 2003 is only 26.68%.130 The CTA held
as follows:
32
However, as regards petitioner's rental income from Alarey, Inc.,
Zaide Food Corp., Capri International and MTO Bookstore, which
were transmitted to the CF-CPA Account, petitioner again failed to
fully account for and substantiate all the disbursements from the
CF-CPA Account; thus failing to prove that the rental income
derived therein were actually, directly and exclusively used for
educational purposes. Likewise, the findings of the Court-
Commissioned Independent CPA show that the disbursements
from the CF-CPA Account for fiscal year 2003 amounts to
₱6,259,078.30 only. Hence, this portion of the rental income, being
the substantiated disbursements of the CF-CPA Account, was
considered by the Special First Division as used actually, directly
and exclusively for educational purposes. Since for fiscal year
2003, the total disbursements per voucher is ₱6,259,078.3 (Exhibit
"LL-25-C"), and the total disbursements per subsidiary ledger
amounts to ₱23,463,543.02 (Exhibit "LL-29-C"), the ratio of
substantiated disbursements for fiscal year 2003 is 26.68%
(₱6,259,078.30/₱23,463,543.02). Thus, the substantiated portion of
CF-CPA Disbursements for fiscal year 2003, arrived at by
multiplying the ratio of 26.68% with the total rent income added to
and used in the CF-CPA Account in the amount of ₱6,602,655.00
is ₱1,761,588.35.131 (emphasis supplied)
For better understanding, we summarize the CTA's computation as
follows:
1. The CTA subtracted the rent income used in the construction of
the Sports Complex (₱4,007,724.00) from the rental income
(₱10,610,379.00) earned from the abovementioned
concessionaries. The difference (₱6,602,655.00) was the portion
claimed to have been deposited to the CF-CPA Account.
2. The CTA then subtracted the supposed substantiated portion of
CF-CPA disbursements (₱1,761,308.37) from the ₱6,602,655.00 to
arrive at the supposed unsubstantiated portion of the rental income
(₱4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements
(₱l,761,308.37)133 was derived by multiplying the rental income
claimed to have been added to the CF-CPA Account
(₱6,602,655.00) by 26.68% or the ratio of substantiated
disbursements to total disbursements (₱23,463,543.02).
4. The 26.68% ratio134 was the result of dividing the substantiated
disbursements from the CF-CPA Account as found by the
Independent CPA (₱6,259,078.30) by the total disbursements
(₱23,463,543.02) from the same account.
We find that this system of calculation is incorrect and does not
truly give effect to the constitutional grant of tax exemption to non-
stock, non-profit educational institutions. The CTA's reasoning is
flawed because it required DLSU to substantiate an amount that is
greater than the rental income deposited in the CF-CPA Account in
2003.
To reiterate, to be exempt from tax, DLSU has the burden of
proving that the proceeds of its rental income (which amounted to
a total of ₱10.61 million)135 were used for educational purposes.
This amount was divided into two parts: (a) the ₱4.0l million,
which was used to pay the loan obtained for the construction of the
Sports Complex; and (b) the ₱6.60 million,136 which was
transferred to the CF-CPA account.
For year 2003, the total disbursement from the CF-CPA account
amounted to ₱23 .46 million.137 These figures, read in light of the
constitutional exemption, raises the question: does DLSU claim
that the whole total CF-CPA disbursement of ₱23.46 million is tax-
exempt so that it is required to prove that all these disbursements
had been made for educational purposes?
We answer in the negative.
The records show that DLSU never claimed that the total CF-CPA
disbursements of ₱23.46 million had been for educational purposes
and should thus be tax-exempt; DLSU only claimed ₱10.61 million
for tax-exemption and should thus be required to prove that this
amount had been used as claimed.
Of this amount, ₱4.01 had been proven to have been used for
educational purposes, as confirmed by the Independent CPA. The
amount in issue is therefore the balance of ₱6.60 million which
was transferred to the CF-CPA which in turn made disbursements
of ₱23.46 million for various general purposes, among them the
₱6.60 million transferred by DLSU.
Significantly, the Independent CPA confirmed that the CF-CPA
made disbursements for educational purposes in year 2003 in the
amount ₱6.26 million. Based on these given figures, the CT A
concluded that the expenses for educational purposes that had been
coursed through the CF-CPA should be prorated so that only the
portion that ₱6.26 million bears to the total CF-CPA disbursements
should be credited to DLSU for tax exemption.
This approach, in our view, is flawed given the constitutional
requirement that revenues actually and directly used for
educational purposes should be tax-exempt. As already mentioned
above, DLSU is not claiming that the whole ₱23.46 million CF-
CPA disbursement had been used for educational purposes; it only
claims that ₱6.60 million transferred to CF-CPA had been used for
educational purposes. This was what DLSU needed to prove to
have actually and directly used for educational purposes.
That this fund had been first deposited into a separate fund (the CF
-CPA established to fund capital projects) lends peculiarity to the
facts of this case, but does not detract from the fact that the
deposited funds were DLSU revenue funds that had been
confirmed and proven to have been actually and directly used for
educational purposes via the CF-CPA. That the CF-CPA might
have had other sources of funding is irrelevant because the
assessment in the present case pertains only to the rental income
which DLSU indisputably earned as revenue in 2003. That the
proven CF-CPA funds used for educational purposes should not be
prorated as part of its total CF-CPA disbursements for purposes of
crediting to DLSU is also logical because no claim whatsoever had
been made that the totality of the CF-CPA disbursements had been
for educational purposes. No prorating is necessary; to state the
obvious, exemption is based on actual and direct use and this
DLSU has indisputably proven.
Based on these considerations, DLSU should therefore be liable
only for the difference between what it claimed and what it has
proven. In more concrete terms, DLSU only had to prove that its
rental income for taxable year 2003 (₱10,610,379.00) was used for
educational purposes. Hence, while the total disbursements from
the CF-CPA Account amounted to ₱23,463,543.02, DLSU only
had to substantiate its Pl0.6 million rental income, part of which
was the ₱6,602,655.00 transferred to the CF-CPA account. Of this
latter amount, ₱6.259 million was substantiated to have been used
for educational purposes.
To summarize, we thus revise the tax base for deficiency income
tax and VAT for taxable year 2003 as follows:
CTA
Decision138
Revised
Rental income
10,610,379.00 10,610,379.00
Less: Rent income used in construction of the Sports Complex
4,007,724.00 4,007,724.00
33
Rental income deposited to the CF-CPA Account 6,602,655.00
6,602,655.00
Less: Substantiated portion of CF-CPA disbursements
1,761,588.35 6,259,078.30
Tax base for deficiency income tax and VAT 4,841,066.65
343.576.70
On DLSU' s argument that the CTA should have appreciated its
evidence in the same way as it did with the evidence submitted by
Ateneo in another separate case, the CTA explained that the issue
in the Ateneo case was not the same as the issue in the present
case.
The issue in the Ateneo case was whether or not Ateneo could be
held liable to pay income taxes and VAT under certain BIR and
Department of Finance issuances139 that required the educational
institution to own and operate the canteens, or other commercial
enterprises within its campus, as condition for tax exemption. The
CTA held that the Constitution does not require the educational
institution to own or operate these commercial establishments to
avail of the exemption.140
Given the lack of complete identity of the issues involved, the CTA
held that it had to evaluate the separate sets of evidence differently.
The CTA likewise stressed that DLSU and Ateneo gave distinct
defenses and that its wisdom "cannot be equated on its decision on
two different cases with two different issues."141
DLSU disagrees with the CTA and argues that the entire
assessment must be cancelled because it submitted similar, if not
stronger sets of evidence, as Ateneo. We reject DLSU's argument
for being non sequitur. Its reliance on the concept of uniformity of
taxation is also incorrect.
First, even granting that Ateneo and DLSU submitted similar
evidence, the sufficiency and materiality of the evidence
supporting their respective claims for tax exemption would
necessarily differ because their attendant issues and facts differ.
To state the obvious, the amount of income received by DLSU and
by Ateneo during the taxable years they were assessed varied. The
amount of tax assessment also varied. The amount of income
proven to have been used for educational purposes also varied
because the amount substantiated varied.142 Thus, the amount of
tax assessment cancelled by the CTA varied.
On the one hand, the BIR assessed DLSU a total tax deficiency of
₱17,303,001.12 for taxable years 2001, 2002 and 2003. On the
other hand, the BIR assessed Ateneo a total deficiency tax of
₱8,864,042.35 for the same period. Notably, DLSU was assessed
deficiency DST, while Ateneo was not.143
Thus, although both Ateneo and DLSU claimed that they used their
rental income actually, directly and exclusively for educational
purposes by submitting similar evidence, e.g., the testimony of
their employees on the use of university revenues, the report of the
Independent CPA, their income summaries, financial statements,
vouchers, etc., the fact remains that DLSU failed to prove that a
portion of its income and revenues had indeed been used for
educational purposes.
The CTA significantly found that some documents that could have
fully supported DLSU's claim were not produced in court. Indeed,
the Independent CPA testified that some disbursements had not
been proven to have been used actually, directly and exclusively
for educational purposes.144
The final nail on the question of evidence is DLSU's own
admission that the original of these documents had not in fact been
produced before the CTA although it claimed that there was no bad
faith on its part.145 To our mind, this admission is a good indicator
of how the Ateneo and the DLSU cases varied, resulting in DLSU's
failure to substantiate a portion of its claimed exemption.
Further, DLSU's invocation of Section 5, Rule 130 of the Revised
Rules on Evidence, that the contents of the missing supporting
documents were proven by its recital in some other authentic
documents on record,146 can no longer be entertained at this late
stage of the proceeding. The CTA did not rule on this particular
claim. The CTA also made no finding on DLSU' s assertion of lack
of bad faith. Besides, it is not our duty to go over these documents
to test the truthfulness of their contents, this Court not being a trier
of facts.
Second, DLSU misunderstands the concept of uniformity of
taxation.
Equality and uniformity of taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same
rate.147 A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.148 The
concept requires that all subjects of taxation similarly situated
should be treated alike and placed in equal footing.149
In our view, the CTA placed Ateneo and DLSU in equal footing.
The CTA treated them alike because their income proved to have
been used actually, directly and exclusively for educational
purposes were exempted from taxes. The CTA equally applied the
requirements in the YMCA case to test if they indeed used their
revenues for educational purposes.
DLSU can only assert that the CTA violated the rule on uniformity
if it can show that, despite proving that it used actually, directly
and exclusively for educational purposes its income and revenues,
the CTA still affirmed the imposition of taxes. That the DLSU
secured a different result happened because it failed to fully prove
that it used actually, directly and exclusively for educational
purposes its revenues and income.
On this point, we remind DLSU that the rule on uniformity of
taxation does not mean that subjects of taxation similarly situated
are treated in literally the same way in all and every occasion. The
fact that the Ateneo and DLSU are both non-stock, non-profit
educational institutions, does not mean that the CTA or this Court
would similarly decide every case for (or against) both universities.
Success in tax litigation, like in any other litigation, depends to a
large extent on the sufficiency of evidence. DLSU's evidence was
wanting, thus, the CTA was correct in not fully cancelling its tax
liabilities.
tax. Thus, it is clear that DST shall be payable by any party to the
document, such that the payment and compliance by one shall
mean the full settlement of the DST due on the document.
In the present case, DLSU entered into mortgage and loan
agreements with banks. These agreements are subject to DST.151
For the purpose of showing that the DST on the loan agreement has
been paid, DLSU presented its agreements bearing the imprint
showing that DST on the document has been paid by the bank, its
counterparty. The imprint should be sufficient proof that DST has
been paid. Thus, DLSU cannot be further assessed for deficiency
DST on the said documents.
Finally, it is true that educational institutions are not included in
the class of taxpayers who can pay and remit DST through the On-
Line Electronic DST Imprinting Machine under RR No. 9-2000.
As correctly held by the CTA, this is irrelevant because it was not
DLSU who used the On-Line Electronic DST Imprinting Machine
but the bank that handled its mortgage and loan transactions. RR
No. 9-2000 expressly includes banks in the class of taxpayers that
can use the On-Line Electronic DST Imprinting Machine.
Thus, the Court sustains the finding of the CTA that DLSU proved
the
payment of the assessed DST deficiency, except for the unpaid
balance of
₱13,265.48.152
WHEREFORE, premises considered, we DENY the petition of the
Commissioner of Internal Revenue in G.R. No. 196596 and
AFFIRM the December 10, 2010 decision and March 29, 2011
resolution of the Court of Tax Appeals En Banc in CTA En Banc
Case No. 622, except for the total amount of deficiency tax
liabilities of De La Salle University, Inc., which had been reduced.
We also DENY both the petition of De La Salle University, Inc. in
G.R. No. 198841 and the petition of the Commissioner of Internal
Revenue in G.R. No. 198941 and thus AFFIRM the June 8, 2011
decision and October 4, 2011 resolution of the Court of Tax
Appeals En Banc in CTA En Banc Case No. 671, with the
MODIFICATION that the base for the deficiency income tax and
VAT for taxable year 2003 is ₱343,576.70.
SO ORDERED.

b. DLSU proved its payment of the DST

The CTA affirmed DLSU's claim that the DST due on its mortgage
and loan transactions were paid and remitted through its bank's On-
Line Electronic DST Imprinting Machine. The Commissioner
argues that DLSU is not allowed to use this method of payment
because an educational institution is excluded from the class of
taxpayers who can use the On-Line Electronic DST Imprinting
Machine.

We sustain the findings of the CTA. The Commissioner's argument

lacks basis in both the Tax Code and the relevant revenue
regulations.

DST on documents, loan agreements, and papers shall be levied,

collected and paid for by the person making, signing, issuing,
accepting, or transferring the same.150 The Tax Code provides that
whenever one party to the document enjoys exemption from DST,
the other party not exempt from DST shall be directly liable for the

34