1
G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL vs. THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL.
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance
of Rizal, dismissing the above entitled case and dissolving the writ of preliminary
injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal,
instituted this action for declaratory relief, with injunction, upon the ground that
Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works",
approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of
P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of
Pasig feeder road terminals (Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen.
Capinpin — Gen. Segundo — Gen. Delgado — Gen. Malvar — Gen. Lim)"; that, at the
time of the passage and approval of said Act, the aforementioned feeder roads were
"nothing but projected and planned subdivision roads, not yet constructed, . . . within
the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings
attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from
the intersection between the latter and Highway 54), which projected feeder roads "do
not connect any government property or any important premises to the main highway";
that the aforementioned Antonio Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of respondent Jose C. Zulueta, who,
at the time of the passage and approval of said Act, was a member of the Senate of the
Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the Municipal
Council of Pasig, Rizal, offering to donate said projected feeder roads to the
municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the
council, subject to the condition "that the donor would submit a plan of the said roads
and agree to change the names of two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta
wrote another letter to said council, calling attention to the approval of Republic Act.
No. 920, and the sum of P85,000.00 appropriated therein for the construction of the
projected feeder roads in question; that the municipal council of Pasig endorsed said
letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has
not made any endorsement thereon" that inasmuch as the projected feeder roads in
question were private property at the time of the passage and approval of Republic Act
No. 920, the appropriation of P85,000.00 therein made, for the construction,
reconstruction, repair, extension and improvement of said projected feeder roads, was
illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made
by Congress because its members were made to believe that the projected feeder roads
in question were "public roads and not private streets of a private subdivision"'; that, "in
order to give a semblance of legality, when there is absolutely none, to the
aforementioned appropriation", respondents Zulueta executed on December 12, 1953,
while he was a member of the Senate of the Philippines, an alleged deed of donation —
copy of which is annexed to the petition — of the four (4) parcels of land constituting
said projected feeder roads, in favor of the Government of the Republic of the
Philippines; that said alleged deed of donation was, on the same date, accepted by the
then Executive Secretary; that being subject to an onerous condition, said donation
partook of the nature of a contract; that, such, said donation violated the provision of
our fundamental law prohibiting members of Congress from being directly or indirectly
financially interested in any contract with the Government, and, hence, is
unconstitutional, as well as null and void ab initio, for the construction of the projected
feeder roads in question with public funds would greatly enhance or increase the value
of the aforementioned subdivision of respondent Zulueta, "aside from relieving him
from the burden of constructing his subdivision streets or roads at his own expense";
that the construction of said projected feeder roads was then being undertaken by the
Bureau of Public Highways; and that, unless restrained by the court, the respondents
would continue to execute, comply with, follow and implement the aforementioned
illegal provision of law, "to the irreparable damage, detriment and prejudice not only to
the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared
null and void; that the alleged deed of donation of the feeder roads in question be
"declared unconstitutional and, therefor, illegal"; that a writ of injunction be issued
enjoining the Secretary of Public Works and Communications, the Director of the
Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing
the continuance of the above-mentioned feeder roads project, and from making and
securing any new and further releases on the aforementioned item of Republic Act No.
920, and the disbursing officers of the Department of Public Works and Highways from
making any further payments out of said funds provided for in Republic Act No. 920;
and that pending final hearing on the merits, a writ of preliminary injunction be issued
enjoining the aforementioned parties respondent from making and securing any new and
further releases on the aforesaid item of Republic Act No. 920 and from making any
further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal
capacity to sue", and that the petition did "not state a cause of action". In support to this
motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial
governor, should represent the Province of Rizal, pursuant to section 1683 of the
Revised Administrative Code; that said respondent is " not aware of any law which
makes illegal the appropriation of public funds for the improvements of . . . private
property"; and that, the constitutional provision invoked by petitioner is inapplicable to
the donation in question, the same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not assail the appropriation in
question because "there is no actual bona fide case . . . in which the validity of Republic
Act No. 920 is necessarily involved" and petitioner "has not shown that he has a personal
and substantial interest" in said Act "and that its enforcement has caused or will cause
him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned
decision, dated October 29, 1953, holding that, since public interest is involved in this
case, the Provincial Governor of Rizal and the provincial fiscal thereof who represents
him therein, "have the requisite personalities" to question the constitutionality of the
disputed item of Republic Act No. 920; that "the legislature is without power appropriate
public revenues for anything but a public purpose", that the instructions and

improvement of the feeder roads in question, if such roads where private property,
would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government
of the Republic of the Philippines will use the parcels of land hereby donated
for street purposes only and for no other purposes whatsoever; it being
expressly understood that should the Government of the Republic of the
Philippines violate the condition hereby imposed upon it, the title to the land
hereby donated shall, upon such violation, ipso facto revert to the DONOR,
JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is
"absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409
of the Civil Code of the Philippines, declares in existence and void from the very
beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or
public policy"; that the legality of said donation may not be contested, however, by
petitioner herein, because his "interest are not directly affected" thereby; and that,
accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as much, are deemed to have admitted
hypothetically the allegations of fact made in the petition of appellant herein. According
to said petition, respondent Zulueta is the owner of several parcels of residential land
situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of
which had been reserved for the projected feeder roads aforementioned, which,
admittedly, were private property of said respondent when Republic Act No. 920,
appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved
by the President on June 20, 1953. The petition further alleges that the construction of
said roads, to be undertaken with the aforementioned appropriation of P85,000.00,
would have the effect of relieving respondent Zulueta of the burden of constructing his
subdivision streets or roads at his own expenses, 1and would "greatly enhance or
increase the value of the subdivision" of said respondent. The lower court held that under
these circumstances, the appropriation in question was "clearly for a private, not a public
purpose."
Respondents do not deny the accuracy of this conclusion, which is self-
evident. 2However, respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal
because Congress is the source of all laws . . . Aside from the fact that movant
is not aware of any law which makes illegal the appropriation of public funds
for the improvement of what we, in the meantime, may assume as private
property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the
nature of the Government established under the Constitution of the Republic of the
Philippines and the system of checks and balances underlying our political structure.
Moreover, it is refuted by the decisions of this Court invalidating legislative enactments
deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the
principle according to Ruling Case Law, is this:
2
It is a general rule that the legislature is without power to appropriate public
revenue for anything but a public purpose. . . . It is the essential character of
the direct object of the expenditure which must determine its validity as
justifying a tax, and not the magnitude of the interest to be affected nor the
degree to which the general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of private interest and
the prosperity of private enterprises or business, does not justify their aid by
the use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public
purposes only, discussed suprasec. 14, money raised by taxation can be
expended only for public purposes and not for the advantage of private
individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public
funds may be used only for public purpose. The right of the legislature to
appropriate funds is correlative with its right to tax, and, under constitutional
provisions against taxation except for public purposes and prohibiting the
collection of a tax for one purpose and the devotion thereof to another
purpose, no appropriation of state funds can be made for other than for a
public purpose.
xxx xxx xxx
The test of the constitutionality of a statute requiring the use of public funds is
whether the statute is designed to promote the public interest, as opposed to the
furtherance of the advantage of individuals, although each advantage to
individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis
supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from
being patently sound, are a necessary corollary to our democratic system of government,
which, as such, exists primarily for the promotion of the general welfare. Besides,
reflecting as they do, the established jurisprudence in the United States, after whose
constitutional system ours has been patterned, said views and jurisprudence are,
likewise, part and parcel of our own constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in
question, upon the ground that petitioner may not contest the legality of the donation
above referred to because the same does not affect him directly. This conclusion is,
presumably, based upon the following premises, namely: (1) that, if valid, said donation
cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter
may not be annulled without a previous declaration of unconstitutionality of the said
donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and
admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage
or approval, not upon events occurring, or acts performed, subsequently thereto, unless
the latter consists of an amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute. Referring to the

P85,000.00 appropriation for the projected feeder roads in question, the legality thereof
depended upon whether said roads were public or private property when the bill, which,
latter on, became Republic Act 920, was passed by Congress, or, when said bill was
approved by the President and the disbursement of said sum became effective, or on
June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected
feeder roads were to be constructed belonged then to respondent Zulueta, the result is
that said appropriation sought a private purpose, and hence, was null and void. 4 The
donation to the Government, over five (5) months after the approval and effectivity of
said Act, made, according to the petition, for the purpose of giving a "semblance of
legality", or legalizing, the appropriation in question, did not cure its aforementioned
basic defect. Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject
to exceptions. For instance, the creditors of a party to an illegal contract may, under the
conditions set forth in Article 1177 of said Code, exercise the rights and actions of the
latter, except only those which are inherent in his person, including therefore, his right
to the annulment of said contract, even though such creditors are not affected by the
same, except indirectly, in the manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who
will sustain a direct injury in consequence of its enforcement. Yet, there are many
decisions nullifying, at the instance of taxpayers, laws providing for the disbursement
of public funds, 5upon the theory that "the expenditure of public funds by an officer of
the State for the purpose of administering an unconstitutional act constitutes
a misapplication of such funds," which may be enjoined at the request of a
taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the
United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite
standing to attack the constitutionality of a statute, the general rule is that not
only persons individually affected, but also taxpayers, have sufficient interest
in preventing the illegal expenditure of moneys raised by taxation and may
therefore question the constitutionality of statutes requiring expenditure of
public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham
vs. Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the ground that
the relationship of a taxpayer of the U.S. to its Federal Government is different from
that of a taxpayer of a municipal corporation to its government. Indeed, under
the composite system of government existing in the U.S., the states of the Union are
integral part of the Federation from an international viewpoint, but, each state enjoys
internally a substantial measure of sovereignty, subject to the limitations imposed by the
Federal Constitution. In fact, the same was made by representatives of each state of the
Union, not of the people of the U.S., except insofar as the former represented the people
of the respective States, and the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal Constitution and the
Federal statutes have become binding upon the people of the U.S. in consequence of an
act of, and, in this sense, through the respective states of the Union of which they are
citizens. The peculiar nature of the relation between said people and the Federal
3
Government of the U.S. is reflected in the election of its President, who is chosen
directly, not by the people of the U.S., but by electors chosen by each State, in such
manner as the legislature thereof may direct (Article II, section 2, of the Federal
Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand,
and the Republic of the Philippines, on the other, is not identical to that obtaining
between the people and taxpayers of the U.S. and its Federal Government. It is closer,
from a domestic viewpoint, to that existing between the people and taxpayers of each
state and the government thereof, except that the authority of the Republic of the
Philippines over the people of the Philippines is more fully direct than that of the states
of the Union, insofar as the simple and unitary type of our national government is not
subject to limitations analogous to those imposed by the Federal Constitution upon the
states of the Union, and those imposed upon the Federal Government in the interest of
the Union. For this reason, the rule recognizing the right of taxpayers to assail the
constitutionality of a legislation appropriating local or state public funds — which has
been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) —
has greater application in the Philippines than that adopted with respect to acts of
Congress of the United States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation
of a land by the Province of Tayabas, two (2) taxpayers thereof were allowed to
intervene for the purpose of contesting the price being paid to the owner thereof, as
unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz.,
1243), a taxpayer and employee of the Government was not permitted to question the
constitutionality of an appropriation for backpay of members of Congress. However, in
Rodriguez vs. Treasurer of the Philippines and Barredo vs.Commission on Elections (84
Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers impugning the
validity of certain appropriations of public funds, and invalidated the same. Moreover,
the reason that impelled this Court to take such position in said two (2) cases — the
importance of the issues therein raised — is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a
taxpayer. The Province of Rizal, which he represents officially as its Provincial
Governor, is our most populated political subdivision, 8and, the taxpayers therein bear
a substantial portion of the burden of taxation, in the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case
sufficiently justify petitioners action in contesting the appropriation and donation in
question; that this action should not have been dismissed by the lower court; and that
the writ of preliminary injunction should have been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded
to the lower court for further proceedings not inconsistent with this decision, with the
costs of this instance against respondent Jose C. Zulueta. It is so ordered.
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ,
vs. ENRICO PALOMAR

This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by
Republic Act 2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of
Posts shall order for the period from August nineteen to September thirty every
year the printing and issue of semi-postal stamps of different denominations
with face value showing the regular postage charge plus the additional amount
of five centavos for the said purpose, and during the said period, no mail matter
shall be accepted in the mails unless it bears such semi-postal
stamps: Provided, That no such additional charge of five centavos shall be
imposed on newspapers. The additional proceeds realized from the sale of the
semi-postal stamps shall constitute a special fund and be deposited with the
National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four
(4) administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August
28, 1958), and 10 (July 15, 1960). All these administrative orders were issued with the
approval of the respondent Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from
August 19 to September 30, 1957, for lack of time. However, two
denominations of such stamps, one at "5 + 5" centavos and another at "10 + 5"
centavos, will soon be released for use by the public on their mails to be posted
during the same period starting with the year 1958.
xxx xxx xxx
During the period from August 19 to September 30 each year starting in 1958,
no mail matter of whatever class, and whether domestic or foreign, posted at
any Philippine Post Office and addressed for delivery in this country or abroad,
shall be accepted for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the Philippine
Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits
or impressions of postage meters, each piece of such mail shall bear at least
one such semi-postal stamp if posted during the period above stated starting
with the year 1958, in addition to being charged the usual postage prescribed
by existing regulations. In the case of business reply envelopes and cards
mailed during said period, such stamp should be collected from the addressees
at the time of delivery. Mails entitled to franking privilege like those from the
office of the President, members of Congress, and other offices to which such
privilege has been granted, shall each also bear one such semi-postal stamp if
posted during the said period.
Mails posted during the said period starting in 1958, which are found in street
or post-office mail boxes without the required semi-postal stamp, shall be
returned to the sender, if known, with a notation calling for the affixing of such
stamp. If the sender is unknown, the mail matter shall be treated as nonmailable
and forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
4
In the case of the following categories of mail matter and mails entitled to
franking privilege which are not exempted from the payment of the five
centavos intended for the Philippine Tuberculosis Society, such extra charge
may be collected in cash, for which official receipt (General Form No. 13, A)
shall be issued, instead of affixing the semi-postal stamp in the manner
hereinafter indicated:
1. Second-class mail. — Aside from the postage at the second-class rate, the
extra charge of five centavos for the Philippine Tuberculosis Society shall be
collected on each separately-addressed piece of second-class mail matter, and
the total sum thus collected shall be entered in the same official receipt to be
issued for the postage at the second-class rate. In making such entry, the total
number of pieces of second-class mail posted shall be stated, thus: "Total
charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered
separate from the postage in both of the official receipt and the Record of
Collections.
2. First-class and third-class mail permits. — Mails to be posted without
postage affixed under permits issued by this Bureau shall each be charged the
usual postage, in addition to the five-centavo extra charge intended for said
society. The total extra charge thus received shall be entered in the same
official receipt to be issued for the postage collected, as in subparagraph 1.
3. Metered mail. — For each piece of mail matter impressed by postage meter
under metered mail permit issued by this Bureau, the extra charge of five
centavos for said society shall be collected in cash and an official receipt issued
for the total sum thus received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. — Upon delivery of business reply
cards and envelopes to holders of business reply permits, the five-centavo
charge intended for said society shall be collected in cash on each reply card
or envelope delivered, in addition to the required postage which may also be
paid in cash. An official receipt shall be issued for the total postage and total
extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. — Government agencies, officials, and
other persons entitled to the franking privilege under existing laws may pay in
cash such extra charge intended for said society, instead of affixing the semi-
postal stamps to their mails, provided that such mails are presented at the post-
office window, where the five-centavo extra charge for said society shall be
collected on each piece of such mail matter. In such case, an official receipt
shall be issued for the total sum thus collected, in the manner stated in
subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-
office window shall be affixed with the necessary semi-postal stamps. If found
in mail boxes without such stamps, they shall be treated in the same way as
herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its
Agencies and Instrumentalities Performing Governmental Functions." Adm. Order 10,
amending Adm. Order 3, as amended, exempts "copies of periodical publications

received for mailing under any class of mail matter, including newspapers and
magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter
at the post office in San Fernando, Pampanga. Because this letter, addressed to a certain
Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special
anti-TB stamp required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court
of First Instance of Pampanga, to test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it violates the equal
protection clause of the Constitution as well as the rule of uniformity and equality of
taxation. The lower court declared the statute and the orders unconstitutional; hence this
appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents'
contention that declaratory relief is unavailing because this suit was filed after the
petitioner had committed a breach of the statute. While conceding that the mailing by
the petitioner of a letter without the additional anti-TB stamp was a violation of Republic
Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the
ground that under section 6 of Rule 64 of the Rules of Court, "If before the final
termination of the case a breach or violation of ... a statute ... should take place, the
action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought
"before breach or violation" of the statute has been committed. Rule 64, section 1 so
provides. Section 6 of the same rule, which allows the court to treat an action for
declaratory relief as an ordinary action, applies only if the breach or violation occurs
after the filing of the action but before the termination thereof. 3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before
the firing of this action, then indeed the remedy of declaratory relief cannot be availed
of, much less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question
did not constitute a breach of the statute because the statute appears to be addressed only
to postal authorities. The statute, it is true, in terms provides that "no mail matter shall
be accepted in the mails unless it bears such semi-postal stamps." It does not follow,
however, that only postal authorities can be guilty of violating it by accepting mails
without the payment of the anti-TB stamp. It is obvious that they can be guilty of
violating the statute only if there are people who use the mails without paying for the
additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach of the
law, so in the matter of the anti-TB stamp the mere attempt to use the mails without the
stamp constitutes a violation of the statute. It is not required that the mail be accepted
by postal authorities. That requirement is relevant only for the purpose of fixing the
liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because
this suit was filed not only with respect to the letter which he mailed on September 15,
1963, but also with regard to any other mail that he might send in the future. Thus, in
his complaint, the petitioner prayed that due course be given to "other mails without the
5
semi-postal stamps which he may deliver for mailing ... if any, during the period covered
by Republic Act 1635, as amended, as well as other mails hereafter to be sent by or to
other mailers which bear the required postage, without collection of additional charge
of five centavos prescribed by the same Republic Act." As one whose mail was returned,
the petitioner is certainly interested in a ruling on the validity of the statute requiring the
use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the
implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution.
More specifically the claim is made that it constitutes mail users into a class for the
purpose of the tax while leaving untaxed the rest of the population and that even among
postal patrons the statute discriminatorily grants exemption to newspapers while
Administrative Order 9 of the respondent Postmaster General grants a similar exemption
to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails.
As such the objections levelled against it must be viewed in the light of applicable
principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions.4 This power has aptly been described as
"of wide range and flexibility."5 Indeed, it is said that in the field of taxation, more than
in other areas, the legislature possesses the greatest freedom in classification. 6 The
reason for this is that traditionally, classification has been a device for fitting tax
programs to local needs and usages in order to achieve an equitable distribution of the
tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the
petitioner asserts is that statutory classification of mail users must bear some reasonable
relationship to the end sought to be attained, and that absent such relationship the
selection of mail users is constitutionally impermissible. This is altogether a different
proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between
classification made by the legislation and its purpose is undoubtedly true in
some contexts, it has no application to a measure whose sole purpose is to raise
revenue ... So long as the classification imposed is based upon some standard
capable of reasonable comprehension, be that standard based upon ability to
produce revenue or some other legitimate distinction, equal protection of the
law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358
U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of
Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the
clearest demonstration that it sanctions invidious discrimination, which is all that the
Constitution forbids. The remedy for unwise legislation must be sought in the
legislature. Now, the classification of mail users is not without any reason. It is based
on ability to pay, let alone the enjoyment of a privilege, and on administrative
convinience. In the allocation of the tax burden, Congress must have concluded that the

contribution to the anti-TB fund can be assured by those whose who can afford the use
of the mails.
The classification is likewise based on considerations of administrative convenience.
For it is now a settled principle of law that "consideration of practical administrative
convenience and cost in the administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined class." 9 In the case of the anti-TB
stamps, undoubtedly, the single most important and influential consideration that led the
legislature to select mail users as subjects of the tax is the relative ease and
convenienceof collecting the tax through the post offices. The small amount of five
centavos does not justify the great expense and inconvenience of collecting through the
regular means of collection. On the other hand, by placing the duty of collection on
postal authorities the tax was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a
class. Mail users were already a class by themselves even before the enactment of the
statue and all that the legislature did was merely to select their class. Legislation is
essentially empiric and Republic Act 1635, as amended, no more than reflects a
distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences
that exist in fact is living law; to disregard [them] and concentrate on some abstract
identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption
must likewise be conceded as a necessary corollary. Tax exemptions are too common in
the law; they have never been thought of as raising issues under the equal protection
clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted
from the levy the law and administrative officials have sanctioned an invidious
discrimination offensive to the Constitution. The application of the lower courts theory
would require all mail users to be taxed, a conclusion that is hardly tenable in the light
of differences in status of mail users. The Constitution does not require this kind of
equality.
As the United States Supreme Court has said, the legislature may withhold the burden
of the tax in order to foster what it conceives to be a beneficent enterprise. 11 This is the
case of newspapers which, under the amendment introduced by Republic Act 2631, are
exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's
sovereign immunity from taxation. The State cannot be taxed without its consent and
such consent, being in derogation of its sovereignty, is to be strictly
construed.12 Administrative Order 9 of the respondent Postmaster General, which lists
the various offices and instrumentalities of the Government exempt from the payment
of the anti-TB stamp, is but a restatement of this well-known principle of constitutional
law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis
to the exclusion of other diseases which, it is said, are equally a menace to public health.
But it is never a requirement of equal protection that all evils of the same genus be
eradicated or none at all.13 As this Court has had occasion to say, "if the law presumably
6
hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied." 14
2. The petitioner further argues that the tax in question is invalid, first, because it is not
levied for a public purpose as no special benefits accrue to mail users as taxpayers, and
second, because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit to which the taxpayer is constitutionally entitled is
that derived from his enjoyment of the privileges of living in an organized society,
established and safeguarded by the devotion of taxes to public purposes. Any other view
would preclude the levying of taxes except as they are used to compensate for the burden
on those who pay them and would involve the abandonment of the most fundamental
principle of government — that it exists primarily to provide for the common good. 15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a
flat rate rather than a graduated tax. A tax need not be measured by the weight of the
mail or the extent of the service rendered. We have said that considerations of
administrative convenience and cost afford an adequate ground for classification. The
same considerations may induce the legislature to impose a flat tax which in effect is a
charge for the transaction, operating equally on all persons within the class regardless
of the amount involved.16 As Mr. Justice Holmes said in sustaining the validity of a
stamp act which imposed a flat rate of two cents on every $100 face value of stock
transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other
$172. The inequality of the tax, so far as actual values are concerned, is
manifest. But, here again equality in this sense has to yield to practical
considerations and usage. There must be a fixed and indisputable mode of
ascertaining a stamp tax. In another sense, moreover, there is equality. When
the taxes on two sales are equal, the same number of shares is sold in each case;
that is to say, the same privilege is used to the same extent. Valuation is not the
only thing to be considered. As was pointed out by the court of appeals, the
familiar stamp tax of 2 cents on checks, irrespective of income or earning
capacity, and many others, illustrate the necessity and practice of sometimes
substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is
spent for the benefit of the Philippine Tuberculosis Society, a private organization,
without appropriation by law. But as the Solicitor General points out, the Society is not
really the beneficiary but only the agency through which the State acts in carrying out
what is essentially a public function. The money is treated as a special fund and as such
need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is
one of the grounds on which the lower court invalidated Republic Act 1631, as amended,
namely, that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that
for certain classes of mail matters (such as mail permits, metered mails, business reply
cards, etc.), the five-centavo charge may be paid in cash instead of the purchase of the

anti-TB stamp. It further states that mails deposited during the period August 19 to
September 30 of each year in mail boxes without the stamp should be returned to the
sender, if known, otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except
through the sale of anti-TB stamps, but such authority may be implied in so far as it may
be necessary to prevent a failure of the undertaking. The authority given to the
Postmaster General to raise funds through the mails must be liberally construed,
consistent with the principle that where the end is required the appropriate means are
given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount
of the additional charge but also that of the regular postage. In the case of business reply
cards, for instance, it is obvious that to require mailers to affix the anti-TB stamp on
their cards would be to make them pay much more because the cards likewise bear the
amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do
not bear the anti-TB stamp, but a declaration therein that "no mail matter shall be
accepted in the mails unless it bears such semi-postal stamp" is a declaration that such
mail matter is nonmailable within the meaning of section 1952 of the Administrative
Code. Administrative Order 7 of the Postmaster General is but a restatement of the law
for the guidance of postal officials and employees. As for Administrative Order 9, we
have already said that in listing the offices and entities of the Government exempt from
the payment of the stamp, the respondent Postmaster General merely observed an
established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed,
without pronouncement as to costs.
G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC,
vs. CITY OF BUTUAN
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan,
dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation
with offices and principal place of business in Quezon City. The defendants are the City
of Butuan, its City Mayor, the members of its municipal board and its City Treasurer.
Plaintiff — seeks to recover the sums paid by it to the City of Butuan — hereinafter
referred to as the City and collected by the latter, pursuant to its Municipal Ordinance
No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties
submitted the case for decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its
products the "Pepsi-Cola" soft drinks for sale to customers in the City of
Butuan and all the municipalities in the Province of Agusan. These "Pepsi-Cola
Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City
warehouse of plaintiff for distribution and sale in the City of Butuan and all
municipalities of Agusan. .
7
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110
which was subsequently amended by Ordinance No. 122 and effective
November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and
Ordinance No. 122 are incorporated herein as Exhibits "A" and "B",
respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person,
association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff
paid under protest the amount of P4,926.63 from August 16 to December 31,
1960 and the amount of P9,250.40 from January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total
amount of P14,177.03 paid under protest and those that if may later on pay
until the termination of this case on the ground that Ordinance No. 110 as
amended of the City of Butuan is illegal, that the tax imposed is excessive and
that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of
Butuan City, has prepared a form to be accomplished by the plaintiff for the
computation of the tax. A copy of the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from
January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is
incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss
Statement, the defendants claim that the plaintiff is not entitled to a
depreciation of P3,052.63 but only P1,202.55 in which case the profit of
plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs
only on the claim of depreciation which the company claims to be P3,052.62.
This is in accordance with the findings of the representative of the undersigned
City Attorney who verified the records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24
bottles was increased to P1.92 which price is uniform throughout the
Philippines. Said increase was made due to the increase in the production cost
of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality
and illegality of Ordinance No. 110, as amended of the City of Butuan in their
respective memoranda.
xxx xxx x x x1äwphï1.ñët
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors",
within the purview thereof. Section 2 provides for the payment by "any agent and/or
consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of
taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the
soft drinks and carbonated beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent"
for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end
of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed
from the cargo manifest or bill of lading or any other record showing the number of
cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within
the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the
taxes within the period prescribed and the penalties imposable for "deliberate and willful

refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office
of the City Treasurer a copy of the bill of lading or cargo manifest or record of soft
drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance
applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold
within" the City. Section 10 of the ordinance provides that the revenue derived therefrom
"shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund
and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes
of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive,
oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2
of Republic Act No. 2264, upon the authority of which it was enacted, is an
unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed — independently
of whether or not the tax in question, when considered in relation to the sales tax
prescribed by Acts of Congress, amounts to double taxation, on which we need not and
do not express any opinion - double taxation, in general, is not forbidden by our
fundamental law. We have not adopted, as part thereof, the injunction against double
taxation found in the Constitution of the United States and of some States of the
Union.1 Then, again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers2 is subject to one well-established
exception, namely: legislative powers may be delegated to local governments — to
which said theory does not apply3 — in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of
soft drinks or carbonated drinks — in the production and sale of which plaintiff is
engaged — or less than P0.0042 per bottle, is manifestly too small to be excessive,
oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this
connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110,
as originally approved, was imposed upon dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the
sale of said merchandise. As amended by Ordinance No. 122, the tax is, however,
imposed only upon "any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling ... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said Ordinance No. 122:
... — Definition of the Term Consignee or Agent. — For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to whom is
consigned or shipped no less than 1,000 cases of hard liquors or soft drinks
every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are
not subject to the tax, unless they are agents and/or consignees of another dealer, who,
in the very nature of things, must be one engaged in business outside the City. Besides,
the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases
of soft drinks are consigned or shipped to him every month. When we consider, also,
that the tax "shall be based and computed from the cargo manifest or bill of lading ...
8
showing the number of cases" — not sold — but "received" by the taxpayer, the
intention to limit the application of the ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof becomes apparent. Viewed from this angle,
the tax partakes of the nature of an import duty, which is beyond defendant's authority
to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by "agents
or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not
acting for or on behalf of other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or consignees of producers or
merchants established outside the City of Butuan, would be exempt from the disputed
tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does
not require identity or equality under all circumstances, or negate the authority to
classify the objects of taxation.5 The classification made in the exercise of this authority,
to be valid, must, however, be reasonable6 and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real differences; (2) these
are germane to the purpose of the legislation or ordinance; (3) the classification applies,
not only to present conditions, but, also, to future conditions substantially identical to
those of the present; and (4) the classification applies equally all those who belong to
the same class.7
These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose
were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there
is no reason why sales thereof by sealers other than agents or consignees of producers
or merchants established outside the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be
entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and
sentencing the City of Butuan to refund to plaintiff herein the amounts collected from
and paid under protest by the latter, with interest thereon at the legal rate from the date
of the promulgation of this decision, in addition to the costs, and defendants herein are,
accordingly, restrained and prohibited permanently from enforcing said Ordinance, as
amended. It is so ordered.
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC vs.
MUNICIPALITY OF TANAUAN, LEYTE
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil
Case No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969,
as involving only pure questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended,
June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the
Philippines, Inc., commenced a complaint with preliminary injunction before the Court
of First Instance of Leyte for that court to declare Section 2 of Republic Act No.

2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of
1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed therein are practically the same, and
second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as
per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25,
1962, levies and collects "from soft drinks producers and manufacturers a tai of one-
sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of
computing the taxes due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report, of the total number of bottles
produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28,
1962, levies and collects "on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due,
the person, fun company, partnership, corporation or plant producing soft drinks shall
submit to the Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing
the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264]
declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to
pay the taxes due under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court
of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary
Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. — Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double taxation and
impose percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging
as a matter of right to every independent government, without being expressly conferred
by the people. 6 It is a power that is purely legislative and which the central legislative
body cannot delegate either to the executive or judicial department of the government
without infringing upon the theory of separation of powers. The exception, however,
lies in the case of municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in respect of matters of local
concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the
9
legislative power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the power to
tax. 9 Under the New Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy taxes. Section 5, Article XI
provides: "Each local government unit shall have the power to create its sources of
revenue and to levy taxes, subject to such limitations as may be provided by law."
Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond
the sphere of the legislative power to enact and vest in local governments the power of
local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's
pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In
delegating the authority, the State is not limited 6 the exact measure of that which is
exercised by itself. When it is said that the taxing power may be delegated to
municipalities and the like, it is meant that there may be delegated such measure of
power to impose and collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for reasons of public policy the
State has not deemed wise to tax for more general purposes. 10 This is not to say though
that the constitutional injunction against deprivation of property without due process of
law may be passed over under the guise of the taxing power, except when the taking of
the property is in the lawful exercise of the taxing power, as when (1) the tax is for a
public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person
or property taxed is within the jurisdiction of the government levying the tax; and (4) in
the assessment and collection of certain kinds of taxes notice and opportunity for hearing
are provided. 11 Due process is usually violated where the tax imposed is for a private
as distinguished from a public purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing
and collecting taxes. But, a tax does not violate the due process clause, as applied to a
particular taxpayer, although the purpose of the tax will result in an injury rather than a
benefit to such taxpayer. Due process does not require that the property subject to the
tax or the amount of tax to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and the manner in which it shall be
apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation
may not be exercised. 13 The reason is that the State has exclusively reserved the same
for its own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against
double taxation found in the Constitution of the United States and some states of the
Union.14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is imposed by the State and the other by the
city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double
taxation, because these two ordinances cover the same subject matter and impose
practically the same tax rate. The thesis proceeds from its assumption that both

ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance
No. 23, which was approved on September 25, 1962, levies or collects from soft drinks
producers or manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle
corked, irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the bottle and
still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity. The difference between the two ordinances
clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16
of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal
Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain
substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even
without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-
appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the
stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan,
Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said
Ordinance No. 27, series of 1962. The aforementioned admission shows that only
Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the
Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of
the latter are inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend to
almost "everything, accepting those which are mentioned therein." As long as the text
levied under the authority of a city or municipal ordinance is not within the exceptions
and limitations in the law, the same comes within the ambit of the general rule, pursuant
to the rules of exclucion attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the prohibition against municipalities
and municipal districts to impose "any percentage tax or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax except gasoline, under the
provisions of the National Internal Revenue Code." For purposes of this particular
limitation, a municipal ordinance which prescribes a set ratio between the amount of the
tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for
being outside the power of the municipality to enact. 20 But, the imposition of "a tax of
one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all
soft drinks produced or manufactured under Ordinance No. 27 does not partake of the
nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is
levied on the produce (whether sold or not) and not on the sales. The volume capacity
of the taxpayer's production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is not set ratio between the volume of
sales and the amount of the tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco
other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels,
10
coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine,
opium and other habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on
all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per
case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would
not support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the reates of imposable taxes.
25 This is in line with the constutional policy of according the widest possible autonomy
to local governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive
as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if
the purpose of the law to further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not
more than ten crowners or P2,000.00 with ten but not more than twenty crowners
imposed on manufacturers, producers, importers and dealers of soft drinks and/or
mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No.
41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of
the validity of Ordinance No. 27. Municipalities are empowered to impose, not only
municipal license taxes upon persons engaged in any business or occupation but also to
levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance
No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act, as amended, is hereby upheld and
Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-
pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal
effect. Costs against petitioner-appellant.
SO ORDERED.
[G.R. No. 127316. October 12, 2000]
LIGHT RAIL TRANSIT AUTHORITY vs. CENTRAL BOARD OF
ASSESSMENT APPEALS
The Light Rail Transit Authority and the Metro Transit Organization function as
service-oriented business entities, which provide valuable transportation facilities to the
paying public. In the absence, however, of any express grant of exemption in their favor,
they are subject to the payment of real property taxes.
The Case
In the Petition for Review before us, the Light Rail Transit Authority (LRTA)
challenges the November 15, 1996 Decision[1] of the Court of Appeals (CA) in CA-GR
SP No. 38137, which disposed as follows:
"WHEREFORE, premises considered, the appealed decision (dated October 15, 1994)
of the Central Board of Assessment Appeals is hereby AFFIRMED, with costs against
the petitioner."[2]
The affirmed ruling of the Central Board of Assessment Appeals (CBAA) upheld
the June 26, 1992 Resolution of the Board of Assessment Appeals of Manila, which had

declared petitioner's carriageways and passenger terminals as improvements subject to
real property taxes.
The Facts
The undisputed facts are quoted by the Court of Appeals (CA) from the CBAA
ruling, as follows:[3]
"1. The LRTA is a government-owned and controlled corporation created and organized
under Executive Order No. 603, dated July 12, 1980 'x x x primarily responsible for the
construction, operation, maintenance and/or lease of light rail transit system in the
Philippines, giving due regard to the [reasonable requirements] of the public
transportation of the country' (LRTA vs. The Hon. Commission on Audit, GR No. No.
88365);
"2. x x x [B]y reason of x x x Executive Order 603, LRTA acquired real properties x x
x constructed structural improvements, such as buildings, carriageways, passenger
terminal stations, and installed various kinds of machinery and equipment and facilities
for the purpose of its operations;
"3. x x x [F]or x x x an effective maintenance, operation and management, it entered
into a Contract of Management with the Meralco Transit Organization (METRO) in
which the latter undertook to manage, operate and maintain the Light Rail Transit
System owned by the LRTA subject to the specific stipulations contained in said
agreement, including payments of a management fee and real property taxes (Add'l
Exhibit "I", Records)
"4. That it commenced its operations in 1984, and that sometime that year, Respondent-
Appellee City Assessor of Manila assessed the real properties of [petitioner], consisting
of lands, buildings, carriageways and passenger terminal stations, machinery and
equipment which he considered real propert[y] under the Real Property Tax Code, to
commence with the year 1985;
"5. That [petitioner] paid its real property taxes on all its real property holdings, except
the carriageways and passenger terminal stations including the land where it is
constructed on the ground that the same are not real properties under the Real Property
Tax Code, and if the same are real propert[y], these x x x are for public use/purpose,
therefore, exempt from realty taxation, which claim was denied by the Respondent-
Appellee City Assessor of Manila; and
"6. x x x [Petitioner], aggrieved by the action of the Respondent-Appellee City Assessor,
filed an appeal with the Local Board of Assessment Appeals of Manila x x x. Appellee,
herein, after due hearing, in its resolution dated June 26, 1992, denied [petitioner's]
appeal, and declared that carriageways and passenger terminal stations are
improvements, therefore, are real propert[y] under the Code, and not exempt from the
payment of real property tax.
"A motion for reconsideration filed by [petitioner] was likewise denied."
The CA Ruling
The Court of Appeals held that petitioner's carriageways and passenger terminal
stations constituted real property or improvements thereon and, as such, were taxable
under the Real Property Tax Code. The appellate court emphasized that such pieces of
property did not fall under any of the exemptions listed in Section 40 of the
aforementioned law. The reason was that they were not owned by the government or
any government-owned corporation which, as such, was exempt from the payment of
11
real property taxes. True, the government owned the real property upon which the
carriageways and terminal stations were built. However, they were still taxable, because
beneficial use had been transferred to petitioner, a taxable entity.
The CA debunked the argument of petitioner that carriageways and terminals were
intended for public use. The former agreed, instead, with the CBAA. The CBAA had
concluded that since petitioner was not engaged in purely governmental or public
service, the latter's endeavors were proprietary. Indeed, petitioner was deemed as a
profit-oriented endeavor, serving as it did, only the paying public.
Hence, this Petition.[4]
The Issues
In its Memorandum,[5] petitioner urges the Court to resolve the following matters:
"I
The Honorable Court of Appeals erred in not holding that the carriageways and
terminal stations of petitioner are not improvements for purposes of the Real
Property Tax Code.
"II
The Honorable Court of Appeals erred in not holding that being attached to
national roads owned by the national government, subject carriageways and
terminal stations should be considered property of the national government.
"III
The Honorable Court of Appeals erred in not holding that payment of charges or
fares in the operation of the light rail transit system does not alter the nature of the
subject carriageways and terminal stations as devoted for public use.
"IV
The Honorable Court of Appeals erred in failing to consider the view advanced by
the Department of Finance, which takes charge of the overall collection of taxes,
that subject carriageways and terminal stations are not subject to realty taxes.
"V
The Honorable Court of Appeals erred in failing to consider that payment of the
realty taxes assessed is not warranted and should the legality of the questioned
assessment be upheld, the amount of the realty taxes assessed would far exceed
the annual earnings of petitioner, a government corporation."
The foregoing all point to one main issue: whether petitioner's carriageways and
passenger terminal stations are subject to real property taxes.
The Court's Ruling
The Petition has no merit.
Main Issue:
May Real Property Taxes be Assessed and Collected?
The Real Property Tax Code,[6] the law in force at the time of the assailed
assessment in 1984, mandated that "there shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property such as
lands, buildings, machinery and other improvements affixed or attached to real property
not hereinafter specifically exempted." [7]
Petitioner does not dispute that its subject carriageways and stations may be
considered real property under Article 415 of the Civil Code. However, it resolutely
argues that the same are improvements, not of its properties, but of the government-

owned national roads to which they are immovably attached. They are thus not taxable
as improvements under the Real Property Tax Code. In essence, it contends that to
impose a tax on the carriageways and terminal stations would be to impose taxes on
public roads.
The argument does not persuade. We quote with approval the solicitor general's
astute comment on this matter:
"There is no point in clarifying the concept of industrial accession to determine the
nature of the property when what is fundamentally important for purposes of tax
classification is to determine the character of the property subject [to] tax. The character
of tax as a property tax must be determined by its incidents, and form the natural and
legal effect thereof. It is irrelevant to associate the carriageways and/or the passenger
terminals as accessory improvements when the view of taxability is focused on the
character of the property. The latter situation is not a novel issue as it has already been
resolved by this Honorable Court in the case of City of Manila vs. IAC (GR No. 71159,
November 15, 1989) wherein it was held:
'The New Civil Code divides the properties into property for public and patrimonial
property (Art. 423), and further enumerates the property for public use as provincial
road, city streets, municipal streets, squares, fountains, public waters, public works for
public service paid for by said [provinces], cities or municipalities; all other property
is patrimonial without prejudice to provisions of special laws. (Art. 424, Province of
Zamboanga v. City of Zamboanga, 22 SCRA 1334 [1968])
xxx
'...while the following are corporate or proprietary property in character, viz: 'municipal
water works, slaughter houses, markets, stables, bathing establishments, wharves,
ferries and fisheries.' Maintenance of parks, golf courses, cemeteries and airports,
among others, are also recognized as municipal or city activities of a proprietary
character (Dept. of Treasury v. City of Evansville; 60 NE 2nd 952)'
"The foregoing enumeration in law does not specify or include carriageway or passenger
terminals as inclusive of properties strictly for public use to exempt petitioner's
properties from taxes. Precisely, the properties of petitioner are not exclusively
considered as public roads being improvements placed upon the public road, and this
separability nature of the structure in itself physically distinguishes it from a public road.
Considering further that carriageways or passenger terminals are elevated structures
which are not freely accessible to the public, viz-a-viz roads which are public
improvements openly utilized by the public, the former are entirely different from the
latter.
"The character of petitioner's property, be it an improvements as otherwise distinguished
by petitioner, needs no further classification when the law already classified it as
patrimonial property that can be subject to tax. This is in line with the old ruling that if
the public works is not for such free public service, it is not within the purview of the
first paragraph of Art. 424 if the New Civil Code." [8]
Though the creation of the LRTA was impelled by public service -- to provide
mass transportation to alleviate the traffic and transportation situation in Metro Manila
-- its operation undeniably partakes of ordinary business. Petitioner is clothed with
corporate status and corporate powers in the furtherance of its proprietary
objectives.[9] Indeed, it operates much like any private corporation engaged in the mass
12
transport industry. Given that it is engaged in a service-oriented commercial endeavor,
its carriageways and terminal stations are patrimonial property subject to tax,
notwithstanding its claim of being a government-owned or controlled corporation.
True, petitioner's carriageways and terminal stations are anchored, at certain
points, on public roads. However, it must be emphasized that these structures do
not form part of such roads, since the former have been constructed over the latter in
such a way that the flow of vehicular traffic would not be impeded. These carriageways
and terminal stations serve a function different from that of the public roads. The former
are part and parcel of the light rail transit (LRT) system which, unlike the latter, are not
open to use by the general public. The carriageways are accessible only to the LRT
trains, while the terminal stations have been built for the convenience of LRTA itself
and its customers who pay the required fare.
Basis of Assessment Is Actual Use of Real Property
Under the Real Property Tax Code, real property is classified for assessment
purposes on the basis of actual use,[10] which is defined as "the purpose for which the
property is principally or predominantly utilized by the person in possession of the
property."[11]
Petitioner argues that it merely operates and maintains the LRT system, and that
the actual users of the carriageways and terminal stations are the commuting public. It
adds that the public-use character of the LRT is not negated by the fact that revenue is
obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use by everyone, the LRT
is accessible only to those who pay the required fare. It is thus apparent that petitioner
does not exist solely for public service, and that the LRT carriageways and terminal
stations are not exclusively for public use. Although petitioner is a public utility, it is
nonetheless profit-earning. It actually uses those carriageways and terminal stations in
its public utility business and earns money therefrom.
Petitioner Not Exempt from Payment of Real Property Taxes
In any event, there is another legal justification for upholding the assailed CA
Decision. Under the Real Property Tax Code, real property "owned by the Republic of
the Philippines or any of its political subdivisions and any government-owned or
controlled corporation so exempt by its charter, provided, however, that this exemption
shall not apply to real property of the abovenamed entities the beneficial use of which
has been granted, for consideration or otherwise, to a taxable person." [12]
Executive Order No. 603, the charter of petitioner, does not provide for any real
estate tax exemption in its favor. Its exemption is limited to direct and indirect taxes,
duties or fees in connection with the importation of equipment not locally available, as
the following provision shows:
"ARTICLE 4
TAX AND DUTY EXEMPTIONS
Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and Materials. -
The importation of equipment, machineries, spare parts, accessories and other materials,
including supplies and services, used directly in the operations of the Light Rails Transit
System, not obtainable locally on favorable terms, out of any funds of the authority
including, as stated in Section 7 above, proceeds from foreign loans credits or
indebtedness, shall likewise be exempted from all direct and indirect taxes, customs

duties, fees, imposts, tariff duties, compensating taxes, wharfage fees and other charges
and restrictions, the provisions of existing laws to the contrary notwithstanding."
Even granting that the national government indeed owns the carriageways and
terminal stations, the exemption would not apply because their beneficial use has been
granted to petitioner, a taxable entity.
Taxation is the rule and exemption is the exception. Any claim for tax exemption
is strictly construed against the claimant.[13] LRTA has not shown its eligibility for
exemption; hence, it is subject to the tax.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against the petitioner.
SO ORDERED.
[G.R. No. 120082. September 11, 1996]
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v HON.
FERDINAND J. MARCOS
For review under Rule 45 of the Rules of Court on a pure question of law are the
decision of 22 March 1995[1] of the Regional Trial Court (RTC) of Cebu City, Branch
20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900,
entitled Mactan Cebu International Airport Authority vs. City of Cebu, and its order of 4
May 1995[2]denying the motion to reconsider the decision.
We resolved to give due course to this petition for it raises issues dwelling on the
scope of the taxing power of local government units and the limits of tax exemption
privileges of government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as
follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue
of Republic Act No. 6958, mandated to 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, x x x and such other airports
as may be established in the Province of Cebu x x x (Sec. 3, RA 6958). It is also
mandated to:
a) 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, and accelerating the development of the means of transportation and
communication in the country; and,
b) upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption
from payment of realty taxes in accordance with Section 14 of its Charter:
Sec. 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 x x x.
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the
Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of
land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474,
13
109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at
Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount
of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in
its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty
taxes. It was also asserted that it is an instrumentality of the government performing
governmental functions, citing Section 133 of the Local Government Code of 1991
which puts limitations on the taxing powers of local government units:
Section 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:
a) x x x
xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (underscoring supplied)
Respondent City refused to cancel and set aside petitioners realty tax account, insisting
that the MCIAA is a government-controlled corporation whose tax exemption privilege
has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code
that took effect on January 1, 1992:
Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code. (underscoring supplied)
xxx
Section 234. Exemptions from Real Property Taxes. x x x
(a) x x x
xxx
(e) x x x
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account under protest and thereafter
filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20,
on December 29, 1994. MCIAA basically contended that the taxing powers of local
government units do not extend to the levy of taxes or fees of any kind on
an instrumentality of the national government. Petitioner insisted that while it is indeed
a government-owned corporation, it nonetheless stands on the same footing as an agency
or instrumentality of the national government by the very nature of its powers and
functions.
Respondent City, however, asserted that MCIAA is not an instrumentality of the
government but merely a government-owned corporation performing proprietary
functions. As such, all exemptions previously granted to it were deemed withdrawn by

operation of law, as provided under Sections 193 and 234 of the Local Government
Code when it took effect on January 1, 1992.[3]
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,[4] the trial court dismissed the petition in light of
its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160 provides the
express cancellation and withdrawal of exemption of taxes by government-owned and
controlled corporation per Sections after the effectivity of said Code on January 1, 1992,
to wit: [proceeds to quote Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent City Government of
Cebu are exempted from paying realty taxes in view of the exemption granted under RA
6958 to pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that All general and special laws, acts, city
charters, decrees [sic], executive orders, proclamations and administrative regulations,
or part of parts thereof which are inconsistent with any of the provisions of this Code
are hereby repealed or modified accordingly. (/f/, Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption
provided for in RA 6958 creating petitioner had been expressly repealed by the
provisions of the New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty tax of its properties effective
after January 1, 1992 until the present.
This Courts ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. It is hereby declared
the policy of the State that the territorial and political subdivisions of the State shall
enjoy genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them more effective partners in the
attainment of national goals. Toward this end, the State shall provide for a more
responsive and accountable local government structure instituted through a system of
decentralization whereby local government units shall be given more powers, authority,
responsibilities, and resources. The process of decentralization shall proceed from the
national government to the local government units. x x x[5]
Its motion for reconsideration having been denied by the trial court in its 4 May
1995 order, the petitioner filed the instant petition based on the following assignment of
errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE
PETITIONER IS VESTED WITH GOVERNMENT POWERS AND
FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS
LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF
CEBU.
Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation, it is mandated to perform functions in the
same category as an instrumentality of Government. An instrumentality of Government
is one created to perform governmental functions primarily to promote certain aspects
of the economic life of the people.[6]Considering its task not merely to efficiently operate
14
and manage the Mactan-Cebu International Airport, but more importantly, to carry out
the Government policies of promoting and developing the Central Visayas and
Mindanao regions as centers of international trade and tourism, and accelerating the
development of the means of transportation and communication in the country, [7] and
that it is an attached agency of the Department of Transportation and Communication
(DOTC),[8] the petitioner may stand in [sic] the same footing as an agency or
instrumentality of the national government. Hence, its tax exemption privilege under
Section 14 of its Charter cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically
states that the `taxing powers of local government units shall not extend to the levy of
taxes or fees or charges of any kind on the national government, its agencies and
instrumentalities.
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has no power nor
authority to impose realty taxes upon it in accordance with the aforesaid Section 133 of
the LGC, as explained in Basco vs. Philippine Amusement and Gaming Corporation:[9]
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stock are owned by the National
Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (McCulloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)
This doctrine emanates from the supremacy of the National Government over local
governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire absence
of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in such
a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional
Law, Vol. 2, p. 140)
Otherwise, mere creatures of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using
the power to tax as a tool for regulation (U.S. v. Sanchez, 340 US 42). The power to tax
which was called by Justice Marshall as the power to destroy (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it. (underscoring supplied)
It then concludes that the respondent Judge cannot therefore correctly say that the
questioned provisions of the Code do not contain any distinction between a government

corporation performing governmental functions as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said Code would
apply to all government corporations. For it is clear from Section 133, in relation to
Section 234, of the LGC that the legislature meant to exclude instrumentalities of the
national government from the taxing powers of the local government units.
In its comment, respondent City of Cebu alleges that as a local government unit
and a political subdivision, it has the power to impose, levy, assess, and collect taxes
within its jurisdiction. Such power is guaranteed by the Constitution[10] and enhanced
further by the LGC. While it may be true that under its Charter the petitioner was exempt
from the payment of realty taxes,[11] this exemption was withdrawn by Section 234 of
the LGC. In response to the petitioners claim that such exemption was not repealed
because being an instrumentality of the National Government, Section 133 of the LGC
prohibits local government units from imposing taxes, fees, or charges of any kind on
it, respondent City of Cebu points out that the petitioner is likewise a government-owned
corporation, and Section 234 thereof does not distinguish between government-owned
or controlled corporations performing governmental and purely proprietary
functions. Respondent City of Cebu urges this Court to apply by analogy its ruling that
the Manila International Airport Authority is a government-owned corporation,[12]and
to reject the application of Basco because it was promulgated . . . before the enactment
and the signing into law of R.A. No. 7160, and was not, therefore, decided in the light
of the spirit and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited
in its range, acknowledging in its very nature no limits, so that security against its abuse
is to be found only in the responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Nevertheless, effective limitations thereon may be
imposed by the people through their Constitutions. [13] Our Constitution, for instance,
provides that the rule of taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation.[14] So potent indeed is the power that it was
once opined that the power to tax involves the power to destroy.[15] Verily, taxation is a
destructive power which interferes with the personal and property rights of the people
and takes from them a portion of their property for the support of the
government. Accordingly, tax statutes must be construed strictly against the government
and liberally in favor of the taxpayer.[16] But since taxes are what we pay for civilized
society,[17] or are the lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority. [18] A claim of exemption from
tax payments must be clearly shown and based on language in the law too plain to be
mistaken.[19] Elsewise stated, taxation is the rule, exemption therefrom is the
exception.[20] However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect
of the exemption is merely to reduce the amount of money that has to be handled by the
government in the course of its operations.[21]
The power to tax is primarily vested in the Congress; however, in our jurisdiction,
it may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X
of the Constitution.[22] Under the latter, the exercise of the power may be subject to such
15
guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government or any
of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation
is the rule and exemption therefrom the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. The only exception to this rule is
where the exemption was granted to private parties based on material consideration of
a mutual nature, which then becomes contractual and is thus covered by the non-
impairment clause of the Constitution.[23]
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 taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers
of local government units as follows:
SEC. 133. Common Limitations on the Taxing Power 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:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves,
tonnage dues, and all other kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained by the local
government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government
units in the guise of charges for wharfage, tolls for bridges or otherwise,
or other taxes, fees or charges in any form whatsoever upon such goods
or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and four (4) years,
respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided
herein;
(j) Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except,
tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported,
except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the Cooperatives Code of the Philippines
respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES,
AND LOCAL GOVERNMENT UNITS. (emphasis supplied)
Needless to say, the last item (item o) is pertinent to this case. The taxes, fees or charges
referred to are of any kind; hence, they include all of these, unless otherwise provided
by the LGC.The term taxes is well understood so as to need no further elaboration,
especially in light of the above enumeration. The term fees means charges fixed by law
or ordinance for the regulation or inspection of business or activity,[24] while charges are
pecuniary liabilities such as rents or fees against persons or property. [25]
Among the taxes enumerated in the LGC is real property tax, which is governed
by Section 232. It reads as follows:
SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within
the Metropolitan Manila Area may levy an annual ad valorem tax on real property such
as land, building, machinery, and other improvements not hereafter specifically
exempted.
Section 234 of the LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions therefrom granted to natural and juridical
persons, including government-owned and controlled corporations, except as provided
therein. It provides:
SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, nonprofit or religious cemeteries and all lands,
buildings and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection.
16
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including
all government-owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.
These exemptions are based on the ownership, character, and use of the
property. Thus:
(a) Ownership Exemptions. Exemptions from real property taxes on the basis
of ownership are real properties owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi)
registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis
of their character are: (i) charitable institutions, (ii) houses and temples of
prayer like churches, parsonages or convents appurtenant thereto,
mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the
actual, direct and exclusive use to which they are devoted are: (i) all
lands, buildings and improvements which are actually directly and
exclusively used for religious, charitable or educational purposes; (ii) all
machineries and equipment actually, directly and exclusively used by
local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment
used for pollution control and environmental protection.
To help provide a healthy environment in the midst of the modernization of the country,
all machinery and equipment for pollution control and environmental protection may
not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or
juridical persons including government-owned or controlled corporations are withdrawn
upon the effectivity of the Code.[26]
Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:
SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:
SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under
such terms and conditions as they may deem necessary.
The foregoing sections of the LGC speak of: (a) the limitations on the taxing
powers of local government units and the exceptions to such limitations; and (b) the rule
on tax exemptions and the exceptions thereto. The use of exceptions or provisos in these
sections, as shown by the following clauses:

(1) unless otherwise provided herein in the opening paragraph of Section
133;
(2) Unless otherwise provided in this Code in Section 193;
(3) not hereafter specifically exempted in Section 232; and
(4) Except as provided herein in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the
clause unless otherwise provided herein, with the herein to mean, of course, the section,
it should have used the clause unless otherwise provided in this Code. The former results
in absurdity since the section itself enumerates what are beyond the taxing powers of
local government units and, where exceptions were intended, the exceptions are
explicitly indicated in the next. For instance, in item (a) which excepts income taxes
when levied on banks and other financial institutions; item (d) which excepts wharfage
on wharves constructed and maintained by the local government unit concerned; and
item (1) which excepts taxes, fees and charges for the registration and issuance of
licenses or permits for the driving of tricycles. It may also be observed that within the
body itself of the section, there are exceptions which can be found only in other parts of
the LGC, but the section interchangeably uses therein the clause except as otherwise
provided herein as in items (c) and (i), or the clause except as provided in this Code in
item (j). These clauses would be obviously unnecessary or mere surplusages if the
opening clause of the section were Unless otherwise provided in this Code instead of
Unless otherwise provided herein. In any event, even if the latter is used, since under
Section 232 local government units have the power to levy real property tax, except
those exempted therefrom under Section 234, then Section 232 must be deemed to
qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that
as a general rule, as laid down in Section 133, the taxing powers of local government
units cannot extend to the levy of, inter alia, taxes, fees and charges of any kind on the
National Government, its agencies and instrumentalities, and local government units;
however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, real
property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person, as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or
juridical persons, including government-owned and controlled corporations, Section
193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity
of the LGC, except those granted to local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions,
and unless otherwise provided in the LGC. The latter proviso could refer to Section 234
which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property
taxes are concerned by limiting the retention only to those enumerated therein; all others
not included in the enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as to real property owned by the Republic of the Philippines or
any of its political subdivisions covered by item (a) of the first paragraph of Section 234,
17
the exemption is withdrawn if the beneficial use of such property has been granted to a
taxable person for consideration or otherwise.
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. Any claim to the contrary
can only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that
the taxing powers of the local government units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National Government, its agencies or
instrumentalities, and local government units.
It must show that the parcels of land in question, which are real property, are any one of
those enumerated in Section 234, either by virtue of ownership, character, or use of the
property.Most likely, it could only be the first, but not under any explicit provision of
the said section, for none exists. In light of the petitioners theory that it is an
instrumentality of the Government, it could only be within the first item of the first
paragraph of the section by expanding the scope of the term Republic of the Philippines
to embrace its instrumentalities and agencies. For expediency, we quote:
(a) real property owned by the Republic of the Philippines, or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioners claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly
mentions the word instrumentalities; and, in the second place, it fails to consider the fact
that the legislature used the phrase National Government, its agencies and
instrumentalities in Section 133(o), but only the phrase Republic of the Philippines or
any of its political subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government of the
Republic of the Philippines which the Administrative Code of 1987 defines as the
corporate governmental entity through which the functions of government are exercised
throughout the Philippines, including, save as the contrary appears from the context, the
various arms through which political authority is made affective in the Philippines,
whether pertaining to the autonomous regions, the provincial, city, municipal or
barangay subdivisions or other forms of local government. [27] These autonomous
regions, provincial, city, municipal or barangay subdivisions are the political
subdivisions.[28]
On the other hand, National Government refers to the entire machinery of the
central government, as distinguished from the different forms of local
governments.[29] The National Government then is composed of the three great
departments: the executive, the legislative and the judicial.[30]

An agency of the Government refers to any of the various units of the Government,
including a department, bureau, office, instrumentality, or government-owned or
controlled corporation, or a local government or a distinct unit therein; [31] while an
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. This term includes regulatory
agencies, chartered institutions and government-owned and controlled corporations.[32]
If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said section
to the agencies and instrumentalities of the National Government mentioned in Section
133(o), then it should have restated the wording of the latter. Yet, it did not. Moreover,
that Congress did not wish to expand the scope of the exemption in Section 234(a) to
include real property owned by other instrumentalities or agencies of the government
including government-owned and controlled corporations is further borne out by the fact
that the source of this exemption is Section 40(a) of P.D. No. 464, otherwise known as
The Real Property Tax Code, which reads:
SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporation so exempt by its
charter: Provided, however, That this exemption shall not apply to real property of the
above-mentioned entities the beneficial use of which has been granted, for consideration
or otherwise, to a taxable person.
Note that as reproduced in Section 234(a), the phrase and any government-owned or
controlled corporation so exempt by its charter was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, especially in light of the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governments[33] and the objective of the LGC 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.[34] The power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. It may also be relevant to recall that the original
reasons for the withdrawal of tax exemption privileges granted to government-owned
and controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, and there was a need for these entities to share in the requirements
of development, fiscal or otherwise, by paying the taxes and other charges due from
them.[35]
The crucial issues then to be addressed are: (a) whether the parcels of land in
question belong to the Republic of the Philippines whose beneficial use has been granted
to the petitioner, and (b) whether the petitioner is a taxable person.
18
Section 15 of the petitioners Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other properties, movable or immovable,
belonging to or presently administered by the airports, and all assets, powers, rights,
interests and privileges relating on airport works or air operations, including all
equipment which are necessary for the operations of air navigation, aerodrome control
towers, crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided, however, that the operations control of all equipment necessary for
the operation of radio aids to air navigation, airways communication, the approach
control office, and the area control center shall be retained by the Air Transportation
Office. No equipment, however, shall be removed by the Air Transportation Office from
Mactan without the concurrence of the Authority. The Authority may assist in the
maintenance of the Air Transportation Office equipment.
The airports referred to are the Lahug Air Port in Cebu City and the Mactan
International Airport in the Province of Cebu,[36] which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO). [37]
It may be reasonable to assume that the term lands refer to lands in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City
of Cebu seeks to levy on for real property taxes. This section involves a transfer of the
lands, among other things, to the petitioner and not just the transfer of the beneficial use
thereof, with the ownership being retained by the Republic of the Philippines.
This transfer is actually an absolute conveyance of the ownership thereof because
the petitioners authorized capital stock consists of, inter alia, the value of such real
estate owned and/or administered by the airports. [38] Hence, the petitioner is now the
owner of the land in question and the exception in Section 234(c) of the LGC is
inapplicable.
Moreover, the petitioner cannot claim that it was never a taxable person under its
Charter. It was only exempted from the payment of real property taxes. The grant of the
privilege only in respect of this tax is conclusive proof of the legislative intent to make
it a taxable person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of
real property tax, in light of the foregoing disquisitions, it had already become, even if
it be conceded to be an agency or instrumentality of the Government, a taxable person
for such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco
vs. Philippine Amusement and Gaming Corporation [39] is unavailing since it was
decided before the effectivity of the LGC. 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.
WHEREFORE, the instant petition is DENIED. The challenged decision and
order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
 19
SO ORDERED. 1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
G.R. No. 155650 July 20, 2006 P4,207,028.75
MANILA INTERNATIONAL AIRPORT AUTHORITY v COURT OF #9476101 for P28,676,480.00
APPEALS, CITY OF PARAÑAQUE #9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of
The Antecedents levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino Parañaque threatened to sell at public auction the Airport Lands and Buildings should
International Airport (NAIA) Complex in Parañaque City under Executive Order No. MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of
903, otherwise known as the Revised Charter of the Manila International Airport OGCC Opinion No. 061.
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No.
then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 and 1 061. The OGCC pointed out that Section 206 of the Local Government Code requires
2
298 amended the MIAA Charter. persons exempt from real estate tax to show proof of exemption. The OGCC opined that
As operator of the international airport, MIAA administers the land, improvements and Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
approximately 600 hectares of land,3 including the runways and buildings ("Airport prohibition and injunction, with prayer for preliminary injunction or temporary
Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter restraining order. The petition sought to restrain the City of Parañaque from imposing
further provides that no portion of the land transferred to MIAA shall be disposed of real estate tax on, levying against, and auctioning for public sale the Airport Lands and
through sale or any other mode unless specifically approved by the President of the Buildings. The petition was docketed as CA-G.R. SP No. 66878.
Philippines. 5 On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued beyond the 60-day reglementary period. The Court of Appeals also denied on 27
Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew September 2002 MIAA's motion for reconsideration and supplemental motion for
the exemption from real estate tax granted to MIAA under Section 21 of the MIAA reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real review.7
estate tax imposed by the City. MIAA then paid some of the real estate tax already due. Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the
the City of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax public market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall.
delinquency is broken down as follows: The City of Parañaque published the notices in the 3 and 10 January 2003 issues of
TAX the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The
TAXABLE YEAR TAX DUE PENALTY TOTAL
notices announced the public auction sale of the Airport Lands and Buildings to the
DECLARATION
highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 of 30,789,243.20
Parañaque City.
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before
179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary
32,647,890.00
Restraining Order. The motion sought to restrain respondents — the City of Parañaque,
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 Parañaque, and the City Assessor of Parañaque ("respondents") — from auctioning the
29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 Airport Lands
178,902,631.99and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
immediately. The Court ordered respondents to cease and desist from selling at public
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
auction the Airport Lands and Buildings. Respondents received the TRO on the same
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 day9,344,974.50
that the Court issued it. However, respondents received the TRO only at 1:25 p.m.
or three hours after the conclusion of the public auction.
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 On50,571,360.00
10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
*E-016-01396 1998-2001 75,240.00 33,858.00 On109,098.00
29 March 2005, the Court heard the parties in oral arguments. In compliance with
GRAND TOTAL P392,435,861.95 P232,070,863.47 thePdirective issued during the hearing, MIAA, respondent City of Parañaque, and the
624,506,725.42
Solicitor General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and Buildings
is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the
Airport Lands and Buildings for the benefit of the general public. Since the Airport
Lands and Buildings are devoted to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and Buildings are thus inalienable
and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from real estate
tax under Section 234 of the Local Government Code because the Airport Lands and
Buildings are owned by the Republic. To justify the exemption, MIAA invokes the
principle that the government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any public advantage,
since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one person,
thing, or act excludes all others. An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code. Thus, respondents assert that
MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate
tax.
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos8 where we held that the Local Government Code has withdrawn the exemption
from real estate tax granted to international airports. Respondents further argue that
since MIAA has already paid some of the real estate tax assessments, it is now estopped
from claiming that the Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of
MIAA are exempt from real estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Parañaque, and all proceedings taken
pursuant to such assessments, are void. In such event, the other issues raised in this
petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are 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
Respondents argue that MIAA, being a government-owned or controlled corporation, is
not exempt from real estate tax. Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter" in Section 234(e) of the Local
Government Code withdrew the real estate tax exemption of government-owned or
20
controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.
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 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. (Emphasis supplied)
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. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed by the
National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which may
be contributed by the National Government or transferred by it from any of its
agencies, the valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission on Audit on the
date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986 representing
about seventy percentum (70%) of the unremitted share of the National
Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted
into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 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.
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.11 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 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 (Emphasis supplied)
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, 12 police authority13 and
the levying of fees and charges.14 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." 15
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" 16 will make its
operation more "financially viable." 17
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
21
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.
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 instrumentalitiesand local government units.(Emphasis and
underscoring supplied)
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." 18
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. As this Court declared in Maceda v. Macaraig,
Jr.:
The reason for the rule does not apply in the case of exemptions running to the
benefit of the government itself or its agencies. In such case the practical effect
of an exemption is merely to reduce the amount of money that has to be handled
by government in the course of its operations. For these reasons, provisions
granting exemptions to government agencies may be construed liberally, in
favor of non tax-liability of such agencies.19
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. As this Court held in Basco v. Philippine Amusements and Gaming
Corporation:
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)
This doctrine emanates from the "supremacy" of the National Government over
local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to
the entire absence of power on the part of the States to touch, in that
way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal instrumentality in such
a way as to prevent it from consummating its federal responsibilities,
or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis
supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to
destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to
wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil Code
provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.
(Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character
stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for
public use or for public service, shall form part of the patrimonial property of
the State.
22
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. The operation
by the government of a tollway does not change the character of the road as one for
public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public
who actually use the road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property
of public dominion as one "intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can use the road under the
same terms and conditions as the rest of the public. The charging of fees, the limitation
on the kind of vehicles that can use the road, the speed restrictions and other conditions
for the use of the road do not affect the public character of the road.
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.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport
of the Philippines for both international and domestic air traffic," 22 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.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. 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:
According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the squares,
streets, fountains, and public waters, the promenades, and public works of
general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a
portion thereof in order to lease it for the sole benefit of the defendant Hilaria
Rojas. In leasing a portion of said plaza or public place to the defendant for
private use the plaintiff municipality exceeded its authority in the exercise of
its powers by executing a contract over a thing of which it could not dispose,
nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside
the commerce of man may be the object of a contract, and plazas and streets
are outside of this commerce, as was decided by the supreme court of Spain
in its decision of February 12, 1895, which says: "Communal things that
cannot be sold because they are by their very nature outside of commerce
are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public
use and to be made available to the public in general. They are outside the
commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency,
town plazas may be occupied temporarily by private individuals, as was done
and as was tolerated by the Municipality of Pozorrubio, when the emergency
has ceased, said temporary occupation or use must also cease, and the town
officials should see to it that the town plazas should ever be kept open to the
public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce
of man, cannot be the subject of an auction sale.25
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 encumber26 the Airport Lands and Buildings, the President must
first withdraw from public usethe Airport Lands and Buildings. Sections 83 and 88 of
the Public Land Law or Commonwealth Act No. 141, which "remains to this day the
existing general law governing the classification and disposition of lands of the public
domain other than timber and mineral lands," 27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and
Natural Resources, the President may designate by proclamation any tract or
tracts of land of the public domain as reservations for the use of the Republic
of the Philippines or of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for quasi-public
uses or purposes when the public interest requires it, including reservations for
23
highways, rights of way for railroads, hydraulic power sites, irrigation systems,
communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public
benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of
Section eighty-three shall be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other disposition until again declared
alienable under the provisions of this Act or by proclamation of the
President. (Emphasis and underscoring supplied)
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;
x x x x. (Emphasis supplied)
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.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the Republic,
thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real
property of the Government is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly vested
by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in
the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer
because even its executive head cannot sign the deed of conveyance on behalf of the
Republic. Only the President of the Republic can sign such deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands
and Buildings from the Bureau of Air Transportation of the Department of
Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x x x
x Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of
The land where the Airport is presently located as well as the surrounding
land area of approximately six hundred hectares, are hereby transferred,
conveyed and assigned to the ownership and administration of the
Authority, subject to existing rights, if any. The Bureau of Lands and other
appropriate government agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of this Executive Order and
the corresponding title to be issued in the name of the Authority. Any portion
thereof shall not be disposed through sale or through any other mode
unless specifically approved by the President of the Philippines. (Emphasis
supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All
existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in
the Bureau of Air Transportation and Transitory Provisions. — The Manila
International Airport including the Manila Domestic Airport as a division
under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the
Republic receiving cash, promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the
Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the
Philippines for both international and domestic air traffic, is required to provide
standards of airport accommodation and service comparable with the best
airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities,
have to be upgraded to meet the current and future air traffic and other demands
of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the
objectives of providing high standards of accommodation and service
within the context of a financially viable operation, will best be achieved
by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential
Decree No. 1772, the President of the Philippines is given continuing
24
authority to reorganize the National Government, which authority includes
the creation of new entities, agencies and instrumentalities of the
Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation
to MIAA was not meant to transfer beneficial ownership of these assets from the
Air Transportation into a separate and autonomous body. The Republic remains the
beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by
the Republic. No party claims any ownership rights over MIAA's assets adverse to the
Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not
be disposed through sale or through any other mode unless specifically approved
by the President of the Philippines." This only means that the Republic retained the
beneficial ownership of the Airport Lands and Buildings because under Article 428 of
the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA
cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport
Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands
and Buildings without the Republic paying MIAA any consideration. Under Section 3
of the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport
Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal
property owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
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 instrumentalitiesx 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 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. In Lung
Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as
well as those parts of the hospital leased to private individuals are not exempt
from such taxes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section
193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons,
whether natural or juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon effectivity of this Code.
(Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues
that since the Local Government Code withdrew the tax exemption of all juridical
persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code
that the withdrawn exemptions from realty tax cover not just GOCCs, but
all persons. To repeat, the provisions lay down the explicit proposition that the
withdrawal of realty tax exemption applies to all persons. The reference to or
the inclusion of GOCCs is only clarificatory or illustrative of the explicit
provision.
The term "All persons" encompasses the two classes of persons recognized
under our laws, natural and juridical persons. Obviously, MIAA is not a
natural person. Thus, the determinative test is not just whether MIAA is
a GOCC, but whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status — whether MIAA is a juridical person or not. The minority also
insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to
ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government
Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise
25
provided in this Code." Now, Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local governments from imposing any
kind of tax on national government instrumentalities. Section 133(o) 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 kinds on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis and
underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose
any kind of tax on national government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the national
government, its agencies and instrumentalities, "[u]nless otherwise provided in this
Code" as stated in the saving clause of Section 133. The saving clause refers to Section
234(a) on the exception to the exemption from real estate tax of real property owned by
the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the three classes of entities specifically
enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts;
(b) cooperatives duly registered under Republic Act No. 6938; and (c) non-
stock and non-profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the
Local Government Code. This theory will result in gross absurdities. It will make the
national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local governments can impose any kind of
local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax.
Some of the national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research
Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion
Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not distinguish between national

government instrumentalities with or without juridical personalities. Where the law does
not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all
national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA
is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific provision
of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government Code
grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the national government, its agencies
and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section
234(a) of the Code, which makes the national government subject to real estate tax when
it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the
Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate
tax. The exception to this exemption is when the government gives the beneficial use of
the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to
any other tax. The justification for the exception to the exemption is that the real
property, although owned by the Republic, is not devoted to public use or public service
but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the
Local Government Code, the later provisions prevail over Section 133. Thus, the
minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234.
Following an accepted rule of construction, in case of conflict the subsequent
provisions should prevail. Therefore, MIAA, as a juridical person, is subject to
real property taxes, the general exemptions attaching to instrumentalities under
Section 133(o) of the Local Government Code being qualified by Sections 193
and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on
one hand, and Sections 193 and 234 on the other. No one has urged that there is such a
conflict, much less has any one presenteda persuasive argument that there is such a
26
conflict. The minority's assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code when Section 193
states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits
the superiority of other provisions of the Local Government Code that limit the exercise
of the taxing power in Section 193. When a provision of law grants a power but
withholds such power on certain matters, there is no conflict between the grant of power
and the withholding of power. The grantee of the power simply cannot exercise the
power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to tax. Section 133 states that the
taxing powers of local governments "shall not extend to the levy" of any kind of tax on
the national government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power.
If the taxing power of local governments in Section 193 prevails over the limitations on
such taxing power in Section 133, then local governments can impose any kind of tax
on the national government, its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant
to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code."
This exception — which is an exception to the exemption of the Republic from real
estate tax imposed by local governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects real property owned by the
Republic, whether titled in the name of the national government, its agencies or
instrumentalities, to real estate tax if the beneficial use of such property is given to a
taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points
out that Section 2 of the Introductory Provisions of the Administrative Code admits that
its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is
"flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the
Administrative Code. However, this does not automatically mean that the definition in
the Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of a particular

statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining
the phrase "government-owned or controlled corporation" differently from the
definition in the Administrative Code. Indeed, there is none. The Local Government
Code is silent on the definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however, expressly defines the phrase
"government-owned or controlled corporation." The inescapable conclusion is that the
Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates
in a unified document the major structural, functional and procedural principles and
rules of governance." Thus, the Administrative Code is the governing law defining the
status and relationship of government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a different status and
relationship for a specific government unit or entity, the provisions of the Administrative
Code prevail.
The minority also contends that the phrase "government-owned or controlled
corporation" should apply only to corporations organized under the Corporation Code,
the general incorporation law, and not to corporations created by special charters. The
minority sees no reason why government corporations with special charters should have
a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations"
under the Administrative Code refer to those corporations owned by the
government or its instrumentalities which are created not by legislative
enactment, but formed and organized under the Corporation Code through
registration with the Securities and Exchange Commission. In short, these are
GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital
structure for GOCCs whose full ownership is limited by its charter to the State
or Republic. Such GOCCs are not empowered to declare dividends or alienate
their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or
controlled corporation" does not distinguish between one incorporated under the
Corporation Code or under a special charter. Where the law does not distinguish, courts
should not distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations. Prime examples are the Land Bank of the
Philippines and the Development Bank of the Philippines. The special charter 40 of the
Land Bank of the Philippines provides:
27
SECTION 81. Capital. — The authorized capital stock of the Bank shall be
nine billion pesos, divided into seven hundred and eighty million common
shares with a par value of ten pesos each, which shall be fully subscribed by
the Government, and one hundred and twenty million preferred shares with a
par value of ten pesos each, which shall be issued in accordance with the
provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis
supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the
Bank shall be Five Billion Pesos to be divided into Fifty Million common
shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this Charter,
the National Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset values of the Bank
remaining after the transfer of assets and liabilities as provided in Section 30
hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their
special charters are the Philippine Crop Insurance Corporation, 42 Philippine
International Trading Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All these government-
owned corporations organized under special charters as stock corporations are subject
to real estate tax on real properties owned by them. To rule that they are not government-
owned or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local
Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special
charters are those that meet the two conditions prescribed in Section 16, Article XII of
the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that the
government-owned or controlled corporation must meet the test of economic viability.
Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic
viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or
controlled corporations" through special charters only if these entities are required to
meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with
special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to government-
owned or controlled corporations that perform economic or commercial activities and
need to compete in the market place. Being essentially economic vehicles of the State
for the common good — meaning for economic development purposes — these

government-owned or controlled corporations with special charters are usually
organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that
every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental
or public functions. Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the legislature creates
through special charters corporations that perform economic or commercial activities,
such entities — known as "government-owned or controlled corporations" — must meet
the test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of
the Philippines and similar government-owned or controlled corporations, which derive
their income to meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to
the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when
the government creates a corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim
upon the taxpayers' money through new equity infusions from the government
and what is always invoked is the common good. That is the reason why this
year, out of a budget of P115 billion for the entire government, about P28
billion of this will go into equity infusions to support a few government
financial institutions. And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together
with the "common good," this becomes a restraint on future enthusiasts for
state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate,
for the committee's consideration and I am glad that I am joined in this proposal
by Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common good.45
28
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains
in his textbook The 1987 Constitution of the Republic of the Philippines: A
Commentary:
The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common good
and subject to the test of economic viability." The addition includes the ideas
that they must show capacity to function efficiently in business and that they
should not go into activities which the private sector can do better. Moreover,
economic viability is more than financial viability but also includes capability
to make profit and generate benefits not quantifiable in financial
terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to
render essential public services regardless of the economic viability of providing such
service. The non-economic viability of rendering such essential public service does not
excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that are
usually organized under their special charters as stock corporations, like the Land Bank
of the Philippines and the Development Bank of the Philippines. These are the
government-owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not
create MIAA to compete in the market place. MIAA does not compete in the market
place because there is no competing international airport operated by the private sector.
MIAA performs an essential public service as the primary domestic and international
airport of the Philippines. The operation of an international airport requires the presence
of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and
departure of passengers, screening out those without visas or travel documents,
or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on
prohibited importations;
3. The quarantine office of the Department of Health, to enforce health
measures against the spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of
plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to
prevent the entry of terrorists and the escape of criminals, as well as to secure
the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine airspace, as
well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises — such as runway and buildings
— for the government personnel, passengers, and airlines, and to manage the
airport operations.
All these agencies of government perform government functions essential to the
operation of an international airport.
MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every
passenger are regulatory or administrative fees47 and not income from commercial
transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of
the Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. – x 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 (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital structure,
MIAA remains a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code. More importantly, as long as MIAA renders
essential public services, it need not comply with the test of economic viability. Thus,
MIAA is outside the scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-
owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal.
The 1987 Constitution prescribes explicit conditions for the creation of "government-
owned or controlled corporations." The Administrative Code defines what constitutes a
"government-owned or controlled corporation." To belittle this phrase as "clarificatory
or illustrative" is grave error.
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 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. Article 420 of the Civil Code provides:
29
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, banks, shores, roadsteads, and others of
similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.
(Emphasis supplied)
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.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of
the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No.
66878. We DECLARE the Airport Lands and Buildings of the Manila International
Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque.
We declare VOID all the real estate tax assessments, including the final notices of real
estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and
Buildings of the Manila International Airport Authority, except for the portions that the
Manila International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the Airport Lands and
Buildings of the Manila International Airport Authority.
No costs.
 30
SO ORDERED. A7-183-
G.R. No. 163072 April 2, 2009 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36
05413
MANILA INTERNATIONAL AIRPORT AUTHORITY
vs. CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY A7-183-
1992-2001 18,441,981.20 11,553,901.13 29,995,882.33
05412
This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and A7-183-
the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13
05411
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and administers the A7-183-
1992-2001 7,440,000.00 4,661,160.00 12,101,160.00
Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 05245
(EO 903),3 otherwise known as the Revised Charter of the Manila International Airport
Authority. EO 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. ₱642,747,726.2 ₱373,466,110.1 ₱1,016,213,836.
GRAND TOTAL
Under Sections 34 and 225 of EO 903, approximately 600 hectares of land, including the 0 3 33
runways, the airport tower, and other airport buildings, were transferred to MIAA. The On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy
NAIA Complex is located along the border between Pasay City and Parañaque City. and warrants of levy for the NAIA Pasay properties. MIAA received the notices and
On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency warrants of levy on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to
from the City of Pasay for the taxable years 1992 to 2001. MIAA’s real property tax sell at public auction the NAIA Pasay properties if the delinquent real property taxes
delinquency for its real properties located in NAIA Complex, Ninoy Aquino Avenue, remain unpaid.
Pasay City (NAIA Pasay properties) is tabulated as follows: On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition
TAX and injunction with prayer for preliminary injunction or temporary restraining order.
DECLA The petition sought to enjoin the City of Pasay from imposing real property taxes on,
TAXABL levying against, and auctioning for public sale the NAIA Pasay properties.
- TAX DUE PENALTY TOTAL
E YEAR On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power
RATIO
N of the City of Pasay to impose and collect realty taxes on the NAIA Pasay properties.
MIAA filed a motion for reconsideration, which the Court of Appeals denied. Hence,
A7-183- this petition.
1997-2001 243,522,855.00 123,351,728.18 366,874,583.18
08346 The Court of Appeals’ Ruling
The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the
A7-183- Local Government Code, which took effect on 1 January 1992, withdrew the exemption
1992-2001 113,582,466.00 71,159,414.98 184,741,880.98
05224 from payment of real property taxes granted to natural or juridical persons, including
A7-191- government-owned or controlled corporations, except local water districts, cooperatives
1992-2001 54,454,800.00 34,115,932.20 88,570,732.20 duly registered under Republic Act No. 6938, non-stock and non-profit hospitals and
00843
educational institutions. Since MIAA is a government-owned corporation, it follows
A7-191- that its tax exemption under Section 21 of EO 903 has been withdrawn upon the
1992-2001 1,632,960.00 1,023,049.44 2,656,009.44
00140 effectivity of the Local Government Code.
The Issue
A7-191-
1992-2001 6,068,448.00 3,801,882.85 9,870,330.85 The issue raised in this petition is whether the NAIA Pasay properties of MIAA are
00139
exempt from real property tax.
A7-183- The Court’s Ruling
1992-2001 59,129,520.00 37,044,644.28 96,174,164.28 The petition is meritorious.
05409
In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals
A7-183- cited Sections 193 and 234 of the Local Government Code which read:
1992-2001 20,619,720.00 12,918,254.58 33,537,974.58
05410 SECTION 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided
in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled

corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
SECTION 234. Exemptions from Real Property Tax. – The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted,
for consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment
protection.
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including
all government-owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.
The Court of Appeals held that as a government-owned corporation, MIAA’s tax
exemption under Section 21 of EO 903 has already been withdrawn upon the effectivity
of the Local Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this
Court already resolved the issue of whether the airport lands and buildings of MIAA are
exempt from tax under existing laws. The 2006 MIAA case originated from a petition
for prohibition and injunction which MIAA filed with the Court of Appeals, seeking to
restrain the City of Parañaque from imposing real property tax on, levying against, and
auctioning for public sale the airport lands and buildings located in Parañaque City. 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. In the 2006 MIAA case, this Court held:
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 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
31
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. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the national
wealth.
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. 7 (Emphasis in
the original)
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." Section 2(10) provides:
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. This term includes regulatory
agencies, chartered institutions and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate definition under
Section 2(13)8 of the Introductory Provisions of the Administrative Code of 1987:
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: Provided,
That government-owned or controlled corporations may further be categorized by the
department of Budget, the Civil Service Commission, and the Commission on Audit for
the purpose of the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.
 32
The fact that two terms have separate definitions means that while a government Thus, MIAA is not a government-owned or controlled corporation but a government
"instrumentality" may include a "government-owned or controlled corporation," there instrumentality which is exempt from any kind of tax from the local governments.
may be a government "instrumentality" that will not qualify as a "government-owned or Indeed, the exercise of the taxing power of local government units is subject to the
controlled corporation." limitations enumerated in Section 133 of the Local Government Code. 10 Under Section
A close scrutiny of the definition of "government-owned or controlled corporation" in 133(o)11 of the Local Government Code, local government units have no power to tax
Section 2(13) will show that MIAA would not fall under such definition. MIAA is a instrumentalities of the national government like the MIAA. Hence, MIAA is not liable
government "instrumentality" that does not qualify as a "government-owned or to pay real property tax for the NAIA Pasay properties.
controlled corporation." As explained in the 2006 MIAA case: Furthermore, the airport lands and buildings of MIAA are properties of public dominion
A government-owned or controlled corporation must be "organized as a stock or non- intended for public use, and as such are exempt from real property tax under Section
stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA 234(a) of the Local Government Code. However, under the same provision, if MIAA
is not a stock corporation because it has no capital stock divided into shares. MIAA has leases its real property to a taxable person, the specific property leased becomes subject
no stockholders or voting shares. x x x to real property tax.12 In this case, only those portions of the NAIA Pasay properties
Section 3 of the Corporation Code defines a stock corporation as one whose "capital which are leased to taxable persons like private parties are subject to real property tax
stock is divided into shares and x x x authorized to distribute to the holders of such by the City of Pasay.
shares dividends x x x." MIAA has capital but it is not divided into shares of stock. WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30
MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation. October 2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-
xxx G.R. SP No. 67416. We DECLARE the NAIA Pasay properties of the Manila
MIAA is also not a non-stock corporation because it has no members. Section 87 of the International Airport Authority EXEMPT from real property tax imposed by the City
Corporation Code defines a non-stock corporation as "one where no part of its income of Pasay. We declare VOID all the real property tax assessments, including the final
is distributable as dividends to its members, trustees or officers." A non-stock notices of real property tax delinquencies, issued by the City of Pasay on the NAIA
corporation must have members. Even if we assume that the Government is considered Pasay properties of the Manila International Airport Authority, except for the portions
as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non- that the Manila International Airport Authority has leased to private parties.
stock corporations cannot distribute any part of their income to their members. Section No costs.
11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating SO ORDERED.
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. 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." 9