Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 199752 February 17, 2015

LUCENA D. DEMAALA, Petitioner,

vs.
COMMISSION ON AUDIT, represented by its Chairperson Commissioner MA.
GRACIA M. PULIDO TAN,Respondent.

DECISION

LEONEN, J.:

Through this Petition for Certiorari, Lucena D. Demaala (Demaala) prays that the
September 22, 2008 Decision (Decision No. 2008-087) and the November 16, 2011
1

Resolution (Decision No. 2011-083) of the Commission on Audit be reversed and set
2

aside.

The Commission on Audit’s Decision No. 2008-087 denied Demaala’s appeal and
3

affirmed with modification Local Decision No. 2006-056 dated April 19, 2006 of the
4

Commission on Audit’s Legal and Adjudication Office (LAO). LAO Local Decision No.
2006-056, in turn, affirmed Notice of Charge (NC) No. 2004-04-101. NC No. 2004-04-101
5

was dated August 30, 2004 and issued by Rodolfo C. Sy (Regional Cluster Director Sy),
Regional Cluster Director of the Legal Adjudication Sector, Commission on Audit Regional
Office No. IV, Quezon City.

The Commission on Audit’s Decision No. 2011-083 denied the Motion for Reconsideration
filed by Demaala. 6

The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A,

Series of 1995,entitled "An Ordinance Approving and Adopting the Code Governing the
Revision of Assessments, Classification and Valuation of Real Properties in the Province
of Palawan" (Ordinance). Chapter 5, Section 48 of the Ordinance provides for an
7

additional levy on real property tax for the special education fund at the rate of one-half
percent or 0.5% as follows: Section 48- Additional Levy on Real Property Tax for Special
Education Fund. There is hereby levied an annual tax at the rate of one-half percent (1/2%)
of the assessed value property tax. The proceeds thereof shall exclusively accrue to the
Special Education Fund (SEF). 8

In conformity with Section 48 of the Ordinance, the Municipality of Narra, Palawan, with
Demaala as mayor, collected from owners of real properties located within its territory an
annual tax as special education fund at the rate of 0.5% of the assessed value of the
property subject to tax. This collection was effected through the municipal treasurer.
9

On post-audit, Audit Team Leader Juanito A. Nostratis issued Audit Observation

Memorandum (AOM) No. 03-005 dated August 7, 2003 in which he noted supposed
 deficiencies in the special education fund collected by the Municipality of Narra. He 10

questioned the levy of the special education fund at the rate of only 0.5% rather than at
1%, the rate stated in Section 235 of Republic Act No. 7160, otherwise known as the
11

Local Government Code of 1991 (Local Government Code). 12

After evaluating AOM No. 03-005, Regional Cluster Director Sy issued NC No.
2004-04-101 dated August 30, 2004 in the amount of ₱1,125,416.56. He held Demaala,
13

the municipal treasurer of Narra, and all special education fund payors liable for the
deficiency in special education fund collections.

This Notice of Charge reads:

NC No. 2004-04-101
Date: August 30, 2004

NOTICE OF CHARGE

The Municipal Mayor

Narra, Palawan

Attention: Municipal Accountant

We have reviewed and evaluated Audit Obersvation Memorandum (AOM)

No. 03-005 dated August 7, 2003 and noted the following deficiencies:

Reference FACTS AND/OR

AMOUNT
PAYOR Persons LIABLE REASONS FOR
CHARGED
No. Date CHARGE

1,125,416.56 Lucena D. Demaala The additional levy for

- Municipal Mayor SEF should be one per
- for allowing the cent (1%) instead of
reduced rate of 0.5% as provided in RA
Please see attached additional real 5447 dated
schedule property taxes September 25, 1968
Municipal Treasurer
- for collecting
understated taxes
1,125,416.56 All payors

Charge not appealed within six (6) months as prescribed under Sections
49, 50 and 51 of PD No. 1445 shall become final and executory.

RODOLFY C. SY (sgd.)
Regional Cluster Director 14

The Municipality of Narra, through Demaala, filed the Motion for Reconsideration dated
15

December 2, 2004. It stressed that the collection of the special education fund at the rate
of0.5% was merely in accordance with the Ordinance. On March 9, 2005, Regional
Cluster Director Sy issued an Indorsement denying this Motion for Reconsideration. 16
Following this, the Municipality of Narra, through Demaala, filed an Appeal with the17

Commission on Audit’s Legal and Adjudication Office. In Local Decision No.

2006-056 dated April 19, 2006, this appeal was denied.
18

The Municipality of Narra, through Demaala, then filed a Petition for Review with the
19

Commission on Audit.

In Decision No. 2008-087 dated September 22, 2008, the Commission on Audit ruled
20

against Demaala and affirmed LAO Local Decision No. 2006-056 with the modification
that former Palawan Vice Governor Joel T. Reyes and the other members of the
Sangguniang Panlalawigan of Palawan who enacted the Ordinance were held jointly and
21

severally liable with Demaala, the municipal treasurer of Narra, and the special education
fund payors. 22

The dispositive portion of this Decision reads:

WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of
merit. Accordingly, LAO Local Decision No. 2006-056 is AFFIRMED with modification, to
include Former Vice-Governor and Presiding Officer Joel T. Reyes,Chairman
Pro-Tempore Rosalino R. Acosta, Majority Floor Leader Ernesto A. Llacuna, Asst.
Majority Floor Leader Antonio C. Alvarez, Asst. Minority Floor Leader Haide B. Barroma,
Hon. Leoncio N. Ola, Hon. Ramon A. Zabala, Hon. Belen B. Abordo, Hon. Valentin A.
Baaco, Hon. Claro Ordinario, Hon. Derrick R. Pablico, Hon. Laine C. Abogado and Hon.
Joel B. Bitongon among the persons liable in the Notice of Charge. They shall be jointly
and severally liable with Mayor Lucena D. Demaala, together with the Municipal Treasurer
and all the payors of the under-collected real property tax in the total amount of
₱1,125,416.56.

The Audit Team Leader is directed to issue a Supplemental Notice of Charge to include
the members of the Sangguniang Panlalawigan as among the persons liable. 23

Thereafter, Demaala, who was no longer the mayor of the Municipality of Narra, filed a
Motion for Reconsideration. Former Vice Governor Joel T. Reyes and the other members
24

of the Sangguniang Panlalawigan of Palawan who were held liable under Decision No.
2008-087 filed a separate Motion for Reconsideration. The Commission on Audit’s
25

Decision No. 2011-083 dated November 16, 2011 affirmed its September 22, 2008
26

Decision.

Demaala then filed with this court the present Petition for Certiorari. 27

Respondent Commission on Audit, through the Office of the Solicitor General, filed its
Comment on April 20, 2012. Petitioner Demaala filed her Reply on September 6, 2012.
28 29

Thereafter, the parties filed their respective Memoranda. 30

II

For resolution in this case are the following issues:

First, whether respondent committed grave abuse of discretion amounting to lack or

excess of jurisdiction in holding that there was a deficiency in the Municipality of Narra’s
collection of the additional levy for the special education fund. Subsumed in this issue is
the matter of whether a municipality within the Metropolitan Manila Area, a city, or a
province may have an additional levy on real property for the special education fund at the
rate of less than 1%.

Second, assuming that respondent correctly held that there was a deficiency, whether
respondent committed grave abuse of discretion amounting to lack or excess or
jurisdiction in holding petitioner personally liable for the deficiency.

We find for petitioner.

Setting the rate of the additional levy for the special education fund at less than 1% is
within the taxing power of local government units. It is consistent with the guiding
constitutional principle of local autonomy.

III

The power to tax is an attribute of sovereignty. It is inherent in the state. Provinces, cities,
municipalities, and barangays are mere territorial and political subdivisions of the state.
They act only as part of the sovereign. Thus, they do not have the inherent power to
tax. Their power to tax must be prescribed by law.
31

Consistent with the view that the power to tax does not inhere in local government units,
this court has held that a reserved temperament must be adhered to in construing the
extent of a local government unit’s power to tax. As explained in Icard v. City Council of
Baguio: 32

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent
power of taxation. The charter or statute must plainly show an intent to confer that power
or the municipality, cannot assume it. And the power when granted is to be construed in
strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power
must be resolved against the municipality. Inferences, implications, deductions – all these
– have no place in the interpretation of the taxing power of a municipal
corporation. (Emphasis supplied)
33

Article X, Section 5 of the 1987 Constitution is the basis of the taxing power of local
government units:

Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments. (Emphasis supplied)

The taxing power granted by constitutional fiat to local government units exists in the
wider context to "ensure the autonomy of local governments." As Article II, Section 25
34

of the 1987 Constitution unequivocally provides:

Section 25. The State shall ensure the autonomy of local governments.

Article II, Section 25 is complemented by Article X, Section 2:

Section 2. The territorial and political subdivisions shall enjoy local autonomy.
The 1935 Constitution was entirely silent on local autonomy, albeit making a distinction
between executive departments, bureaus, and offices on the one hand, and local
governments on the other. It provided that the President had control over the former but
merely "exercise[d] general supervision" over the latter. Article VII, Section 10(1) of the
35

1935 Constitution provided: SEC. 10. (1) The President shall have control of all the
executive departments, bureaus, or offices, exercise general supervision over all local
governments as may be provided by law, and take care that the laws be faithfully
executed.

Similarly, the 1935 Constitution was silent on the taxing power of local government units.

The 1973 Constitution provided for local autonomy. Article II, Section 10 of the 1973
Constitution read:

SEC. 10. The State shall guarantee and promote the autonomy of local government units,
especially the [barangays], to ensure their fullest development as self-reliant communities.

Any trend in the 1973 Constitution towards greater autonomy for local government units
"was aborted in 1972 when Ferdinand Marcos placed the entire country under martial law
[thereby] stunt[ing] the development of local governments by centralizing the government
in Manila." While local autonomy was provided for in the 1973 Constitution, its existence
36

was confined to principle and theory. Practice neutered all of Article XI of the 1973
Constitution (on local government), including Section 5 which provided for the taxing
power of local government units. Article XI, Section 5 reads:

SEC. 5. Each local government unit shall have the power to create its own sources of
revenue and to levy taxes, subject to such limitations as may be provided by law.

Article X, Section 5 of the 1987 Constitution is more emphatic in empowering local

government units in the matter of taxation compared with Article XI, Section 5 of the 1973
Constitution. In addition to stating that local government units have the power to tax
(subject to Congressional guidelines and limitations), Article X, Section 5 of the 1987
Constitution adds the phrase "consistent with the basic policy of local autonomy."
Further, it is definite with the use of funds generated by local government units through the
exercise of their taxing powers, providing that "[s]uch taxes, fees, and charges shall
accrue exclusively to the local governments." 37

Apart from administrative autonomy, an equally vital facet of local governance under the
1987 Constitution is fiscal autonomy. In Pimentel v. Aguirre: 38

Under existing law, local government units, in addition to having administrative autonomy
in the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means
that local governments have the power to create their own sources of revenue in addition
to their equitable share in the national taxes released by the national government, as well
as the power to allocate their resources in accordance with their own priorities. It extends
to the preparation of their budgets, and local officials in turn have to work within the
constraints thereof. They are not formulated at the national level and imposed on local
governments, whether they are relevant to local needs and resources or not. Hence, the
necessity of a balancing of viewpoints and the harmonization of proposals from both local
and national officials, who in any case are partners in the attainment of national goals.39

IV
The taxing powers of local government units must be read in relation to their power
to effect their basic autonomy.

Consistent with the 1987 Constitution’s declared preference, the taxing powers of local
government units must be resolved in favor of their local fiscal autonomy. In City
Government of San Pablo v. Reyes: 40

The power to tax is primarily vested in 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.
Thus Article X, Section 5 of the Constitution reads:

Sec. 5 — Each Local Government unit shall have the power to create its own sources of
revenue and to levy taxes, fees and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively to the Local Governments.

The important legal effect of Section 5 is that henceforth, in interpreting statutory provision
on municipal fiscal powers, doubts will have to be resolved in favor of municipal
corporations. (Emphasis supplied)
41

Similarly, in San Juan v. Civil Service Commission, this court stated:

42

We have to obey the clear mandate on local autonomy. Where a law is capable of two
interpretations, one in favor of centralized power in Malacañang and the other beneficial to
local autonomy, the scales must be weighed in favor of autonomy. 43

The Local Government Code was enacted pursuant to the specific mandate of Article X,
Section 3 of the 1987 Constitution and its requirements of decentralization. Its provisions,
44

including those on local taxation, must be read in light of the jurisprudentially settled
preference for local autonomy.

The limits on the level of additional levy for the special education fund under Section 235
of the Local Government Code should be read as granting fiscal flexibility to local
government units.

Book II of the Local Government Code governs local taxation and fiscal matters. Title II of
Book II governs real property taxation.

Section 235 of the Local Government Code allows provinces and cities, as well as
municipalities in Metro Manila, to collect, on top of the basic annual real property tax, an
additional levy which shall exclusively accrue to the special education fund:

Section 235. Additional Levy on Real Property for the Special Education Fund. - A
province or city, or a municipality within the Metropolitan Manila Area, may levy and
collect an annual tax of one percent (1%) on the assessed value of real property which
shall be in addition to the basic real property tax. The proceeds thereof shall exclusively
accrue to the Special Education Fund (SEF). (Emphasis supplied)
The special education fund is not an original creation of the Local Government Code. It
was initially devised by Republic Act No. 5447. The rate of 1% is also not a detail that is
45

original to the Local Government Code. As discussed in Commission on Audit v. Province

of Cebu: The Special Education Fund was created by virtue of R. A. No. 5447, which is
46

[a]n act creating a special education fund to be constituted from the proceeds of an
additional real property tax and a certain portion of the taxes on Virginia-type cigarettes
and duties on imported leaf tobacco, defining the activities to be financed, creating school
boards for the purpose, and appropriating funds therefrom, which took effect on January 1,
1969. Pursuant thereto, P.D. No. 464, also known as the Real Property Tax Code of the
Philippines, imposed an annual tax of 1% on real property which shall accrue to the
SEF. (Citations omitted)
47

The operative phrase in Section 235’s grant to municipalities in Metro Manila, cities, and
provinces of the power to impose an additional levy for the special education fund is
prefixed with "may," thus, "may levy and collect an annual tax of one percent (1%)."

In Buklod nang Magbubukid sa Lupaing Ramos, Inc. v. E.M. Ramos and Sons, Inc. the 48

meaning of "may" was discussed as follows:

Where the provision reads "may," this word shows that it is not mandatory but
discretionary. It is an auxiliary verb indicating liberty, opportunity, permission and
possibility. The use of the word "may" in a statute denotes that it is directory in nature and
generally permissive only. Respondent concedes that Section 235’s grant to
49

municipalities in Metro Manila, to cities, and to provinces of the power to impose an

additional levy for the special education fund makes its collection optional. It is not
mandatory that the levy be imposed and collected. The controversy which the
Commission on Audit created is not whether these local government units have discretion
to collect but whether they have discretion on the rate at which they are to collect.

It is respondent’s position that the option granted to a local government unit is limited to
the matter of whether it shall actually collect, and that the rate at which it shall collect
(should it choose to do so) is fixed by Section 235. In contrast, it is petitioner’s contention
that the option given to a local government unit extends not only to the matter of whether
to collect but also to the rate at which collection is to be made.

We sustain the position of petitioner.

Section 235’s permissive language is unqualified. Moreover, there is no limiting qualifier to

the articulated rate of 1% which unequivocally indicates that any and all special education
fund collections must be at such rate.

Fiscal autonomy entails "the power to create . . . own sources of revenue." In turn, this
51

power necessarily entails enabling local government units with the capacity to create
revenue sources in accordance with the realities and contingencies present in their
specific contexts. The power to create must mean the local government units’ power to
create what is most appropriate and optimal for them; otherwise, they would be mere
automatons that are turned on and off to perform prearranged operations.

Devolving power but denying its necessary incidents and accessories is tantamount to not
devolving power at all. A local government unit with a more affluent constituency may thus
realize that it can levy taxes at rates greater than those which local government units with
more austere constituencies can collect. For the latter, collecting taxes at prohibitive rates
may be counterproductive. High tax rates can be a disincentive for doing business,
rendering it unattractive to commerce and thereby stunting, rather than facilitating, their
development. In this sense, insisting on uniformity would be a disservice to certain local
government units and would ultimately undermine the aims of local autonomy and
decentralization.

VI

Of course, fiscal autonomy entails "working within the constraints." To echo the language
52

of Article X, Section 5 of the 1987 Constitution, this is to say that the taxing power of local
government units is "subject to such guidelines and limitations as the Congress may
provide." It is the 1% as a constraint on which the respondent Commission on Audit is
53

insisting.

There are, in this case, three (3) considerations that illumine our task of interpretation: (1)
the text of Section 235, which, to reiterate, is cast in permissive language; (2) the seminal
purpose of fiscal autonomy; and (3) the jurisprudentially established preference for
weighing the scales in favor of autonomy of local government units. We find it to be in
keeping with harmonizing these considerations to conclude that Section 235’s specified
rate of 1% is a maximum rate rather than an immutable edict. Accordingly, it was well
within the power of the Sangguniang Panlalawigan of Palawan to enact an ordinance
providing for additional levy on real property tax for the special education fund at the rate
of 0.5% rather than at 1%.

VII

It was an error amounting to grave abuse of discretion for respondent to hold petitioner
personally liable for the supposed deficiency.

Having established the propriety of imposing an additional levy for the special education
fund at the rate of 0.5%, it follows that there was nothing erroneous in the Municipality of
Narra’s having acted pursuant to Section 48 of the Ordinance. It could thus not be faulted
for collecting from owners of real properties located within its territory an annual tax as
special education fund at the rate of 0.5% of the assessed value subject to tax of the
property. Likewise, it follows that it was an error for respondent to hold petitioner
personally liable for the supposed deficiency in collections.

Even if a contrary ruling were to be had on the propriety of collecting at a rate less than
1%, it would still not follow that petitioner is personally liable for deficiencies.

In its Memorandum, respondent cited the 1996 case of Salalima v. Guingona as a 54

precedent for finding local officials liable for violations that have to do with the special
education fund.

Moreover, in Decision No. 2008-087, respondent asserted that there was "no cogent
reason to exclude [petitioner] from liability since her participation as one of the local
officials who implemented the collection of the reduced levy rate. . . led to the loss on
reduction [sic] of government income." It added that, "[c]orollary thereto, the government
55

can also go against the officials who are responsible for the passage of [the
Ordinance]," i.e., the members of the Sangguniang Panlalawigan of the Province of
56

Palawan.

Respondent’s reliance on Salalima and on petitioner’s having been incidentally the mayor
of Narra, Palawan when supposedly deficient collections were undertaken is misguided.

Per respondent’s own summation of Salalima, in that case, this court:

held that the governor, vice-governor and members of the Sangguniang Panlalawigan are
collectively responsible with other provincial officials in the administration of fiscal and
financial transactions of the province pursuant to Sections 304 and 305 of RA 7160 for
denying the other beneficiaries of their share of the SEF. These local officials cannot claim
ignorance of the law as to the sharing scheme of the real property tax and the SEF as the
same is clearly provided in RA 7160. (Emphasis supplied)
57

Salalima involved several administrative Complaints filed before the Office of the
President against the elective officials of the Province of Albay. One of these — OP Case
No. 5470 — was a Complaint for malversation, and "consistent [and] habitual violation of
pars. (c) and (d) of Section 60 of [the Local Government Code]" which was filed by Tiwi,
58

Albay Mayor Naomi Corral against Albay Governor Romeo Salalima, Vice-Governor
Danilo Azaña, and other Sangguniang Panlalawigan members.

This Complaint was precipitated by the refusal of the provincial officials of Albay to make
available to the Municipality of Tiwi, Albay its share in the collections of the special
education fund. This was contrary to Section 272 of the Local Government Code which 59

requires equal sharing between provincial and municipal school boards. Specifically, it
was found that the Sangguniang Panlalawigan passed Ordinance No. 09-92, which
declared as forfeited in favor of the Province of Albay (and to the exclusion of the
municipalities in Albay) all payments made by the National Power Corporation to the
former pursuant to a memorandum of agreement through which the National Power
Corporation settled its real property tax obligations.

As regards the personal liability of the respondents in that case, the Office of the President
was quoted to have anchored on the following disquisition its imposition of the penalty of
suspension on the respondent provincial officials:

It cannot be denied that the Sangguniang Panlalawigan has control over the Province’s
‘purse’ as it may approve or not resolutions or ordinances generating revenue or imposing
taxes as well as appropriating and authorizing the disbursement of funds to meet
operational requirements or for the prosecution of projects.

Being entrusted with such responsibility, the provincial governor, vice-governor and the
members of the Sangguniang Panlalawigan, must always be guided by the so-called
‘fundamental’ principles enunciated under the Local Government Code[.] . . .

All the respondents could not claim ignorance of the law especially with respect to the
provisions of P.D. No. 464 that lay down the sharing scheme among local government
units concerned and the national government, for both the basic real property tax and
additional tax pertaining to the Special Education Fund. Nor can they claim that the
Province could validly forfeit the ₱40,724,471.74 paid by NPC considering that the
Province is only entitled to a portion thereof and that the balance was merely being held in
trust for the other beneficiaries.
As a public officer, respondent Azaña (and the other respondents as well) has a duty to
protect the interests not only of the Province but also of the municipalities of Tiwi and
Daraga and even the national government. When the passage of an illegal or unlawful
ordinance by the Sangguniang Panlalawigan is imminent, the presiding officer has a duty
to act accordingly, but actively opposing the same by temporarily relinquishing his chair
and participating in the deliberations. If his colleagues insist on its passage, he should
make known his opposition thereto by placing the same on record. No evidence of any
sort was shown in this regard by respondent Azaña.

Clearly, all the respondents have, whether by act or omission, denied the other
beneficiaries of their rightful shares in the tax delinquency payments made by the NPC
and caused the illegal forfeiture, appropriation and disbursement of funds not belonging to
the Province, through the passage and approval of Ordinance No. 09-92 and Resolution
Nos. 178-92 and 204-92.

The foregoing factual setting shows a wanton disregard of law on the part of the
respondents tantamount to abuse of authority. Moreover, the illegal disbursements made
can qualify as technical malversation. 60

It is evident that the circumstances in Salalima are not analogous to the circumstances
pertinent to petitioner.

While Salalima involved the mishandling of proceeds which was "tantamount to abuse of
authority" and which "can qualify as technical malversation," this case involves the
collection of the additional levy for the special education fund at a rate which, at the time of
the collection, was pursuant to an ordinance that was yet to be invalidated.

Likewise, Salalima involved the liability of the provincial officials who were themselves the
authors of an invalid ordinance. In this case, the Municipality of Narra — as subordinate to
the Province of Palawan — merely enforced a provincial ordinance. Respondent, in its
own Memorandum, acknowledged that it was not even petitioner but the municipal
treasurer who actually effected the collection at a supposedly erroneous rate. 61

Also, Salalima entailed the imposition of the administrative penalty of suspension. In this
case, respondent is not concerned with the imposition of administrative penalties but
insists that petitioner must herself (jointly and severally with the other persons named) pay
for the deficiency in collections.

We find it improper to hold petitioner personally liable for the uncollected amount on
account of the sheer happenstance that she was the mayor of Narra, Palawan, when the
Ordinance was enforced.

VIII

The actions of the officials of the Municipality of Narra are consistent with the rule that
ordinances are presumed valid. In finding liability, respondent suggests that officers of the
1âwphi1

Municipality should not comply with an ordinance duly passed by the Sangguniang
Panlalawigan.

It is true that petitioner, as the local chief executive, was charged with fidelity to our laws.
However, it would be grossly unfair to sustain respondent's position. It implacably dwells
on supposed non-compliance with Section 235 but turns a blind eye on the context which
precipitated the collection made by the Municipality of Narra at the reduced rate of 0.5%.

The mayor's actions were done pursuant to an ordinance which, at the time of the
collection, was yet to be invalidated.

It is basic that laws and local ordinances are "presumed to be valid unless and until the
courts declare the contrary in clear and unequivocal terms." Thus, the concerned officials
62

of the Municipality of Narra, Palawan must be deemed to have conducted themselves in

good faith and with regularity when they acted pursuant to Chapter 5, Section 48 of
Provincial Ordinance No. 332-A, Series of 1995, and collected the additional levy for the
special education fund at the rate of 0.5o/o. Accordingly, it was improper for respondent to
attribute personal liability to petitioner and to require her to personally answer to the
deficiency in special education fund collections. WHEREFORE, the Petition is
GRANTED .. Decision No. 2008-087 dated September 22, 2008 and Decision No.
2011-083 dated November 16, 2011 of respondent Commission on Audit are ANNULLED
and SET ASIDE.

EN BANC

G.R. No. 144104 June 29, 2004

LUNG CENTER OF THE PHILIPPINES, petitioner,

vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of
Quezon City, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended,
of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014
which affirmed the decision of the Central Board of Assessment Appeals holding that the
lot owned by the petitioner and its hospital building constructed thereon are subject to
assessment for purposes of real property tax.

The Antecedents

The petitioner Lung Center of the Philippines is a non-stock and non-profit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the
registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1,
SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District,
Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer
Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in
the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A
big space at the ground floor is being leased to private parties, for canteen and small store
spaces, and to medical or professional practitioners who use the same as their private
clinics for their patients whom they charge for their professional services. Almost one-half
of the entire area on the left side of the building along Quezon Avenue is vacant and idle,
while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is
being leased for commercial purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. It also renders medical services to
out-patients, both paying and non-paying. Aside from its income from paying patients, the
petitioner receives annual subsidies from the government.

On June 7, 1993, both the land and the hospital building of the petitioner were assessed
for real property taxes in the amount of ₱4,554,860 by the City Assessor of Quezon
City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231
(15-2518-A) were issued for the land and the hospital building, respectively.4 On August
25, 1993, the petitioner filed a Claim for Exemption5 from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The petitioner’s request
was denied, and a petition was, thereafter, filed before the Local Board of Assessment
Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City
Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property taxes. It averred that a minimum of
60% of its hospital beds are exclusively used for charity patients and that the major thrust
of its hospital operation is to serve charity patients. The petitioner contends that it is a
charitable institution and, as such, is exempt from real property taxes. The QC-LBAA
rendered judgment dismissing the petition and holding the petitioner liable for real
property taxes.6

The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the petitioner
was not a charitable institution and that its real properties were not actually, directly and
exclusively used for charitable purposes; hence, it was not entitled to real property tax
exemption under the constitution and the law. The petitioner sought relief from the Court
of Appeals, which rendered judgment affirming the decision of the CBAA.8

Undaunted, the petitioner filed its petition in this Court contending that:

A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO

REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY
AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.

B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT

UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE
EXTENDED UPON PROPER APPLICATION.

The petitioner avers that it is a charitable institution within the context of Section 28(3),
Article VI of the 1987 Constitution. It asserts that its character as a charitable institution is
not altered by the fact that it admits paying patients and renders medical services to them,
leases portions of the land to private parties, and rents out portions of the hospital to
private medical practitioners from which it derives income to be used for operational
expenses. The petitioner points out that for the years 1995 to 1999, 100% of its
out-patients were charity patients and of the hospital’s 282-bed capacity, 60% thereof, or
170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies
from the government attests to its character as a charitable institution. It contends that the
"exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even
if a portion of its real estate is leased out to private individuals from whom it derives
income, it does not lose its character as a charitable institution, and its exemption from the
payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera
v. QC-BAA9 to bolster its pose. The petitioner further contends that even if P.D. No. 1823
does not exempt it from the payment of real estate taxes, it is not precluded from seeking
tax exemption under the 1987 Constitution.

In their comment on the petition, the respondents aver that the petitioner is not a
charitable entity. The petitioner’s real property is not exempt from the payment of real
estate taxes under P.D. No. 1823 and even under the 1987 Constitution because it failed
to prove that it is a charitable institution and that the said property is actually, directly and
exclusively used for charitable purposes. The respondents noted that in a newspaper
report, it appears that graft charges were filed with the Sandiganbayan against the director
of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the
Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13
square meters of the property in 1990 for only ₱20,000 a month, when the monthly rental
should be ₱357,000 a month as determined by the Commission on Audit; and that instead
of complying with the directive of the COA for the cancellation of the contract for being
grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995
for a monthly rental of only ₱24,000. They assert that the petitioner uses the subsidies
granted by the government for charity patients and uses the rest of its income from the
property for the benefit of paying patients, among other purposes. They aver that the
petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds
in the hospital are reserved for indigent patients. The respondents further assert, thus:

13. That the claims/allegations of the Petitioner LCP do not speak well of its record of
service. That before a patient is admitted for treatment in the Center, first impression is
that it is pay-patient and required to pay a certain amount as deposit. That even if a patient
is living below the poverty line, he is charged with high hospital bills. And, without these
bills being first settled, the poor patient cannot be allowed to leave the hospital or be
discharged without first paying the hospital bills or issue a promissory note guaranteed
and indorsed by an influential agency or person known only to the Center; that even the
remains of deceased poor patients suffered the same fate. Moreover, before a patient is
admitted for treatment as free or charity patient, one must undergo a series of interviews
and must submit all the requirements needed by the Center, usually accompanied by
endorsement by an influential agency or person known only to the Center. These facts
were heard and admitted by the Petitioner LCP during the hearings before the Honorable
QC-BAA and Honorable CBAA. These are the reasons of indigent patients, instead of
seeking treatment with the Center, they prefer to be treated at the Quezon Institute. Can
such practice by the Center be called charitable?10

The Issues

The issues for resolution are the following: (a) whether the petitioner is a charitable
institution within the context of Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real
properties of the petitioner are exempt from real property taxes.

The Court’s Ruling

The petition is partially granted.

On the first issue, we hold that the petitioner is a charitable institution within the context of
the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable
institution/entity or not, the elements which should be considered include the statute
creating the enterprise, its corporate purposes, its constitution and by-laws, the methods
of administration, the nature of the actual work performed, the character of the services
rendered, the indefiniteness of the beneficiaries, and the use and occupation of the
properties.11

In the legal sense, a charity may be fully defined as a gift, to be applied consistently
with existing laws, for the benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of education or religion, by
assisting them to establish themselves in life or otherwise lessening the burden of
government.12 It may be applied to almost anything that tend to promote the well-doing
and well-being of social man. It embraces the improvement and promotion of the
happiness of man.13 The word "charitable" is not restricted to relief of the poor or
sick.14 The test of a charity and a charitable organization are in law the same. The test
whether an enterprise is charitable or not is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is maintained for gain, profit, or private
advantage.

Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the Office of the President
of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It
was organized for the welfare and benefit of the Filipino people principally to help combat
the high incidence of lung and pulmonary diseases in the Philippines. The raison d’etre for
the creation of the petitioner is stated in the decree, viz:

Whereas, for decades, respiratory diseases have been a priority concern, having been the
leading cause of illness and death in the Philippines, comprising more than 45% of the
total annual deaths from all causes, thus, exacting a tremendous toll on human resources,
which ailments are likely to increase and degenerate into serious lung diseases on
account of unabated pollution, industrialization and unchecked cigarette smoking in the
country;lavvph!l .net

Whereas, the more common lung diseases are, to a great extent, preventable, and
curable with early and adequate medical care, immunization and through prompt and
intensive prevention and health education programs;

Whereas, there is an urgent need to consolidate and reinforce existing programs,

strategies and efforts at preventing, treating and rehabilitating people affected by lung
diseases, and to undertake research and training on the cure and prevention of lung
diseases, through a Lung Center which will house and nurture the above and related
activities and provide tertiary-level care for more difficult and problematical cases;

Whereas, to achieve this purpose, the Government intends to provide material and
financial support towards the establishment and maintenance of a Lung Center for the
welfare and benefit of the Filipino people.15

The purposes for which the petitioner was created are spelled out in its Articles of
Incorporation, thus:

SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated medical
institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung
and allied diseases in line with the concern of the government to assist and provide
material and financial support in the establishment and maintenance of a lung center
primarily to benefit the people of the Philippines and in pursuance of the policy of the State
to secure the well-being of the people by providing them specialized health and medical
services and by minimizing the incidence of lung diseases in the country and elsewhere.

2. To promote the noble undertaking of scientific research related to the prevention of lung
or pulmonary ailments and the care of lung patients, including the holding of a series of
relevant congresses, conventions, seminars and conferences;

3. To stimulate and, whenever possible, underwrite scientific researches on the biological,

demographic, social, economic, eugenic and physiological aspects of lung or pulmonary
diseases and their control; and to collect and publish the findings of such research for
public consumption;

4. To facilitate the dissemination of ideas and public acceptance of information on lung

consciousness or awareness, and the development of fact-finding, information and
reporting facilities for and in aid of the general purposes or objects aforesaid, especially in
human lung requirements, general health and physical fitness, and other relevant or
related fields;

5. To encourage the training of physicians, nurses, health officers, social workers and
medical and technical personnel in the practical and scientific implementation of services
to lung patients;

6. To assist universities and research institutions in their studies about lung diseases, to
encourage advanced training in matters of the lung and related fields and to support
educational programs of value to general health;

7. To encourage the formation of other organizations on the national, provincial and/or city
and local levels; and to coordinate their various efforts and activities for the purpose of
achieving a more effective programmatic approach on the common problems relative to
the objectives enumerated herein;

8. To seek and obtain assistance in any form from both international and local foundations
and organizations; and to administer grants and funds that may be given to the
organization;

9. To extend, whenever possible and expedient, medical services to the public and, in
general, to promote and protect the health of the masses of our people, which has long
been recognized as an economic asset and a social blessing;

10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of
the people in any and all walks of life, including those who are poor and needy, all without
regard to or discrimination, because of race, creed, color or political belief of the persons
helped; and to enable them to obtain treatment when such disorders occur;

11. To participate, as circumstances may warrant, in any activity designed and carried on
to promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment, educational
materials and supplies by purchase, donation, or otherwise and to dispose of and
distribute the same in such manner, and, on such basis as the Center shall, from time to
time, deem proper and best, under the particular circumstances, to serve its general and
non-profit purposes and objectives; lavvphil.ne t

13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of
properties, whether real or personal, for purposes herein mentioned; and

14. To do everything necessary, proper, advisable or convenient for the accomplishment

of any of the powers herein set forth and to do every other act and thing incidental thereto
or connected therewith.16

Hence, the medical services of the petitioner are to be rendered to the public in general in
any and all walks of life including those who are poor and the needy without discrimination.
After all, any person, the rich as well as the poor, may fall sick or be injured or wounded
and become a subject of charity.17

As a general principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or receives subsidies
from the government, so long as the money received is devoted or used altogether
to the charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the
institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State
Supreme Court of Illinois held, thus:

… [A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution and the amounts so received
are applied in furthering its charitable purposes, and those benefits are refused to none on
account of inability to pay therefor. The fundamental ground upon which all exemptions in
favor of charitable institutions are based is the benefit conferred upon the public by them,
and a consequent relief, to some extent, of the burden upon the state to care for and
advance the interests of its citizens.20

As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital
Association of South Dakota v. Baker:21

… [T]he fact that paying patients are taken, the profits derived from attendance upon
these patients being exclusively devoted to the maintenance of the charity, seems rather
to enhance the usefulness of the institution to the poor; for it is a matter of common
observation amongst those who have gone about at all amongst the suffering classes,
that the deserving poor can with difficulty be persuaded to enter an asylum of any kind
confined to the reception of objects of charity; and that their honest pride is much less
wounded by being placed in an institution in which paying patients are also received. The
fact of receiving money from some of the patients does not, we think, at all impair the
character of the charity, so long as the money thus received is devoted altogether to the
charitable object which the institution is intended to further.22

The money received by the petitioner becomes a part of the trust fund and must be
devoted to public trust purposes and cannot be diverted to private profit or benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does
not lose its character as a charitable institution simply because the gift or donation is in the
form of subsidies granted by the government. As held by the State Supreme Court of Utah
in Yorgason v. County Board of Equalization of Salt Lake County:24

Second, the … government subsidy payments are provided to the project. Thus, those
payments are like a gift or donation of any other kind except they come from the
government. In both Intermountain Health Careand the present case, the crux is the
presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the
government, rather than a private benefactor, chose to make up the deficit resulting from
the exchange between St. Mark’s Tower and the tenants by making a contribution to the
landlord, just as it would have been irrelevant in Intermountain Health Care if the patients’
income supplements had come from private individuals rather than the government.

Therefore, the fact that subsidization of part of the cost of furnishing such housing is by
the government rather than private charitable contributions does not dictate the denial of a
charitable exemption if the facts otherwise support such an exemption, as they do here.25

In this case, the petitioner adduced substantial evidence that it spent its income, including
the subsidies from the government for 1991 and 1992 for its patients and for the operation
of the hospital. It even incurred a net loss in 1991 and 1992 from its operations.

Even as we find that the petitioner is a charitable institution, we hold, anent the second
issue, that those portions of its real property that are leased to private entities are not
exempt from real property taxes as these are not actually, directly and exclusively used for
charitable purposes.

The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The effect of an exemption is
equivalent to an appropriation. Hence, a claim for exemption from tax payments must be
clearly shown and based on language in the law too plain to be mistaken.26 As held
in Salvation Army v. Hoehn:27

An intention on the part of the legislature to grant an exemption from the taxing power of
the state will never be implied from language which will admit of any other reasonable
construction. Such an intention must be expressed in clear and unmistakable terms, or
must appear by necessary implication from the language used, for it is a well settled
principle that, when a special privilege or exemption is claimed under a statute, charter or
act of incorporation, it is to be construed strictly against the property owner and in favor of
the public. This principle applies with peculiar force to a claim of exemption from
taxation . …28

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation

organized primarily to help combat the high incidence of lung and pulmonary diseases in
the Philippines, all donations, contributions, endowments and equipment and supplies to
be imported by authorized entities or persons and by the Board of Trustees of the Lung
Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be
exempt from income and gift taxes, the same further deductible in full for the purpose of
determining the maximum deductible amount under Section 30, paragraph (h), of the
National Internal Revenue Code, as amended.

The Lung Center of the Philippines shall be exempt from the payment of taxes, charges
and fees imposed by the Government or any political subdivision or instrumentality thereof
with respect to equipment purchases made by, or for the Lung Center.29

It is plain as day that under the decree, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed thereon. If
the intentions were otherwise, the same should have been among the enumeration of tax
exempt privileges under Section 2:

It is a settled rule of statutory construction that the express mention of one person, thing,
or consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.

The rule of expressio unius est exclusio alterius is formulated in a number of ways. One
variation of the rule is the principle that what is expressed puts an end to that which is
implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is
expressly limited to certain matters, it may not, by interpretation or construction, be
extended to other matters.

...

The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human
mind. They are predicated upon one’s own voluntary act and not upon that of others. They
proceed from the premise that the legislature would not have made specified enumeration
in a statute had the intention been not to restrict its meaning and confine its terms to those
expressly mentioned.30

The exemption must not be so enlarged by construction since the reasonable

presumption is that the State has granted in express terms all it intended to grant at all,
and that unless the privilege is limited to the very terms of the statute the favor would be
intended beyond what was meant.31

Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,

mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or
educational purposes shall be exempt from taxation.32

The tax exemption under this constitutional provision covers property taxes
only.33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986
Constitutional Commission, explained: ". . . what is exempted is not the institution
itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or
educational purposes."34

Consequently, the constitutional provision is implemented by Section 234(b) of Republic

Act No. 7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:

...

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusivelyused for religious, charitable or
educational purposes.35

We note that under the 1935 Constitution, "... all lands, buildings, and improvements used
‘exclusively’ for … charitable … purposes shall be exempt from taxation."36 However,
under the 1973 and the present Constitutions, for "lands, buildings, and improvements" of
the charitable institution to be considered exempt, the same should not only be
"exclusively" used for charitable purposes; it is required that such property be used
"actually" and "directly" for such purposes.37

In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely
on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was
promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took
effect.38 As this Court held in Province of Abra v. Hernando:39

… Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents

appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable, or educational purposes shall be exempt from taxation." The present
Constitution added "charitable institutions, mosques, and non-profit cemeteries" and
required that for the exemption of "lands, buildings, and improvements," they should not
only be "exclusively" but also "actually" and "directly" used for religious or charitable
purposes. The Constitution is worded differently. The change should not be ignored. It
must be duly taken into consideration. Reliance on past decisions would have sufficed
were the words "actually" as well as "directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation. …

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to
the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a)
it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively."40 If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is subject to
taxation.41 The words "dominant use" or "principal use" cannot be substituted for the
words "used exclusively" without doing violence to the Constitutions and the law.42 Solely
is synonymous with exclusively.43

What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to
the purposes for which the charitable institution is organized. It is not the use of the
income from the real property that is determinative of whether the property is used
for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove that the entirety of its real property is
actually, directly and exclusively used for charitable purposes. While portions of the
hospital are used for the treatment of patients and the dispensation of medical services to
them, whether paying or non-paying, other portions thereof are being leased to private
individuals for their clinics and a canteen. Further, a portion of the land is being leased to a
private individual for her business enterprise under the business name "Elliptical Orchids
and Garden Center." Indeed, the petitioner’s evidence shows that it collected
₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28 for 1992 from the said lessees.

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.45 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.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The

respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing,
the precise portions of the land and the area thereof which are leased to private persons,
and to compute the real property taxes due thereon as provided for by law.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

GOVERNMENT SERVICE G.R. No. 186242

INSURANCE SYSTEM,
Petitioner, Present:

CORONA, J., Chairperson,

VELASCO, JR.,
- versus - NACHURA,
PERALTA, and
DEL CASTILLO,* JJ.

CITY TREASURER and CITY Promulgated:

ASSESSOR of the CITY
OF MANILA, December 23, 2009
Respondents.
x---------------------------------------------------------------------------------------
--x

DECISION
VELASCO, JR., J.:
 The Case

For review under Rule 45 of the Rules of Court on pure question of

law are the November 15, 2007 Decision[1] and January 7, 2009
Order[2] of the Regional Trial Court (RTC), Branch 49 in Manila, in Civil
Case No. 02-104827, a suit to nullify the assessment of real property
taxes on certain properties belonging to petitioner Government Service
Insurance System (GSIS).

The Facts

Petitioner GSIS owns or used to own two (2) parcels of land, one
located at Katigbak 25th St., Bonifacio Drive, Manila (Katigbak property),
and the other, at Concepcion cor. Arroceros Sts., also in Manila
(Concepcion-Arroceros property). Title to the Concepcion-Arroceros
property was transferred to this Court in 2005 pursuant to Proclamation
No. 835[3] dated April 27, 2005. Both the GSIS and the Metropolitan Trial
Court (MeTC) of Manila occupy the Concepcion-Arroceros property,
while the Katigbak property was under lease.

The controversy started when the City Treasurer of Manila

addressed a letter[4] dated September 13, 2002 to GSIS President and
General Manager Winston F. Garcia informing him of the unpaid real
property taxes due on the aforementioned properties for years 1992 to
2002, broken down as follows: (a) PhP 54,826,599.37 for the Katigbak
property; and (b) PhP 48,498,917.01 for the Concepcion-Arroceros
property. The letter warned of the inclusion of the subject properties in
the scheduled October 30, 2002 public auction of all delinquent
properties in Manila should the unpaid taxes remain unsettled before that
date.

On September 16, 2002, the City Treasurer of Manila issued

separate Notices of Realty Tax Delinquency[5] for the subject properties,
with the usual warning of seizure and/or sale. On October 8, 2002, GSIS,
through its legal counsel, wrote back emphasizing the GSIS exemption
from all kinds of taxes, including realty taxes, under Republic Act No.
(RA) 8291.[6]

Two days after, GSIS filed a petition for certiorari and

prohibition[7] with prayer for a restraining and injunctive relief before the
Manila RTC. In it, GSIS prayed for the nullification of the assessments
thus made and that respondents City of Manila officials be permanently
enjoined from proceedings against GSIS property. GSIS would later
amend its petition[8] to include the fact that: (a) the Katigbak property,
covered by TCT Nos. 117685 and 119465 in the name of GSIS, has, since
November 1991, been leased to and occupied by the Manila Hotel
Corporation (MHC), which has contractually bound itself to pay any
realty taxes that may be imposed on the subject property; and (b) the
Concepcion-Arroceros property is partly occupied by GSIS and partly
occupied by the MeTC of Manila.

The Ruling of the RTC

By Decision of November 15, 2007, the RTC dismissed GSIS

petition, as follows:

WHEREFORE, in view of the foregoing, judgment is

hereby rendered, DISMISSING the petition for lack of merit,
and declaring the assessment conducted by
the respondents City of Manila on the subject real properties of
GSIS as valid pursuant to law.
SO ORDERED.[9]

GSIS sought but was denied reconsideration per the assailed Order
dated January 7, 2009.

Thus, the instant petition for review on pure question of law.

 The Issues

1. Whether petitioner is exempt from the payment of real

property taxes from 1992 to 2002;
2. Whether petitioner is exempt from the payment of real
property taxes on the property it leased to a taxable entity;
and

3. Whether petitioners real properties are exempt from

warrants of levy and from tax sale for non-payment of real
property taxes.[10]

The Courts Ruling

The issues raised may be formulated in the following wise: first,

whether GSIS under its charter is exempt from real property
taxation; second, assuming that it is so exempt, whether GSIS is
liable for real property taxes for its properties leased to a taxable
entity; and third, whether the properties of GSIS are exempt from
levy.

In the main, it is petitioners posture that both its old

charter, Presidential Decree No. (PD) 1146, and present charter, RA 8291
or the GSIS Act of 1997, exempt the agency and its properties from all
forms of taxes and assessments, inclusive of realty tax. Excepting,
respondents counter that GSIS may not successfully resist the citys
notices and warrants of levy on the basis of its exemption under RA 8291,
real property taxation being governed by RA 7160 or the Local
Government Code of 1991 (LGC, hereinafter).

The petition is meritorious.

First Core Issue: GSIS Exempt from Real Property Tax

Full tax exemption granted through PD 1146

 In 1936, Commonwealth Act No. (CA) 186[11] was enacted
abolishing the then pension systems under Act No. 1638, as amended,
and establishing the GSIS to manage the pension system, life and
retirement insurance, and other benefits of all government
employees. Under what may be considered as its first charter, the GSIS
was set up as a non-stock corporation managed by a board of
trustees. Notably, Section 26 of CA 186 provided exemption from any
legal process and liens but only for insurance policies and their proceeds,
thus:

Section 26. Exemption from legal process and liens. No policy

of life insurance issued under this Act, or the proceeds thereof, when
paid to any member thereunder, nor any other benefit granted under
this Act, shall be liable to attachment, garnishment, or other process, or
to be seized, taken, appropriated, or applied by any legal or equitable
process or operation of law to pay any debt or liability of such member,
or his beneficiary, or any other person who may have a right
thereunder, either before or after payment; nor shall the proceeds
thereof, when not made payable to a named beneficiary, constitute a
part of the estate of the member for payment of his debt. x x x

In 1977, PD 1146,[12] otherwise known as the Revised Government

Service Insurance Act of 1977, was issued, providing for an
expanded insurance system for government employees. Sec. 33 of PD
1146 provided for a new tax treatment for GSIS, thus:

Section 33. Exemption from Tax, Legal Process and Lien. It is

hereby declared to be the policy of the State that the actuarial solvency
of the funds of the System shall be preserved and maintained at all
times and that the contribution rates necessary to sustain the benefits
under this Act shall be kept as low as possible in order not to burden
the members of the System and/or their employees. Taxes imposed on
the System tend to impair the actuarial solvency of its funds and
increase the contribution rate necessary to sustain the benefits under
this Act. A These exemptions shall continue unless expressly and
specifically revoked and any assessment against the System as of the
approval of this Act are hereby considered paid.
The benefits granted under this Act shall not be subject, among
others, to attachment, garnishment, levy or other processes. This,
however, shall not apply to obligations of the member to the System,
or to the employer, or when the benefits granted herein are assigned by
the member with the authority of the System. (Emphasis ours.)
 A scrutiny of PD 1146 reveals that the non-stock corporate
structure of GSIS, as established under CA 186, remained
unchanged. Sec. 34[13] of PD 1146 pertinently provides that the GSIS, as
created by CA 186, shall implement the provisions of PD 1146.

RA 7160 lifted GSIS tax exemption

Then came the enactment in 1991 of the LGC or RA 7160,

providing the exercise of local government units (LGUs) of their power
to tax, the scope and limitations thereof,[14] and the exemptions from
taxations. Of particular pertinence is the general provision on withdrawal
of tax exemption privileges in Sec. 193 of the LGC, and the special
provision on withdrawal of exemption from payment of real property
taxes in the last paragraph of the succeeding Sec. 234, thus:

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 the effectivity of this Code.

SEC. 234. Exemption from Real Property Tax. 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 all government-owned or controlled
corporation are hereby withdrawn upon the effectivity of this Code.
From the foregoing provisos, there can be no serious doubt about
the Congress intention to withdraw, subject to certain defined exceptions,
tax exemptions granted prior to the passage of RA 7160. The question
that easily comes to mind then is whether or not the full tax exemption
heretofore granted to GSIS under PD 1146, particular insofar as realty tax
is concerned, was deemed withdrawn. We answer in the affirmative.

In Mactan Cebu International Airport Authority v. Marcos,[15] the

Court held that the express withdrawal by the LGC of previously granted
exemptions from realty taxes applied to instrumentalities and
government-owned and controlled corporations (GOCCs), such as the
Mactan-Cebu International Airport Authority. In City of Davao v. RTC,
Branch XII, Davao City,[16] the Court, citing Mactan Cebu International
Airport Authority, declared the GSIS liable for real property taxes for the
years 1992 to 1994 (contested real estate tax assessment therein), its
previous exemption under PD 1146 being considered withdrawn with the
enactment of the LGC in 1991.

Significantly, the Court, in City of Davao, stated the observation

that the GSIS tax-exempt status withdrawn in 1992 by the LGC was
restored in 1997 by RA 8291.[17]

Full tax exemption reenacted through RA

8291

Indeed, almost 20 years to the day after the issuance of the GSIS
charter, i.e., PD 1146, it was further amended and expanded by RA 8291
which took effect on June 24, 1997.[18] Under it, the full tax exemption
privilege of GSIS was restored, the operative provision being Sec. 39
thereof, a virtual replication of the earlier quoted Sec. 33 of PD 1146. Sec.
39 of RA 8291 reads:
SEC. 39. Exemption from Tax, Legal Process and Lien. It is
hereby declared to be the policy of the State that the actuarial solvency
of the funds of the GSIS shall be preserved and maintained at all times
and that contribution rates necessary to sustain the benefits under this
Act shall be kept as low as possible in order not to burden the members
of the GSIS and their employers. Taxes imposed on the GSIS tend to
impair the actuarial solvency of its funds and increase the contribution
rate necessary to sustain the benefits of this Act. Accordingly,
notwithstanding, any laws to the contrary, the GSIS, its assets,
revenues including all accruals thereto, and benefits paid, shall be
exempt from all taxes, assessments, fees, charges or duties of all
kinds. These exemptions shall continue unless expressly and
specifically revoked and any assessment against the GSIS as of the
approval of this Act are hereby considered paid. Consequently, all
laws, ordinances, regulations, issuances, opinions or jurisprudence
contrary to or in derogation of this provision are hereby deemed
repealed, superseded and rendered ineffective and without legal force
and effect.
Moreover, these exemptions shall not be affected by
subsequent laws to the contrary unless this section is expressly,
specifically and categorically revoked or repealed by law and a
provision is enacted to substitute or replace the exemption referred
to herein as an essential factor to maintain or protect the solvency
of the fund, notwithstanding and independently of the guaranty of the
national government to secure such solvency or liability.
 The funds and/or the properties referred to herein as well as
the benefits, sums or monies corresponding to the benefits under
this Act shall be exempt from attachment, garnishment, execution,
levy or other processes issued by the courts, quasi-judicial agencies
or administrative bodies including Commission on Audit (COA)
disallowances and from all financial obligations of the members,
including his pecuniary accountability arising from or caused or
occasioned by his exercise or performance of his official functions or
duties, or incurred relative to or in connection with his position or
work except when his monetary liability, contractual or otherwise, is in
favor of the GSIS. (Emphasis ours.)

The foregoing exempting proviso, couched as it were in an

encompassing manner, brooks no other construction but that GSIS is
exempt from all forms of taxes. While not determinative of this case, it is
to be noted that prominently added in GSIS present charter is a paragraph
precluding any implied repeal of the tax-exempt clause so as to protect
the solvency of GSIS funds. Moreover, an express repeal by a subsequent
law would not suffice to affect the full exemption benefits granted the
GSIS, unless the following conditionalities are met: (1) The repealing
clause must expressly, specifically, and categorically revoke or repeal
Sec. 39; and (2) a provision is enacted to substitute or replace the
exemption referred to herein as an essential factor to maintain or protect
the solvency of the fund. These restrictions for a future express repeal,
notwithstanding, do not make the proviso an irrepealable law, for such
restrictions do not impinge or limit the carte blanche legislative authority
of the legislature to so amend it. The restrictions merely enhance other
provisos in the law ensuring the solvency of the GSIS fund.

Given the foregoing perspectives, the following may be assumed:

(1) Pursuant to Sec. 33 of PD 1146, GSIS enjoyed tax exemption from
real estate taxes, among other tax burdens, until January 1, 1992 when the
LGC took effect and withdrew exemptions from payment of real estate
taxes privileges granted under PD 1146; (2) RA 8291 restored in 1997 the
tax exempt status of GSIS by reenacting under its Sec. 39 what was once
Sec. 33 of P.D. 1146;[19] and (3) If any real estate tax is due to the City of
Manila, it is, following City of Davao, only for the interim period, or
from 1992 to 1996, to be precise.

Real property taxes assessed and due from GSIS considered paid
 While recognizing the exempt status of GSIS owing to the
reenactment of the full tax exemption clause under Sec. 39 of RA 8291 in
1997, the ponencia in City of Davaoappeared to have failed to take stock
of and fully appreciate the all-embracing condoning proviso in the very
same Sec. 39 which, for all intents and purposes, considered as paid any
assessment against the GSIS as of the approval of this Act. If only to
stress the point, we hereby reproduce the pertinent portion of said Sec.
39:

SEC. 39. Exemption from Tax, Legal Process and Lien. x x

x Taxes imposed on the GSIS tend to impair the actuarial solvency of
its funds and increase the contribution rate necessary to sustain the
benefits of this Act. Accordingly, notwithstanding, any laws to the
contrary, the GSIS, its assets, revenues including all accruals thereto,
and benefits paid, shall be exempt from all taxes, assessments, fees,
charges or duties of all kinds. These exemptions shall
continue unless expressly and specifically revoked and any
assessment against the GSIS as of the approval of this Act are
hereby considered paid. Consequently, all laws, ordinances,
regulations, issuances, opinions or jurisprudence contrary to or in
derogation of this provision are hereby deemed repealed, superseded
and rendered ineffective and without legal force and effect. (Emphasis
added.)

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Courts fairly recent

ruling in Manila International Airport Authority v. Court of Appeals,[20] a
case likewise involving real estate tax assessments by a Metro Manila
city on the real properties administered by MIAA, argues for the non-tax
liability of GSIS for real estate taxes. There, the Court held that MIAA
does not qualify as a GOCC, not having been organized either as a stock
corporation, its capital not being divided into shares, or as a non-stock
corporation because it has no members. MIAA is rather
an instrumentality of the National Government and, hence, outside the
purview of local taxation by force of Sec. 133 of the LGC providing in
context that unless otherwise provided, local governments cannot tax
national government instrumentalities. And as the Court pronounced
in Manila International Airport Authority, the airport lands and buildings
MIAA administers belong to the Republic of the Philippines,
which makes MIAA a mere trustee of such assets. No less than the
Administrative Code of 1987 recognizes a scenario where a piece of land
owned by the Republic is titled in the name of a department, agency, or
instrumentality. The following provision of the said Code suggests as
much:

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: x x x x

(2) For property belonging to the Republic of the Philippines,

but titled in the name of x x x any corporate agency or instrumentality,
by the executive head of the agency or instrumentality.[21]

While perhaps not of governing sway in all fours inasmuch as what

were involved in Manila International Airport Authority, e.g., airfields
and runways, are properties of the public dominion and, hence, outside
the commerce of man, the rationale underpinning the disposition in that
case is squarely applicable to GSIS, both MIAA and GSIS being similarly
situated. First, while created under CA 186 as a non-stock corporation, a
status that has remained unchanged even when it operated under PD 1146
and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of
the LGC, a GOCC following the teaching of Manila International Airport
Authority, for, like MIAA, GSIS capital is not divided into unit shares.
Also, GSIS has no members to speak of. And by members, the reference
is to those who, under Sec. 87 of the Corporation Code, make up the
non-stock corporation, and not to the compulsory members of the system
who are government employees. Its management is entrusted to a Board
of Trustees whose members are appointed by the President.

Second, the subject properties under GSISs name are likewise

owned by the Republic. The GSIS is but a mere trustee of the subject
properties which have either been ceded to it by the Government or
acquired for the enhancement of the system. This particular property
arrangement is clearly shown by the fact that the disposal or conveyance
of said subject properties are either done by or through the authority of
the President of the Philippines. Specifically, in the case of the
Concepcion-Arroceros property, it was transferred, conveyed, and ceded
to this Court on April 27, 2005 through a presidential proclamation,
Proclamation No. 835. Pertinently, the text of the proclamation
announces that the Concepcion-Arroceros property was earlier ceded to
the GSIS on October 13, 1954 pursuant to Proclamation No. 78 for office
purposes and had since been titled to GSIS which constructed an office
building thereon. Thus, the transfer on April 27, 2005 of the
Concepcion-Arroceros property to this Court by the President through
Proclamation No. 835. This illustrates the nature of the government
ownership of the subject GSIS properties, as indubitably shown in the last
clause of Presidential Proclamation No. 835:

WHEREAS, by virtue of the Public Land Act (Commonwealth

Act No. 141, as amended), Presidential Decree No. 1455, and the
Administrative Code of 1987, the President is authorized to transfer
any government property that is no longer needed by the agency to
which it belongs to other branches or agencies of the
government. (Emphasis ours.)

Third, GSIS manages the funds for the life insurance, retirement,
survivorship, and disability benefits of all government employees and
their beneficiaries. This undertaking, to be sure, constitutes an essential
and vital function which the government, through one of its agencies or
instrumentalities, ought to perform if social security services to civil
service employees are to be delivered with reasonable dispatch. It is no
wonder, therefore, that the Republic guarantees the fulfillment of the
obligations of the GSIS to its members (government employees and their
beneficiaries) when and as they become due. This guarantee was first
formalized under Sec. 24[22] of CA 186, then Sec. 8[23] of PD 1146, and
finally in Sec. 8[24] of RA 8291.

Second Core Issue: Beneficial Use Doctrine Applicable

The foregoing notwithstanding, the leased Katigbak property shall

be taxable pursuant to the beneficial use principle under Sec. 234(a) of
the LGC.

It is true that said Sec. 234(a), quoted below, exempts from real
estate taxes real property owned by the Republic, unless the beneficial
use of the property is, for consideration, transferred to a taxable person.
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.
 This exemption, however, must be read in relation with Sec. 133(o)
of the LGC, which prohibits LGUs from imposing taxes or fees of any
kind on the national government, its agencies, and instrumentalities :

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 supplied.)

Thus read together, the provisions allow the Republic to grant the
beneficial use of its property to an agency or instrumentality of the
national government. Such grant does not necessarily result in the loss of
the tax exemption. The tax exemption the property of the Republic or its
instrumentality carries ceases only if, as stated in Sec. 234(a) of the LGC
of 1991, beneficial use thereof has been granted, for a consideration
or otherwise, to a taxable person. GSIS, as a government
instrumentality, is not a taxable juridical person under Sec. 133(o) of the
LGC. GSIS, however, lost in a sense that status with respect to the
Katigbak property when it contracted its beneficial use to MHC,
doubtless a taxable person. Thus, the real estate tax assessment of PhP
54,826,599.37 covering 1992 to 2002 over the subject Katigbak property
is valid insofar as said tax delinquency is concerned as assessed over said
property.

Taxable entity having beneficial use of leased

property liable for real property taxes thereon
 The next query as to which between GSIS, as the owner of the
Katigbak property, or MHC, as the lessee thereof, is liable to pay the
accrued real estate tax, need not detain us long. MHC ought to pay.

As we declared in Testate Estate of Concordia T. Lim, the unpaid

tax attaches to the property and is chargeable against the taxable person
who had actual or beneficial use and possession of it regardless of
whether or not he is the owner. Of the same tenor is the Courts holding in
the subsequent Manila Electric Company v. Barlis[25] and later
in Republic v. City of Kidapawan.[26] Actual use refers to the purpose for
which the property is principally or predominantly utilized by the person
in possession thereof.[27]

Being in possession and having actual use of the Katigbak property

since November 1991, MHC is liable for the realty taxes assessed over
the Katigbak property from 1992 to 2002.

The foregoing is not all. As it were, MHC has obligated itself

under the GSIS-MHC Contract of Lease to shoulder such
assessment. Stipulation l8 of the contract pertinently reads:

18. By law, the Lessor, [GSIS], is exempt from taxes,

assessments and levies. Should there be any change in the law
or the interpretation thereof or any other circumstances which
would subject the Leased Property to any kind of tax,
assessment or levy which would constitute a charge against the
Lessor or create a lien against the Leased Property, the Lessee
agrees and obligates itself to shoulder and pay such tax,
assessment or levy as it becomes due.[28] (Emphasis ours.)

As a matter of law and contract, therefore, MHC stands liable to

pay the realty taxes due on the Katigbak property. Considering, however,
that MHC has not been impleaded in the instant case, the remedy of the
City of Manila is to serve the realty tax assessment covering the subject
Katigbak property to MHC and to pursue other available remedies in case
of nonpayment, for said property cannot be levied upon as shall be
explained below.
 Third Core Issue: GSIS Properties Exempt from Levy

In light of the foregoing disquisition, the issue of the propriety of

the threatened levy of subject properties by the City of Manila to answer
for the demanded realty tax deficiency is now moot and academic. A
valid tax levy presupposes a corresponding tax liability. Nonetheless, it
will not be remiss to note that it is without doubt that the subject GSIS
properties are exempt from any attachment, garnishment, execution, levy,
or other legal processes. This is the clear import of the third paragraph of
Sec. 39, RA 8291, which we quote anew for clarity:

SEC. 39. Exemption from Tax, Legal Process and Lien. x x x.

xxxx
The funds and/or the properties referred to herein as well as
the benefits, sums or monies corresponding to the benefits under
this Act shall be exempt from attachment, garnishment, execution,
levy or other processes issued by the courts, quasi-judicial agencies
or administrative bodies including Commission on Audit (COA)
disallowances and from all financial obligations of the members,
including his pecuniary accountability arising from or caused or
occasioned by his exercise or performance of his official functions or
duties, or incurred relative to or in connection with his position or
work except when his monetary liability, contractual or otherwise, is in
favor of the GSIS. (Emphasis ours.)

The Court would not be indulging in pure speculative exercise to

say that the underlying legislative intent behind the above exempting
proviso cannot be other than to isolate GSIS funds and properties from
legal processes that will either impair the solvency of its fund or hamper
its operation that would ultimately require an increase in the contribution
rate necessary to sustain the benefits of the system. Throughout GSIS life
under three different charters, the need to ensure the solvency of GSIS
fund has always been a legislative concern, a concern expressed in the
tax-exempting provisions.

Thus, even granting arguendo that GSIS liability for realty taxes
attached from 1992, when RA 7160 effectively lifted its tax exemption
under PD 1146, to 1996, when RA 8291 restored the tax incentive, the
levy on the subject properties to answer for the assessed realty tax
delinquencies cannot still be sustained. The simple reason: The governing
law, RA 8291, in force at the time of the levy prohibits it. And in the final
analysis, the proscription against the levy extends to the leased Katigbak
property, the beneficial use doctrine, notwithstanding.

Summary

In sum, the Court finds that GSIS enjoys under its charter full tax
exemption. Moreover, as an instrumentality of the national government, it
is itself not liable to pay real estate taxes assessed by the City
of Manila against its Katigbak and Concepcion-Arroceros
properties. Following the beneficial use rule, however, accrued real
property taxes are due from the Katigbak property, leased as it is to a
taxable entity. But the corresponding liability for the payment thereof
devolves on the taxable beneficial user. The Katigbak property cannot in
any event be subject of a public auction sale, notwithstanding its realty
tax delinquency. This means that the City of Manila has to satisfy its tax
claim by serving the accrued realty tax assessment on MHC, as the
taxable beneficial user of the Katigbak property and, in case of
nonpayment, through means other than the sale at public auction of
the leased property.

WHEREFORE, the instant petition is hereby GRANTED. The

November 15, 2007 Decision and January 7, 2009 Order of the Regional
Trial Court, Branch 49, Manilaare REVERSED and SET
ASIDE. Accordingly, the real property tax assessments issued by the City
of Manila to the Government Service Insurance System on the subject
properties are declared VOID, except that the real property tax
assessment pertaining to the leased Katigbak property shall be valid if
served on the Manila Hotel Corporation, as lessee which has actual and
beneficial use thereof. The City of Manila is permanently restrained from
levying on or selling at public auction the subject properties to satisfy the
payment of the real property tax delinquency.

No pronouncement as to costs.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 168557 February 16, 2007

FELS ENERGY, INC., Petitioner,
vs.
THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

x----------------------------------------------------x

G.R. No. 170628 February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,

vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA,
in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor, Respondents.

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,
which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorari assailing the August 25,
2004 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its
Resolution2 dated June 20, 2005; the second, also a petition for review on certiorari,
challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of the CA
in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30
MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The
contract, denominated as an Energy Conversion Agreement5 (Agreement), was for a
period of five years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes,
import duties, fees, charges and other levies imposed by the National Government of the
Republic of the Philippines or any agency or instrumentality thereof to which POLAR may
be or become subject to or in relation to the performance of their obligations under this
agreement (other than (i) taxes imposed or calculated on the basis of the net income of
POLAR and Personal Income Taxes of its employees and (ii) construction permit fees,
environmental permit fees and other similar fees and charges) and (b) all real estate taxes
and assessments, rates and other charges in respect of the Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The
NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the
Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power
barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax,
which likewise covered those due for 1994, amounted to ₱56,184,088.40 per annum.
FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay
all real estate taxes. It then gave NPC the full power and authority to represent it in any
conference regarding the real property assessment of the Provincial Assessor.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial

Assessor’s decision to assess real property taxes on the power barges. However, the
motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to
pay the assessment.8 This prompted NPC to file a petition with the Local Board of
Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration
of the barges as non-taxable items; it also prayed that should LBAA find the barges to be
taxable, the Provincial Assessor be directed to make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real
property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA
that the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996,
where it is clearly stated that power barges are not real property subject to real property
assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo
reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax
in the amount of ₱56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or
personal property, are nevertheless considered real property for taxation purposes
because they are installed at a specific location with a character of permanency. The
LBAA also pointed out that the owner of the barges–FELS, a private corporation–is the
one being taxed, not NPC. A mere agreement making NPC responsible for the payment of
all real estate taxes and assessments will not justify the exemption of FELS; such a
privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA
also ruled that the petition was filed out of time.

Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals
(CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy
and Warrant by Distraint13over the power barges, seeking to collect real property taxes
amounting to ₱232,602,125.91 as of July 31, 1996. The notice and warrant was officially
served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November
14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from
enforcing the disputed assessment during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory
any resolution or judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an Order16 dated
September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond
to guarantee the payment of real property taxes assessed by the Provincial Assessor (in
the event that the judgment be unfavorable to them). The bonds were duly approved by
the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from
real property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province
of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the
Province of Batangas is hereby ordered to drop subject property under ARP/Tax
Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll.
The Provincial Treasurer of Batangas is hereby directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to
NPC; since they are actually, directly and exclusively used by it, the power barges are
covered by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other
jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from
pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. The
Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and
NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its
earlier decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby
affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by
the Provincial Assessor. The CBAA denied the said motions in a Resolution 22 dated
October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No.
67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP
No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its
motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter
petition who should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth
Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the
petition on the ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed
Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of
Assessment Appeals are AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the
reversal of the appellate court’s decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court,
docketed as G.R. No. 165113, assailing the appellate court’s decision in CA-G.R. SP No.
67490. The petition was, however, denied in this Court’s Resolution25 of November 8,
2004, for NPC’s failure to sufficiently show that the CA committed any reversible error in
the challenged decision. NPC filed a motion for reconsideration, which the Court denied
with finality in a Resolution26 dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that
the right to question the assessment of the Provincial Assessor had already prescribed
upon the failure of FELS to appeal the disputed assessment to the LBAA within the period
prescribed by law. Since FELS had lost the right to question the assessment, the right of
the Provincial Government to collect the tax was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of
the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in
a Resolution27 dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier
denied for lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court,
raising the following issues:

A.

Whether power barges, which are floating and movable, are personal
properties and therefore, not subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they
are exempt from real estate tax under Section 234 of the Local
Government Code ("LGC").
 C.

Assuming arguendo that the subject power barges are subject to real
estate tax, whether or not it should be NPC which should be made to pay
the same under the law.

D.

Assuming arguendo that the subject power barges are real properties,
whether or not the same is subject to depreciation just like any other
personal properties.

E.

Whether the right of the petitioner to question the patently null and void
real property tax assessment on the petitioner’s personal properties is
imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No.
170628), indicating the following errors committed by the CA:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

APPEAL TO THE LBAA WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT

THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY
TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT

THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.n et

In an earlier Resolution dated February 1, 2006, the Court had required the parties to
submit their respective Memoranda within 30 days from notice. Almost a year passed but
the parties had not submitted their respective memoranda. Considering that taxes—the
lifeblood of our economy—are involved in the present controversy, the Court was
prompted to dispense with the said pleadings, with the end view of advancing the interests
of justice and avoiding further delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not
time-barred. FELS argues that when NPC moved to have the assessment reconsidered
on September 7, 1995, the running of the period to file an appeal with the LBAA was tolled.
For its part, NPC posits that the 60-day period for appealing to the LBAA should be
reckoned from its receipt of the denial of its motion for reconsideration.

Petitioners’ contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,
provides:

SECTION 226. Local Board of Assessment Appeals. – Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the Board of Assessment
Appeals of the province or city by filing a petition under oath in the form prescribed for the
purpose, together with copies of the tax declarations and such affidavits or documents
submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on
August 7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date
of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a
petition under oath on the form prescribed for the purpose, together with copies of
ARP/Tax Declaration and such affidavits or documents submitted in support of the
appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC
opted to file a motion for reconsideration of the Provincial Assessor’s decision, a remedy
not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the property. It follows then that
the determination made by the respondent Provincial Assessor with regard to the
taxability of the subject real properties falls within its power to assess properties for
taxation purposes subject to appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and
CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta
v. Office of the Ombudsman,34 where we ruled that under Section 226 of R.A. No
7160,35 the last action of the local assessor on a particular assessment shall be the notice
of assessment; it is this last action which gives the owner of the property the right to
appeal to the LBAA. The procedure likewise does not permit the property owner the
remedy of filing a motion for reconsideration before the local assessor. The pertinent
holding of the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought
their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in
their respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To
allow this procedure would indeed invite corruption in the system of appraisal and
assessment. It conveniently courts a graft-prone situation where values of real property
may be initially set unreasonably high, and then subsequently reduced upon the request
of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off
cannot be avoided, and in fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to
the owner or lawful possessor of real property of its revised assessed value, the former
shall no longer have any jurisdiction to entertain any request for a review or readjustment.
The appropriate forum where the aggrieved party may bring his appeal is the LBAA as
provided by law. It follows ineluctably that the 60-day period for making the appeal to the
LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in
SP 67491.37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government
to collect the taxes due with respect to the taxpayer’s property becomes absolute upon
the expiration of the period to appeal.38 It also bears stressing that the taxpayer’s failure to
question the assessment in the LBAA renders the assessment of the local assessor final,
executory and demandable, thus, precluding the taxpayer from questioning the
correctness of the assessment, or from invoking any defense that would reopen the
question of its liability on the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners’ appeal for having been
filed out of time; the CBAA and the appellate court were likewise correct in affirming the
dismissal. Elementary is the rule that the perfection of an appeal within the period therefor
is both mandatory and jurisdictional, and failure in this regard renders the decision final
and executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is
barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where
there was a final determination on the issue of prescription), effectively precludes the
claims herein; and that the filing of the instant petition after an adverse judgment in G.R.
No. 165113 constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced
since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113.
It avers that it did not participate in the aforesaid proceeding, and the Supreme Court
never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that
no forum shopping could have been committed since the elements of litis pendentia or res
judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two
grounds embodied in various maxims of common law, namely: (1) public policy and
necessity, which makes it to the interest of the

State that there should be an end to litigation – republicae ut sit litium; and (2) the
hardship on the individual of being vexed twice for the same cause – nemo debet bis
vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet to
the will and dereliction of individuals and prefer the regalement of the litigious disposition
on the part of suitors to the preservation of the public tranquility and happiness.41 As we
ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree – rendered upon the merits, without fraud or
collusion, by a court of competent jurisdiction acting upon a matter within its authority – is
conclusive on the rights of the parties and their privies. This ruling holds in all other
actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction,
touching on the points or matters in issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow the same
parties or their privies to litigate anew a question once it has been considered and decided
with finality. Litigations must end and terminate sometime and somewhere. The effective
and efficient administration of justice requires that once a judgment has become final, the
prevailing party should not be deprived of the fruits of the verdict by subsequent suits on
the same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1)
the former judgment must be final; (2) the court which rendered it had jurisdiction over the
subject matter and the parties; (3) the judgment must be on the merits; and (4) there must
be between the first and the second actions, identity of parties, subject matter and causes
of action. The application of the doctrine of res judicata does not require absolute identity
of parties but merely substantial identity of parties. There is substantial identity of parties
when there is community of interest or privity of interest between a party in the first and a
party in the second case even if the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any
proceeding regarding real property assessment. Therefore, when petitioner NPC
filed its petition for review docketed as G.R. No. 165113, it did so not only on its
behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier
petition for review filed in this Court was the decision of the appellate court in
CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R.
No. 165116 is binding on petitioner FELS under the principle of privity of interest. In
fine, FELS and NPC are substantially "identical parties" as to warrant the application of
res judicata. FELS’s argument that it is not bound by the erroneous petition filed by NPC is
thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping
exists when, as a result of an adverse judgment in one forum, a party seeks another and
possibly favorable judgment in another forum other than by appeal or special civil action
or certiorari. There is also forum shopping when a party institutes two or more actions or
proceedings grounded on the same cause, on the gamble that one or the other court
would make a favorable disposition.44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata
are not present in the cases at bar; however, as already discussed, res judicata may be
properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos.
168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners
went from one court to another trying to get a favorable decision from one of the tribunals
which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum

shopping is the vexation caused to the courts and the parties-litigants by the filing of
similar cases to claim substantially the same reliefs.45 The rationale against forum
shopping is that a party should not be allowed to pursue simultaneous remedies in two
different fora. Filing multiple petitions or complaints constitutes abuse of court processes,
which tends to degrade the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened dockets of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such
parties as represent the same interests in both actions, (b) identity of rights asserted and
relief prayed for, the relief being founded on the same facts, and (c) the identity of the two
preceding particulars is such that any judgment rendered in the pending case, regardless
of which party is successful, would amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless,
for the peace and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and
are thus subject to real property tax. This is also the inevitable conclusion, considering
that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error.
Tax assessments by tax examiners are presumed correct and made in good faith, with the
taxpayer having the burden of proving otherwise.48 Besides, factual findings of
administrative bodies, which have acquired expertise in their field, are generally binding
and conclusive upon the Court; we will not assume to interfere with the sensible exercise
of the judgment of men especially trained in appraising property. Where the judicial mind
is left in doubt, it is a sound policy to leave the assessment undisturbed.49 We find no
reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et
al.,50 a power company brought an action to review property tax assessment. On the city’s
motion to dismiss, the Supreme Court of New York held that the barges on which were
mounted gas turbine power plants designated to generate electrical power, the fuel oil
barges which supplied fuel oil to the power plant barges, and the accessory equipment
mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures
which, though floating, are intended by their nature and object to remain at a fixed place
on a river, lake, or coast" are considered immovable property. Thus, power barges are
categorized as immovable property by destination, being in the nature of machinery and
other implements intended by the owner for an industry or work which may be carried on
in a building or on a piece of land and which tend directly to meet the needs of said
industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax
under Section 234 (c) of R.A. No. 7160 because they are actually, directly and
exclusively used by petitioner NPC, a government- owned and controlled
corporation engaged in the supply, generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. As
stipulated under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the
fixtures, fittings, machinery and equipment on the Site used in connection with the Power
Barges which have been supplied by it at its own cost. POLAR shall operate, manage and
maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into
electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by
invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:

xxx

(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; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used
by the government owned or controlled corporation; nevertheless, petitioner FELS still
cannot find solace in this provision because Section 5.5, Article 5 of the Agreement
provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the
supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will
operate the Power Barges to convert such Fuel into electricity in accordance with Part A of
Article 7.53

It is a basic rule that obligations arising from a contract have the force of law between the
parties. Not being contrary to law, morals, good customs, public order or public policy, the
parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is
the exception.55 The law does not look with favor on tax exemptions and the entity that
would seek to be thus privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.56 Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, we hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall
be responsible for the payment of all real estate taxes and assessments, does not justify
the exemption. The privilege granted to petitioner NPC cannot be extended to FELS.
The covenant is between FELS and NPC and does not bind a third person not privy
thereto, in this case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in
the local government’s deprivation of revenues. The power to tax is an incident of
sovereignty and is unlimited in its magnitude, acknowledging in its very nature no
perimeter 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 for it.57 The right of
local government units to collect taxes due must always be upheld to avoid severe tax
erosion. This consideration is consistent with the State policy to guarantee the autonomy
of local governments58 and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the
needed revenues to finance and support myriad activities of the 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.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions
AFFIRMED.

Republic of the Philippines

SUPREME COURT
Manila

SPECIAL SECOND DIVISION

G.R. No. 171586 January 25, 2010

NATIONAL POWER CORPORATION, Petitioner,

vs.
PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO, Respondent.

RESOLUTION

BRION, J.:

The petitioner National Power Corporation (Napocor) filed the present motion for
reconsideration1 of the Court’s Decision of July 15, 2009, in which we denied Napocor’s
claimed real property tax exemptions. For the resolution of the motion, we deem it proper
to provide first a background of the case.

BACKGROUND FACTS

The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for unpaid real
property taxes in the amount of ₱1.5 Billion for the machineries located in its power plant
in Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer (BOT)
Agreement (entitled Energy Conversion Agreement) with Mirant, was furnished a copy of
the tax assessment.

Napocor (nota bene, not Mirant) protested the assessment before the Local Board of
Assessment Appeals (LBAA), claiming entitlement to the tax exemptions provided under
Section 234 of the Local Government Code (LGC), which states:

Section 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:

xxxx

(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;
 xxxx

(e) Machinery and equipment used for pollution control and environmental protection.

xxxx

Assuming that it cannot claim the above tax exemptions, Napocor argued that it is entitled
to certain tax privileges, namely:

a. the lower assessment level of 10% under Section 218(d) of the LGC for
government-owned and controlled corporations engaged in the generation and
transmission of electric power, instead of the 80% assessment level for commercial
properties imposed in the assessment letter; and

b. an allowance for depreciation of the subject machineries under Section 225 of the LGC.

In the Court’s Decision of July 15, 2009, we ruled that Napocor is not entitled to any of
these claimed tax exemptions and privileges on the basis primarily of the defective protest
filed by the Napocor. We found that Napocor did not file a valid protest against the realty
tax assessment because it did not possess the requisite legal standing. When a taxpayer
fails to question the assessment before the LBAA, the assessment becomes final,
executory, and demandable, precluding the taxpayer from questioning the correctness of
the assessment or from invoking any defense that would reopen the question of its liability
on the merits.2

Under Section 226 of the LGC,3 any owner or person having legal interest in the property
may appeal an assessment for real property taxes to the LBAA. Since Section 250 adopts
the same language in enumerating who may pay the tax, we equated those who are liable
to pay the tax to the same entities who may protest the tax assessment. A person legally
burdened with the obligation to pay for the tax imposed on the property has the legal
interest in the property and the personality to protest the tax assessment.

To prove that it had legal interest in the taxed machineries, Napocor relied on:.

1. the stipulation in the BOT Agreement that authorized the transfer of ownership to
Napocor after 25 years;

2. its authority to control and supervise the construction and operation of the power plant;
and

3. its obligation to pay for all taxes that may be incurred, as provided in the BOT
Agreement.

Napocor posited that these indicated that Mirant only possessed naked title to the
machineries.

We denied the first argument by ruling that legal interest should be one that is actual and
material, direct and immediate, not simply contingent or expectant.4 We disproved
Napocor’s claim of control and supervision under the second argument after reading the
full terms of the BOT Agreement, which, contrary to Napocor’s claims, granted Mirant
substantial power in the control and supervision of the power plant’s construction and
operation.5
For the third argument, we relied on the Court’s rulings in Baguio v. Busuego6 and Lim v.
Manila.7 In these cases, the Court essentially declared that contractual assumption of tax
liability alone is insufficient to make one liable for taxes. The contractual assumption of tax
liability must be supplemented by an interest that the party assuming the liability had on
the property; the person from whom payment is sought must have also acquired the
beneficial use of the property taxed. In other words, he must have the use and possession
of the property – an element that was missing in Napocor’s case.

We further stated that the tax liability must be a liability that arises from law, which the
local government unit can rightfully and successfully enforce, not the contractual liability
that is enforceable only between the parties to the contract. In the present case, the
Province of Quezon is a third party to the BOT Agreement and could thus not exact
payment from Napocor without violating the principle of relativity of contracts.8 Corollarily,
for reasons of fairness, the local government units cannot be compelled to recognize the
protest of a tax assessment from Napocor, an entity against whom it cannot enforce the
tax liability.

At any rate, even if the Court were to brush aside the issue of legal interest to protest,
Napocor could still not successfully claim exemption under Section 234 (c) of the LGC
because to be entitled to the exemption under that provision, there must be actual, direct,
and exclusive use of machineries. Napocor failed to satisfy these requirements.

THE MOTION FOR RECONSIDERATION

Although Napocor insists that it is entitled to the tax exemptions and privileges claimed,
the primary issue for the Court to resolve, however, is to determine whether Napocor has
sufficient legal interest to protest the tax assessment because without the requisite
interest, the tax assessment stands, and no claim of exemption or privilege can prevail.

Section 226 of the LGC, as mentioned, limits the right to appeal the local assessor’s
action to the owner or the person having legal interest in the property. Napocor posits that
it is the beneficial owner of the subject machineries, with Mirant retaining merely a naked
title to secure certain obligations. Thus, it argues that the BOT Agreement is a mere
financing agreement and is similar to the arrangement authorized under Article 1503 of
the Civil Code, which declares:

Art. 1503. When there is a contract of sale of specific goods, the seller may, by the terms
of the contract, reserve the right of possession or ownership in the goods until certain
conditions have been fulfilled. The right of possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.

Where goods are shipped, and by the bill of lading the goods are deliverable to the seller
or his agent, or to the order of the seller or of his agent, the seller thereby reserves the
ownership in the goods. But, if except for the form of the bill of lading, the ownership would
have passed to the buyer on shipment of the goods, the seller's property in the goods
shall be deemed to be only for the purpose of securing performance by the buyer of his
obligations under the contract.

xxxx
Pursuant to this arrangement, Mirant’s ownership over the subject machineries is merely
a security interest, given only for the purpose of ensuring the performance of Napocor’s
obligations.

Napocor additionally contends that its contractual assumption liability (through the BOT
Agreement) for all taxes vests it with sufficient legal interest because it is actually, directly,
and materially affected by the assessment.

While its motion for reconsideration was pending, Napocor filed a Motion to Refer the
Case to the Court En Banc considering that "the issues raised have far-reaching
consequences in the power industry, the country’s economy and the daily lives of the
Filipino people, and since it involves the application of real property tax provision of the
LGC against Napocor, an exempt government instrumentality."9

Also, the Philippine Independent Power Producers Association, Inc. (PIPPA) filed a
Motion for Leave to Intervene and a Motion for Reconsideration-in-Intervention. PIPPA is
a non-stock corporation comprising of privately-owned power generating companies
which includes TeaM Energy Corporation (TeaM Energy), successor of Mirant. PIPPA is
claiming interest in the case since any decision here will affect the other members of
PIPPA, all of which have executed similar BOT agreements with Napocor.

THE COURT’S RULING

At the outset, we resolve to deny the referral of the case to the Court en banc. We do not
find the reasons raised by Napocor meritorious enough to warrant the attention of the
members of the Court en banc, as they are merely reiterations of the arguments it raised
in the petition for review on certiorari that it earlier filed with the Court.10

Who may appeal a real property tax assessment

Legal interest is defined as interest in property or a claim cognizable at law, equivalent to

that of a legal owner who has legal title to the property.11 Given this definition, Napocor is
clearly not vested with the requisite interest to protest the tax assessment, as it is not an
entity having the legal title over the machineries. It has absolutely no solid claim of
ownership or even of use and possession of the machineries, as our July 15, 2009
Decision explained.

A BOT agreement is not a mere financing arrangement. In Napocor v. CBAA 12 – a case

strikingly similar to the one before us, we discussed the nature of BOT agreements in the
following manner:

The underlying concept behind a BOT agreement is defined and described in the BOT law
as follows:

Build-operate-and-transfer – A contractual arrangement whereby the project proponent

undertakes the construction, including financing, of a given infrastructure facility, and the
operation and maintenance thereof. The project proponent operates the facility over a
fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals,
and charges not exceeding those proposed in its bid or as negotiated and incorporated in
the contract to enable the project proponent to recover its investment, and operating and
maintenance expenses in the project. The project proponent transfers the facility to the
government agency or local government unit concerned at the end of the fixed term which
shall not exceed fifty (50) years x x x x.

Under this concept, it is the project proponent who constructs the project at its own cost
and subsequently operates and manages it. The proponent secures the return on its
investments from those using the project’s facilities through appropriate tolls, fees, rentals,
and charges not exceeding those proposed in its bid or as negotiated. At the end of the
fixed term agreed upon, the project proponent transfers the ownership of the facility to the
government agency. Thus, the government is able to put up projects and provide
immediate services without the burden of the heavy expenditures that a project start up
requires.1avvphi1

A reading of the provisions of the parties’ BOT Agreement shows that it fully conforms to
this concept. By its express terms, BPPC has complete ownership – both legal and
beneficial – of the project, including the machineries and equipment used, subject
only to the transfer of these properties without cost to NAPOCOR after the lapse of
the period agreed upon. As agreed upon, BPPC provided the funds for the construction
of the power plant, including the machineries and equipment needed for power generation;
thereafter, it actually operated and still operates the power plant, uses its machineries and
equipment, and receives payment for these activities and the electricity generated under a
defined compensation scheme. Notably, BPPC – as owner-user – is responsible for any
defect in the machineries and equipment.

xxxx

That some kind of "financing" arrangement is contemplated – in the sense that the private
sector proponent shall initially shoulder the heavy cost of constructing the project’s
buildings and structures and of purchasing the needed machineries and equipment – is
undeniable. The arrangement, however, goes beyond the simple provision of funds, since
the private sector proponent not only constructs and buys the necessary assets to put up
the project, but operates and manages it as well during an agreed period that would allow
it to recover its basic costs and earn profits. In other words, the private sector proponent
goes into business for itself, assuming risks and incurring costs for its account. If it
receives support from the government at all during the agreed period, these are
pre-agreed items of assistance geared to ensure that the BOT agreement’s objectives –
both for the project proponent and for the government – are achieved. In this sense,
a BOT arrangement is sui generis and is different from the usual financing
arrangements where funds are advanced to a borrower who uses the funds to establish a
project that it owns, subject only to a collateral security arrangement to guard against the
nonpayment of the loan. It is different, too, from an arrangement where a government
agency borrows funds to put a project from a private sector-lender who is thereafter
commissioned to run the project for the government agency. In the latter case, the
government agency is the owner of the project from the beginning, and the
lender-operator is merely its agent in running the project.

If the BOT Agreement under consideration departs at all from the concept of a BOT
project as defined by law, it is only in the way BPPC’s cost recovery is achieved; instead
of selling to facility users or to the general public at large, the generated electricity is
purchased by NAPOCOR which then resells it to power distribution companies. This
deviation, however, is dictated, more than anything else, by the structure and usages of
the power industry and does not change the BOT nature of the transaction between the
parties.
Consistent with the BOT concept and as implemented, BPPC – the
owner-manager-operator of the project – is the actual user of its machineries and
equipment. BPPC’s ownership and use of the machineries and equipment are
actual, direct, and immediate, while NAPOCOR’s is contingent and, at this stage of
the BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the
CTA committed no reversible error in denying NAPOCOR’s claim for tax exemption.
[Emphasis supplied.]

Given the special nature of a BOT agreement as discussed in the cited case, we find
Article 1503 inapplicable to define the contract between Napocor and Mirant, as it refers
only to ordinary contracts of sale. We thus declared in Tatad v. Garcia13 that under BOT
agreements, the private corporations/investors are the owners of the facility or machinery
concerned. Apparently, even Napocor and Mirant recognize this principle; Article 2.12 of
their BOT Agreement provides that "until the Transfer Date, [Mirant] shall, directly or
indirectly, own the Power Station and all the fixtures, fitting, machinery and equipment on
the Site x x x. [Mirant] shall operate, manage, and maintain the Power Station for the
purpose of converting fuel of Napocor into electricity."

Moreover, if Napocor truly believed that it was the owner of the subject machineries, it
should have complied with Sections 202 and 206 of the LGC which obligates owners of
real property to:

a. file a sworn statement declaring the true value of the real property, whether taxable or
exempt;14 and

b. file sufficient documentary evidence supporting its claim for tax exemption.15

While a real property owner’s failure to comply with Sections 202 and 206 does not
necessarily negate its tax obligation nor invalidate its legitimate claim for tax exemption,
Napocor’s omission to do so in this case can be construed as contradictory to its claim of
ownership of the subject machineries. That it assumed liability for the taxes that may be
imposed on the subject machineries similarly does not clothe it with legal title over the
same. We do not believe that the phrase "person having legal interest in the property" in
Section 226 of the LGC can include an entity that assumes another person’s tax liability by
contract.

A review of the provisions of the LGC on real property taxation shows that the phrase has
been repeatedly adopted and used to define an entity:

a. in whose name the real property shall be listed, valued, and assessed;16

b. who may be summoned by the local assessor to gather information on which to base
the market value of the real property;17

c. who may protest the tax assessment before the LBAA18 and may appeal the latter’s
decision to the CBAA;19

d. who may be liable for the idle land tax,20 as well as who may be exempt from the
same;21

e. who shall be notified of any proposed ordinance imposing a special levy,22 as well as
who may object the proposed ordinance;23
f. who may pay the real property tax;24

g. who is entitled to be notified of the warrant of levy and against whom it may be
enforced;25

h. who may stay the public auction upon payment of the delinquent tax, penalties and
surcharge;26 and

i. who may redeem the property after it was sold at the public auction for delinquent
taxes.27

For the Court to consider an entity assuming another person’s tax liability by contract as a
person having legal interest in the real property would extend to it the privileges and
responsibilities enumerated above. The framers of the LGC certainly did not contemplate
that the listing, valuation, and assessment of real property can be made in the name of
such entity; nor did they intend to make the warrant of levy enforceable against it. Insofar
as the provisions of the LGC are concerned, this entity is a party foreign to the operation
of real property tax laws and could not be clothed with any legal interest over the property
apart from its assumed liability for tax. The rights and obligations arising from the BOT
Agreement between Napocor and Mirant were of no legal interest to the tax collector – the
Province of Quezon – which is charged with the performance of independent duties under
the LGC.28

Some authorities consider a person whose pecuniary interests is or may be adversely

affected by the tax assessment as one who has legal interest in the property (hence,
possessed of the requisite standing to protest it), citing Cooley’s Law on Taxation.29 The
reference to this foreign material, however, is misplaced. The tax laws of the United
States deem it sufficient that a person’s pecuniary interests are affected by the tax
assessment to consider him as a person aggrieved and who may thus avail of the judicial
or administrative remedies against it. As opposed to our LGC, mere pecuniary interest is
not sufficient; our law has required legal interest in the property taxed before any
administrative or judicial remedy can be availed. The right to appeal a tax assessment is a
purely statutory right; whether a person challenging an assessment bears such a relation
to the real property being assessed as to entitle him the right to appeal is determined by
the applicable statute – in this case, our own LGC, not US federal or state tax laws.

In light of our ruling above, PIPPA’s motion to intervene and motion for
reconsideration-in-intervention is already mooted. PIPPA as an organization of
independent power producers is not an interested party insofar as this case is concerned.
Even if TeaM Energy, as Mirant’s successor, is included as one of its members, the
motion to intervene and motion for reconsideration-in-intervention can no longer be
entertained, as it amounts to a protest against the tax assessment that was filed without
the complying with Section 252 of the LGC, a matter that we shall discuss below. Most
importantly, our Decision has not touched or affected at all the contractual stipulations
between Napocor and its BOT partners for the former’s assumption of the tax liabilities of
the latter.

Payment under protest is required before an appeal to the LBAA can be made

Apart from Napocor’s failure to prove that it has sufficient legal interest, a further review of
the records revealed another basis for disregarding Napocor’s protest against the
assessment.
The LBAA dismissed Napocor’s petition for exemption for its failure to comply with Section
252 of the LGC30requiring payment of the assailed tax before any protest can be made.
Although the CBAA ultimately dismissed Napocor’s appeal for failure to meet the
requirements for tax exemption, it agreed with Napocor’s position that "the protest
contemplated in Section 252 (a) is applicable only when the taxpayer is questioning the
reasonableness or excessiveness of an assessment. It presupposes that the taxpayer is
subject to the tax but is disputing the correctness of the amount assessed. It does not
apply where, as in this case, the legality of the assessment is put in issue on account of
the taxpayer’s claim that it is exempt from tax." The CTA en banc agreed with the CBAA’s
discussion, relying mainly on the cases of Ty v. Trampe31 and Olivarez v. Marquez.32

We disagree. The cases of Ty and Olivarez must be placed in their proper perspective.

The petitioner in Ty v. Trampe questioned before the trial court the increased real estate
taxes imposed by and being collected in Pasig City effective from the year 1994, premised
on the legal question of whether or not Presidential Decree No. 921 (PD 921) was
repealed by the LGC. PD 921 required that the schedule of values of real properties in the
Metropolitan Manila area shall be prepared jointly by the city assessors in the districts
created therein; while Section 212 of the LGC stated that the schedule shall be prepared
by the provincial, city or municipal assessors of the municipalities within the Metropolitan
Manila Area for the different classes of real property situated in their respective local
government units for enactment by ordinance of the Sanggunian concerned. The private
respondents assailed Ty’s act of filing a prohibition petition before the trial court
contending that Ty should have availed first the administrative remedies provided in the
LGC, particularly Sections 252 (on payment under protest before the local treasurer) and
226 (on appeals to the LBAA).

The Court, through former Chief Justice Artemio Panganiban, declared that Ty correctly
filed a petition for prohibition before the trial court against the assailed act of the city
assessor and treasurer. The administrative protest proceedings provided in Section 252
and 226 will not apply. The protest contemplated under Section 252 is required where
there is a question as to the reasonableness or correctness of the amount assessed.
Hence, if a taxpayer disputes the reasonableness of an increase in a real property tax
assessment, he is required to "first pay the tax" under protest. Otherwise, the city or
municipal treasurer will not act on his protest. Ty however was questioning the very
authority and power of the assessor, acting solely and independently, to impose the
assessment and of the treasurer to collect the tax. These were not questions merely of
amounts of the increase in the tax but attacks on the very validity of any increase.
Moreover, Ty was raising a legal question that is properly cognizable by the trial court; no
issues of fact were involved. In enumerating the power of the LBAA, Section 229 declares
that "the proceedings of the Board shall be conducted solely for the purpose of
ascertaining the facts x x x." Appeals to the LBAA (under Section 226) are therefore
fruitful only where questions of fact are involved.

Olivarez v. Marquez, on the other hand, involved a petition for certiorari, mandamus, and
prohibition questioning the assessment and levy made by the City of Parañaque. Olivarez
was seeking the annulment of his realty tax delinquency assessment. Marquez assailed
Olivarez’ failure to first exhaust administrative remedies, particularly the requirement of
payment under protest. Olivarez replied that his petition was filed to question the
assessor’s authority to assess and collect realty taxes and therefore, as held in Ty v.
Trampe, the exhaustion of administrative remedies was not required. The Court however
did not agree with Olivarez’s argument. It found that there was nothing in his petition that
supported his claim regarding the assessor’s alleged lack of authority. What Olivarez
raised were the following grounds: "(1) some of the taxes being collected have already
prescribed and may no longer be collected as provided in Section 194 of the Local
Government Code of 1991; (2) some properties have been doubly taxed/assessed; (3)
some properties being taxed are no longer existent; (4) some properties are exempt from
taxation as they are being used exclusively for educational purposes; and (5) some errors
are made in the assessment and collection of taxes due on petitioners’ properties, and
that respondents committed grave abuse of discretion in making the improper, excessive
and unlawful the collection of taxes against the petitioner." The Olivarez petition filed
before the trial court primarily involved the correctness of the assessments, which is a
question of fact that is not allowed in a petition for certiorari, prohibition, and mandamus.
Hence, we declared that the petition should have been brought, at the very first instance,
to the LBAA, not the trial court.

Like Olivarez, Napocor, by claiming exemption from realty taxation, is simply raising a
question of the correctness of the assessment. A claim for tax exemption, whether full or
partial, does not question the authority of local assessor to assess real property tax. This
may be inferred from Section 206 which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. - Every person by or for
whom real property is declared, who shall claim tax exemption for such property under
this Title shall file with the provincial, city or municipal assessor within thirty (30) days from
the date of the declaration of real property sufficient documentary evidence in support of
such claim including corporate charters, title of ownership, articles of incorporation,
bylaws, contracts, affidavits, certifications and mortgage deeds, and similar documents. If
the required evidence is not submitted within the period herein prescribed, the property
shall be listed as taxable in the assessment roll. However, if the property shall be proven
to be tax exempt, the same shall be dropped from the assessment roll. [Emphasis
provided]

By providing that real property not declared and proved as tax-exempt shall be included in
the assessment roll, the above-quoted provision implies that the local assessor has the
authority to assess the property for realty taxes, and any subsequent claim for exemption
shall be allowed only when sufficient proof has been adduced supporting the claim. Since
Napocor was simply questioning the correctness of the assessment, it should have first
complied with Section 252, particularly the requirement of payment under protest.
Napocor’s failure to prove that this requirement has been complied with thus renders its
administrative protest under Section 226 of the LGC without any effect. No protest shall
be entertained unless the taxpayer first pays the tax.

It was an ill-advised move for Napocor to directly file an appeal with the LBAA under
Section 226 without first paying the tax as required under Section 252. Sections 252 and
226 provide successive administrative remedies to a taxpayer who questions the
correctness of an assessment. Section 226, in declaring that "any owner or person having
legal interest in the property who is not satisfied with the action of the provincial, city, or
municipal assessor in the assessment of his property may x x x appeal to the Board of
Assessment Appeals x x x," should be read in conjunction with Section 252 (d), which
states that "in the event that the protest is denied x x x, the taxpayer may avail of the
remedies as provided for in Chapter 3, Title II, Book II of the LGC [Chapter 3 refers to
Assessment Appeals, which includes Sections 226 to 231]. The "action" referred to in
Section 226 (in relation to a protest of real property tax assessment) thus refers to the
local assessor’s act of denying the protest filed pursuant to Section 252. Without the
action of the local assessor, the appellate authority of the LBAA cannot be invoked.
Napocor’s action before the LBAA was thus prematurely filed.
For the foregoing reasons, we DENY the petitioner’s motion for reconsideration.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 181756 June 15, 2015

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner,

vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a clear opportunity for this Court to clarify the effects of our two previous decisions,
issued a decade apart, on the power of local government units to collect real property
taxes from airport authorities located within their area, and the nature or the juridical
personality of said airport authorities.

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the October 8, 2007 Decision of the Court of
1

Appeals (Cebu City) in CA-G.R. SP No. 01360 and the February 12, 2008
Resolution denying petitioner's motion for reconsideration.
2

THE FACTS

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress

on July 31, 1990 under Republic Act No. 6958 to "undertake the economical, efficient and
3

effective control, management and supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City x x x and such other airports as may
be established in the Province of Cebu." It is represented in this case by the Office of the
Solicitor General. Respondent City of Lapu-Lapu is a local government unit and political
subdivision, created and existing under its own charter with capacity to sue and be sued.
Respondent Elena T. Pacaldo was impleaded in her capacity as the City Treasurer of
respondent City.

Upon its creation, petitioner enjoyed exemption from realty taxes under the following
provision of Republic Act No. 6958:

Section 14. Tax Exemptions.– The Authority shall be exempt from realty taxes imposed by
the National Government or any of its political subdivisions, agencies and
instrumentalities: Provided, That no tax exemption herein granted shall extend to any
subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu

International Airport Authority v. Marcos4 (the 1996 MCIAA case) declaring that upon the
effectivity of Republic Act No. 7160 (The Local Government Code of 1991), petitioner was
no longer exempt from real estate taxes. The Court held:

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the
LGC, exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided in
the said section, and the petitioner is, undoubtedly, a government-owned corporation, it
necessarily follows that its exemption from such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn. x x x.

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan International Airport in the amount of
₱162,058,959.52. Petitioner complained that there were discrepancies in said Statement
of Real Estate Tax as follows:

(a) [T]he statement included lots and buildings not found in the inventory of petitioner’s
real properties;

(b) [S]ome of the lots were covered by two separate tax declarations which resulted in
double assessment;

(c) [There were] double entries pertaining to the same lots; and

(d) [T]he statement included lots utilized exclusively for governmental purposes. 5

Respondent City amended its billing and sent a new Statement of Real Estate Tax to
petitioner in the amount of ₱151,376,134.66. Petitioner averred that this amount covered
real estate taxes on the lots utilized solely and exclusively for public or governmental
purposes such as the airfield, runway and taxiway, and the lots on which they are
situated.
6

Petitioner paid respondent City the amount of four million pesos (₱4,000,000.00) monthly,
which was later increased to six million pesos (₱6,000,000.00) monthly. As of December
2003, petitioner had paid respondent City a total of ₱275,728,313.36. 7

Upon request of petitioner’s General Manager, the Secretary of the Department of Justice
(DOJ) issued Opinion No. 50, Series of 1998,8 and we quote the pertinent portions of said
Opinion below:

You further state that among the real properties deemed transferred to MCIAA are the
airfield, runway, taxiway and the lots on which the runway and taxiway are situated, the
tax declarations of which were transferred in the name of the MCIAA. In 1997, the City of
Lapu-Lapu imposed real estate taxes on these properties invoking the provisions of the
Local Government Code.

It is your view that these properties are not subject to real property tax because they are
exclusively used for airport purposes. You said that the runway and taxiway are not only
used by the commercial airlines but also by the Philippine Air Force and other government
agencies. As such and in conjunction with the above interpretation of Section 15 of R.A.
No. 6958, you believe that these properties are considered owned by the Republic of the
Philippines. Hence, this request for opinion.
The query is resolved in the affirmative. The properties used for airport purposes (i.e.
airfield, runway, taxiway and the lots on which the runway and taxiway are situated) are
owned by the Republic of the Philippines.

xxxx

Under the Law on Public Corporations, the legislature has complete control over the
property which a municipal corporation has acquired in its public or governmental capacity
and which is devoted to public or governmental use. The municipality in dealing with said
property is subject to such restrictions and limitations as the legislature may impose. On
the other hand, property which a municipal corporation acquired in its private or
proprietary capacity, is held by it in the same character as a private individual. Hence, the
legislature in dealing with such property, is subject to the constitutional restrictions
concerning property (Martin, Public Corporations [1997], p. 30; see also Province of
Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of
properties transferred to the MCIAA and used for airport purposes, such as those involved
herein. Since such properties are of public dominion, they are deemed held by the MCIAA
in trust for the Government and can be alienated only as may be provided by law.

Based on the foregoing, it is our considered opinion that the properties used for airport
purposes, such as the airfield, runway and taxiway and the lots on which the runway and
taxiway are located, are owned by the State or by the Republic of the Philippines and are
merely held in trust by the MCIAA, notwithstanding that certificates of titles thereto may
have been issued in the name of the MCIAA. (Emphases added.)

Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement
to the City Treasurer of Lapu-Lapu dated August 3, 1998, which reads:
9

The distinction as to which among the MCIAA properties are still considered "owned by
the State or by the Republic of the Philippines," such as the resolution in the above-cited
DOJ Opinion No. 50, for purposes of real property tax exemption is hereby deemed
tenable considering that the subject "airfield, runway, taxiway and the lots on which the
runway and taxiway are situated" appears to be the subject of real property tax
assessment and collection of the city government of Lapu-Lapu, hence, the same are
definitely located within the jurisdiction of Lapu-Lapu City. Moreover, then Undersecretary
Antonio P. Belicena of the Department of Finance, in his 1st Indorsement dated May 18,
1998, advanced that "this Department (DOF) interposes no objection to the request of
Mactan Cebu International Airport Authority for exemption from payment of real property
tax on the property used for airport purposes" mentioned above.

The City Assessor, therefore, is hereby instructed to transfer the assessment of the
subject airfield, runway, taxiway and the lots on which the runway and taxiway are
situated, from the "Taxable Roll" to the "Exempt Roll" of real properties.

The City Treasurer thereat should be informed on the action taken for his immediate
appropriate action. (Emphases added.)

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property
Tax Balances up to the year 2002 reflecting the amount of ₱246,395,477.20. Petitioner
claimed that the statement again included the lots utilized solely and exclusively for public
purpose such as the airfield, runway, and taxiway and the lots on which these are built.
Respondent Pacaldo then issued Notices of Levy on 18 sets of real properties of
petitioner.
10
Petitioner filed a petition for prohibition with the Regional Trial Court (RTC) of Lapu-Lapu
11

City with prayer for the issuance of a temporary restraining order (TRO) and/or a writ of
preliminary injunction, docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City
then issued a 72-hour TRO. The petition for prohibition sought to enjoin respondent City
from issuing a warrant of levy against petitioner’s properties and from selling them at
public auction for delinquency in realty tax obligations. The petition likewise prayed for a
declaration that the airport terminal building, the airfield, runway, taxiway and the lots on
which they are situated are exempted from real estate taxes after due hearing. Petitioner
based its claim of exemption on DOJ Opinion No. 50.

The RTC issued an Order denying the motion for extension of the TRO. Thus, on
December10, 2003, respondent City auctioned 27 of petitioner’s properties. As there was
no interested bidder who participated in the auction sale, respondent City forfeited and
purchased said properties. The corresponding Certificates of Sale of Delinquent Property
were issued to respondent City. 12

Petitioner claimed before the RTC that it had discovered that respondent City did not pass
any ordinance authorizing the collection of real property tax, a tax for the special
education fund (SEF), and a penalty interest for its nonpayment. Petitioner argued that
without the corresponding tax ordinances, respondent City could not impose and collect
real property tax, an additional tax for the SEF, and penalty interest from petitioner.13

The RTC issued an Order on December 28, 2004 granting petitioner’s application for a
14

writ of preliminary injunction. The pertinent portions of the Order are quoted below:

The supervening legal issue has rendered it imperative that the matter of the consolidation
of the ownership of the auctioned properties be placed on hold. Furthermore, it is the view
of the Court that great prejudice and damage will be suffered by petitioner if it were to lose
its dominion over these properties now when the most important legal issue has still to be
resolved by the Court. Besides, the respondents and the intervenor have not sufficiently
shown cause why petitioner’s application should not be granted.

WHEREFORE, the foregoing considered, petitioner’s application for a writ of preliminary

injunction is granted. Consequently, upon the approval of a bond in the amount of one
million pesos (₱1,000,000.00), let a writ of preliminary injunction issue enjoining the
respondents, the intervenor, their agents or persons acting in [their] behalf, to desist from
consolidating and exercising ownership over the properties of the petitioner.

However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in
an Order dated December 5, 2005. The RTC reasoned as follows:
15

The respondent City, in the courseof the hearing of its motion, presented to this Court a
certified copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu),
Section 25 whereof authorized the collection of a rate of one and one-half (1 1/2) [per
centum] from owners, executors or administrators of any real estate lying within the
jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest
revision.

Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local
Government Code of 1991), to the mind of the Court this ordinance is still a valid and
effective ordinance in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules and
Regulations of RA 7160 x x x.
 xxxx

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160,
though the 25% penalty collected is higher than the 2% interest allowed under Sec. 255 of
the said law which provides:

In case of failure to pay the basic real property tax or any other tax levied under this Title
upon the expiration of the periods as provided in Section 250, or when due, as the case
may be, shall subject the taxpayer to the payment of interest at the rate of two percent
(2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax shall
have been fully paid: Provided, however, That in no case shall the total interest on the
unpaid tax or portion thereof exceed thirty-six (36) months.

This difference does not however detract from the essential enforceability and effectivity
of Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the
Implementing Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent City [has] to recompute the petitioner’s tax liability.

It is also the Court’s perception that respondent City can still collect the additional 1% tax
on real property without an ordinance to this effect. It may be recalled that Republic Act
No. 5447 has created the Special Education Fund which is constituted from the proceeds
of the additional tax on real property imposed by the law. Respondent City has collected
this tax as mandated by this law without any ordinance for the purpose, as there is no
need for it. Even when RA 5447 was amended by PD 464 (Real Property Tax Code),
respondent City had continued to collect the tax, as it used to.

It is true that RA 7160 has repealed RA 5447, but what has been repealed are only
Section 3, a(3) and b(2) which concern the allocation of the additional tax, considering that
under RA 7160, the proceeds of the additional 1% tax on real property accrue exclusively
to the Special Education Fund. Nevertheless, RA 5447 has not been totally repealed;
there is only a partial repeal.

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted

to enable the collection of the additional 1% tax. This is so since RA 5447 is still in force
and effect, and the declared policy of the government in enacting the law, which is to
contribute to the financial support of the goals of education as provided in the Constitution,
necessitates the continued and uninterrupted collection of the tax. Considering that this is
a tax of far-reaching importance, to require the passage of an ordinance in order that the
tax may be collected would be to place the collection of the tax at the option of the local
legislature. This would run counter to the declared policy of the government when the SEF
was created and the tax imposed.

As regards the allegation of respondents that this Court has no jurisdiction to entertain the
instant petition, the Court deems it proper, at this stage of the proceedings, not to treat this
issue, as it involves facts which are yet to be established.

x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a futile

gesture in the light of Section 263 of RA 7160. x x x.

xxxx
It would seem from the foregoing provisions, that once the taxpayer fails to redeem within
the one-year period, ownership fully vests on the local government unit concerned. Thus,
when in the present case petitioner failed to redeem the parcels of land acquired by
respondent City, the ownership thereof became fully vested on respondent City without
the latter having to perform any other acts to perfect its ownership. Corollary thereto,
ownership on the part of respondent City has become a fait accompli.

WHEREFORE, in the light of the foregoing considerations, respondents’ motion for

reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby
reconsidered. Consequently, the writ of preliminary injunction issued by this Court is
hereby lifted.

Aggrieved, petitioner filed a petition for certiorari with the Court of Appeals (Cebu City),
16

with urgent prayer for the issuance of a TRO and/or writ of preliminary injunction,
docketed as CA-G.R. SP No. 01360. The Court of Appeals (Cebu City) issued a TRO on 17

January 5, 2006 and shortly thereafter, issued a writ of preliminary injunction on 18

February 17, 2006.

RULING OF THE COURT OF APPEALS

The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8,
2007, holding that petitioner is a government-owned or controlled corporation and its
properties are subject to realty tax. The dispositive portion of the questioned Decision
reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on
which they are situated NOT EXEMPT from the real estate tax imposed by the respondent
City of Lapu-Lapu;

b. We DECLARE the imposition and collection of the real estate tax, the additional levy for
the Special Education Fund and the penalty interest as VALID and LEGAL. However,
pursuant to Section 255 of the Local Government Code, respondent city can only collect
an interest of 2% per month on the unpaid tax which total interest shall, in no case, exceed
thirty-six (36) months; c. We DECLARE the sale in public auction of the aforesaid
properties and the eventual forfeiture and purchase of the subject property by the
respondent City of Lapu-Lapu as NULL and VOID. However, petitioner MCIAA’s property
is encumbered only by a limited lien possessed by the respondent City of Lapu-Lapu in
accord with Section 257 of the Local Government Code. Petitioner filed a Motion for
19

Partial Reconsideration of the questioned Decision covering only the portion of said
20

decision declaring that petitioner is a GOCC and, therefore, not exempt from the realty tax
and special education fund imposed by respondent City. Petitioner cited Manila
International Airport Authority v. Court of Appeals (the 2006 MIAA case) involving the
21

City of Parañaque and the Manila International Airport Authority. Petitioner claimed that it
had been described by this Court as a government instrumentality, and that it followed "as
a logical consequence that petitioner is exempt from the taxing powers of respondent City
of Lapu-Lapu." Petitioner alleged that the 1996 MCIAA case had been overturned by the
22

Court in the 2006 MIAA case. Petitioner thus prayed that it be declared exempt from
paying the realty tax, special education fund, and interest being collected by respondent
City.
On February 12, 2008, the Court of Appeals denied petitioner’s motion for partial
reconsideration in the questioned Resolution.

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA
case and refused to apply the 2006 MIAA case. The Court of Appeals wrote in the
questioned Decision: "We find that our position is in line with the coherent and cohesive
interpretation of the relevant provisions of the Local Government Code on local taxation
enunciated in the [1996 MCIAA] case which to our mind is more elegant and rational and
provides intellectual clarity than the one provided by the Supreme Court in the [2006]
MIAA case." 23

In the questioned Decision, the Court of Appeals held that petitioner’s airport terminal
building, airfield, runway, taxiway, and the lots on which they are situated are not exempt
from real estate tax reasoning as follows:

Under the Local Government Code (LGC for brevity), enacted pursuant to the
constitutional mandate of local autonomy, all natural and juridical persons, including
government-owned or controlled corporations (GOCCs), instrumentalities and agencies,
are no longer exempt from local taxes even if previously granted an exemption. The only
exemptions from local taxes are those specifically provided under the Code itself, or those
enacted through subsequent legislation.

Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for
the exercise by local government units of their power to tax, the scope thereof or its
limitations, and the exemptions from local taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units. x x x.

xxxx

The above-stated provision, however, qualified the exemption of the National Government,
its agencies and instrumentalities from local taxation with the phrase "unless otherwise
provided herein."

Section 232 of the LGC provides for the power of the local government units (LGUs for
brevity) to levy real property tax. x x x.

xxxx

Section 234 of the LGC provides for the exemptions from payment of real property taxes
and withdraws previous exemptions granted to natural and juridical persons, including
government-owned and controlled corporations, except as provided therein. x x x.

xxxx

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges.
x x x. (Citations omitted.)
24

The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in
the 2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax
the National Government, its agencies and instrumentalities as the same is qualified by
Sections 193, 232 and 234 which "otherwise provided"; and

b) Petitioner MCIAA is a GOCC. (Emphasis ours.)

25

The Court of Appeals ratiocinated in the following manner:

Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously
enjoyed by persons, whether natural or juridical, like the petitioner MCIAA, are deemed
withdrawn upon the effectivity of the Code. Further, the last paragraph of Section 234 of
the Code also unequivocally withdrew, upon the Code’s effectivity, exemptions from
payment of real property taxes previously granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section.
Petitioner MCIAA, undoubtedly a juridical person, it follows that its exemption from such
tax granted under Section 14 of R.A. 6958 has been withdrawn.

xxxx

From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC,
instrumentalities were generally exempt from all forms of local government taxation,
unless otherwise provided in the Code. On the other hand, Section 232 "otherwise
provided" insofar as it allowed local government units to levy an ad valorem real property
tax, irrespective of who owned the property. At the same time, the imposition of real
property taxes under Section 232 is, in turn, qualified by the phrase "not hereinafter
specifically exempted." The exemptions from real property taxes are enumerated in
Section 234 of the Code which specifically states that only real properties owned by the
Republic of the Philippines or any of its political subdivisions are exempted from the
payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions
under Section 234 of the LGC.

Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national
government, its agencies and instrumentalities under Section 133 is qualified by Sections
232 and 234, and accordingly, the only relevant exemption now applicable to these bodies
is what is now provided under Section 234(a) of the Code. It may be noted that the
express withdrawal of previously granted exemptions to persons from the payment of real
property tax by the LGC does not even make any distinction as to whether the exempt
person is a governmental entity or not. As Sections 193 and 234 of the Code both state,
the withdrawal applies to "all persons, including GOCCs," thus encompassing the two
classes of persons recognized under our laws, natural persons and juridical persons.

xxxx

The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has

already been lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA]
case x x x.

xxxx

Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA]
case that MIAA (and also petitioner MCIAA) is not a government-owned or controlled
corporation but an instrumentality based on Section 2(10) of the Administrative Code of
1987 appears to be unsound. In the [2006 MIAA] case, the majority justifies MIAA’s
purported exemption on Section 133(o)of the Local Government Code which places
"agencies and instrumentalities: as generally exempt from the taxation powers of the
LGUs. It further went on to hold that "By express mandate of the Local Government Code,
local governments cannot impose any kind of tax on national government instrumentalities
like the MIAA." x x x. (Citations omitted.)
26

The Court of Appeals further cited Justice Tinga’s dissent in the 2006 MIAA case as well
as provisions from petitioner MCIAA’s charter to show that petitioner is a GOCC. The 27

Court of Appeals wrote:

These cited provisions establish the fitness of the petitioner MCIAA to be the subject of
legal relations. Under its charter, it has the power to acquire, possess and incur
obligations. It also has the power to contract in its own name and to acquire title to
movable or immovable property. More importantly, it may likewise exercise powers of a
corporation under the Corporation Code. Moreover, based on its own allegation, it even
recognized itself as a GOCC when it alleged in its petition for prohibition filed before the
lower court that it "is a body corporate organized and existing under Republic Act No.
6958 x x x."

We also find to be not meritorious the assertion of petitioner MCIAA that the respondent
city can no longer challenge the tax-exempt character of the properties since it is
estopped from doing so when respondent City of Lapu-Lapu, through its former mayor,
Ernest H. Weigel, Jr., had long ago conceded that petitioner’s properties are exempt from
real property tax.

It is not denied by the respondent city that it considered, through its former mayor, Ernest
H. Weigel, Jr., petitioner’s subject properties, specifically the runway and taxiway, as
exempt from taxes. However, as astutely pointed out by the respondent city it "can never
be in estoppel, particularly in matters involving taxes. It is a well-known rule that
erroneous application and enforcement of the law by public officers do not preclude
subsequent correct application of the statute, and that the Government is never estopped
by mistake or error on the part of its agents." (Citations omitted.)
28

The Court of Appeals established the following:

a) [R]espondent City was able to prove and establish that it has a valid and existing
ordinance for the imposition of realty tax against petitioner MCIAA;

b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is
authorized by law, Republic Act No. 5447; and

c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but
is likewise [sanctioned] by respondent City’s ordinance. 29

The Court of Appeals likewise held that respondent City has a valid and existing local tax
ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which
provided for the imposition of real property tax. The relevant provision reads:

Chapter 5 – Tax on Real Property Ownership

Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2) percentum shall be
collected from owners, executors or administrators of any real estate lying within the
territorial jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in
the latest revision.
30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the
effectivity of the LGC, it remained in force and effect, citing Section 529 of the LGC and
Article 278 of the LGC’s Implementing Rules and Regulations. 31

As regards the Special Education Fund, the Court of Appeals held that respondent City
can still collect the additional 1% tax on real property even without an ordinance to this
effect, as this is authorized by Republic Act No. 5447, as amended by Presidential Decree
No. 464 (the Real Property Tax Code), which does not require an enabling tax ordinance.
The Court of Appeals affirmed the RTC’s ruling that Republic Act No. 5447 was still in
force and effect notwithstanding the passing of the LGC, as the latter only partially
repealed the former law. What Section 534 of the LGC repealed was Section 3 a(3) and
b(2) of Republic Act No. 5447, and not the entire law that created the Special Education
Fund. The repealed provisions referred to allocation of taxes on Virginia type cigarettes
32

and duties on imported leaf tobacco and the percentage remittances to the taxing
authority concerned. The Court of Appeals, citing The Commission on Audit of the
Province of Cebu v. Province of Cebu, held that "[t]he failure to add a specific repealing
33

clause particularly mentioning the statute to be repealed indicates that the intent was not
to repeal any existing law on the matter, unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and the old laws." The Court of Appeals
34

quoted the RTC’s discussion on this issue, which we reproduce below:

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted

to enable the collection of the additional 1% tax. This is so since R.A. 5447 is still in force
and effect, and the declared policy of the government in enacting the law, which is to
contribute to the financial support of the goals of education as provided in the Constitution,
necessitates the continued and uninterrupted collection of the tax. Considering that this is
a tax of far-reaching importance, to require the passage of an ordinance in order that the
tax may be collected would be to place the collection of the tax at the option of the local
legislature. This would run counter to the declared policy of the government when the SEF
was created and the tax imposed. Regarding the penalty interest, the Court of Appeals
35

found that Section 30 of Ordinance No. 44 of respondent City provided for a penalty
surcharge of 25% of the tax due for a given year. Said provision reads:

Section 30. – PENALTY FOR FAILURE TO PAY TAX. – Failure to pay the tax provided
for under this Chapter within the time fixed in Section 27, shall subject the taxpayer to a
surcharge of twenty-five percent (25%), without interest. 36

The Court of Appeals however declared that after the effectivity of the Local Government
Code, the respondent City could only collect penalty surcharge up to the extent of 72%,
covering a period of three years or 36 months, for the entire delinquent property. This 37

was lower than the 25% per annum surcharge imposed by Ordinance No. 44. The Court 38

of Appeals affirmed

the findings of the RTC in the decision quoted below:

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160,
though the 25% penalty collected is higher than the 2% allowed under Sec. 255 of the
said law which provides:
 xxxx

This difference does not however detract from the essential enforceability and effectivity
of Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of the
Implementing Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent city will have to [recompute] the petitioner’s tax liability. 39

It is worthy to note that the Court of Appeals nevertheless held that even if it is clear
that respondent City has the power to impose real property taxes over petitioner, "it
is also evident and categorical that, under Republic Act No. 6958, the properties of
petitioner MCIAA may not be conveyed or transferred to any person or entity except
to the national government." The relevant provisions of the said law are quoted below:
40

Section 4. Functions, Powers and Duties.– The Authority shall have the
following functions, powers and duties:

xxxx

(e) To acquire, purchase, own, administer, lease, mortgage, sell or

otherwise dispose of any land, building, airport facility, or property of
whatever kind and nature, whether movable or immovable, or any interest
therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or
mortgage by the Authority nor to transfer to any entity other than the
National Government[.]

Section 13. Borrowing Power.– The Authority may, in accordance with

Section 21, Article XII of the Constitution and other existing laws, rules and
regulations on local or foreign borrowing, raise funds, either from local or
international sources, by way of loans, credit or securities, and other
borrowing instruments with the power to create pledges, mortgages and
other voluntary liens or encumbrances on any of its assets or properties,
subject to the prior approval of the President of the Philippines.

All loans contracted by the Authority under this section, together with all
interests and other sums payable in respect thereof, shall constitute a
charge upon all the revenues and assets of the Authority and shall rank
equally with one another, but shall have priority over any other claim or
charge on the revenue and assets of the Authority: Provided, That this
provision shall not be construed as a prohibition or restriction on the power
of the Authority to create pledges, mortgages and other voluntary liens or
encumbrances on any asset or property of the Authority. The payment of
the loans or other indebtedness of the Authority may be guaranteed by the
National Government subject to the approval of the President of the
Philippines.

The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its
charter the absolute right to dispose of its property to any person or entity except to the
national government and it is not empowered to obtain loans or encumber its property
without the approval of the President." The questioned Decision contained the following
41

conclusion:
 With the advent of RA 7160, the Local Government Code, the power to tax
is no longer vested exclusively on Congress. LGUs, through its local
legislative bodies, are now given direct authority to levy taxes, fees and
other charges pursuant to Article X, Section 5 of the 1987 Constitution.
And one of the most significant provisions of the LGC is the removal of the
blanket inclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. The express withdrawal
by the Code of previously granted exemptions from realty taxes applied to
instrumentalities and government-owned or controlled corporations
(GOCCs) such as the petitioner Mactan-Cebu International Airport
Authority. Thus, petitioner MCIAA became a taxable person in view of the
withdrawal of the realty tax exemption that it previously enjoyed under
Section 14 of RA No. 6958 of its charter. As expressed and categorically
held in the Mactan case, the removal and withdrawal of tax exemptions
previously enjoyed by persons, natural or juridical, are consistent with the
State policy to ensure autonomy to local governments and the objective of
the Local Government Code that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of
national goals.

However, in the case at bench, petitioner MCIAA’s charter expressly bars

the alienation or mortgage of its property to any person or entity except to
the national government. Therefore, while petitioner MCIAA is a taxable
person for purposes of real property taxation, respondent City of
Lapu-Lapu is prohibited from seizing, selling and owning these properties
by and through a public auction in order to satisfy petitioner MCIAA’s tax
liability. (Citations omitted.)
42

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals
denied petitioner’s motion for reconsideration based on the following grounds:

First, the MCIAA case remains the controlling law on the matter as the
same is the established precedent; not the MIAA case but the MCIAA
case since the former, as keenly pointed out by the respondent City of
Lapu-Lapu, has not yet attained finality as there is still yet a pending
motion for reconsideration filed with the Supreme Court in the aforesaid
case.

Second, and more importantly, the ruling of the Supreme Court in the
MIAA case cannot be similarly invoked in the case at bench. The said
case cannot be considered as the "law of the case." The "law of the case"
doctrine has been defined as that principle under which determinations of
questions of law will generally be held to govern a case throughout all its
subsequent stages where such determination has already been made on
a prior appeal to a court of last resort. It is merely a rule of procedure and
does not go to the power of the court, and will not be adhered to where its
application will result in an unjust decision. It relates entirely to questions
of law, and is confined in its operation to subsequent proceedings in the
same case. According to said doctrine, whatever has been irrevocably
established constitutes the law of the case only as to the same parties in
the same case and not to different parties in an entirely different case.
 Besides, pending resolution of the aforesaid motion for reconsideration in
the MIAA case, the latter case has not irrevocably established anything.

Thus, after a thorough and judicious review of the allegations in

petitioner’s motion for reconsideration, this Court resolves to deny the
same as the matters raised therein had already been exhaustively
discussed in the decision sought to be reconsidered, and that no new
matters were raised which would warrant the modification, much less
reversal, thereof. (Emphasis added, citations omitted.)
43

PETITIONER’S THEORY

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly
declared that petitioner, while vested with corporate powers, is not considered a
government-owned or controlled corporation, but is a government instrumentality like the
Manila International Airport Authority (MIAA), Philippine Ports Authority (PPA), University
of the Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a
government instrumentality, all its airport lands and buildings are exempt from real estate
taxes imposed by respondent City. Petitioner alleges that Republic Act No. 6958 placed
44

"a limitation on petitioner’s administration of its assets and properties" as it provides under
Section 4(e) that "any asset in the international airport important to national security
cannot be alienated or mortgaged by petitioner or transferred to any entity other than the
National Government." 45

Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding
the following:

PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS

EXPRESSLY DECLARED BY THE HONORABLE COURT IN THE MIAA
CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE TAXES
IMPOSED BY RESPONDENT CITY OF LAPULAPU.

II

THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT

TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY, INCLUDING
THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM
REAL PROPERTY TAXES.

III

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL

PROPERTY TAX WITHOUT ANY APPROPRIATE ORDINANCE.

IV

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN

ADDITIONAL 1% TAX FOR THE SPECIAL EDUCATION FUND IN THE
ABSENCE OF ANY CORRESPONDING ORDINANCE.
 V

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY

INTEREST SANSANY ORDINANCE MANDATING ITS IMPOSITION. 46

Petitioner claims the following similarities with MIAA:

1. MCIAA belongs to the same class and performs identical functions as MIAA;

2. MCIAA is a public utility like MIAA;

3. MIAA was organized to operate the international and domestic airport in Paranaque
City for public use, while MCIAA was organized to operate the international and domestic
airport in Mactan for public use.

4. Both are attached agencies of the Department of Transportation and Communications. 47

Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive
Order No. 903).

Section 3 of Executive Order No. 903 provides:

Sec. 3. Creation of the Manila International Airport Authority. There is hereby established
a body corporate to be known as the Manila International Airport Authority which shall be
attached to the Ministry of Transportation and Communications. The principal office of the
Authority shall be located at the New Manila International Airport. The Authority may
establish such offices, branches, agencies or subsidiaries as it may deem proper and
necessary; x x x.

Section 2 of Republic Act No. 6958 reads:

Section 2. Creation of the Mactan-Cebu International Airport Authority.– There is hereby

established a body corporate to be known as the Mactan-Cebu International Airport
Authority which shall be attached to the Department of Transportation and
Communications. The principal office of the Authority shall be located at the Mactan
International Airport, Province of Cebu.

The Authority may have such branches, agencies or subsidiaries as it may deem proper
and necessary.

As to MIAA’s purposes and objectives, Section 4 of Executive Order No. 903 reads:

Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and
objectives:

(a) To help encourage and promote international and domestic air traffic in the Philippines
as a means of making the Philippines a center of international trade and tourism and
accelerating the development of the means of transportation and communications in the
country;

(b) To formulate and adopt for application in the Airport internationally acceptable
standards of airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for international
and domestic air travel.

Petitioner claims that the above purposes and objectives are analogous to those
enumerated in its charter, specifically Section 3 of Republic Act No. 6958, which reads:

Section 3. Primary Purposes and Objectives.– The Authority shall principally undertake
the economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City,
hereinafter collectively referred to as the airports, and such other airports as may be
established in the Province of Cebu. In addition, it shall have the following objectives:

(a) To encourage, promote and develop international and domestic air traffic in the central
Visayas and Mindanao regions as a means of making the regions centers of international
trade and tourism, and accelerating the development of the means of transportation and
communications in the country; and

(b) To upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.

The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903
are:

Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions,
powers and duties:

(a) To formulate, in coordination with the Bureau of Air Transportation and other
appropriate government agencies, a comprehensive and integrated policy and program
for the Airport and to implement, review and update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or
services as shall be necessary for the efficient functioning of the Airport;

(c) To promulgate rules and regulations governing the planning, development,

maintenance, operation and improvement of the Airport, and to control and/or supervise
as may be necessary the construction of any structure or the rendition of any services
within the Airport;

(d) To sue and be sued in its corporate name;

(e) To adopt and use a corporate seal;

(f) To succeed by its corporate name;

(g) To adopt its by-laws, and to amend or repeal the same from time to time;

(h) To execute or enter into contracts of any kind or nature;

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of
any land, building, airport facility, or property of whatever kind and nature, whether
movable or immovable, or any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport
premises, works, appliances, facilities or concessions or for any service provided by the
Authority, subject to the approval of the Minister of Transportation and Communications in
consultation with the Minister of Finance, and subject further to the provisions of Batas
Pambansa Blg. 325 where applicable;

(l) To invest its idle funds, as it may deem proper, in government securities and other
evidences of indebtedness of the government;

(m) To provide services, whether on its own or otherwise, within the Airport and the
approaches thereof, which shall include but shall not be limited to, the following:

(1) Aircraft movement and allocation of parking areas of aircraft on the ground;

(2) Loading or unloading of aircrafts;

(3) Passenger handling and other services directed towards the care, convenience and
security of passengers, visitors and other airport users; and

(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.

(n) To perform such other acts and transact such other business, directly or indirectly
necessary, incidental or conducive to the attainment of the purposes and objectives of the
Authority, including the adoption of necessary measures to remedy congestion in the
Airport; and

(o) To exercise all the powers of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of this Executive Order.

Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of
Republic Act No. 6958, as shown in the provision quoted below:

Section 4. Functions, Powers and Duties.– The Authority shall have the following
functions, powers and duties:

(a) To formulate a comprehensive and integrated development policy and program for the
airports and to implement, review and update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or
services as shall be necessary for the efficient functioning of the airports;

(c) To promulgate rules and regulations governing the planning, development,

maintenance, operation and improvement of the airports, and to control and supervise the
construction of any structure or the rendition of any service within the airports;

(d) To exercise all the powers of a corporation under the Corporation Code of the
Philippines, insofar as those powers are not inconsistent with the provisions of this Act;

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of
any land, building, airport facility, or property of whatever kind and nature, whether
movable or immovable, or any interest therein: Provided, That any asset located in the
Mactan International Airport important to national security shall not be subject to alienation
or mortgage by the Authority nor to transfer to any entity other than the National
Government;

(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(g) To levy and collect dues, charges, fees or assessments for the use of airport premises,
works, appliances, facilities or concessions, or for any service provided by the Authority;

(h) To retain and appropriate dues, fees and charges collected by the Authority relative to
the use of airport premises for such measures as may be necessary to make the Authority
more effective and efficient in the discharge of its assigned tasks;

(i) To invest its idle funds, as it may deem proper, in government securities and other
evidences of indebtedness; and

(j) To provide services, whether on its own or otherwise, within the airports and the
approaches thereof as may be necessary or in connection with the maintenance and
operation of the airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its premises, as shown in
their respective charters quoted below:

EO 903, Sec. 6. Police Authority. — The Authority shall have the power to
exercise such police authority as may be necessary within its premises to
carry out its functions and attain its purposes and objectives, without
prejudice to the exercise of functions within the same premises by the
Ministry of National Defense through the Aviation Security Command
(AVSECOM) as provided in LOI 961: Provided, That the Authority may
request the assistance of law enforcement agencies, including request for
deputization as may be required. x x x.

R.A. No. 6958, Section 5. Police Authority.– The Authority shall have the
power to exercise such police authority as may be necessary within its
premises or areas of operation to carry out its functions and attain its
purposes and objectives: Provided, That the Authority may request the
assistance of law enforcement agencies, including request for
deputization as may be required. x x x.

Petitioner pointed out other similarities in the two charters, such as:

1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations
(Section 15, Executive Order No. 903; Section 12, Republic Act No. 6958);

2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No.
903; Section 14, Republic Act No. 6958);

3. Both MCIAA and MIAA are required to submit to the President an annual report
generally dealing with their activities and operations (Section 14, Executive Order No. 903;
Section 11, Republic Act No. 6958); and
4. Both have borrowing power subject to the approval of the President (Section 16,
Executive Order No. 903; Section 13, Republic Act No. 6958). 48

Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006
MIAA case, placed it in the same class as MIAA and considered it as a government
instrumentality. Petitioner submits that since it is also a government instrumentality like
MIAA, the following conclusion arrived by the Court in the 2006 MIAA case is also
applicable to petitioner:

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative
Code, which governs the legal relation and status of government units, agencies
and offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under
Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or
charges of any kind" by local governments. The only exception is when MIAA
leases its real property to a "taxable person" as provided in Section 234(a) of the
Local Government Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands and Buildings
leased to taxable persons like private parties are subject to real estate tax by the
City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the
State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties of
public dominion and owned by the Republic. As properties of public dominion owned
by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings
are expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale. (Emphases added.)
49

Petitioner insists that its properties consisting of the airport terminal building, airfield,
runway, taxiway and the lots on which they are situated are not subject to real property tax
because they are actually, solely and exclusively used for public purposes. They are
50

indispensable to the operation of the Mactan International Airport and by their very nature,
these properties are exempt from tax. Said properties belong to the State and are merely
held by petitioner in trust. As earlier mentioned, petitioner claims that these properties are
important to national security and cannot be alienated, mortgaged, or transferred to any
entity except the National Government.

Petitioner prays that judgment be rendered:

a) Declaring petitioner exempt from paying real property taxes as it is a government

instrumentality;

b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect
the basic real property tax, the additional tax for the SEF and the penalty interest for its
failure to pass the corresponding tax ordinances; and

c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from
real property taxes as they are used solely and exclusively for public purpose. 51
In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA
ruling has overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante O. Tinga’s
dissent in the MIAA ruling, as follows:

[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan.
The majority provides for a wildly different interpretation of Section 133, 193 and 234 of
the Local Government Code than that employed by the Court in Mactan. Moreover, the
parties in Mactan and in this case are similarly situated, as can be obviously deducted
from the fact that both petitioners are airport authorities operating under similarly worded
charters. And the fact that the majority cites doctrines contrapuntal to the Local
Government Code as in Basco and Maceda evinces an intent to go against the Court’s
jurisprudential trend adopting the philosophy of expanded local government rule under the
Local Government Code.

x x x The majority is obviously inconsistent with Mactan and there is no way these two
rulings can stand together. Following basic principles in statutory construction, Mactan will
be deemed as giving way to this new ruling.

xxxx

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and
the MIAA are similarly situated. They are both, as will be demonstrated, GOCCs,
commonly engaged in the business of operating an airport. They are the owners of airport
properties they respectively maintain and hold title over these properties in their name.
These entities are both owned by the State, and denied by their respective charters the
absolute right to dispose of their properties without prior approval elsewhere. Both of them
are not empowered to obtain loans or encumber their properties without prior approval the
prior approval of the President. (Citations omitted.)
52

Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission
on respondent City’s part that it must have a tax measure to be able to impose a tax or
special assessment. Petitioner avers that assuming that it is a non-exempt entity or that its
airport lands and buildings are not exempt, it was only upon the effectivity of Ordinance
No. 070-2007 on January 1,2008 that respondent City could properly impose the basic
real property tax, the additional tax for the SEF, and the interest in case of nonpayment. 53

Petitioner filed its Memorandum on June 17, 2009.

54

RESPONDENTS’ THEORY

In their Comment, respondents point out that petitioner partially moved for a
55

reconsideration of the questioned Decision only as to the issue of whether petitioner is a

GOCC or not. Thus, respondents declare that the other portions of the questioned
decision had already attained finality and ought not to be placed in issue in this petition for
certiorari. Thus, respondents discussed the other issues raised by petitioner with
reservation as to this objection. Respondents summarized the issues and the grounds
relied upon as follows:

STATEMENT OF THE ISSUES

 WHETHER OR NOT PETITIONER IS A GOVERNMENT
INSTRUMENTALITY EXEMPT FROM PAYING REAL PROPERTY
TAXES

WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX,

SPECIAL EDUCATION FUND AND PENALTY INTEREST

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD,

RUNWAY, TAXIWAY INCLUDING THE LOTS ON WHICH THEY ARE
SITUATED ARE EXEMPT FROM REALTY TAXES

GROUNDS RELIED UPON

1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY

TAXES

2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT

FROM REALTY TAXES

3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT

4. CITY CAN COLLECT REALTY TAX AND INTEREST

5. CITY CAN COLLECT SEF

6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY

WARRANTING INJUNCTIVE RELIEF

7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC 56

Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals]
case does not make it the controlling case on the matter." Respondents further claim that
57

the 1996 MCIAA case where this Court held that petitioner is a GOCC is the controlling
jurisprudence. Respondents point out that petitioner and MIAA are two very different
entities. Respondents argue that petitioner is a GOCC contrary to its assertions, based on
its Charter and on DOJ Opinion No. 50.

Respondents contend that if petitioner is not a GOCC but an instrumentality of the

government, still the following statement in the 1996 MCIAA case applies:

Besides, nothing can prevent Congress from decreeing that even instrumentalities or
agencies of the Government performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional mandate and national policy, no one
can doubt its wisdom. Respondents argue that MCIAA properties such as the terminal
58

building, taxiway and runway are not exempt from real property taxation. As discussed in
the 1996 MCIAA case, Section 234 of the LGC omitted GOCCs such as MCIAA from
entities enjoying tax exemptions. Said decision also provides that the transfer of
ownership of the land to petitioner was absolute and petitioner cannot evade payment of
taxes.59

Even if the following issues were not raised by petitioner in its motion for reconsideration
of the questioned Decision, and thus the ruling pertaining to these issues in the
questioned decision had become final, respondents still discussed its side over its
objections as to the propriety of bringing these up before this Court.

1. Estoppel does not lie against the government.

2. Respondent City can collect realty taxes and interest.

a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections
241, 247).

b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or the Omnibus Tax
Ordinance, wherein the imposition of real property tax was made. This Ordinance was in
force and effect by virtue of Article 278 of the IRR of Republic Act No. 7160.
60

c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code,
imposed real property taxes, special education fund and further provided for the payment
of interest and surcharges. Thus, the issue is passé and is moot and academic.

3. Respondent City can collect Special Education Fund.

a. The LGC does not require the enactment of an ordinance for the collection of the SEF.

b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection
need not be covered by ordinance. Besides, the City has enacted the Revenue Code
containing provisions for the levy and collection of the SEF.
61

Furthermore, respondents aver that:

1. Collection of taxes is beyond the ambit of injunction.

a. Respondents contend that the petition only questions the denial of the writ of
preliminary injunction by the RTC and the Court of Appeals. Petitioner failed to show
irreparable injury.

b. Comparing the alleged damage that may be caused petitioner and the direct affront and
challenge against the power to tax, which is an attribute of sovereignty, it is but
appropriate that injunctive relief should be denied.

2. Petitioner did not comply with LGC provisions on payment under protest.

a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR
of Republic Act No. 7160. Section 252 of Republic Act No. 7160 requires that the
62

taxpayer’s protest can only be entertained if the tax is first paid under protest.63

Respondents submitted their Memorandum on June 30, 2009, wherein they allege that
64

the 1996 MCIAA case is still good law, as shown by the following cases wherein it was
quoted:

1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545

Phil. 92 (2007)];

2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];

3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil. 785 (2008)]; and

4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].

Respondents assert that the constant reference to the 1996 MCIAA case "could hardly
mean that the doctrine has breathed its last" and that the 1996 MCIAA case stands as
precedent and is controlling on petitioner MCIAA. 65

Respondents allege that the issue for consideration is whether it is proper for petitioner to
raise the issue of whether it is not liable to pay real property taxes, special education fund
(SEF), interests and/or surcharges. Respondents argue that the Court of Appeals was
66

correct in declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway,
and runway. Respondent City relies on the following grounds:

1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;

2. MCIAA is a corporation;

3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991
authorizes the collection of real property taxes (etc.) from MCIAA;

4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not
exempt from realty taxes, special education fund and interest;

5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund
from MCIAA; [and]

6. Estoppel does not lie against the government. 67

THIS COURT’S RULING

The petition has merit. The petitioner is an instrumentality of the government; thus, its
properties actually, solely and exclusively used for public purposes, consisting of the
airport terminal building, airfield, runway, taxiway and the lots on which they are situated,
are not subject to real property tax and respondent City is not justified in collecting taxes
from petitioner over said properties.

DISCUSSION

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still
controls and that petitioner is a GOCC. The 2006 MIAA case governs.

The Court of Appeals’ reliance on the 1996 MCIAA case is misplaced and its staunch
refusal to apply the 2006 MIAA case is patently erroneous. The Court of Appeals, finding
for respondents, refused to apply the ruling in the 2006 MIAA case on the premise that the
same had not yet reached finality, and that as far as MCIAA is concerned, the 1996
MCIAA case is still good law. 68

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line
of cases, still, in 2006, the Court en banc decided a case that in effect reversed the 1996
69

Mactan ruling. The 2006 MIAA case had, since the promulgation of the questioned
Decision and Resolution, reached finality and had in fact been either affirmed or cited in
numerous cases by the Court. The decision became final and executory on November 3,
70

2006. Furthermore, the 2006 MIAA case was decided by the Court en banc while the
71

1996 MCIAA case was decided by a Division. Hence, the 1996 MCIAA case should be
read in light of the subsequent and unequivocal ruling in the 2006 MIAA case.

To recall, in the 2006 MIAA case, we held that MIAA’s airport lands and buildings are
exempt from real estate tax imposed by local governments; that it is not a GOCC but an
instrumentality of the national government, with its real properties being owned by the
Republic of the Philippines, and these are exempt from real estate tax. Specifically
referring to petitioner, we stated as follows:

Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an agency
or instrumentality is deemed a government-owned or controlled corporation. Examples
are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or
non-stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government
entities. (Emphases ours.)
72

In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws." We quote the
73

extensive discussion of the Court that led to its finding that MIAA’s lands and buildings
were exempt from real estate tax imposed by local governments:

First, MIAA is not a government-owned or controlled corporation but an instrumentality of

the National Government and thus exempt from local taxation. Second, the real properties
of MIAA are owned by the Republic of the Philippines and thus exempt from real estate
tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

xxxx

There is no dispute that a government-owned or controlled corporation is not exempt from

real estate tax. However, MIAA is not a government-owned or controlled corporation.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. - x x x (13) Government-owned or controlled corporation

refers to any agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one (51) percent of its
capital stock: x x x.

A government-owned or controlled corporation must be "organized as a stock or

non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA
is not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. x x x

xxxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock
is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation
must have members. Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury. This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within
the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently

its governmental functions. MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. - x x x

(10) Instrumentality refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x.

When the law vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation. Unless the government instrumentality is organized as a
stock or non-stock corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain, police authority and the levying of fees and charges. At the
same time, MIAA exercises "all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this Executive Order."
Likewise, when the law makes a government instrumentality operationally autonomous,
the instrumentality remains part of the National Government machinery although not
integrated with the department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body" will make its operation more
"financially viable."

Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an agency
or instrumentality is deemed a government-owned or controlled corporation. Examples
are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or
non-stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government
entities. (Emphases ours, citations omitted.)
74

The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of
the local governments as against the national government or its instrumentality:

A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.-
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. x x x.

Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the power
to tax. While the 1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power "subject to such
guidelines and limitations as the Congress may provide."

When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government
instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality. x x x.
 xxxx

There is, moreover, no point in national and local governments taxing each other, unless a
sound and compelling policy requires such transfer of public funds from one government
pocket to another.

There is also no reason for local governments to tax national government instrumentalities
for rendering essential public services to inhabitants of local governments. The only
exception is when the legislature clearly intended to tax government instrumentalities for
the delivery of essential public services for sound and compelling policy considerations.
There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against
local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided"
in the Code, local governments cannot tax national government instrumentalities. x x
x. (Emphases ours, citations omitted.)
75

The Court emphasized that the airport lands and buildings of MIAA are owned by the
Republic and belong to the public domain. The Court said:

The Airport Lands and Buildings of MIAA are property of public dominion and therefore
owned by the State or the Republic of the Philippines. x x x.

xxxx

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are
owned by the State. The term "ports" includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and
thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the
public for international and domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. x x x.

xxxx

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges
to airlines, constitute the bulk of the income that maintains the operations of MIAA. The
collection of such fees does not change the character of MIAA as an airport for public use.
Such fees are often termed user’s tax. This means taxing those among the public who
actually use a public facility instead of taxing all the public including those who never use
the particular public facility. A user’s tax is more equitable - a principle of taxation
mandated in the 1987 Constitution.

The Airport Lands and Buildings of MIAA x x x are properties of public dominion because
they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines. (Emphases supplied, citations
76

omitted.)
The Court also held in the 2006 MIAA case that airport lands and buildings are outside the
commerce of man.

As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public dominion are
outside the commerce of man. As early as 1915, this Court already ruled in Municipality of
Cavite v. Rojas that properties devoted to public use are outside the commerce of man,
thus:

xxxx

The Civil Code, Article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, x x x.

xxxx

The Court has also ruled that property of public dominion, being outside the commerce of
man, cannot be the subject of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance
or disposition through public or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for being contrary to public policy.
Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque
can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first
withdraw from public use the Airport Lands and Buildings. x x x.

xxxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and are
inalienable. Since the Airport Lands and Buildings are inalienable in their present status
as properties of public dominion, they are not subject to levy on execution or foreclosure
sale. As long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. -
(1) The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the specific
public purpose indicated until otherwise provided by law or proclamation;

xxxx
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn
by law or presidential proclamation from public use, they are properties of public dominion,
owned by the Republic and outside the commerce of man. 77

Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings
in trust for the Republic. [Under] Section 48, Chapter 12, Book I of the Administrative
Code [which] allows instrumentalities like MIAA to hold title to real properties owned by
the Republic."78

The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and
held that said provision exempts from real estate tax any "[r]eal property owned by the
Republic of the Philippines." The Court emphasized, however, that "portions of the
79

Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax." The Court further held:

This exemption should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing "[t]axes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The real properties owned
by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real property is
transferred to an agency or instrumentality even as the Republic remains the owner of the
real property. Such arrangement does not result in the loss of the tax exemption. Section
234(a) of the Local Government Code states that real property owned by the Republic
loses its tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government instrumentality,
is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if
we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands
and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities
are not exempt from real estate tax. For example, the land area occupied by hangars that
MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has
granted the beneficial use of such land area for a consideration to a taxable person and
therefore such land area is subject to real estate tax. x x x.
80

Significantly, the Court reiterated the above ruling and applied the same reasoning in
Manila International Airport Authority v. City of Pasay, thus:
81

The only difference between the 2006 MIAA case and this case is that the 2006 MIAA
case involved airport lands and buildings located in Parañaque City while this case
involved airport lands and buildings located in Pasay City. The 2006 MIAA case and this
case raised the same threshold issue: whether the local government can impose real
property tax on the airport lands, consisting mostly of the runways, as well as the airport
buildings, of MIAA. x x x.

xxxx
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes x x x government-owned or
controlled corporations" which means that a government "instrumentality" may or may not
be a "government-owned or controlled corporation." Obviously, the term government
"instrumentality" is broader than the term "government-owned or controlled corporation." x
x x.

xxxx

The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation," there may
be a government "instrumentality" that will not qualify as a "government-owned or
controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in

Section 2(13) will show that MIAA would not fall under such definition. MIAA is a
government "instrumentality" that does not qualify as a "government-owned or controlled
corporation." x x x.

xxxx

Thus, MIAA is not a government-owned or controlled corporation but a government

instrumentality which is exempt from any kind of tax from the local governments. Indeed,
the exercise of the taxing power of local government units is subject to the limitations
enumerated in Section 133 of the Local Government Code. Under Section 133(o) of the
Local Government Code, local government units have no power to tax instrumentalities of
the national government like the MIAA. Hence, MIAA is not liable to pay real property tax
for the NAIA Pasay properties. Furthermore, the airport lands and buildings of MIAA are
properties of public dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code. However, under the
same provision, if MIAA leases its real property to a taxable person, the specific property
leased becomes subject to real property tax. In this case, only those portions of the NAIA
Pasay properties which are leased to taxable persons like private parties are subject to
real property tax by the City of Pasay. (Emphases added, citations omitted.)

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also
mentioned several other government instrumentalities, among which was the Philippine
Fisheries Development Authority. Thus, applying the 2006 MIAA ruling, the Court, in
Philippine Fisheries Development Authority v. Court of Appeals, held:
82

On the basis of the parameters set in the MIAA case, the Authority should be classified as
an instrumentality of the national government. As such, it is generally exempt from
payment of real property tax, except those portions which have been leased to private
entities.

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as
among the instrumentalities of the national government. x x x.

xxxx

Indeed, the Authority is not a GOCC but an instrumentality of the government. The
Authority has a capital stock but it is not divided into shares of stocks. Also, it has no
stockholders or voting shares. Hence, it is not a stock corporation. Neither [is it] a
non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an

agency of the national government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through
a charter. When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers.

Thus, the Authority which is tasked with the special public function to carry out the
government’s policy "to promote the development of the country’s fishing industry and
improve the efficiency in handling, preserving, marketing, and distribution of fish and other
aquatic products," exercises the governmental powers of eminent domain, and the power
to levy fees and charges. At the same time, the Authority exercises "the general corporate
powers conferred by laws upon private and government-owned or controlled
corporations."

xxxx

In light of the foregoing, the Authority should be classified as an instrumentality of the

national government which is liable to pay taxes only with respect to the portions of the
property, the beneficial use of which were vested in private entities. When local
governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government
instrumentalities.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only
with respect to the portions leased to private persons. In case the Authority fails to pay
1âwphi1

the real property taxes due thereon, said portions cannot be sold at public auction to
satisfy the tax delinquency. x x x.

xxxx

In sum, the Court finds that the Authority is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only
with respect to those portions which are leased to private entities. Notwithstanding said
tax delinquency on the leased portions of the IFPC, the latter or any part thereof, being a
property of public domain, cannot be sold at public auction. This means that the City of
Iloilo has to satisfy the tax delinquency through means other than the sale at public
auction of the IFPC. (Citations omitted.) Another government instrumentality specifically
mentioned in the 2006 MIAA case was the Philippine Ports Authority (PPA). Hence, in
Curata v. Philippine Ports Authority, the Court held that the PPA is similarly situated as
83

MIAA, and ruled in this wise:

This Court’s disquisition in Manila International Airport Authority v. Court of Appeals ––

ruling that MIAA is not a government-owned and/or controlled corporation (GOCC), but an
instrumentality of the National Government and thus exempt from local taxation, and that
its real properties are owned by the Republic of the Philippines –– is instructive. x x x.
These findings are squarely applicable to PPA, as it is similarly situated as MIAA. First,
PPA is likewise not a GOCC for not having shares of stocks or members. Second, the
docks, piers and buildings it administers are likewise owned by the Republic and, thus,
outside the commerce of man. Third, PPA is a mere trustee of these properties. Hence,
like MIAA, PPA is clearly a government instrumentality, an agency of the government
vested with corporate powers to perform efficiently its governmental functions.

Therefore, an undeniable conclusion is that the funds of PPA partake of government funds,
and such may not be garnished absent an allocation by its Board or by statutory grant. If
the PPA funds cannot be garnished and its properties, being government properties,
cannot be levied via a writ of execution pursuant to a final judgment, then the trial court
likewise cannot grant discretionary execution pending appeal, as it would run afoul of the
established jurisprudence that government properties are exempt from execution. What
cannot be done directly cannot be done indirectly. (Citations omitted.)

In Government Service Insurance System v. City Treasurer and City Assessor of the City
of Manila the Court found that the GSIS was also a government instrumentality and not a
84

GOCC, applying the 2006 MIAA case even though the GSIS was not among those
specifically mentioned by the Court as similarly situated as MIAA. The Court said:

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila
International Airport Authority v. Court of Appeals, a case likewise involving real estate tax
assessments by a Metro Manila city on the real properties administered by MIAA, argues
for the non-tax liability of GSIS for real estate taxes. x x x.

xxxx

While perhaps not of governing sway in all fours inasmuch as what were involved in
Manila International Airport Authority, e.g., airfields and runways, are properties of the
public dominion and, hence, outside the commerce of man, the rationale underpinning the
disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being
similarly situated. First, while created under CA 186 as a non-stock corporation, a status
that has remained unchanged even when it operated under PD 1146 and RA 8291, GSIS
is not, in the context of the aforequoted Sec. 193 of the LGC, a GOCC following the
teaching of Manila International Airport Authority, for, like MIAA, GSIS’s capital is not
divided into unit shares. Also, GSIS has no members to speak of. And by members, the
reference is to those who, under Sec. 87 of the Corporation Code, make up the non-stock
corporation, and not to the compulsory members of the system who are government
employees. Its management is entrusted to a Board of Trustees whose members are
appointed by the President.

Second, the subject properties under GSIS’s name are likewise owned by the Republic.
The GSIS is but a mere trustee of the subject properties which have either been ceded to
it by the Government or acquired for the enhancement of the system. This particular
property arrangement is clearly shown by the fact that the disposal or conveyance of said
subject properties are either done by or through the authority of the President of the
Philippines. x x x. (Emphasis added, citations omitted.)

All the more do we find that petitioner MCIAA, with its many similarities to the MIAA,
should be classified as a government instrumentality, as its properties are being used for
public purposes, and should be exempt from real estate taxes. This is not to derogate in
any way the delegated authority of local government units to collect realty taxes, but to
uphold the fundamental doctrines of uniformity in taxation and equal protection of the laws,
by applying all the jurisprudence that have exempted from said taxes similar authorities,
agencies, and instrumentalities, whether covered by the 2006 MIAA ruling or not.

To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or
non-stock corporation, which is a necessary condition before an agency or
instrumentalityis deemed a government-owned or controlled corporation. Like MIAA,
petitioner MCIAA has capital under its charter but it is not divided into shares of stock. It
also has no stockholders or voting shares. Republic Act No. 6958 provides:

Section 9. Capital.– The [Mactan-Cebu International Airport] Authority shall have an

authorized capital stock equal to and consisting of:

(a) The value of fixed assets (including airport facilities, runways and equipment) and such
other properties, movable and immovable, currently administered by or belonging to the
airports as valued on the date of the effectivity of this Act;

(b) The value of such real estate owned and/or administered by the airports; and

(c) Government contribution in such amount as may be deemed an appropriate initial

balance. Such initial amount, as approved by the President of the Philippines, which shall
1âwphi1

be more or less equivalent to six (6) months working capital requirement of the Authority,
is hereby authorized to be appropriated in the General Appropriations Act of the year
following its enactment into law. Thereafter, the government contribution to the capital of
the Authority shall be provided for in the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion
because they are intended for public use. As properties of public dominion, they
indisputably belong to the State or the Republic of the Philippines, and are outside the
commerce of man. This, unless petitioner leases its real property to a taxable person, the
specific property leased becomes subject to real property tax; in which case, only those
portions of petitioner’s properties which are leased to taxable persons like private parties
are subject to real property tax by the City of Lapu-Lapu.

We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court
in the 2006 MIAA case, and we quote:

To summarize, MIAA is not a government-owned or controlled corporation under Section

2(13) of the Introductory Provisions of the Administrative Code because it is not organized
as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled
corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government instrumentality
vested with corporate powers and performing essential public services pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section
133(o) of the Local Government Code. The exception to the exemption in Section 234(a)
does not apply to MIAA because MIAA is not a taxable entity under the Local Government
Code. Such exception applies only if the beneficial use of real property owned by the
Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and
thus are properties of public dominion. Properties of public dominion are owned by the
State or the Republic. x x x.

xxxx

The term "ports x x x constructed by the State" includes airports and seaports. The Airport
Lands and Buildings of MIAA are intended for public use, and at the very least intended
for public service. Whether intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are owned by the Republic and thus exempt from real estate tax
under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code,
which governs the legal relation and status of government units, agencies and offices
within the entire government machinery, MIAA is a government instrumentality and not a
government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable person
because it is not subject to "[t]axes, fees or charges of any kind" by local governments.
The only exception is when MIAA leases its real property to a "taxable person" as
provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport
Lands and Buildings leased to taxable persons like private parties are subject to real
estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the State or
the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed
by the State," which includes public airports and seaports, as properties of public
dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly
exempt from real estate tax under Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale. (Emphases added.) WHEREFORE, we hereby GRANT
85

the petition. We REVERSE and SET ASIDE the Decision dated October 8, 2007 and the
Resolution dated February 12, 2008 of the Court of Appeals (Cebu City) in CA-G.R. SP
No. 01360. Accordingly, we DECLARE:

1. Petitioner's properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which
they are situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax for the special
education fund and the penalty interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioner's properties, except the
assessment covering the portions that petitioner has leased to private parties.

3. NULL and VOID the sale in public auction of 27 of petitioner's properties and the
eventual forfeiture and purchase of the said properties by respondent City of Lapu-Lapu.
We likewise declare VOID the corresponding Certificates of Sale of Delinquent Property
issued to respondent City of Lapu-Lapu.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 163072 April 2, 2009

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,

vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF
PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR OF
PASAY, Respondents.

DECISION

CARPIO, J.:

This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the
Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.

The Facts

Petitioner Manila International Airport Authority (MIAA) operates and administers the
Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 (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.
Under Sections 34 and 225 of EO 903, approximately 600 hectares of land, including the
runways, the airport tower, and other airport buildings, were transferred to MIAA. The
NAIA Complex is located along the border between Pasay City and Parañaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from
the City of Pasay for the taxable years 1992 to 2001. MIAA’s real property tax delinquency
for its real properties located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA
Pasay properties) is tabulated as follows:

TAX TAXABLE
TAX DUE PENALTY TOTAL
DECLA-RATION YEAR

A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18

A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98

A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20

A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44

A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85

A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28

A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58

A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36

A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33

A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13

A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00

GRAND TOTAL ₱642,747,726.20 ₱373,466,110.13 ₱1,016,213,836.33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy
and warrants of levy for the NAIA Pasay properties. MIAA received the notices and
warrants of levy on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to sell
at public auction the NAIA Pasay properties if the delinquent real property taxes remain
unpaid.

On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and
injunction with prayer for preliminary injunction or temporary restraining order. The petition
sought to enjoin the City of Pasay from imposing real property taxes on, levying against,
and auctioning for public sale the NAIA Pasay properties.

On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power 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, this petition.

The Court of Appeals’ Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the
Local Government Code, which took effect on 1 January 1992, withdrew the exemption
from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except local water districts, cooperatives
duly registered under Republic Act No. 6938, non-stock and non-profit hospitals and
educational institutions. Since MIAA is a government-owned corporation, it follows that its
tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the
Local Government Code.

The Issue

The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt
from real property tax.

The Court’s Ruling

The petition is meritorious.

In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited
Sections 193 and 234 of the Local Government Code which read:
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 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.

The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation," there may
be a government "instrumentality" that will not qualify as a "government-owned or
controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in

Section 2(13) will show that MIAA would not fall under such definition. MIAA is a
government "instrumentality" that does not qualify as a "government-owned or
controlled corporation." As explained in the 2006 MIAA case:

A government-owned or controlled corporation must be "organized as a stock or

non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA
is not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. x x x

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock
is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.

xxx

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation
must have members. Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury. This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within
the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently

its governmental functions. MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers. 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

Thus, MIAA is not a government-owned or controlled corporation but a government

instrumentality which is exempt from any kind of tax from the local governments. Indeed,
the exercise of the taxing power of local government units is subject to the limitations
enumerated in Section 133 of the Local Government Code.10 Under Section 133(o)11 of
the Local Government Code, local government units have no power to tax
instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to
pay real property tax for the NAIA Pasay properties.

Furthermore, the airport lands and buildings of MIAA are properties of public dominion
intended for public use, and as such are exempt from real property tax under Section
234(a) of the Local Government Code. However, under the same provision, if MIAA
leases its real property to a taxable person, the specific property leased becomes subject
to real property tax.12 In this case, only those portions of the NAIA Pasay properties which
are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October
2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No.
67416. We DECLARE the NAIA Pasay properties of the Manila International Airport
Authority EXEMPT from real property tax imposed by the City of Pasay. We
declare VOID all the real property tax assessments, including the final notices of real
property tax delinquencies, issued by the City of Pasay on the NAIA Pasay properties of
the Manila International Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private parties.

No costs.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO

Associate Justice Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA

Associate Justice Associate Justice
 CONCHITA CARPIO MORALES DANTE O. TINGA
Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE
ANTONIO EDUARDO B. NACHURA
CASTRO
Associate Justice
Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Under Rule 45 of the 1997 Rules of Civil Procedure.

2Penned by Associate Justice Ruben T. Reyes (now retired Supreme Court Justice) with
Associate Justices Remedios Salazar-Fernando and Edgardo F. Sundiam, concurring.

3 Providing for a Revision of Executive Order No. 778 Creating the Manila International
Airport Authority, Transferring Existing Assets of the Manila International Airport to the
Authority, and Vesting the Authority with Power to Administer and Operate the Manila
International Airport.

4
Section 3 of EO 903 reads:

SEC. 3. Creation of the Manila International Airport Authority. There is hereby established
a body corporate to be known as the Manila International Airport Authority which shall be
attached to the Ministry of Transportation and Communications. The principal office of the
Authority shall be located at the New Manila International Airport. The Authority may
establish such offices, branches, agencies or subsidiaries as it may deem proper and
necessary; Provided, that any subsidiary that may be organized shall have the prior
approval of the President.

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 the sale or through any other mode unless
specifically approved by the President of the Philippines.

5 Section 22 of EO 903 reads:

SEC. 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other property, movable and 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.

6 G.R. No. 155650, 20 July 2006, 495 SCRA 591.

7 Id. at 644-645.

8 Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 reads:

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.

9 Supra note 6 at 615-618.

Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 150301, 2

10

October 2007, 534 SCRA 490.

11 Section 133(o) of the Local Government Code reads:

SECTION 133. Common Limitations on the Taxing Powers of the 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:

xxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.

12 Manila International Airport Authority v. Court of Appeals, supra note 6.

The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION

YNARES-SANTIAGO, J.:

Indeed, as pointed out by Justice Antonio T. Carpio, the Court has twice reaffirmed the
ruling in Manila International Airport Authority v. Court of Appeals1 in the subsequent
cases of Philippine Fisheries Development Authority v. Court of Appeals 2 and Philippine
Fisheries Development Authority v. Court of Appeals.3 However, upon further study of the
issues presented in said cases, I agree with Justice Dante O. Tinga that the Manila
International Airport Authority (MIAA) ruling was incorrectly rationalized, particularly on the
unwieldy characterization of MIAA as a species of a government instrumentality. I submit
that the present ponencia of Justice Carpio perpetuates the error which I find imperative
for the Court to correct.

Nevertheless, unlike Justice Tinga’s rationalization, I find that there is no more need to
belabor the issue of whether the MIAA is a government-owned or controlled corporation
(GOCC) or a government instrumentality in order to resolve the issue of whether the
airport properties are subject to real property tax.

Instead, I subscribe to the "simple, direct and painless approach" proposed by Justice
Antonio Eduardo B. Nachura that it is imperative to "fine tune" the Court’s ruling in Mactan
Cebu International Airport Authority v. Marcos4 vis-à-vis that in Manila International Airport
Authority v. Court of Appeals;5 and that what needs only to be ascertained is whether the
airport properties are owned by the Republic; and if such, then said properties are exempt
from real property tax, by applying Section 234 of Republic Act No. 7160 (R.A. No. 7160)
or the Local Government Code (LGC).

Pursuant to Section 232 of the LGC, a province or city or municipality within the
Metropolitan Manila Area is vested with the power to levy an annual ad valorem tax on
real property such as land, building, machinery, and other improvement not hereafter
specifically exempted. Corollarily, Section 234 thereof provides an enumeration of certain
properties which are exempt from payment of the real property tax, among which is "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."

Article 420 of the Civil Code enumerates the properties of public dominion, to wit:

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.

There is no question that the airport and all its installations, facilities and equipment, are
intended for public use and are, thus, properties of public dominion.

Concededly, the Court ruled in Mactan Cebu International Airport Authority v.

Marcos6 that:

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 persons."

Section 15 of [MCIAA’s] Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. – Al 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, aerodome 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," which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).

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 thins, 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
petitioner’s authorized capital stock consists of, inter alia, "the value of such real estate
owned and/or administered by the airports." Hence, the petitioner is now the owner of the
land in question and the exception in Section 234© of the LGC is inapplicable.

Meanwhile, Executive Order No. 9037 or the Revised Charter of the Manila International
Airport Authority, provides in Section 3 thereof that –

xxxx
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.

Regardless of the apparent transfer of title of the said properties to MIAA, I submit that the
latter is only holding the properties for the benefit of the Republic in its capacity as agent
thereof. It is to be noted that despite the conveyance of the title to the said properties to
the MIAA, however, the latter could not in any way dispose of the same through sale or
through any other mode unless specifically approved by the President of the
Republic.8 Even MIAA’s borrowing power is dictated upon by the President. Thus, MIAA
could raise funds, either from local or international sources, by way of loans, credits or
securities, and other borrowing instruments, create pledges, mortgages and other
voluntary lines or encumbrances on any of its assets or properties, only after consultation
with the Secretary of Finance and with the approval of the President. In addition, MIAA’s
total outstanding indebtedness could exceed its net worth only upon express authorization
by the President. 9

I fully agree with Justice Nachura that "even if MIAA holds the record title over the airport
properties, such holding can only be for the benefit of the Republic, that MIAA exercises
an essentially public function."

In sum, the airport and all its installations, facilities and equipment of the MIAA, are
properties of public dominion and should thus be exempted from payment of real property
tax, except those properties where the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.

ACCORDINGLY, I vote to grant the petition.

CONSUELO YNARES-SANTIAGO
Associate Justice

Footnotes

1 G.R. No. 155650, July 20, 2006, 495 SCRA 591.

2 G.R. No. 169836, July 31, 2007, 528 SCRA 707.

3 G.R. No. 151301, October 2, 2007, 534 SCRA 490.

4 330 Phil. 392 [1996].

5 Supra note 1.

6 Supra note 4.
7 July 21, 1983.

8 E.O. 903, Sec. 3.

9 E.O. 903, Sec. 16.

The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION

TINGA, J.:

I maintain my dissent expressed in the 2006 ruling in MIAA v. City of Parañaque 1 (the
"Parañaque case.")

The majority relies on two main points drawn from the 2006 Parañaque case in this
instance as it rules once again that the MIAA is exempt from realty taxes assessed by the
City of Pasay. First, because MIAA is a government instrumentality, it somehow finds itself
exempt from the said taxes, supposedly by operation of the Local Government Code.
Second, the subject properties are allegedly owned by the Republic of the Philippines,
notwithstanding that legal title thereto is in the name of the MIAA, which is a distinct and
independent juridical personality from the Republic.

I.

Once again, attempts are drawn to classify MIAA as a government instrumentality, and
not as a government owned or controlled corporation. Such characterization was
apparently insisted upon in order to tailor-fit the MIAA to Section 133 of the Local
Government Code, which reads:

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:

xxx

15. Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. (emphasis and underscoring supplied).

How was the Parañaque case able to define the MIAA as a instrumentality of the National
Government? The case propounded that MIAA was not a GOCC:

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. — . . .

(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: . . . . (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.

xxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code 10 defines a stock corporation as one whose "capital
stock is divided into shares and . . . authorized to distribute to the holders of such shares
dividends . . . ." 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.2

This "black or white" categorization of "stock" and "non-stock" corporations utterly

disregards the fact that nothing in the Constitution prevents Congress from creating
government owned or controlled corporations in whatever structure it deems necessary.
Note that this definitions of "stock" and "non-stock" corporations are taken from the
Administrative Code, and not the Constitution. The Administrative Code is a statute, and is
thus not superior in hierarchy to any other subsequent statute created by Congress,
including the charters for GOCCs.

Since MIAA was presumed not to be a stock or non-stock corporation, the majority in the
Parañaque case then strived to fit it into a category.
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. –– . . .

(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. . . . (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, 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."3

Unfortunately, this cited statutory definition of an "instrumentality" is incomplete. Worse,

the omitted portion from Section 2(10) completely contradicts the premise of the ponente
that an instrumentality is mutually exclusive from a GOCC. For the provision reads in full,
with the omitted portion highlighted, thus:

(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.

This previous omission had not escaped the attention of the outside world. For example,
lawyer Gregorio Batiller, Jr., has written a paper on the Parañaque case entitled "A Tale of
Two Airports," which is published on the Internet.4He notes therein:

Also of interest was the dissenting opinion of Justice Dante Tinga to the effect that the
majority opinion failed to quote in full the definition of "government instrumentality:"

The Majority gives the impression that a government instrumentality is a distinct concept
from a government corporation. Most tellingly, the majority selectively cites a portion of
Section 2(10) of the Administrative Code of 1987, as follows:

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. xxx (emphasis omitted)"
However, Section 2(10) of the Administrative Code, when read in full, makes an important
clarification which the majority does not show. The portions omitted by the majority are
highlighted below: xxx

"(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.

So the majority opinion effectively begged the question in finding that the MIAA was not a
GOCC but a mere government instrumentality, which is other than a GOCC.5

The Office of the President itself was alarmed by the redefinition made by the MIAA case
of instrumentalities, causing it on 29 December 2006 to issue Executive Order No. 596
creating the unwieldy category of "Government Instrumentality Vested with Corporate
Powers or Government Corporate Entities" just so that it was clear that these newly
defined "instrumentalities" or "government corporate entities" still fell within the jurisdiction
of the Office of the Government Corporate Counsel. The E.O. reads in part:

EXECUTIVE ORDER NO. 596

DEFINING AND INCLUDING "GOVERNMENT INSTRUMENTRALITY

VESTED WITH CORPORATE POWERS" OR "GOVERNMENT
CORPORATE ENTITIES" UNDER THE JURISDICTION OF THE OFFICE
OF THE GOVERNMENT CORPORATE COUNSEL (OGCC) AS
PRINCIPAL LAW OFFICE OF GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCs) AND FOR OTHER
PURPOSES.

WHEREAS, the Office of the Government Corporate Counsel (OGCC), as

the principal law office of all Government-Owned or Controlled
Corporations (GOCCs), including their subsidiaries, other corporate
offsprings and government acquired assets corporations, plays a very
significant role in safeguarding the legal interests and providing the legal
requirements of all GOCCs;

WHEREAS, there is an imperative need to integrate, strengthen and

rationalize the powers and jurisdiction of the OGCC in the light of the
Decision of the Supreme Court dated July 20, 2006, in the case of "Manila
International Airport Authority vs. Court of Appeals, City of Parañaque, et
al" (G.R. No. 155650), where the High Court differentiated "government
corporate entities" and government instrumentalities with corporate
powers" from GOCCs for purposes of the provisions of the Local
Government Code on real estate taxes, and other fees and charges
imposed by local government units;

WHEREAS, in the interest of an effective administration of justice, the

application and definition of the term "GOCCs" need to be further clarified
and rationalized to have consistency in referring to the term and to avoid
unintended conflicts and/or confusion’
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of
the Republic of the Philippines, by virtue of the powers vested in my by law,
do hereby order:

SECTION 1. The Office of the Government Corporate Counsel (OGCC)

shall be the principal law office of all GOCCs, except as may otherwise be
provided by their respective charter or authorized by the President, their
subsidiaries, corporate offsprings, and government acquired asset
corporations. The OGCC shall likewise be the principal law of the
"government instrumentality vested with corporate powers" or
"government corporate entity," as defined by the Supreme Court in the
case of "MIAA v. Court of Appeals, City of Parañaque, et al.," supra,
notable examples of which are: Manila International Airport Authority
(MIAA), Mactan International Airport Authority, the Philippine Ports
Authority (PPA), Philippine Deposit Insurance Corporation (PDIC),
Metropolitan Water and Sewerage Services (MWSS), Philippine Rice
Research Institute (PRRI), Laguna Lake Development Authority (LLDA),
Fisheries Development Authority (FDA), Bases Conversion Development
Authority (BCDA), Cebu Port Authority (CPA), Cagayan de Oro Port
Authority, and San Fernando Port Authority.

SECTION 2. As provided under PD 2029, series of 1986, the term GOCCs

is defined as a stock or non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by a
special law or if organized under the general corporation law, is owned or
controlled by the government directly, or indirectly, through a parent
corporation or subsidiary corporation, to the extent of at least majority of
its outstanding capital stock or of its outstanding voting capital stock.

Under Section 2(10) of the Introductory Provisions of the Administrative

Code of 1987, a government "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.

SECTION 3. The following corporations are considered GOCCs under the

conditions and/or circumstances indicated:

a) A corporation organized under the general corporation law under

private ownership at least a majority of the shares of stock of which were
conveyed to a government financial institution, whether by foreclosure or
otherwise, or a subsidiary corporation of a government corporation
organized exclusively to own and manage, or lease, or operate specific
assets acquired by a government financial institution in satisfaction of
debts incurred therewith and which in any case by enunciated policy of the
government is required to be disposed of to private ownership within a
specified period of time, shall not be considered a GOCC before such
disposition and even if the ownership or control thereof is subsequently
transferred to another GOCC;

b) A corporation created by special law which is explicitly intended under

that law for ultimate transfer to private ownership under certain specified
 conditions shall be considered a GOCC, until it is transferred to private
ownership;

c) A corporation that is authorized to be established by special law, but

which is still required under that law to register with the Securities and
Exchange Commission in order to acquire a juridical personality, shall not,
on the basis of the special law alone, be considered a GOCC.

xxx

Reading this Executive Order, one cannot help but get the impression that the Republic of
the Philippines, ostensibly the victorious party in the Parañaque case, felt that the 2006
ponencia redefining "instrumentalities" was wrong. Ostensibly, the Office of the
Government Corporate Counsel, the winning counsel in the MIAA case, cooperated in the
drafting of this E.O. and probably also felt that the redefinition of "instrumentalities" was
wrong. I had pointed out in my Dissent to the MIAA case that under the framework
propounded in that case, GOCCs such as the Philippine Ports Authority, the Bases
Conversion Development Authority, the Philippine Economic Zone Authority, the Light
Rail Transit Authority, the Bangko Sentral ng Pilipinas, the National Power Corporation,
the Lung Center of the Philippines, and even the Philippine Institute of Traditional and
Alternative Health Care have been reclassified as instrumentalities instead of GOCCs.

Notably, GOCCs are mandated by Republic Act No. 7656 to remit 50% of their annual net
earnings as cash, stock or property dividends to the National Government. By denying
categorization of those above-mentioned corporations as GOCCs, the Court in MIAA
effectively gave its imprimatur to those entities to withhold remitting

50% of their annual net earnings to the National Government. Hence, the necessity of E.O.
No. 596 to undo the destructive effects of the Parañaque case on the national coffers.

In a welcome development, the majority now acknowledges the existence of that second
clause in Section 2(10) of the Introductory Provisions of the Administrative Code, the
clause which made explicit that government instrumentalities include GOCCs. In truth, I
had never quite understood this hesitation in plainly saying that GOCCs are
instrumentalities. That fact is really of little consequence in determining whether or not the
MIAA or other government instrumentalities or GOCCs are exempt from real property
taxes.

As I had consistently explained, the liability of such entities is mandated by Section 232, in
relation with Section 234 of the Local Government Code. Section 232 lays down the
general rule that provinces, cities or municipalities within Metro Manila may levy an ad
valorem tax on real property "not hereinafter specifically exempted." Such specific
exemptions are enumerated in Section 234, and the only exemption tied to government
properties extends to "real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted…to a
taxable person."6

Moreover, the final paragraph of Section 234 explains that "[e]xcept as provided herein [in
Section 234], 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."
What are the implications of Section 232 in relation to Section 234 as to the liability for real
property taxes of government instrumentalities such as MIAA?

1) All persons, whether natural or juridical, including GOCCs are liable for real property
taxes.

2) The only exempt properties are those owned by the Republic or any of its political
subdivisions.

3) So-called "government corporate entities," so long as they have juridical personality

distinct from the Republic of the Philippines or any of its political subdivisions, are liable for
real property taxes.

4) After the enactment of the Local Government Code in 1991, Congress remained free to
reenact tax exemptions from real property taxes to government instrumentalities, as it did
with the Government Service Insurance System in 1997.

It is that simple. The most honest intellectual argument favoring the exemption of the
MIAA from real property taxes corresponds with the issue of whether its properties may be
deemed as "owned by the Republic or any of its political subdivisions". The matter of
whether MIAA is a GOCC or an instrumentality or a "government corporate entity" should
in fact be irrelevant. However, the framework established by the ponente beginning with
the Parañaque case has inexplicably and unnecessarily included the question of what is a
GOCC? That issue, utterly irrelevant to settling the question of MIAA’s tax liability, has
caused nothing but distraction and confusion.

It should be remembered that prior to the Parañaque case, the prevailing rule on taxation
of GOCCs was as enunciated in Mactan Cebu International Airport v. Hon. Marcos.7 That
rule was a highly sensible rule that gave due respect to national government prerogatives
and the devolution of taxing powers to local governments. Neither did Mactan Cebu
prevent Congress from enacting legislation exempting selected GOCCs to be exempt
from real property taxes.

A significant portion of my Dissenting Opinion in the Parañaque case was devoted to

explaining Mactan Cebu, and criticizing the ponencia for implicitly rejecting that doctrine
without categorically saying so. In the years since, significant confusion has arisen on
whether Mactan Cebu and the framework it established in real property taxation of
GOCCs and instrumentalities, remains extant. Batiller makes the same point in his paper,
expressly asking why "the Supreme Court did not explicitly declare that the Mactan Cebu
International Airport case was deemed repealed." He added:

Inevitably, the refusal of the Supreme Court to clarify whether its Decision in the Mactan
Cebu International Airport case is deemed repealed would leave us with an ambiguous
situation where two (2) of our major international airports are treated differently tax wise:
one in Cebu which is deemed to be a GOCC subject to real estate taxes and the other in
Manila which is not a GOCC and exempt from real estate taxes.

Where lies the substantial difference between the two (2) airports? Your guess is as good
as mine.8

There are no good reasons why the Court should not reassert the Mactan Cebu doctrine.
Under that ruling, real properties owned by the Republic of the Philippines or any of its
political subdivisions are exempted from the payment of real property taxes, while
instrumentalities or GOCCs are generally exempted from local government taxes, save for
real property taxes. At the same time, Congress is free should it so desire to exempt
particular GOCCs or instrumentalities from real property taxes by enacting legislation for
that purpose. This paradigm is eminently more sober than that created by the Parañaque
case, which attempted to amend the Constitution by elevating as a constitutional principle,
the real property tax exemption of all government instrumentalities, most of which also
happen to be GOCCs. Considering that the Constitution itself is supremely deferential to
the notion of local government rule and the power of local governments to generate
revenue through local taxes, the idea that not even the local government code could
subject such "instrumentalities" to local taxes is plainly absurd.

II.

I do recognize that the present majority opinion has chosen to lay equal, if not greater
emphasis on the premise that the MIAA properties are supposedly of public dominion, and
as such are exempt from realty taxes under Section 234(a) of the Local Government Code.
Again, I respectfully disagree.

It is Article 420 of the Civil Code which defines what are properties of public dominion. I do
not doubt that Article 420 can be interpreted in such a way that airport properties, such as
its runways, hangars and the like, can be considered akin to ports or roads, both of

which are among those properties considered as part of the public dominion under Article
420(1). It may likewise be possible that those properties considered as "property of public
dominion" under Article 420 of the Civil Code are also "property owned by the Republic,"
which under Section 234 of the Local Government Code, are exempt from real property
taxes.

The necessary question to ask is whether properties which are similar in character to
those enumerated under Article 420(1) may be considered still part of the public dominion
if, by virtue of statute, ownership thereof is vested in a GOCC which has independent
juridical personality from the Republic of the Philippines. The question becomes even
more complex if, as in the case of MIAA, the law itself authorizes such GOCC to sell the
properties in question.

One of the most recognizable characteristics of public dominion properties is that they are
placed outside the commerce of man and cannot be alienated or leased or otherwise be
the subject matter of contracts.9 The fact is that the MIAA may, by law, alienate, lease or
place the airport properties as the subject matter of contracts. The following provisions of
the MIAA charter make that clear:

SECTION 5. Functions, Powers, and Duties. — The Authority shall have the following
functions, powers and duties:

xxx xxx xxx

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of
any land, building, airport facility, or property of whatever kind and nature, whether
movable or immovable, or any interest therein;

xxx
SECTION 16. Borrowing Power. — The Authority may, after consultation with the Minister
of Finance and with the approval of the President of the Philippines, as recommended by
the Minister of Transportation and Communications, raise funds, either from local or
international sources, by way of loans, credits or securities, and other borrowing
instruments, with the power to create pledges, mortgages and other voluntary liens or
encumbrances on any of its assets or properties.

There is thus that contradiction where property which ostensibly is classified as part of the
public dominion under Article 420 of the Civil Code is nonetheless classified to lie within
the commerce of man by virtue of a subsequent law such as the MIAA charter. In order for
the Court to classify the MIAA properties as part of public dominion, it will be necessary to
invalidate the provisions of the MIAA charter allowing the Authority to lease, sell, create
pledges, mortgages and other voluntary liens or encumbrances on any of the airport
properties. The provisions of the MIAA charter could not very well be invalidated with the
Civil Code as basis, since the MIAA charter and the Civil Code are both statutes, and thus
of equal rank in the hierarchy of laws, and more significantly the Civil Code was enacted
earlier and therefore could not be the repealing law.

If there is a provision in the Constitution that adopted the definition of and limitations on
public dominion properties as found in the Civil Code, then the aforequoted provisions
from the MIAA charter allowing the Authority to place its properties within the commerce of
man may be invalidated. The Constitution however does not do so, confining itself instead
to a general statement that "all lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State." Note though
that under Article 420, public dominion properties are not necessarily owned by the State,
the two subsections thereto referring to (a) properties intended for public use; and (b)
those which belong to the State and are intended for some public service or for the
development of the national wealth.10 In Laurel v.

Garcia,11 the Court notably acknowledged that "property of public dominion is not owned
by the State but pertains to the State." Thus, there is no equivalence between the concept
of public dominion under the Civil Code, and of public domain under the Constitution.

Accordingly, the framework of public dominion properties is one that is statutory, rather
than constitutional in design. That being the case, Congress is able by law to segregate
properties which ostensibly are, by their nature, part of the public dominion under Article
420(1) of the Civil Code, and place them within the commerce of man by vesting title
thereto in an independent juridical personality such as the MIAA, and authorizing their
sale, lease, mortgage and other similar encumbrances. When Congress accomplishes
that by law, the properties could no longer be considered as part of the public dominion.

This point has been recognized by previous jurisprudence which I had cited in my dissent
in the Parañaque case. For example, in Philippine Ports Authority v. City of Iloilo, the
Court stated that "properties of public dominion are owned by the general public and
cannot be declared to be owned by a public corporation, such as [the Philippine Ports
Authority]."12 I had likewise previously explained:

The second Public Ports Authority case, penned by Justice Callejo, likewise lays down
useful doctrines in this regard. The Court refuted the claim that the properties of the PPA
were owned by the Republic of the Philippines, noting that PPA's charter expressly
transferred ownership over these properties to the PPA, a situation which similarly obtains
with MIAA. The Court even went as far as saying that the fact that the PPA "had not been
issued any torrens title over the port and port facilities and appurtenances is of no legal
consequence. A torrens title does not, by itself, vest ownership; it is merely an evidence of
title over properties. . . . It has never been recognized as a mode of acquiring ownership
over real properties."

The Court further added:

. . . The bare fact that the port and its facilities and appurtenances are accessible to the
general public does not exempt it from the payment of real property taxes. It must be
stressed that the said port facilities and appurtenances are the petitioner's corporate
patrimonial properties, not for public use, and that the operation of the port and its facilities
and the administration of its buildings are in the nature of ordinary business. The petitioner
is clothed, under P.D. No. 857, with corporate status and corporate powers in the
furtherance of its proprietary interests . . . The petitioner is even empowered to invest its
funds in such government securities approved by the Board of Directors, and derives its
income from rates, charges or fees for the use by vessels of the port premises, appliances
or equipment. . . . Clearly then, the petitioner is a profit-earning corporation; hence, its
patrimonial properties are subject to tax.

There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for
public use. A similar argument was propounded by the Light Rail Transit Authority in Light
Rail Transit Authority v. Central Board of Assessment, 118 which was cited in Philippine
Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA),
a body corporate, "provides valuable transportation facilities to the paying public." 119 It
claimed that its carriage-ways and terminal stations are immovably attached to
government-owned

national roads, and to impose real property taxes thereupon would be to impose taxes on
public roads. This view did not persuade the Court, whose decision was penned by
Justice (now Chief Justice) Panganiban. It was noted:

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. Indeed, it
operates much like any private corporation engaged in the mass 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.

xxx xxx xxx

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.
xxx xxx xxx

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.

There is no substantial distinction between the properties held by the PPA, the LRTA, and
the MIAA. These three entities are in the business of operating facilities that promote
public transportation.

The majority further asserts that MIAA's properties, being part of the public dominion, are
outside the commerce of man. But if this is so, then why does Section 3 of MIAA's charter
authorize the President of the Philippines to approve the sale of any of these properties?
In fact, why does MIAA's charter in the first place authorize the transfer of these airport
properties, assuming that indeed these are beyond the commerce of man?13

III.

In the present case, the City of Pasay had issued notices of levy and warrants of levy for
the NAIA Pasay properties, leading MIAA to file with the Court of Appeals a petition for
prohibition and injunction, seeking to enjoin the City of Pasay from imposing real property
taxes, levying against and auctioning for public sale the NAIA Pasay properties.

In the Parañaque case, I had expressed that while MIAA was liable for the realty taxes, its
properties could not be foreclosed upon by the local government unit seeking the taxes. I
explained then:

Despite the fact that the City of Parañaque ineluctably has the power to impose real
property taxes over the MIAA, there is an equally relevant statutory limitation on this
power that must be fully upheld. Section 3 of the MIAA charter states that "[a]ny portion [of
the [lands transferred, conveyed and assigned to the ownership and administration of the
MIAA] shall not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines."

Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can
be deemed as repealing this prohibition under Section 3, even if it effectively forecloses
one possible remedy of the LGU in the collection of delinquent real property taxes. While
the Local Government Code withdrew all previous local tax exemptions of the MIAA and
other natural and juridical persons, it did not similarly withdraw any previously enacted
prohibitions on properties owned by GOCCs, agencies or instrumentalities. Moreover, the
resulting legal effect, subjecting on one hand the MIAA to local taxes but on the other
hand shielding its properties from any form of sale or disposition, is not contradictory or
paradoxical, onerous as its effect may be on the LGU. It simply means that the LGU has to
find another way to collect the taxes due from MIAA, thus paving the way for a mutually
acceptable negotiated solution.

Accordingly, I believe that MIAA is entitled to a writ of prohibition and injunctive relief
enjoining the City of Pasay from auctioning for public sale the NAIA Pasay properties.
Thus, the Court of Appeals erred when it denied those reliefs to the MIAA.
I VOTE to PARTIALLY GRANT the petition and to issue the Writ of Prohibition insofar as it
would enjoin the City of Pasay from auctioning for public sale the NAIA Pasay properties.
In all other respects, I respectfully dissent.

DANTE O. TINGA
Associate Justice

Footnotes

1 G.R. No. 155630, 20 July 2006, 495 SCRA 591.

2 Supra note 1 at 615-616.

3 Supra note 1 at 617-618.

4See http://www.gbdlr.com/articles/pdf/A_TALE_OF_TWO_AIRPORTS_vol%5B1%
5D.pdf

5 Supra note 4.

6 Local Government Code, Sec. 234(a).

7 330 Phil. 392 (1996).

8 Supra note 4.

9 Villarico v. Sarmiento, G.R. No. 136438, 11 November 2004, 442 SCRA 110.

10 See Civil Code, Art. 420.

11 G.R. No. 92013, 25 July 1990, 187 SCRA 797.

12 G.R. No. 109791, 14 July 2003, 406 SCRA 88.

13 Supra note 1 at 694-696, J. Tinga, dissenting.

The Lawphil Project - Arellano Law Foundation

SEPARATE OPINION

NACHURA, J.:
Are airport properties subject to real property tax? The question seriously begs for a
definitive resolution, in light of our ostensibly contradictory decisions1 that may have
generated no small measure of confusion even among lawyers and magistrates.

Hereunder, I propose a simple, direct and painless approach to arrive at an acceptable

answer to the question.

I.

Real property tax is a direct tax on the ownership of lands and buildings or other
improvements thereon, not specially exempted, and is payable regardless of whether the
property is used or not, although the value may vary in accordance with such factor. The
tax is usually single or indivisible, although the land and building or improvements erected
thereon are assessed separately, except when the land and building or improvements
belong to separate owners.2

The power to levy this tax is vested in local government units (LGUs). Thus, Republic Act
(R.A.) No. 7160, or the Local Government Code (LGC) of 1991,3 provides:

Under Book II, Title II, Chapter IV-Imposition of Real Property Tax

Section 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 improvement not hereinafter specifically exempted.4

A significant innovation in the LGC is the withdrawal, subject to some exceptions, of all tax
exemption privileges of all natural or juridical persons, including government-owned and
controlled corporations (GOCCs), thus:

Under Book II, Title I, Chapter V-Miscellaneous Provisions

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.5

This is where the controversy started. The airport authorities, formerly exempt from paying
taxes, are now being obliged to pay real property tax on airport properties.

To challenge the real property tax assessments, the airport authorities invoke two
provisions of the LGC—one is stated in Book II, Title I, Chapter I on General Provisions,
which reads:

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) 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 "Cooperative 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.6

and the other in Book II, Title I, Chapter IV on Imposition of Real Property Tax:

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, 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.

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.7

In Mactan Cebu International Airport Authority (MCIAA) v. Marcos,8 the Court ruled that
Section 133(o) is qualified by Sections 232 and 234. Thus, MCIAA could not seek refuge
in Section 133(o), but only in Section 234(a) provided it could establish that the properties
were owned by the Republic of the Philippines. The Court ratiocinated, thus:

[R]eading 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, 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.9

In addition, the Court went on to hold that the properties comprising the Lahug
International Airport and the Mactan International Airport are no longer owned by the
Republic, the latter having conveyed the same absolutely to MCIAA.

About a decade later, however, the Court ruled in Manila International Airport Authority
(MIAA) v. Court of Appeals,10 that the airport properties, this time comprising the Ninoy
Aquino International Airport (NAIA), are exempt from real property tax. It justified its ruling
by categorizing MIAA as a government instrumentality specifically exempted from paying
tax by Section 133(o) of R.A. No. 7160. It further reasoned that the subject properties are
properties of public dominion, owned by the Republic, and are only held in trust by MIAA,
thus:

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.11

II.

In this case, we are confronted by the very same issue.

A basic principle in statutory construction decrees that, to discover the general legislative
intent, the whole statute, and not only a particular provision thereof, should be considered.
Every section, provision or clause in the law must be read and construed in reference to
each other in order to arrive at the true intention of the legislature.12

Notably, Section 133 of the LGC speaks of the general limitations on the taxing power of
LGUs. This is reinforced by its inclusion in Title I, Chapter I entitled "General Provisions"
on "Local Government Taxation." On the other hand, Section 234, containing the
enumeration of the specific exemptions from real property tax, is in Chapter IV entitled
"Imposition of Real Property Tax" under Title II on "Real Property Taxation." When read
together, Section 234, a specific provision, qualifies Section 133, a general provision.

Indeed, whenever there is a particular enactment and a general enactment in the same
statute, and the latter, taken in its most comprehensive sense, will overrule the former, the
particular enactment must be operative, and the general enactment must be taken to
affect only the other parts of the statute to which it may properly apply.13Otherwise stated,
where there are two acts or provisions, one of which is special and particular, and
certainly includes the matter in question, and the other general, which, if standing alone,
will include the same matter and thus conflict with the special act or provision, the special
must be taken as intended to constitute an exception to the general act or provision,
especially when such general and special acts or provisions are contemporaneous, as the
legislature is not to be presumed to have intended a conflict.14

Mactan Cebu therefore adheres to the intendment of the law insofar as it holds that
MCIAA cannot seek refuge in Section 133(o); that it can only invoke Section 234(a) so
long as it can establish that the properties were owned by the Republic of the Philippines.
To repeat, Section 234, which specifies the properties exempted from real property tax,
prevails over the general limitations on the taxing power of LGUs stated in Section 133.

Thus, if Section 133(o) is not to be a haven, then, I respectfully submit that it is no longer
necessary to dichotomize between a government instrumentality and a GOCC. As
stressed by the Court in Mactan Cebu, what need only be ascertained is whether the
airport properties are owned by the Republic if the airport Authority is to be freed from the
burden of paying the real property tax. Similarly, in MIAA, with the Court’s finding that the
NAIA lands and buildings are owned by the Republic, the airport Authority does not have
to pay real property tax to the City of Parañaque.

III.

As pointed out earlier, Mactan Cebu and MIAA ostensibly contradict each other. While the
first considers airport properties as subject to real property tax, the second exempts the
same from this imposition. The conflict, however, is more apparent than real. The
divergent conclusions in the two cases proceed from different premises; hence, the
resulting contradiction.

To elucidate, in Mactan Cebu, the Court focused on the proper interpretation of Sections
133, 232 and 234 of the LGC, and emphasized the nature of the tax exemptions granted
by law. Mactan Cebu categorized the exemptions as 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 useto 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.15

For the airport properties to be exempt from real property tax, they must fall within the
mentioned categories. Logically, the airport properties can only qualify under the first
exemption–by virtue of ownership. But, as already mentioned, the Court, nevertheless,
ruled in Mactan Cebu that the said properties are no longer owned by the Republic having
been conveyed absolutely to the airport Authority, thus:

Section 15 of the petitioner’s 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," which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).

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
petitioner’s authorized capital stock consists of, inter alia, "the value of such real estate
owned and/or administered by the airports." Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of the LGC is inapplicable.16
In MIAA, a different conclusion was reached by the Court on two grounds. It first banked
on the general provision limiting the taxing power of LGUs as stated in Section 133(o) of
the LGC that, unless otherwise provided in the Code, the exercise of the taxing powers of
LGUs shall not extend to the levy of taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and LGUs. The Court took pains in
characterizing airport authorities as government instrumentalities, quite obviously, in order
to apply the said provision.

After doing so, the Court then shifted its attention and proceeded to focus on the issue of
who owns the property to determine whether the case falls within the purview of Section
234(a). Ratiocinating that airport properties are of public dominion which pertain to the
state and that the airport Authority is a mere trustee of the Republic, the Court ruled that
the said properties are exempt from real property tax, thus:

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:

xxxx

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are
owned by the State. The term "ports" includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and
thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the
public for international and domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. 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.

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of
the Philippines for both international and domestic air traffic," 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:

xxxx

Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:

xxxx

The Court has also ruled that property of public dominion, being outside the commerce of
man, cannot be the subject of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance
or disposition through public or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for being contrary to public policy.
Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque
can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first
withdraw from public use the Airport Lands and Buildings. 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," provide:

xxxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and are
inalienable. Since the Airport Lands and Buildings are inalienable in their present status
as properties of public dominion, they are not subject to levy on execution or foreclosure
sale. As long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:

xxxx

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn
by law or presidential proclamation from public use, they are properties of public dominion,
owned by the Republic and outside the commerce of man.

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:

xxxx

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.

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:

xxxx

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:

xxxx

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 Republic to
MIAA. The purpose was merely to reorganize a division in the Bureau of 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:

xxxx

This exemption should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing "[t]axes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The real properties owned
by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real property is
transferred to an agency or instrumentality even as the Republic remains the owner of the
real property. Such arrangement does not result in the loss of the tax exemption. Section
234(a) of the Local Government Code states that real property owned by the Republic
loses its tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government instrumentality,
is not a taxable person under Section 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:

x x x x17

In the ultimate, I submit that the two rulings do not really contradict, but, instead,
complement each one. Mactan Cebu provides the proper rule that, in order to determine
whether airport properties are exempt from real property tax, it is Section 234, not Section
133, of the LGC that should be determinative of the properties exempt from the said tax.
MIAA then lays down the correct doctrine that airport properties are of public dominion
pertaining to the state, hence, falling within the ambit of Section 234(a) of the LGC.
However, because of the confusion generated by the apparently conflicting decisions, a
fine tuning of Mactan Cebu and MIAA is imperative.

IV.

Parenthetically, while the basis of a real property tax assessment is actual use,18 the tax
itself is directed to the ownership of the lands and buildings or other improvements
thereon.19 Public policy considerations dictate that property of the State and of its
municipal subdivisions devoted to governmental uses and purposes is generally exempt
from taxation although no express provision in the law is made therefor.20 In the instant
case, the legislature specifically provided that real property owned by the Republic of the
Philippines or any of its political subdivisions is exempt from real property tax, except, of
course, when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person. The principal basis of the exemption is likewise ownership.21

Indeed, emphasis should be made on the ownership of the property, rather than on the
airport Authority being a taxable entity. This strategy makes it unnecessary to determine
whether MIAA is an instrumentality or a GOCC, as painstakingly expounded by the
ponente.

Likewise, this approach provides a convenient escape from Justice Tinga’s proposition
that the MIAA is a taxable entity liable to pay real property taxes, but the airport properties
are exempt from levy on execution to satisfy the tax liability. I fear that this hypothesis may
trench on the Constitutional principle of uniformity of taxation,22 because a tax lawfully
levied and assessed against a taxable governmental entity will not be lienable while like
assessments against all other taxable entities of the same tax district will be lienable.23

The better option, then, is for the Court to concentrate on the nature of the tax as a tax on
ownership and to directly apply the pertinent real property tax provisions of the LGC,
specifically those dealing with the exemption based on ownership, to the case at bar.

The phrase, "property owned by the Republic" in Section 234, actually refers to those
identified as public property in our laws. Following MIAA, we go to Articles 420 and 421 of
the Civil Code which provide:

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.

Art. 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.

From the afore-quoted, we readily deduce that airport properties are of public dominion.
The "port" in the enumeration certainly includes an airport. With its beacons, landing fields,
runways, and hangars, an airport is analogous to a harbor with its lights, wharves and
docks; the one is the landing place and haven of ships that navigate the water, the other
of those that navigate the air.24 Ample authority further supports the proposition that the
term "roads" include runways and landing strips.25 Airports, therefore, being properties of
public dominion, are of the Republic.

At this point, I cannot help but air the observation that the legislature may have really
intended the phrase "owned by the Republic" in Section 234 to refer to, among others,
properties of public dominion. This is because "public dominion" does not carry the idea of
ownership. Tolentino, an authority in civil law, explains:

This article shows that there is a distinction between dominion and ownership. Private
ownership is defined elsewhere in the Code; but the meaning of public dominion is
nowhere defined. From the context of various provisions, it is clear that public dominion
does not carry the idea of ownership; property of public dominion is not owned by the
State, but pertains to the State, which as territorial sovereign exercises certain juridical
prerogatives over such property. The ownership of such property, which has the special
characteristics of a collective ownership for the general use and enjoyment, by virtue of
their application to the satisfaction of the collective needs, is in the social group, whether
national, provincial, or municipal. Their purpose is not to serve the State as a juridical
person, but the citizens; they are intended for the common and public welfare, and so they
cannot be the object of appropriation, either by the State or by private persons. The
relation of the State to this property arises from the fact that the State is the juridical
representative of the social group, and as such it takes care of them, preserves them and
regulates their use for the general welfare.26

Be that as it may, the legislative intent to exempt from real property tax the properties of
the Republic remains clear. The soil constituting the NAIA airport and the runways cannot
be taxed, being properties of public dominion and pertaining to the Republic. This is true
even if the title to the said property is in the name of MIAA. Practical ownership, rather
than the naked legal title, must control, particularly because, as a matter of practice, the
record title may be in the name of a government agency or department rather than in the
name of the Republic.

In this case, even if MIAA holds the record title over the airport properties, such holding
can only be for the benefit of the Republic,27 especially when we consider that MIAA
exercises an essentially public function.28 Further, where property, the title to which is in
the name of the principal, is immune from taxes, it remains immune even if the title is
standing in the name of an agent or trustee for such principal.29

Properties of public dominion are held in trust by the state or the Republic for the
people.30 The national government and the bodies it has created that exercise delegated
authority are, pursuant to the general principles of public law, mere agents of the Republic.
Here, insofar as it deals with the subject properties, MIAA, a governmental creation
exercising delegated powers, is a mere agent of the Republic, and the latter, to repeat, is
the trustee of the properties for the benefit of all the people.31

Our ruling in MIAA, therefore, insofar as it holds that the airport Authority is a "trustee of
the Republic," may not have been precise. It would have been more sound, legally that is,
to consider the relationship between the Republic and the airport Authority as principal
and agent, rather than as trustor and trustee.

The history of the subject airport attests to this proposition, thus:

The country's premier airport was originally a US Air Force Base, which was turned over
to the Philippine government in 1948. It started operations as a civil aviation airport with
meager facilities, then consisting of the present domestic runway as its sole landing strip,
and a small building northwest of this runway as its sole passenger terminal.

The airport's international runway and associated taxiway were built in 1953; followed in
1961 by the construction of a control tower and a terminal building for the exclusive use of
international passengers at the southwest intersection of the two runways. These
structures formed the key components of an airport system that came to be known as the
Manila International Airport (MIA).

Like other national airports, the MIA was first managed and operated by the National
Airports Corporation, an agency created on June 5, 1948 by virtue of Republic Act No.
224. This was abolished in 1951 and [in] its stead, the MIA Division was created under the
Civil Aeronautics Administration (CAA) of the Department of Commerce and Industry.

On October 19, 1956, the entire CAA, including the MIA Division, was transferred to the
Department of Public Works, Transportation and Communications.

In 1979, the CAA was renamed Bureau of Air Transportation following the creation of an
exclusive Executive Department for Transportation and Communications.

It is worthwhile to note at this point that while the MIA General Manager then carried the
rank of a Division Chief only, it became a matter of policy and practice that he be
appointed by no less than the President of the Philippines since the magnitude of its
impact on the country's economy has acquired such national importance and recognition.

During the seventies, the Philippine tourism and industry experienced a phenomenal
upsurge in the country's manpower exports, resulting in more international flight
frequencies to Manila which grew by more than four times.

Executive Order No. 381 promulgated by then President Marcos authorized the
development of Manila International Airport to meet the needs of the coming decades.

A feasibility study/airport master plan was drawn up in 1973 by Airways Engineering

Corporation, the financing of which was source[d] from a US$29.6 Million loan arranged
with the Asian Development Bank (ADB). The detailed Engineering Design of the new
MIA Development Project (MIADP) was undertaken by Renardet-Sauti/Transplan/F.F.
Cruz Consultants while the design of the IPT building was prepared by Architect L.V.
Locsin and Associates.

In 1974, the final engineering design was adopted by the Philippine Government. This
was concurred by the ADB on September 18, 1975 and became known as the "Scheme
E-5 Modified Plan." Actual work on the project started in the second quarter of 1978.

On March 4, 1982, EXECUTIVE ORDER NO. 778 was signed into law, abolishing the MIA
Division under the BAT and creating in its stead the MANILA INTERNATIONAL AIRPORT
AUTHORITY (MIAA), vested with the power to administer and operate the Manila
International Airport (MIA).

Though MIAA was envisioned to be autonomous, Letter of Instructions (LOI) No. 1245,
signed 31 May 1982, clarified that for purpose of policy integration and program
coordination, the MIAA Management shall be under the general supervision but not
control of the then Ministry of Transportation and Communications.
On July 21, 1983, Executive Order No. 903 was promulgated, providing that 65% of
MIAA's annual gross operating income be reverted to the general fund for the
maintenance and operation of other international and domestic airports in the country. It
also scaled down the equity contribution of the National Government to MIAA: from PhP
10 billion to PhP 2.5 billion and removed the provision exempting MIAA from the payment
of corporate tax.

Another revision in the MIAA Charter followed with the promulgation of Executive Order
No. 909, signed September 16, 1983, increasing the membership of the MIAA Board to
nine (9) Directors with the inclusion of two other members to be appointed by the
Philippine President.

The last amendment to the MIAA Charter was made on July 26, 1987 through Executive
Order No. 298 which provided for a more realistic income sharing arrangement between
MIAA and the National Government. It provided that instead of the 65% of gross operating
income, only 20% of MIAA's gross income, exclusive of income generated from the
passenger terminal fees and utility charges, shall revert to the general fund of the National
Treasury. EO 298 also reorganized the MIAA Board and raised the capitalization to its
original magnitude of PhP 10 billion.

The post 1986 Revolution period will not be complete without mention of the renaming of
MIA to Ninoy Aquino International Airport with the enactment of Republic Act No. 6639 on
August 17, 1987. While this legislation renamed the airport complex, the MIA Authority
would still retain its corporate name since it did not amend the original or revised charters
of MIAA.32

The MIAA Charter further provides that any portion of the airport cannot be disposed of by
the Authority through sale or through any other mode unless specifically approved by the
President of the Philippines.33 It is also noted that MIAA’s board of directors is practically
controlled by the national government, the members thereof being officials of the
executive branch.34 Likewise, the Authority cannot levy and collect dues, charges, fees or
assessments for the use of the airport premises, works, appliances, facilities or
concessions, or for any service provided by it, without the approval of several executive
departments.35 These provisions are consistent with an agency relationship. Let it be
remembered that one of the principal elements of an agency relationship is the existence
of some degree of control by the principal over the conduct and activities of the agent. In
this regard, while an agent undertakes to act on behalf of his principal and subject to his
control, a trustee as such is not subject to the control of the beneficiary, except that he is
under a duty to deal with the trust property for the latter’s benefit in accordance with the
terms of the trust and can be compelled by the beneficiary to perform his duty.36

Finally, to consider MIAA as a "trustee of the Republic" will sanction the technical creation
of a second trust in which the Republic, which is already a trustee, becomes the second
trustor and the airport Authority a second trustee. Although I do not wish to belabor the
point, I submit that the validity of such a scenario appears doubtful. Sufficient authority,
however, supports the proposition that a trustee can delegate his duties to an agent
provided he properly supervises and controls the agent’s conduct.37 In this case, we can
rightly say that the Republic, as the trustee of the public dominion airport properties for the
benefit of the people, has delegated to MIAA the administration of the said properties
subject, as shown above, to the executive department’s supervision and control.
In fine, the properties comprising the NAIA being of public dominion which pertain to the
State, the same should be exempt from real property tax following Section 234(a) of the
LGC.

One last word. Given the foregoing disquisition, I find no necessity for this Court to
abandon its ruling in Mactan. On the premise that the rationale for exempting airport
properties from payment of real estate taxes is ownership thereof by the Republic, the
Mactan ruling is impeccable in its logic and its conclusion should remain undisturbed.
Having harmonized the apparently divergent views, we need no longer fear any fierce
disagreements in the future.

I therefore vote to grant the petition.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 163072 April 2, 2009

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,

vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF
PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR OF
PASAY, Respondents.

DECISION

CARPIO, J.:

This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the
Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.

The Facts

Petitioner Manila International Airport Authority (MIAA) operates and administers the
Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 (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.
Under Sections 34 and 225 of EO 903, approximately 600 hectares of land, including the
runways, the airport tower, and other airport buildings, were transferred to MIAA. The
NAIA Complex is located along the border between Pasay City and Parañaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from
the City of Pasay for the taxable years 1992 to 2001. MIAA’s real property tax delinquency
for its real properties located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA
Pasay properties) is tabulated as follows:

TAX TAXABLE
TAX DUE PENALTY TOTAL
DECLA-RATION YEAR
A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18

A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98

A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20

A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44

A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85

A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28

A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58

A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36

A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33

A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13

A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00

GRAND TOTAL ₱642,747,726.20 ₱373,466,110.13 ₱1,016,213,836.33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy
and warrants of levy for the NAIA Pasay properties. MIAA received the notices and
warrants of levy on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to sell
at public auction the NAIA Pasay properties if the delinquent real property taxes remain
unpaid.

On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and
injunction with prayer for preliminary injunction or temporary restraining order. The petition
sought to enjoin the City of Pasay from imposing real property taxes on, levying against,
and auctioning for public sale the NAIA Pasay properties.

On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power 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, this petition.

The Court of Appeals’ Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the
Local Government Code, which took effect on 1 January 1992, withdrew the exemption
from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except local water districts, cooperatives
duly registered under Republic Act No. 6938, non-stock and non-profit hospitals and
educational institutions. Since MIAA is a government-owned corporation, it follows that its
tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the
Local Government Code.
 The Issue

The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt
from real property tax.

The Court’s Ruling

The petition is meritorious.

In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited
Sections 193 and 234 of the Local Government Code which read:

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 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.

The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation," there may
be a government "instrumentality" that will not qualify as a "government-owned or
controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in

Section 2(13) will show that MIAA would not fall under such definition. MIAA is a
government "instrumentality" that does not qualify as a "government-owned or
controlled corporation." As explained in the 2006 MIAA case:

A government-owned or controlled corporation must be "organized as a stock or

non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA
is not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. x x x

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock
is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.

xxx

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation
must have members. Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury. This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within
the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently

its governmental functions. MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers. 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

Thus, MIAA is not a government-owned or controlled corporation but a government

instrumentality which is exempt from any kind of tax from the local governments. Indeed,
the exercise of the taxing power of local government units is subject to the limitations
enumerated in Section 133 of the Local Government Code.10 Under Section 133(o)11 of
the Local Government Code, local government units have no power to tax
instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to
pay real property tax for the NAIA Pasay properties.

Furthermore, the airport lands and buildings of MIAA are properties of public dominion
intended for public use, and as such are exempt from real property tax under Section
234(a) of the Local Government Code. However, under the same provision, if MIAA
leases its real property to a taxable person, the specific property leased becomes subject
to real property tax.12 In this case, only those portions of the NAIA Pasay properties which
are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October
2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No.
67416. We DECLARE the NAIA Pasay properties of the Manila International Airport
Authority EXEMPT from real property tax imposed by the City of Pasay. We
declare VOID all the real property tax assessments, including the final notices of real
property tax delinquencies, issued by the City of Pasay on the NAIA Pasay properties of
the Manila International Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private parties.

No costs.

SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO

Associate Justice Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE
ANTONIO EDUARDO B. NACHURA
CASTRO
Associate Justice
Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Under Rule 45 of the 1997 Rules of Civil Procedure.

2Penned by Associate Justice Ruben T. Reyes (now retired Supreme Court Justice) with
Associate Justices Remedios Salazar-Fernando and Edgardo F. Sundiam, concurring.
3 Providing for a Revision of Executive Order No. 778 Creating the Manila International
Airport Authority, Transferring Existing Assets of the Manila International Airport to the
Authority, and Vesting the Authority with Power to Administer and Operate the Manila
International Airport.

4 Section 3 of EO 903 reads:

SEC. 3. Creation of the Manila International Airport Authority. There is hereby established
a body corporate to be known as the Manila International Airport Authority which shall be
attached to the Ministry of Transportation and Communications. The principal office of the
Authority shall be located at the New Manila International Airport. The Authority may
establish such offices, branches, agencies or subsidiaries as it may deem proper and
necessary; Provided, that any subsidiary that may be organized shall have the prior
approval of the President.

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 the sale or through any other mode unless
specifically approved by the President of the Philippines.

5 Section 22 of EO 903 reads:

SEC. 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other property, movable and 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.

6 G.R. No. 155650, 20 July 2006, 495 SCRA 591.

7 Id. at 644-645.

8 Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 reads:

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.

9 Supra note 6 at 615-618.

 Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 150301, 2
10

October 2007, 534 SCRA 490.

11 Section 133(o) of the Local Government Code reads:

SECTION 133. Common Limitations on the Taxing Powers of the 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:

xxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.

12 Manila International Airport Authority v. Court of Appeals, supra note 6.

The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION

YNARES-SANTIAGO, J.:

Indeed, as pointed out by Justice Antonio T. Carpio, the Court has twice reaffirmed the
ruling in Manila International Airport Authority v. Court of Appeals1 in the subsequent
cases of Philippine Fisheries Development Authority v. Court of Appeals 2 and Philippine
Fisheries Development Authority v. Court of Appeals.3 However, upon further study of the
issues presented in said cases, I agree with Justice Dante O. Tinga that the Manila
International Airport Authority (MIAA) ruling was incorrectly rationalized, particularly on the
unwieldy characterization of MIAA as a species of a government instrumentality. I submit
that the present ponencia of Justice Carpio perpetuates the error which I find imperative
for the Court to correct.

Nevertheless, unlike Justice Tinga’s rationalization, I find that there is no more need to
belabor the issue of whether the MIAA is a government-owned or controlled corporation
(GOCC) or a government instrumentality in order to resolve the issue of whether the
airport properties are subject to real property tax.

Instead, I subscribe to the "simple, direct and painless approach" proposed by Justice
Antonio Eduardo B. Nachura that it is imperative to "fine tune" the Court’s ruling in Mactan
Cebu International Airport Authority v. Marcos4 vis-à-vis that in Manila International Airport
Authority v. Court of Appeals;5 and that what needs only to be ascertained is whether the
airport properties are owned by the Republic; and if such, then said properties are exempt
from real property tax, by applying Section 234 of Republic Act No. 7160 (R.A. No. 7160)
or the Local Government Code (LGC).
Pursuant to Section 232 of the LGC, a province or city or municipality within the
Metropolitan Manila Area is vested with the power to levy an annual ad valorem tax on
real property such as land, building, machinery, and other improvement not hereafter
specifically exempted. Corollarily, Section 234 thereof provides an enumeration of certain
properties which are exempt from payment of the real property tax, among which is "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."

Article 420 of the Civil Code enumerates the properties of public dominion, to wit:

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.

There is no question that the airport and all its installations, facilities and equipment, are
intended for public use and are, thus, properties of public dominion.

Concededly, the Court ruled in Mactan Cebu International Airport Authority v.

Marcos6 that:

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 persons."

Section 15 of [MCIAA’s] Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. – Al 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, aerodome 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," which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).

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 thins, 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
petitioner’s authorized capital stock consists of, inter alia, "the value of such real estate
owned and/or administered by the airports." Hence, the petitioner is now the owner of the
land in question and the exception in Section 234© of the LGC is inapplicable.

Meanwhile, Executive Order No. 9037 or the Revised Charter of the Manila International
Airport Authority, provides in Section 3 thereof that –

xxxx

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.

Regardless of the apparent transfer of title of the said properties to MIAA, I submit that the
latter is only holding the properties for the benefit of the Republic in its capacity as agent
thereof. It is to be noted that despite the conveyance of the title to the said properties to
the MIAA, however, the latter could not in any way dispose of the same through sale or
through any other mode unless specifically approved by the President of the
Republic.8 Even MIAA’s borrowing power is dictated upon by the President. Thus, MIAA
could raise funds, either from local or international sources, by way of loans, credits or
securities, and other borrowing instruments, create pledges, mortgages and other
voluntary lines or encumbrances on any of its assets or properties, only after consultation
with the Secretary of Finance and with the approval of the President. In addition, MIAA’s
total outstanding indebtedness could exceed its net worth only upon express authorization
by the President. 9

I fully agree with Justice Nachura that "even if MIAA holds the record title over the airport
properties, such holding can only be for the benefit of the Republic, that MIAA exercises
an essentially public function."

In sum, the airport and all its installations, facilities and equipment of the MIAA, are
properties of public dominion and should thus be exempted from payment of real property
tax, except those properties where the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.

ACCORDINGLY, I vote to grant the petition.

CONSUELO YNARES-SANTIAGO
Associate Justice

Footnotes
1 G.R. No. 155650, July 20, 2006, 495 SCRA 591.

2 G.R. No. 169836, July 31, 2007, 528 SCRA 707.

3 G.R. No. 151301, October 2, 2007, 534 SCRA 490.

4 330 Phil. 392 [1996].

5 Supra note 1.

6 Supra note 4.

7 July 21, 1983.

8 E.O. 903, Sec. 3.

9 E.O. 903, Sec. 16.

The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION

TINGA, J.:

I maintain my dissent expressed in the 2006 ruling in MIAA v. City of Parañaque1 (the
"Parañaque case.")

The majority relies on two main points drawn from the 2006 Parañaque case in this
instance as it rules once again that the MIAA is exempt from realty taxes assessed by the
City of Pasay. First, because MIAA is a government instrumentality, it somehow finds itself
exempt from the said taxes, supposedly by operation of the Local Government Code.
Second, the subject properties are allegedly owned by the Republic of the Philippines,
notwithstanding that legal title thereto is in the name of the MIAA, which is a distinct and
independent juridical personality from the Republic.

I.

Once again, attempts are drawn to classify MIAA as a government instrumentality, and
not as a government owned or controlled corporation. Such characterization was
apparently insisted upon in order to tailor-fit the MIAA to Section 133 of the Local
Government Code, which reads:

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:
 xxx

15. Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. (emphasis and underscoring supplied).

How was the Parañaque case able to define the MIAA as a instrumentality of the National
Government? The case propounded that MIAA was not a GOCC:

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. — . . .

(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: . . . . (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.

xxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code 10 defines a stock corporation as one whose "capital
stock is divided into shares and . . . authorized to distribute to the holders of such shares
dividends . . . ." 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.2

This "black or white" categorization of "stock" and "non-stock" corporations utterly

disregards the fact that nothing in the Constitution prevents Congress from creating
government owned or controlled corporations in whatever structure it deems necessary.
Note that this definitions of "stock" and "non-stock" corporations are taken from the
Administrative Code, and not the Constitution. The Administrative Code is a statute, and is
thus not superior in hierarchy to any other subsequent statute created by Congress,
including the charters for GOCCs.

Since MIAA was presumed not to be a stock or non-stock corporation, the majority in the
Parañaque case then strived to fit it into a category.

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. –– . . .

(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. . . . (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, 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."3

Unfortunately, this cited statutory definition of an "instrumentality" is incomplete. Worse,

the omitted portion from Section 2(10) completely contradicts the premise of the ponente
that an instrumentality is mutually exclusive from a GOCC. For the provision reads in full,
with the omitted portion highlighted, thus:

(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.

This previous omission had not escaped the attention of the outside world. For example,
lawyer Gregorio Batiller, Jr., has written a paper on the Parañaque case entitled "A Tale of
Two Airports," which is published on the Internet.4He notes therein:

Also of interest was the dissenting opinion of Justice Dante Tinga to the effect that the
majority opinion failed to quote in full the definition of "government instrumentality:"
The Majority gives the impression that a government instrumentality is a distinct concept
from a government corporation. Most tellingly, the majority selectively cites a portion of
Section 2(10) of the Administrative Code of 1987, as follows:

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. xxx (emphasis omitted)"

However, Section 2(10) of the Administrative Code, when read in full, makes an important
clarification which the majority does not show. The portions omitted by the majority are
highlighted below: xxx

"(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.

So the majority opinion effectively begged the question in finding that the MIAA was not a
GOCC but a mere government instrumentality, which is other than a GOCC.5

The Office of the President itself was alarmed by the redefinition made by the MIAA case
of instrumentalities, causing it on 29 December 2006 to issue Executive Order No. 596
creating the unwieldy category of "Government Instrumentality Vested with Corporate
Powers or Government Corporate Entities" just so that it was clear that these newly
defined "instrumentalities" or "government corporate entities" still fell within the jurisdiction
of the Office of the Government Corporate Counsel. The E.O. reads in part:

EXECUTIVE ORDER NO. 596

DEFINING AND INCLUDING "GOVERNMENT INSTRUMENTRALITY

VESTED WITH CORPORATE POWERS" OR "GOVERNMENT
CORPORATE ENTITIES" UNDER THE JURISDICTION OF THE OFFICE
OF THE GOVERNMENT CORPORATE COUNSEL (OGCC) AS
PRINCIPAL LAW OFFICE OF GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCs) AND FOR OTHER
PURPOSES.

WHEREAS, the Office of the Government Corporate Counsel (OGCC), as

the principal law office of all Government-Owned or Controlled
Corporations (GOCCs), including their subsidiaries, other corporate
offsprings and government acquired assets corporations, plays a very
significant role in safeguarding the legal interests and providing the legal
requirements of all GOCCs;

WHEREAS, there is an imperative need to integrate, strengthen and

rationalize the powers and jurisdiction of the OGCC in the light of the
Decision of the Supreme Court dated July 20, 2006, in the case of "Manila
International Airport Authority vs. Court of Appeals, City of Parañaque, et
al" (G.R. No. 155650), where the High Court differentiated "government
corporate entities" and government instrumentalities with corporate
powers" from GOCCs for purposes of the provisions of the Local
Government Code on real estate taxes, and other fees and charges
imposed by local government units;

WHEREAS, in the interest of an effective administration of justice, the

application and definition of the term "GOCCs" need to be further clarified
and rationalized to have consistency in referring to the term and to avoid
unintended conflicts and/or confusion’

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of

the Republic of the Philippines, by virtue of the powers vested in my by law,
do hereby order:

SECTION 1. The Office of the Government Corporate Counsel (OGCC)

shall be the principal law office of all GOCCs, except as may otherwise be
provided by their respective charter or authorized by the President, their
subsidiaries, corporate offsprings, and government acquired asset
corporations. The OGCC shall likewise be the principal law of the
"government instrumentality vested with corporate powers" or
"government corporate entity," as defined by the Supreme Court in the
case of "MIAA v. Court of Appeals, City of Parañaque, et al.," supra,
notable examples of which are: Manila International Airport Authority
(MIAA), Mactan International Airport Authority, the Philippine Ports
Authority (PPA), Philippine Deposit Insurance Corporation (PDIC),
Metropolitan Water and Sewerage Services (MWSS), Philippine Rice
Research Institute (PRRI), Laguna Lake Development Authority (LLDA),
Fisheries Development Authority (FDA), Bases Conversion Development
Authority (BCDA), Cebu Port Authority (CPA), Cagayan de Oro Port
Authority, and San Fernando Port Authority.

SECTION 2. As provided under PD 2029, series of 1986, the term GOCCs

is defined as a stock or non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by a
special law or if organized under the general corporation law, is owned or
controlled by the government directly, or indirectly, through a parent
corporation or subsidiary corporation, to the extent of at least majority of
its outstanding capital stock or of its outstanding voting capital stock.

Under Section 2(10) of the Introductory Provisions of the Administrative

Code of 1987, a government "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.

SECTION 3. The following corporations are considered GOCCs under the

conditions and/or circumstances indicated:

a) A corporation organized under the general corporation law under

private ownership at least a majority of the shares of stock of which were
conveyed to a government financial institution, whether by foreclosure or
otherwise, or a subsidiary corporation of a government corporation
organized exclusively to own and manage, or lease, or operate specific
 assets acquired by a government financial institution in satisfaction of
debts incurred therewith and which in any case by enunciated policy of the
government is required to be disposed of to private ownership within a
specified period of time, shall not be considered a GOCC before such
disposition and even if the ownership or control thereof is subsequently
transferred to another GOCC;

b) A corporation created by special law which is explicitly intended under

that law for ultimate transfer to private ownership under certain specified
conditions shall be considered a GOCC, until it is transferred to private
ownership;

c) A corporation that is authorized to be established by special law, but

which is still required under that law to register with the Securities and
Exchange Commission in order to acquire a juridical personality, shall not,
on the basis of the special law alone, be considered a GOCC.

xxx

Reading this Executive Order, one cannot help but get the impression that the Republic of
the Philippines, ostensibly the victorious party in the Parañaque case, felt that the 2006
ponencia redefining "instrumentalities" was wrong. Ostensibly, the Office of the
Government Corporate Counsel, the winning counsel in the MIAA case, cooperated in the
drafting of this E.O. and probably also felt that the redefinition of "instrumentalities" was
wrong. I had pointed out in my Dissent to the MIAA case that under the framework
propounded in that case, GOCCs such as the Philippine Ports Authority, the Bases
Conversion Development Authority, the Philippine Economic Zone Authority, the Light
Rail Transit Authority, the Bangko Sentral ng Pilipinas, the National Power Corporation,
the Lung Center of the Philippines, and even the Philippine Institute of Traditional and
Alternative Health Care have been reclassified as instrumentalities instead of GOCCs.

Notably, GOCCs are mandated by Republic Act No. 7656 to remit 50% of their annual net
earnings as cash, stock or property dividends to the National Government. By denying
categorization of those above-mentioned corporations as GOCCs, the Court in MIAA
effectively gave its imprimatur to those entities to withhold remitting

50% of their annual net earnings to the National Government. Hence, the necessity of E.O.
No. 596 to undo the destructive effects of the Parañaque case on the national coffers.

In a welcome development, the majority now acknowledges the existence of that second
clause in Section 2(10) of the Introductory Provisions of the Administrative Code, the
clause which made explicit that government instrumentalities include GOCCs. In truth, I
had never quite understood this hesitation in plainly saying that GOCCs are
instrumentalities. That fact is really of little consequence in determining whether or not the
MIAA or other government instrumentalities or GOCCs are exempt from real property
taxes.

As I had consistently explained, the liability of such entities is mandated by Section 232, in
relation with Section 234 of the Local Government Code. Section 232 lays down the
general rule that provinces, cities or municipalities within Metro Manila may levy an ad
valorem tax on real property "not hereinafter specifically exempted." Such specific
exemptions are enumerated in Section 234, and the only exemption tied to government
properties extends to "real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted…to a
taxable person."6

Moreover, the final paragraph of Section 234 explains that "[e]xcept as provided herein [in
Section 234], 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."

What are the implications of Section 232 in relation to Section 234 as to the liability for real
property taxes of government instrumentalities such as MIAA?

1) All persons, whether natural or juridical, including GOCCs are liable for real property
taxes.

2) The only exempt properties are those owned by the Republic or any of its political
subdivisions.

3) So-called "government corporate entities," so long as they have juridical personality

distinct from the Republic of the Philippines or any of its political subdivisions, are liable for
real property taxes.

4) After the enactment of the Local Government Code in 1991, Congress remained free to
reenact tax exemptions from real property taxes to government instrumentalities, as it did
with the Government Service Insurance System in 1997.

It is that simple. The most honest intellectual argument favoring the exemption of the
MIAA from real property taxes corresponds with the issue of whether its properties may be
deemed as "owned by the Republic or any of its political subdivisions". The matter of
whether MIAA is a GOCC or an instrumentality or a "government corporate entity" should
in fact be irrelevant. However, the framework established by the ponente beginning with
the Parañaque case has inexplicably and unnecessarily included the question of what is a
GOCC? That issue, utterly irrelevant to settling the question of MIAA’s tax liability, has
caused nothing but distraction and confusion.

It should be remembered that prior to the Parañaque case, the prevailing rule on taxation
of GOCCs was as enunciated in Mactan Cebu International Airport v. Hon. Marcos.7 That
rule was a highly sensible rule that gave due respect to national government prerogatives
and the devolution of taxing powers to local governments. Neither did Mactan Cebu
prevent Congress from enacting legislation exempting selected GOCCs to be exempt
from real property taxes.

A significant portion of my Dissenting Opinion in the Parañaque case was devoted to

explaining Mactan Cebu, and criticizing the ponencia for implicitly rejecting that doctrine
without categorically saying so. In the years since, significant confusion has arisen on
whether Mactan Cebu and the framework it established in real property taxation of
GOCCs and instrumentalities, remains extant. Batiller makes the same point in his paper,
expressly asking why "the Supreme Court did not explicitly declare that the Mactan Cebu
International Airport case was deemed repealed." He added:

Inevitably, the refusal of the Supreme Court to clarify whether its Decision in the Mactan
Cebu International Airport case is deemed repealed would leave us with an ambiguous
situation where two (2) of our major international airports are treated differently tax wise:
one in Cebu which is deemed to be a GOCC subject to real estate taxes and the other in
Manila which is not a GOCC and exempt from real estate taxes.

Where lies the substantial difference between the two (2) airports? Your guess is as good
as mine.8

There are no good reasons why the Court should not reassert the Mactan Cebu doctrine.
Under that ruling, real properties owned by the Republic of the Philippines or any of its
political subdivisions are exempted from the payment of real property taxes, while
instrumentalities or GOCCs are generally exempted from local government taxes, save for
real property taxes. At the same time, Congress is free should it so desire to exempt
particular GOCCs or instrumentalities from real property taxes by enacting legislation for
that purpose. This paradigm is eminently more sober than that created by the Parañaque
case, which attempted to amend the Constitution by elevating as a constitutional principle,
the real property tax exemption of all government instrumentalities, most of which also
happen to be GOCCs. Considering that the Constitution itself is supremely deferential to
the notion of local government rule and the power of local governments to generate
revenue through local taxes, the idea that not even the local government code could
subject such "instrumentalities" to local taxes is plainly absurd.

II.

I do recognize that the present majority opinion has chosen to lay equal, if not greater
emphasis on the premise that the MIAA properties are supposedly of public dominion, and
as such are exempt from realty taxes under Section 234(a) of the Local Government Code.
Again, I respectfully disagree.

It is Article 420 of the Civil Code which defines what are properties of public dominion. I do
not doubt that Article 420 can be interpreted in such a way that airport properties, such as
its runways, hangars and the like, can be considered akin to ports or roads, both of

which are among those properties considered as part of the public dominion under Article
420(1). It may likewise be possible that those properties considered as "property of public
dominion" under Article 420 of the Civil Code are also "property owned by the Republic,"
which under Section 234 of the Local Government Code, are exempt from real property
taxes.

The necessary question to ask is whether properties which are similar in character to
those enumerated under Article 420(1) may be considered still part of the public dominion
if, by virtue of statute, ownership thereof is vested in a GOCC which has independent
juridical personality from the Republic of the Philippines. The question becomes even
more complex if, as in the case of MIAA, the law itself authorizes such GOCC to sell the
properties in question.

One of the most recognizable characteristics of public dominion properties is that they are
placed outside the commerce of man and cannot be alienated or leased or otherwise be
the subject matter of contracts.9 The fact is that the MIAA may, by law, alienate, lease or
place the airport properties as the subject matter of contracts. The following provisions of
the MIAA charter make that clear:
SECTION 5. Functions, Powers, and Duties. — The Authority shall have the following
functions, powers and duties:

xxx xxx xxx

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of
any land, building, airport facility, or property of whatever kind and nature, whether
movable or immovable, or any interest therein;

xxx

SECTION 16. Borrowing Power. — The Authority may, after consultation with the Minister
of Finance and with the approval of the President of the Philippines, as recommended by
the Minister of Transportation and Communications, raise funds, either from local or
international sources, by way of loans, credits or securities, and other borrowing
instruments, with the power to create pledges, mortgages and other voluntary liens or
encumbrances on any of its assets or properties.

There is thus that contradiction where property which ostensibly is classified as part of the
public dominion under Article 420 of the Civil Code is nonetheless classified to lie within
the commerce of man by virtue of a subsequent law such as the MIAA charter. In order for
the Court to classify the MIAA properties as part of public dominion, it will be necessary to
invalidate the provisions of the MIAA charter allowing the Authority to lease, sell, create
pledges, mortgages and other voluntary liens or encumbrances on any of the airport
properties. The provisions of the MIAA charter could not very well be invalidated with the
Civil Code as basis, since the MIAA charter and the Civil Code are both statutes, and thus
of equal rank in the hierarchy of laws, and more significantly the Civil Code was enacted
earlier and therefore could not be the repealing law.

If there is a provision in the Constitution that adopted the definition of and limitations on
public dominion properties as found in the Civil Code, then the aforequoted provisions
from the MIAA charter allowing the Authority to place its properties within the commerce of
man may be invalidated. The Constitution however does not do so, confining itself instead
to a general statement that "all lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State." Note though
that under Article 420, public dominion properties are not necessarily owned by the State,
the two subsections thereto referring to (a) properties intended for public use; and (b)
those which belong to the State and are intended for some public service or for the
development of the national wealth.10 In Laurel v.

Garcia,11 the Court notably acknowledged that "property of public dominion is not owned
by the State but pertains to the State." Thus, there is no equivalence between the concept
of public dominion under the Civil Code, and of public domain under the Constitution.

Accordingly, the framework of public dominion properties is one that is statutory, rather
than constitutional in design. That being the case, Congress is able by law to segregate
properties which ostensibly are, by their nature, part of the public dominion under Article
420(1) of the Civil Code, and place them within the commerce of man by vesting title
thereto in an independent juridical personality such as the MIAA, and authorizing their
sale, lease, mortgage and other similar encumbrances. When Congress accomplishes
that by law, the properties could no longer be considered as part of the public dominion.
This point has been recognized by previous jurisprudence which I had cited in my dissent
in the Parañaque case. For example, in Philippine Ports Authority v. City of Iloilo, the
Court stated that "properties of public dominion are owned by the general public and
cannot be declared to be owned by a public corporation, such as [the Philippine Ports
Authority]."12 I had likewise previously explained:

The second Public Ports Authority case, penned by Justice Callejo, likewise lays down
useful doctrines in this regard. The Court refuted the claim that the properties of the PPA
were owned by the Republic of the Philippines, noting that PPA's charter expressly
transferred ownership over these properties to the PPA, a situation which similarly obtains
with MIAA. The Court even went as far as saying that the fact that the PPA "had not been
issued any torrens title over the port and port facilities and appurtenances is of no legal
consequence. A torrens title does not, by itself, vest ownership; it is merely an evidence of
title over properties. . . . It has never been recognized as a mode of acquiring ownership
over real properties."

The Court further added:

. . . The bare fact that the port and its facilities and appurtenances are accessible to the
general public does not exempt it from the payment of real property taxes. It must be
stressed that the said port facilities and appurtenances are the petitioner's corporate
patrimonial properties, not for public use, and that the operation of the port and its facilities
and the administration of its buildings are in the nature of ordinary business. The petitioner
is clothed, under P.D. No. 857, with corporate status and corporate powers in the
furtherance of its proprietary interests . . . The petitioner is even empowered to invest its
funds in such government securities approved by the Board of Directors, and derives its
income from rates, charges or fees for the use by vessels of the port premises, appliances
or equipment. . . . Clearly then, the petitioner is a profit-earning corporation; hence, its
patrimonial properties are subject to tax.

There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for
public use. A similar argument was propounded by the Light Rail Transit Authority in Light
Rail Transit Authority v. Central Board of Assessment, 118 which was cited in Philippine
Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA),
a body corporate, "provides valuable transportation facilities to the paying public." 119 It
claimed that its carriage-ways and terminal stations are immovably attached to
government-owned

national roads, and to impose real property taxes thereupon would be to impose taxes on
public roads. This view did not persuade the Court, whose decision was penned by
Justice (now Chief Justice) Panganiban. It was noted:

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. Indeed, it
operates much like any private corporation engaged in the mass 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.

xxx xxx xxx

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.

xxx xxx xxx

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.

There is no substantial distinction between the properties held by the PPA, the LRTA, and
the MIAA. These three entities are in the business of operating facilities that promote
public transportation.

The majority further asserts that MIAA's properties, being part of the public dominion, are
outside the commerce of man. But if this is so, then why does Section 3 of MIAA's charter
authorize the President of the Philippines to approve the sale of any of these properties?
In fact, why does MIAA's charter in the first place authorize the transfer of these airport
properties, assuming that indeed these are beyond the commerce of man?13

III.

In the present case, the City of Pasay had issued notices of levy and warrants of levy for
the NAIA Pasay properties, leading MIAA to file with the Court of Appeals a petition for
prohibition and injunction, seeking to enjoin the City of Pasay from imposing real property
taxes, levying against and auctioning for public sale the NAIA Pasay properties.

In the Parañaque case, I had expressed that while MIAA was liable for the realty taxes, its
properties could not be foreclosed upon by the local government unit seeking the taxes. I
explained then:

Despite the fact that the City of Parañaque ineluctably has the power to impose real
property taxes over the MIAA, there is an equally relevant statutory limitation on this
power that must be fully upheld. Section 3 of the MIAA charter states that "[a]ny portion [of
the [lands transferred, conveyed and assigned to the ownership and administration of the
MIAA] shall not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines."

Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can
be deemed as repealing this prohibition under Section 3, even if it effectively forecloses
one possible remedy of the LGU in the collection of delinquent real property taxes. While
the Local Government Code withdrew all previous local tax exemptions of the MIAA and
other natural and juridical persons, it did not similarly withdraw any previously enacted
prohibitions on properties owned by GOCCs, agencies or instrumentalities. Moreover, the
resulting legal effect, subjecting on one hand the MIAA to local taxes but on the other
hand shielding its properties from any form of sale or disposition, is not contradictory or
paradoxical, onerous as its effect may be on the LGU. It simply means that the LGU has to
find another way to collect the taxes due from MIAA, thus paving the way for a mutually
acceptable negotiated solution.

Accordingly, I believe that MIAA is entitled to a writ of prohibition and injunctive relief
enjoining the City of Pasay from auctioning for public sale the NAIA Pasay properties.
Thus, the Court of Appeals erred when it denied those reliefs to the MIAA.

I VOTE to PARTIALLY GRANT the petition and to issue the Writ of Prohibition insofar as it
would enjoin the City of Pasay from auctioning for public sale the NAIA Pasay properties.
In all other respects, I respectfully dissent.

DANTE O. TINGA
Associate Justice

Footnotes

1 G.R. No. 155630, 20 July 2006, 495 SCRA 591.

2 Supra note 1 at 615-616.

3 Supra note 1 at 617-618.

4
See http://www.gbdlr.com/articles/pdf/A_TALE_OF_TWO_AIRPORTS_vol%5B1%
5D.pdf

5 Supra note 4.

6 Local Government Code, Sec. 234(a).

7 330 Phil. 392 (1996).

8 Supra note 4.

9 Villarico v. Sarmiento, G.R. No. 136438, 11 November 2004, 442 SCRA 110.

10 See Civil Code, Art. 420.

11 G.R. No. 92013, 25 July 1990, 187 SCRA 797.

12 G.R. No. 109791, 14 July 2003, 406 SCRA 88.

13 Supra note 1 at 694-696, J. Tinga, dissenting.

The Lawphil Project - Arellano Law Foundation

 SEPARATE OPINION

NACHURA, J.:

Are airport properties subject to real property tax? The question seriously begs for a
definitive resolution, in light of our ostensibly contradictory decisions1 that may have
generated no small measure of confusion even among lawyers and magistrates.

Hereunder, I propose a simple, direct and painless approach to arrive at an acceptable

answer to the question.

I.

Real property tax is a direct tax on the ownership of lands and buildings or other
improvements thereon, not specially exempted, and is payable regardless of whether the
property is used or not, although the value may vary in accordance with such factor. The
tax is usually single or indivisible, although the land and building or improvements erected
thereon are assessed separately, except when the land and building or improvements
belong to separate owners.2

The power to levy this tax is vested in local government units (LGUs). Thus, Republic Act
(R.A.) No. 7160, or the Local Government Code (LGC) of 1991,3 provides:

Under Book II, Title II, Chapter IV-Imposition of Real Property Tax

Section 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 improvement not hereinafter specifically exempted.4

A significant innovation in the LGC is the withdrawal, subject to some exceptions, of all tax
exemption privileges of all natural or juridical persons, including government-owned and
controlled corporations (GOCCs), thus:

Under Book II, Title I, Chapter V-Miscellaneous Provisions

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.5

This is where the controversy started. The airport authorities, formerly exempt from paying
taxes, are now being obliged to pay real property tax on airport properties.
To challenge the real property tax assessments, the airport authorities invoke two
provisions of the LGC—one is stated in Book II, Title I, Chapter I on General Provisions,
which reads:

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) 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 "Cooperative 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.6

and the other in Book II, Title I, Chapter IV on Imposition of Real Property Tax:

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, 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.

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.7

In Mactan Cebu International Airport Authority (MCIAA) v. Marcos,8 the Court ruled that
Section 133(o) is qualified by Sections 232 and 234. Thus, MCIAA could not seek refuge
in Section 133(o), but only in Section 234(a) provided it could establish that the properties
were owned by the Republic of the Philippines. The Court ratiocinated, thus:

[R]eading 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, 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.9

In addition, the Court went on to hold that the properties comprising the Lahug
International Airport and the Mactan International Airport are no longer owned by the
Republic, the latter having conveyed the same absolutely to MCIAA.

About a decade later, however, the Court ruled in Manila International Airport Authority
(MIAA) v. Court of Appeals,10 that the airport properties, this time comprising the Ninoy
Aquino International Airport (NAIA), are exempt from real property tax. It justified its ruling
by categorizing MIAA as a government instrumentality specifically exempted from paying
tax by Section 133(o) of R.A. No. 7160. It further reasoned that the subject properties are
properties of public dominion, owned by the Republic, and are only held in trust by MIAA,
thus:

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.11

II.

In this case, we are confronted by the very same issue.

A basic principle in statutory construction decrees that, to discover the general legislative
intent, the whole statute, and not only a particular provision thereof, should be considered.
Every section, provision or clause in the law must be read and construed in reference to
each other in order to arrive at the true intention of the legislature.12

Notably, Section 133 of the LGC speaks of the general limitations on the taxing power of
LGUs. This is reinforced by its inclusion in Title I, Chapter I entitled "General Provisions"
on "Local Government Taxation." On the other hand, Section 234, containing the
enumeration of the specific exemptions from real property tax, is in Chapter IV entitled
"Imposition of Real Property Tax" under Title II on "Real Property Taxation." When read
together, Section 234, a specific provision, qualifies Section 133, a general provision.

Indeed, whenever there is a particular enactment and a general enactment in the same
statute, and the latter, taken in its most comprehensive sense, will overrule the former, the
particular enactment must be operative, and the general enactment must be taken to
affect only the other parts of the statute to which it may properly apply.13Otherwise stated,
where there are two acts or provisions, one of which is special and particular, and
certainly includes the matter in question, and the other general, which, if standing alone,
will include the same matter and thus conflict with the special act or provision, the special
must be taken as intended to constitute an exception to the general act or provision,
especially when such general and special acts or provisions are contemporaneous, as the
legislature is not to be presumed to have intended a conflict.14

Mactan Cebu therefore adheres to the intendment of the law insofar as it holds that
MCIAA cannot seek refuge in Section 133(o); that it can only invoke Section 234(a) so
long as it can establish that the properties were owned by the Republic of the Philippines.
To repeat, Section 234, which specifies the properties exempted from real property tax,
prevails over the general limitations on the taxing power of LGUs stated in Section 133.

Thus, if Section 133(o) is not to be a haven, then, I respectfully submit that it is no longer
necessary to dichotomize between a government instrumentality and a GOCC. As
stressed by the Court in Mactan Cebu, what need only be ascertained is whether the
airport properties are owned by the Republic if the airport Authority is to be freed from the
burden of paying the real property tax. Similarly, in MIAA, with the Court’s finding that the
NAIA lands and buildings are owned by the Republic, the airport Authority does not have
to pay real property tax to the City of Parañaque.

III.
As pointed out earlier, Mactan Cebu and MIAA ostensibly contradict each other. While the
first considers airport properties as subject to real property tax, the second exempts the
same from this imposition. The conflict, however, is more apparent than real. The
divergent conclusions in the two cases proceed from different premises; hence, the
resulting contradiction.

To elucidate, in Mactan Cebu, the Court focused on the proper interpretation of Sections
133, 232 and 234 of the LGC, and emphasized the nature of the tax exemptions granted
by law. Mactan Cebu categorized the exemptions as 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 useto 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.15

For the airport properties to be exempt from real property tax, they must fall within the
mentioned categories. Logically, the airport properties can only qualify under the first
exemption–by virtue of ownership. But, as already mentioned, the Court, nevertheless,
ruled in Mactan Cebu that the said properties are no longer owned by the Republic having
been conveyed absolutely to the airport Authority, thus:

Section 15 of the petitioner’s 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," which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).

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
petitioner’s authorized capital stock consists of, inter alia, "the value of such real estate
owned and/or administered by the airports." Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of the LGC is inapplicable.16

In MIAA, a different conclusion was reached by the Court on two grounds. It first banked
on the general provision limiting the taxing power of LGUs as stated in Section 133(o) of
the LGC that, unless otherwise provided in the Code, the exercise of the taxing powers of
LGUs shall not extend to the levy of taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and LGUs. The Court took pains in
characterizing airport authorities as government instrumentalities, quite obviously, in order
to apply the said provision.

After doing so, the Court then shifted its attention and proceeded to focus on the issue of
who owns the property to determine whether the case falls within the purview of Section
234(a). Ratiocinating that airport properties are of public dominion which pertain to the
state and that the airport Authority is a mere trustee of the Republic, the Court ruled that
the said properties are exempt from real property tax, thus:

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:

xxxx

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are
owned by the State. The term "ports" includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and
thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the
public for international and domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. 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.

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of
the Philippines for both international and domestic air traffic," 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:

xxxx

Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:

xxxx

The Court has also ruled that property of public dominion, being outside the commerce of
man, cannot be the subject of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance
or disposition through public or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for being contrary to public policy.
Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque
can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President must first
withdraw from public use the Airport Lands and Buildings. 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," provide:

xxxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and are
inalienable. Since the Airport Lands and Buildings are inalienable in their present status
as properties of public dominion, they are not subject to levy on execution or foreclosure
sale. As long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:

xxxx

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn
by law or presidential proclamation from public use, they are properties of public dominion,
owned by the Republic and outside the commerce of man.

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:

xxxx

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.

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:

xxxx

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:
xxxx

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 Republic to
MIAA. The purpose was merely to reorganize a division in the Bureau of 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:

xxxx

This exemption should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing "[t]axes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The real properties owned
by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real property is
transferred to an agency or instrumentality even as the Republic remains the owner of the
real property. Such arrangement does not result in the loss of the tax exemption. Section
234(a) of the Local Government Code states that real property owned by the Republic
loses its tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government instrumentality,
is not a taxable person under Section 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:

x x x x17

In the ultimate, I submit that the two rulings do not really contradict, but, instead,
complement each one. Mactan Cebu provides the proper rule that, in order to determine
whether airport properties are exempt from real property tax, it is Section 234, not Section
133, of the LGC that should be determinative of the properties exempt from the said tax.
MIAA then lays down the correct doctrine that airport properties are of public dominion
pertaining to the state, hence, falling within the ambit of Section 234(a) of the LGC.

However, because of the confusion generated by the apparently conflicting decisions, a

fine tuning of Mactan Cebu and MIAA is imperative.

IV.

Parenthetically, while the basis of a real property tax assessment is actual use,18 the tax
itself is directed to the ownership of the lands and buildings or other improvements
thereon.19 Public policy considerations dictate that property of the State and of its
municipal subdivisions devoted to governmental uses and purposes is generally exempt
from taxation although no express provision in the law is made therefor.20 In the instant
case, the legislature specifically provided that real property owned by the Republic of the
Philippines or any of its political subdivisions is exempt from real property tax, except, of
course, when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person. The principal basis of the exemption is likewise ownership.21

Indeed, emphasis should be made on the ownership of the property, rather than on the
airport Authority being a taxable entity. This strategy makes it unnecessary to determine
whether MIAA is an instrumentality or a GOCC, as painstakingly expounded by the
ponente.

Likewise, this approach provides a convenient escape from Justice Tinga’s proposition
that the MIAA is a taxable entity liable to pay real property taxes, but the airport properties
are exempt from levy on execution to satisfy the tax liability. I fear that this hypothesis may
trench on the Constitutional principle of uniformity of taxation,22 because a tax lawfully
levied and assessed against a taxable governmental entity will not be lienable while like
assessments against all other taxable entities of the same tax district will be lienable.23

The better option, then, is for the Court to concentrate on the nature of the tax as a tax on
ownership and to directly apply the pertinent real property tax provisions of the LGC,
specifically those dealing with the exemption based on ownership, to the case at bar.

The phrase, "property owned by the Republic" in Section 234, actually refers to those
identified as public property in our laws. Following MIAA, we go to Articles 420 and 421 of
the Civil Code which provide:

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.

Art. 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.

From the afore-quoted, we readily deduce that airport properties are of public dominion.
The "port" in the enumeration certainly includes an airport. With its beacons, landing fields,
runways, and hangars, an airport is analogous to a harbor with its lights, wharves and
docks; the one is the landing place and haven of ships that navigate the water, the other
of those that navigate the air.24 Ample authority further supports the proposition that the
term "roads" include runways and landing strips.25 Airports, therefore, being properties of
public dominion, are of the Republic.

At this point, I cannot help but air the observation that the legislature may have really
intended the phrase "owned by the Republic" in Section 234 to refer to, among others,
properties of public dominion. This is because "public dominion" does not carry the idea of
ownership. Tolentino, an authority in civil law, explains:

This article shows that there is a distinction between dominion and ownership. Private
ownership is defined elsewhere in the Code; but the meaning of public dominion is
nowhere defined. From the context of various provisions, it is clear that public dominion
does not carry the idea of ownership; property of public dominion is not owned by the
State, but pertains to the State, which as territorial sovereign exercises certain juridical
prerogatives over such property. The ownership of such property, which has the special
characteristics of a collective ownership for the general use and enjoyment, by virtue of
their application to the satisfaction of the collective needs, is in the social group, whether
national, provincial, or municipal. Their purpose is not to serve the State as a juridical
person, but the citizens; they are intended for the common and public welfare, and so they
cannot be the object of appropriation, either by the State or by private persons. The
relation of the State to this property arises from the fact that the State is the juridical
representative of the social group, and as such it takes care of them, preserves them and
regulates their use for the general welfare.26

Be that as it may, the legislative intent to exempt from real property tax the properties of
the Republic remains clear. The soil constituting the NAIA airport and the runways cannot
be taxed, being properties of public dominion and pertaining to the Republic. This is true
even if the title to the said property is in the name of MIAA. Practical ownership, rather
than the naked legal title, must control, particularly because, as a matter of practice, the
record title may be in the name of a government agency or department rather than in the
name of the Republic.

In this case, even if MIAA holds the record title over the airport properties, such holding
can only be for the benefit of the Republic,27 especially when we consider that MIAA
exercises an essentially public function.28 Further, where property, the title to which is in
the name of the principal, is immune from taxes, it remains immune even if the title is
standing in the name of an agent or trustee for such principal.29
Properties of public dominion are held in trust by the state or the Republic for the
people.30 The national government and the bodies it has created that exercise delegated
authority are, pursuant to the general principles of public law, mere agents of the Republic.
Here, insofar as it deals with the subject properties, MIAA, a governmental creation
exercising delegated powers, is a mere agent of the Republic, and the latter, to repeat, is
the trustee of the properties for the benefit of all the people.31

Our ruling in MIAA, therefore, insofar as it holds that the airport Authority is a "trustee of
the Republic," may not have been precise. It would have been more sound, legally that is,
to consider the relationship between the Republic and the airport Authority as principal
and agent, rather than as trustor and trustee.

The history of the subject airport attests to this proposition, thus:

The country's premier airport was originally a US Air Force Base, which was turned over
to the Philippine government in 1948. It started operations as a civil aviation airport with
meager facilities, then consisting of the present domestic runway as its sole landing strip,
and a small building northwest of this runway as its sole passenger terminal.

The airport's international runway and associated taxiway were built in 1953; followed in
1961 by the construction of a control tower and a terminal building for the exclusive use of
international passengers at the southwest intersection of the two runways. These
structures formed the key components of an airport system that came to be known as the
Manila International Airport (MIA).

Like other national airports, the MIA was first managed and operated by the National
Airports Corporation, an agency created on June 5, 1948 by virtue of Republic Act No.
224. This was abolished in 1951 and [in] its stead, the MIA Division was created under the
Civil Aeronautics Administration (CAA) of the Department of Commerce and Industry.

On October 19, 1956, the entire CAA, including the MIA Division, was transferred to the
Department of Public Works, Transportation and Communications.

In 1979, the CAA was renamed Bureau of Air Transportation following the creation of an
exclusive Executive Department for Transportation and Communications.

It is worthwhile to note at this point that while the MIA General Manager then carried the
rank of a Division Chief only, it became a matter of policy and practice that he be
appointed by no less than the President of the Philippines since the magnitude of its
impact on the country's economy has acquired such national importance and recognition.

During the seventies, the Philippine tourism and industry experienced a phenomenal
upsurge in the country's manpower exports, resulting in more international flight
frequencies to Manila which grew by more than four times.

Executive Order No. 381 promulgated by then President Marcos authorized the
development of Manila International Airport to meet the needs of the coming decades.

A feasibility study/airport master plan was drawn up in 1973 by Airways Engineering

Corporation, the financing of which was source[d] from a US$29.6 Million loan arranged
with the Asian Development Bank (ADB). The detailed Engineering Design of the new
MIA Development Project (MIADP) was undertaken by Renardet-Sauti/Transplan/F.F.
Cruz Consultants while the design of the IPT building was prepared by Architect L.V.
Locsin and Associates.

In 1974, the final engineering design was adopted by the Philippine Government. This
was concurred by the ADB on September 18, 1975 and became known as the "Scheme
E-5 Modified Plan." Actual work on the project started in the second quarter of 1978.

On March 4, 1982, EXECUTIVE ORDER NO. 778 was signed into law, abolishing the MIA
Division under the BAT and creating in its stead the MANILA INTERNATIONAL AIRPORT
AUTHORITY (MIAA), vested with the power to administer and operate the Manila
International Airport (MIA).

Though MIAA was envisioned to be autonomous, Letter of Instructions (LOI) No. 1245,
signed 31 May 1982, clarified that for purpose of policy integration and program
coordination, the MIAA Management shall be under the general supervision but not
control of the then Ministry of Transportation and Communications.

On July 21, 1983, Executive Order No. 903 was promulgated, providing that 65% of
MIAA's annual gross operating income be reverted to the general fund for the
maintenance and operation of other international and domestic airports in the country. It
also scaled down the equity contribution of the National Government to MIAA: from PhP
10 billion to PhP 2.5 billion and removed the provision exempting MIAA from the payment
of corporate tax.

Another revision in the MIAA Charter followed with the promulgation of Executive Order
No. 909, signed September 16, 1983, increasing the membership of the MIAA Board to
nine (9) Directors with the inclusion of two other members to be appointed by the
Philippine President.

The last amendment to the MIAA Charter was made on July 26, 1987 through Executive
Order No. 298 which provided for a more realistic income sharing arrangement between
MIAA and the National Government. It provided that instead of the 65% of gross operating
income, only 20% of MIAA's gross income, exclusive of income generated from the
passenger terminal fees and utility charges, shall revert to the general fund of the National
Treasury. EO 298 also reorganized the MIAA Board and raised the capitalization to its
original magnitude of PhP 10 billion.

The post 1986 Revolution period will not be complete without mention of the renaming of
MIA to Ninoy Aquino International Airport with the enactment of Republic Act No. 6639 on
August 17, 1987. While this legislation renamed the airport complex, the MIA Authority
would still retain its corporate name since it did not amend the original or revised charters
of MIAA.32

The MIAA Charter further provides that any portion of the airport cannot be disposed of by
the Authority through sale or through any other mode unless specifically approved by the
President of the Philippines.33 It is also noted that MIAA’s board of directors is practically
controlled by the national government, the members thereof being officials of the
executive branch.34 Likewise, the Authority cannot levy and collect dues, charges, fees or
assessments for the use of the airport premises, works, appliances, facilities or
concessions, or for any service provided by it, without the approval of several executive
departments.35 These provisions are consistent with an agency relationship. Let it be
remembered that one of the principal elements of an agency relationship is the existence
of some degree of control by the principal over the conduct and activities of the agent. In
this regard, while an agent undertakes to act on behalf of his principal and subject to his
control, a trustee as such is not subject to the control of the beneficiary, except that he is
under a duty to deal with the trust property for the latter’s benefit in accordance with the
terms of the trust and can be compelled by the beneficiary to perform his duty.36

Finally, to consider MIAA as a "trustee of the Republic" will sanction the technical creation
of a second trust in which the Republic, which is already a trustee, becomes the second
trustor and the airport Authority a second trustee. Although I do not wish to belabor the
point, I submit that the validity of such a scenario appears doubtful. Sufficient authority,
however, supports the proposition that a trustee can delegate his duties to an agent
provided he properly supervises and controls the agent’s conduct.37 In this case, we can
rightly say that the Republic, as the trustee of the public dominion airport properties for the
benefit of the people, has delegated to MIAA the administration of the said properties
subject, as shown above, to the executive department’s supervision and control.

In fine, the properties comprising the NAIA being of public dominion which pertain to the
State, the same should be exempt from real property tax following Section 234(a) of the
LGC.

One last word. Given the foregoing disquisition, I find no necessity for this Court to
abandon its ruling in Mactan. On the premise that the rationale for exempting airport
properties from payment of real estate taxes is ownership thereof by the Republic, the
Mactan ruling is impeccable in its logic and its conclusion should remain undisturbed.
Having harmonized the apparently divergent views, we need no longer fear any fierce
disagreements in the future.

I therefore vote to grant the petition.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

CITY ASSESSOR OF CEBU G.R. No. 152904

CITY,
Petitioner,
Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
ASSOCIATION OF BENEVOLA Promulgated:
DE CEBU, INC.,
Respondent. June 8, 2007
x---------------------------------------------------------------------------------------
--x

DECISION

VELASCO, JR., J.:

Is a medical arts center built by a hospital to house its doctors a separate

commercial establishment or an appurtenant to the hospital? This is the
core issue to be resolved in the instant petition where petitioner insists on
a 35% assessment rate on the building which he considers commercial in
nature contrary to respondents position that it is a special real property
entitled to a 10% assessment rate for purposes of realty tax.

The Case

This Petition for Review on Certiorari[1] under Rule 45 assails the

October 31, 2001 Decision[2] of the Court of Appeals (CA) in CA-G.R.
SP No. 62548, which affirmed the January 24, 2000 Decision[3] and
October 25, 2000 Resolution[4] of the Central Board of Assessment
Appeals (CBAA); and the March 11, 2002 Resolution[5] of the same court
denying petitioners Motion for Reconsideration.[6] The CBAA upheld the
February 10, 1999 Decision of the Local Board of Assessment Appeals
(LBAA), which overturned the 35% assessment rate of respondent Cebu
City Assessor and ruled that petitioner is entitled to a 10% assessment.

The Facts

Respondent Association of Benevola de Cebu, Inc. is a non-stock,

non-profit organization organized under the laws of the Republic of
the Philippines and is the owner of Chong Hua Hospital (CHH)
in Cebu City. In the late 1990s, respondent constructed the CHH Medical
Arts Center (CHHMAC). Thereafter, an April 17, 1998 Certificate of
Occupancy[7] was issued to the center with a classification of Commercial
[Clinic].
 Petitioner City Assessor of Cebu City assessed the CHHMAC
building under Tax Declaration (TD) No. 97 GR-04-024-02529 as
commercial with a market value of PhP 28,060,520 and an assessed value
of PhP 9,821,180 at the assessment level of 35% for commercial
buildings, and not at the 10% special assessment currently imposed for
CHH and its other separate buildingsthe CHHs Dietary and Records
Departments.

Thus, respondent filed its September 15, 1998 letter-petition with

the Cebu City LBAA for reconsideration, asserting that CHHMAC is part
of CHH and ought to be imposed the same special assessment level of
10% with that of CHH. On September 25, 1998, respondent formally
filed its appeal with the LBAA which was docketed as Case No. 4406,
TD No. 97 GR-04-024-02529 entitled Association Benevola de Cebu, Inc.
v. City Assessor.

In the September 30, 1998 Order, the LBAA directed petitioner to

conduct an ocular inspection of the subject property and to submit a
report on the scheduled date of hearing. In the October 7, 1998 hearing,
the parties were required to submit their respective position papers.

In its position paper, petitioner argued that CHHMAC is a newly

constructed five-storey building situated about 100 meters away from
CHH and, based on actual inspection, was ascertained that it is not a part
of the CHH building but a separate building which is actually used as
commercial clinic/room spaces for renting out to physicians and, thus,
classified as commercial. Petitioner contended that in turn the medical
specialists in CHHMAC charge consultation fees for patients who consult
for diagnosis and relief of bodily ailment together with the ancillary (or
support) services which include the areas of anesthesia, radiology,
pathology, and more. Petitioner concluded the foregoing set up to be
ultimately geared for commercial purposes, and thus having the proper
classification as commercial under Building Permit No. B01-9750087
pursuant to Section 10 of the Local Assessment Regulations No. 1-92
issued by the Department of Finance (DOF).

On the other hand, respondent contended in its position paper that

CHHMAC building is actually, directly, and exclusively part of CHH and
should have a special assessment level of 10% as provided under City
Tax Ordinance LXX. Respondent asserted that the CHHMAC building is
similarly situated as the buildings of CHH, housing its Dietary and
Records Departments, are completely separate from the main CHH
building and are imposed the 10% special assessment level. In fine,
respondent argued that the CHHMAC, though not actually indispensable,
is nonetheless incidental and reasonably necessary to CHHs operations.

The Ruling of the Local Board of Assessment Appeals

On February 10, 1999, the LBAA rendered a Decision,[8] the

dispositive portion of which reads:

WHEREFORE, premises considered, the appealed

decision imposing a thirty five (35) percent assessment
level of TD No. 97 GR-04-024-02529 on the Chong Hua
Hospital Medical Arts building is reversed and set aside
and other [sic] one issued declaring that the building is
entitled to a ten (10) percent assessment level.

In reversing the ruling of petitioner City Assessor of Cebu City, the

LBAA reasoned that it is of public knowledge that hospitals have plenty
of spaces leased out to medical practitioners, which is both an accepted
and desirable fact; thus, respondents claim is not disputed that such is a
must for a tertiary hospital like CHH. The LBAA held that it is
inconsequential that a separate building was constructed for that purpose
pointing out that departments or services of other institutions and
establishments are also not always housed in the same building.

Thus, the LBAA pointed to the fact that respondents Dietary and
Records Departments which are housed in separate buildings were
similarly imposed with CHH the special assessment level of 10%,
ratiocinating in turn that there is no reason therefore why a higher level
would be imposed for CHHMAC as it is similarly situated with the
Dietary and Records Departments of the CHH.

The Ruling of the Central Board of Assessment Appeals

 Aggrieved, petitioner filed its March 15, 1999 Notice of
Appeal[9] and March 16, 1999 Appeal Memorandum[10] before the CBAA
Visayas Field Office which docketed the appeal as CBAA Case No. V-15,
In Re: LBAA Case No. 4406, TD No. 97 GR-04-024-02529 entitled City
Assessor of Cebu City v. Local Board of Assessment Appeals of Cebu City
and Associacion Benevola de Cebu, Inc. On June 3, 1999, respondent
filed its Answer[11] to petitioners appeal.

Subsequently, on January 24, 2000, the CBAA rendered a

Decision[12] affirming in toto the LBAA Decision and resolved the issue
of whether the subject building of CHHMAC is part and parcel of
CHH. It agreed with the above disquisition of the LBAA that it is a
matter of public knowledge that hospitals lease out spaces to its
accredited medical practitioners, and in particular it is of public
knowledge that before the CHHMAC was constructed, the accredited
doctors of CHH were housed in the main hospital building of
CHH. Moreover, citing Herrera v. Quezon City Board of Assessment
Appeals[13] later applied in Abra Valley College, Inc. v. Aquino,[14] the
CBAA held that the fact that the subject building is detached from the
main hospital building is of no consequence as the exemption in favor of
property used exclusively for charitable or educational purposes is not
only limited to property actually indispensable to the hospital, but also
extends to facilities which are incidental and reasonably necessary for the
accomplishment of such purposes.

Through its October 25, 2000 Resolution,[15] the CBAA denied

petitioners Motion for Reconsideration.[16]

The Ruling of the Court of Appeals

Not satisfied, petitioner brought before the CA a petition for

review[17] under Rule 43 of the Rules of Court, docketed as CA-G.R. SP
No. 62548, ascribing error on the CBAA in dismissing his appeal and in
affirming the February 10, 1999 Decision[18] of the LBAA.

On October 31, 2001, the appellate court rendered the assailed

Decision[19] which affirmed the January 24, 2000 Decision of the
CBAA. It agreed with the CBAA that CHHMAC is part and parcel of
CHH in line with the ruling in Herrera[20] on what the term appurtenant
thereto means. Thus, the CA held that the facilities and utilities of
CHHMAC are undoubtedly necessary and indispensable for the CHH to
achieve its ultimate purpose.

The CA likewise ruled that the fact that rentals are paid by CHH
accredited doctors and medical specialists for spaces in CHHMAC has no
bearing on its classification as a hospital since CHHMAC serves also as a
place for medical check-up, diagnosis, treatment, and care for its patients
as well as a specialized out-patient department of CHH where treatment
and diagnosis are done by accredited medical specialists in their
respective fields of anesthesia, radiology, pathology, and more.

The appellate court also applied Secs. 215 and 216 of the Local
Government Code (Republic Act No. 7160) which classify lands,
buildings, and improvements actually, directly, and exclusively used for
hospitals as special cases of real property and not as commercial. Thus,
CHHMAC being an integral part of CHH is not commercial but special
and should be imposed the 10% special assessment, the same as CHH,
instead of the 35% for commercial establishments.

Lastly, the CA pointed out that courts generally will not interfere in
matters which are addressed to the sound discretion of the government
agencies entrusted with the regulation of activities under their special
technical knowledge and trainingtheir findings and conclusions are
accorded not only respect but even finality.

Through the assailed March 11, 2002 Resolution,[21] the CA denied

petitioners Motion for Reconsideration.

The Issues

Hence, before us is the instant petition with the solitary issue, as

follows:

WHETHER OR NOT THERE IS SERIOUS ERROR BY

THE COURT OF APPEALS IN AFFIRMING THE
DECISION OF THE CENTRAL BOARD OF
 ASSESSMENT APPEALS THAT THE NEW
BUILDING CHONG HUA HOSPITAL AND
MEDICAL ARTS CENTER (CHHMAC) IS AN
ESSENTIAL PART OF THE OLD BUILDING
KNOWN AS CHONG HUA HOSPITAL. IN THE
NEGATIVE, WHETHER OR NOT THE NEW
BUILDING IS LIABLE TO PAY THE 35%
ASSESSMENT LEVEL. AND WHETHER OR NOT
THE COURT OF APPEALS COULD INTERFERE
WITH THE FINDINGS OF THE CENTRAL BOARD
OF ASSESSMENT APPEALS, A GOVERNMENT
AGENCY HAVING SPECIAL TECHNICAL
KNOWLEDGE AND TRAINING ON THE MATTER
SUBJECT OF THE PRESENT CASE.[22]

The Courts Ruling

The petition is devoid of merit.

It is petitioners strong belief that the subject building, CHHMAC,

which is built on a rented land and situated about 100 meters from the
main building of CHH, is not an extension nor an integral part of CHH
and thus should not enjoy the 10% special assessment. Petitioner anchors
the classification of CHHMAC as commercial, first, on Sec. 10 of Local
Assessment Regulations No. 1-92 issued by the DOF, which provides:

SEC. 10. Actual use of Real Property as basis of

Assessment.Real Property shall be classified, valued and
assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it.(Sec. 217,
R.A. 7160)

A. Actual use refers to the purpose for which the property

is principally or predominantly utilized by the person in
possession of the property. (Sec. 199 (b), R.A. 7160)

Secondly, the result of the inspection on subject building by the

City Assessors inspection team shows that CHHMAC is a commercial
establishment based on the following: (1) CHHMAC is exclusively
intended for lease to doctors; (2) there are neither operating rooms nor
beds for patients; and (3) the doctors renting the spaces earn income from
the patients who avail themselves of their services. Thus, petitioner
argues that CHHMAC is principally and actually used for lease to doctors,
and respondent as owner of CHHMAC derives rental income from it;
hence, CHHMAC was built and is intended for profit and functions
commercially.

Moreover, petitioner asserts that CHHMAC is not part of the CHH

main building as it is exclusively used as private clinics of physicians
who pay rental fees to petitioner. And while the private clinics might be
considered facilities, they are not incidental to nor reasonably necessary
for the accomplishment of the hospitals purposes as CHH can still
function and accomplish its purpose without the existence of
CHHMAC. In addition, petitioner contends that the Abra Valley College,
Inc.[23] ruling is not applicable to the instant case for schools, the subject
matter in said case, are already entitled to special assessment. Besides,
petitioner points CHHMAC is not among the facilities mentioned in said
case. Further, petitioner argues that CHHMAC is not in the same
category as nurses homes and housing facilities for the hospital staff as
these are clearly not for profit, that is, not commercial, and are clearly
incidental and reasonably necessary for the hospitals purposes.

We are not persuaded.

A careful review of the records compels us to affirm the assailed

CA Decision as we find no reversible error for us to reverse or alter it.

Chong Hua Hospital Medical Arts Center is an integral part of

Chong Hua Hospital

We so hold that CHHMAC is an integral part of CHH.

It is undisputed that the doctors and medical specialists holding

clinics in CHHMAC are those duly accredited by CHH, that is, they are
consultants of the hospital and the ones who can treat CHHs patients
confined in it. This fact alone takes away CHHMAC from being
categorized as commercial since a tertiary hospital like CHH is required
by law to have a pool of physicians who comprises the required medical
departments in various medical fields. As aptly pointed out by
respondent:

Chong Hua Hospital is a duly licensed tertiary hospital

and is covered by Dept. of Health (DOH) Adm. Order No.
68-A and the 1989 Revised Rules and Regulations
governing the registration, licensure and operation of
hospitals in the Philippines. Under Sec. 6, sub-sec. 6.3, it
is mandated by law, that respondent appellee in order to
retain its classification as a TERTIARY HOSPITAL,
must be fully departmentalized and equipped with the
service capabilities needed to support certified medical
specialists and other licensed physicians rendering
services in the field of medicine, pediatrics, obstetrics and
gynecology, surgery, and their sub-specialties, ICCU and
ancillary services which is precisely the function of the
Chong Hua Hospital Medical Arts Center.[24]

Sec. 6.3, Administrative Order No. (AO) 68-A, Series of 1989,

Revised Rules and Regulations Governing the Registration, Licensure
and Operation of Hospitals in the Philippines pertinently provides:

Tertiary Hospital is fully departmentalized and

equipped with the service capabilities needed to
support certified medical specialists and other licensed
physicians rendering services in the field of Medicine,
Pediatrics, Obstetrics and Gynecology, Surgery, their
subspecialties and ancillary services. (Emphasis
supplied.)

Moreover, AO 68-A likewise provides what clinic service and

medical ancillary service are, thus:
 11.3.2 Clinical ServiceThe medical services to patients
shall be performed by the medical staff appointed by the
governing body of the institution. x x x

11.3.3 Medical Ancillary ServiceThese are support

services which include Anesthesia Department, Pathology
Department, Radiology Department, Out-Patient
Department (OPD), Emergency Service, Dental,
Pharmacy, Medical Records and Medical Social Services.

Based on these provisions, these physicians holding offices or

clinics in CHHMAC, duly appointed or accredited by CHH, precisely
fulfill and carry out their roles in the hospitals services for its patients
through the CHHMAC. The fact that they are holding office in a separate
building, like at CHHMAC, does not take away the essence and nature of
their services vis--vis the over-all operation of the hospital and the
benefits to the hospitals patients. Given what the law requires, it is clear
that CHHMAC is an integral part of CHH.

These accredited physicians normally hold offices within the

premises of the hospital; in which case there is no question as to the
conduct of their business in the ambit of diagnosis, treatment and/or
confinement of patients. This was the case before 1998 and before
CHHMAC was built. Verily, their transfer to a more spacious and,
perhaps, convenient place and location for the benefit of the hospitals
patients does not remove them from being an integral part of the overall
operation of the hospital.

Conversely, it would have been different if CHHMAC was also

open for non-accredited physicians, that is, any medical practitioner, for
then respondent would be running a commercial building for lease only to
doctors which would indeed subject the CHHMAC to the commercial
level of 35% assessment.

Moreover, the CHHMAC, being hundred meters away from the

CHH main building, does not denigrate from its being an integral part of
the latter. As aptly applied by the CBAA, the Herrera ruling on what
constitutes property exempt from taxation is indeed applicable in the
instant case, thus:

Moreover, the exemption in favor of property used

exclusively for charitable or educational purposes is not
limited to property actually indispensable therefore
(Cooley on Taxation, Vol. 2, p. 1430), but extends to
facilities which are incidental to and reasonably necessary
for the accomplishment of said purposes, such as, in the
case of hospitals, a school for training nurses, a nurses
home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities
for student nurses, interns and residents (84 C.J.S., 621),
such as athletic fields, including a farm used for the
inmates of the institution (Cooley on Taxation, Vol. 2, p.
1430).[25]

Verily, being an integral part of CHH, CHHMAC should be under

the same special assessment level of as that of the former.

The CHHMAC facility is definitely incidental to and reasonably

necessary for the operations of Chong Hua Hospital

Given our discussion above, the CHHMAC facility, while

seemingly not indispensable to the operations of CHH, is definitely
incidental to and reasonably necessary for the operations of the
hospital. Considering the legal requirements and the ramifications of the
medical and clinical operations that have been transferred to the
CHHMAC from the CHH main building in light of the accredited
physicians transfer of offices in 1998 after the CHHMAC building was
finished, it cannot be gainsaid that the services done in CHHMAC are
indispensable and essential to the hospitals operation.

For one, as found by the appellate court, the CHHMAC facility is

primarily used by the hospitals accredited physicians to perform medical
check-up, diagnosis, treatment, and care of patients.For another, it also
serves as a specialized outpatient department of the hospital.

Indubitably, the operation of the hospital is not only for

confinement and surgical operations where hospital beds and operating
theaters are required. Generally, confinement is required in emergency
cases and where a patient necessitates close monitoring. The usual course
is that patients have to be diagnosed, and then treatment and follow-up
consultations follow or are required.Other cases may necessitate surgical
operations or other medical intervention and confinement. Thus, the more
the patients, the more important task of diagnosis, treatment, and care that
may or may not require eventual confinement or medical operation in the
CHHMAC.

Thus, the importance of CHHMAC in the operation of CHH cannot

be over-emphasized nor disputed. Clearly, it plays a key role and
provides critical support to hospital operations.

Charging rentals for the offices used by its accredited physicians

cannot be equated to a commercial venture

Finally, respondents charge of rentals for the offices and clinics its
accredited physicians occupy cannot be equated to a commercial venture,
which is mainly for profit.

Respondents explanation on this point is well taken. First,

CHHMAC is only for its consultants or accredited doctors and medical
specialists. Second, the charging of rentals is a practical necessity: (1) to
recoup the investment cost of the building, (2) to cover the rentals for the
lot CHHMAC is built on, and (3) to maintain the CHHMAC building and
its facilities. Third, as correctly pointed out by respondent, it pays the
proper taxes for its rental income. And, fourth, if there is indeed any net
income from the lease income of CHHMAC, such does not inure to any
private or individual person as it will be used for respondents other
charitable projects.
 Given the foregoing arguments, we fail to see any reason why the
CHHMAC building should be classified as commercial and be imposed
the commercial level of 35% as it is not operated primarily for profit but
as an integral part of CHH. The CHHMAC, with operations being
devoted for the benefit of the CHHs patients, should be accorded the 10%
special assessment.
In this regard, we point with approbation the appellate courts
application of Sec. 216 in relation with Sec. 215 of the Local Government
Code on the proper classification of the subject CHHMAC building as
special and not commercial. Secs. 215 and 216 pertinently provide:

SEC. 215. Classes of Real Property for Assessment Purposes.For

purposes of assessment, real property shall be classified as
residential, agricultural, commercial, industrial, mineral,
timberland or special.

xxxx

SEC. 216. Special Classes of Real Property.All lands,

buildings, and other improvements thereon actually,
directly and exclusively used for hospitals, cultural or
scientific purposes, and those owned and used by local
water districts, and government-owned or controlled
corporations rendering essential public services in the
supply and distribution of water and/or generation and
transmission of electric power shall be classified as
special. (Emphasis supplied.)

Thus, applying the above provisos in line with City Tax Ordinance
LXX of Cebu City, the 10% special assessment should be imposed for the
CHHMAC building which should be classified as special.

WHEREFORE, the petition is DENIED for lack of merit and the

October 31, 2001 Decision and March 11, 2002 Resolution of the CA are
hereby AFFIRMED. No pronouncement as to costs.

FIRST DIVISION
STA. LUCIA REALTY & G.R. No. 166838
DEVELOPMENT, INC.,
Petitioner, Present:

VELASCO, JR .,*
- versus - Acting Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,**
CITY OF PASIG, DEL CASTILLO, and
Respondent, PEREZ, JJ.
Promulgated:
MUNICIPALITY OF CAINTA,
PROVINCE OF RIZAL, June 15, 2011
Intervenor.
x---------------------------------------------------
-x

DECISION

LEONARDO-DE CASTRO, J.:

For review is the June 30, 2004 Decision[1] and the January 27,
2005 Resolution[2] of the Court of Appeals in CA-G.R. CV No. 69603,
which affirmed with modification the August 10, 1998 Decision[3] and
October 9, 1998 Order[4] of the Regional Trial Court (RTC) of Pasig City,
Branch 157, in Civil Case No. 65420.

Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is

the registered owner of several parcels of land with Transfer Certificates
of Title (TCT) Nos. 39112, 39110 and 38457, all of which indicated that
the lots were located in Barrio Tatlong Kawayan, Municipality of
Pasig[5] (Pasig).

The parcel of land covered by TCT No. 39112 was consolidated

with that covered by TCT No. 518403, which was situated in Barrio
Tatlong Kawayan, Municipality of Cainta, Province of Rizal
(Cainta). The two combined lots were subsequently partitioned into three,
for which TCT Nos. 532250, 598424, and 599131, now all bearing the
Cainta address, were issued.

TCT No. 39110 was also divided into two lots, becoming TCT Nos.
92869 and 92870.

The lot covered by TCT No. 38457 was not segregated, but a
commercial building owned by Sta. Lucia East Commercial Center, Inc.,
a separate corporation, was built on it.[6]

Upon Pasigs petition to correct the location stated in TCT Nos.

532250, 598424, and 599131, the Land Registration Court, on June 9,
1995, ordered the amendment of the TCTs to read that the lots with
respect to TCT No. 39112 were located in Barrio Tatlong Kawayan,
Pasig City.[7]

On January 31, 1994, Cainta filed a petition[8] for the settlement of

its land boundary dispute with Pasig before the RTC, Branch 74 of
Antipolo City (Antipolo RTC). This case, docketed as Civil Case No.
94-3006, is still pending up to this date.

On November 28, 1995, Pasig filed a Complaint,[9] docketed as

Civil Case No. 65420, against Sta. Lucia for the collection of real estate
taxes, including penalties and interests, on the lots covered by TCT Nos.
532250, 598424, 599131, 92869, 92870 and 38457, including the
improvements thereon (the subject properties).

Sta. Lucia, in its Answer, alleged that it had been religiously

paying its real estate taxes to Cainta, just like what its
predecessors-in-interest did, by virtue of the demands and assessments
made and the Tax Declarations issued by Cainta on the claim that the
subject properties were within its territorial jurisdiction. Sta. Lucia further
argued that since 1913, the real estate taxes for the lots covered by the
above TCTs had been paid to Cainta.[10]

Cainta was allowed to file its own Answer-in-Intervention when it

moved to intervene on the ground that its interest would be greatly
affected by the outcome of the case. It averred that it had been collecting
the real property taxes on the subject properties even before Sta. Lucia
acquired them. Cainta further asseverated that the establishment of the
boundary monuments would show that the subject properties are within
its metes and bounds.[11]

Sta. Lucia and Cainta thereafter moved for the suspension of the
proceedings, and claimed that the pending petition in the Antipolo RTC,
for the settlement of boundary dispute between Cainta and Pasig,
presented a prejudicial question to the resolution of the case.[12]

The RTC denied this in an Order dated December 4, 1996 for lack
of merit. Holding that the TCTs were conclusive evidence as to its
ownership and location,[13] the RTC, on August 10, 1998, rendered a
Decision in favor of Pasig:

WHEREFORE, in view of the foregoing, judgment is hereby

rendered in favor of [Pasig], ordering Sta. Lucia Realty and
Development, Inc. to pay [Pasig]:

1) P273,349.14 representing unpaid real estate taxes

and penalties as of 1996, plus interest of 2% per
month until fully paid;

2) P50,000.00 as and by way of attorneys fees; and

3) The costs of suit.

Judgment is likewise rendered against the intervenor

Municipality of Cainta, Rizal, ordering it to refund to Sta.
Lucia Realty and Development, Inc. the realty tax payments
improperly collected and received by the former from the latter
in the aggregate amount of P358, 403.68.[14]

After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig, on
September 11, 1998, filed a Motion for Reconsideration of the RTCs
August 10, 1998 Decision.
The RTC, on October 9, 1998, granted Pasigs motion in an Order[15] and
modified its earlier decision to include the realty taxes due on the
improvements on the subject lots:

WHEREFORE, premises considered, the plaintiffs

motion for reconsideration is hereby granted. Accordingly, the
Decision, dated August 10, 1998 is hereby modified in that the
defendant is hereby ordered to pay plaintiff the amount
of P5,627,757.07 representing the unpaid taxes and penalties
on the improvements on the subject parcels of land whereon
real estate taxes are adjudged as due for the year 1996.[16]

Accordingly, Sta. Lucia filed an Amended Notice of Appeal to

include the RTCs October 9, 1998 Order in its protest.

On October 16, 1998, Pasig filed a Motion for Execution Pending

Appeal, to which both Sta. Lucia and Cainta filed several oppositions, on
the assertion that there were no good reasons to warrant the execution
pending appeal.[17]

On April 15, 1999, the RTC ordered the issuance of a Writ of

Execution against Sta. Lucia.

On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under
Rule 65 of the Rules of Court with the Court of Appeals to assail the
RTCs order granting the execution. Docketed as CA-G.R. SP No. 52874,
the petition was raffled to the First Division of the Court of Appeals,
which on September 22, 2000, ruled in favor of Sta. Lucia, to wit:

WHEREFORE, in view of the foregoing, the instant petition is

hereby GIVEN DUE COURSE and GRANTED by this
Court. The assailed Order dated April 15, 1999 in Civil Case
No. 65420 granting the motion for execution pending appeal
and ordering the issuance of a writ of execution pending appeal
is hereby SET ASIDE and declared NULL and VOID.[18]
 The Court of Appeals added that the boundary dispute case
presented a prejudicial question which must be decided before x x x Pasig
can collect the realty taxes due over the subject properties.[19]

Pasig sought to have this decision reversed in a Petition

for Certiorari filed before this Court on November 29, 2000, but this was
denied on June 25, 2001 for being filed out of time.[20]

Meanwhile, the appeal filed by Sta. Lucia and Cainta was raffled to
the (former) Seventh Division of the Court of Appeals and docketed
as CA-G.R. CV No. 69603. On June 30, 2004, the Court of Appeals
rendered its Decision, wherein it agreed with the RTCs judgment:

WHEREFORE, the appealed Decision is

hereby AFFIRMED with the MODIFICATION that the
award of P50,000.00 attorneys fees is DELETED.[21]

In affirming the RTC, the Court of Appeals declared that there was
no proper legal basis to suspend the proceedings.[22] Elucidating on the
legal meaning of a prejudicial question, it held that there can be no
prejudicial question when the cases involved are both civil.[23] The Court
of Appeals further held that the elements of litis pendentia and forum
shopping, as alleged by Cainta to be present, were not met.

Sta. Lucia and Cainta filed separate Motions for Reconsideration,

which the Court of Appeals denied in a Resolution dated January 27,
2005.

Undaunted, Sta. Lucia and Cainta filed separate Petitions

for Certiorari with this Court. Caintas petition, docketed as G.R. No.
166856 was denied on April 13, 2005 for Caintas failure to show any
reversible error. Sta. Lucias own petition is the one subject of this
decision.[24]

In praying for the reversal of the June 30, 2004 judgment of the
Court of Appeals, Sta. Lucia assigned the following errors:

ASSIGNMENT OF ERRORS
 I

THE HONORABLE COURT OF APPEALS ERRED IN

AFFIRMING [WITH MODIFICATION] THE DECISION OF
THE REGIONAL TRIAL COURT IN PASIG CITY

II.

THE HONORABLE COURT OF APPEALS ERRED IN NOT

SUSPENDING THE CASE IN VIEW OF THE PENDENCY
OF THE BOUNDARY DISPUTE WHICH WILL FINALLY
DETERMINE THE SITUS OF THE SUBJECT PROPERTIES

III.

THE HONORABLE COURT OF APPEALS ERRED IN NOT

HOLDING THAT THE PAYMENT OF REALTY TAXES
THROUGH THE MUNICIPALITY OF CAINTA WAS
VALID PAYMENT OF REALTY TAXES

IV.

THE HONORABLE COURT OF APPEALS ERRED IN NOT

HOLDING THAT IN THE MEANTIME THAT THE
BOUNDARY DISPUTE CASE IN ANTIPOLO CITY
REGIONAL TRIAL COURT IS BEING FINALLY
RESOLVED, THE PETITIONER STA. LUCIA SHOULD BE
PAYING THE REALTY TAXES ON THE SUBJECT
PROPERTIES THROUGH THE INTERVENOR CAINTA
TO PRESERVE THE STATUS QUO.[25]

Pasig, countering each error, claims that the lower courts correctly
decided the case considering that the TCTs are clear on their faces that
the subject properties are situated in its territorial jurisdiction. Pasig
contends that the principles of litis pendentia, forum shopping, and res
judicata are all inapplicable, due to the absence of their requisite
elements. Pasig maintains that the boundary dispute case before the
Antipolo RTC is independent of the complaint for collection of realty
taxes which was filed before the Pasig RTC. It avers that the doctrine of
prejudicial question, which has a definite meaning in law, cannot be
invoked where the two cases involved are both civil. Thus, Pasig argues,
since there is no legal ground to preclude the simultaneous hearing of
both cases, the suspension of the proceedings in the Pasig RTC is
baseless.

Cainta also filed its own comment reiterating its legal authority
over the subject properties, which fall within its territorial
jurisdiction. Cainta claims that while it has been collecting the realty
taxes over the subject properties since way back 1913, Pasig only covered
the same for real property tax purposes in 1990, 1992, and 1993. Cainta
also insists that there is a discrepancy between the locational entries and
the technical descriptions in the TCTs, which further supports the need to
await the settlement of the boundary dispute case it initiated.

The errors presented before this Court can be narrowed down into
two basic issues:

1) Whether the RTC and the CA were correct in deciding

Pasigs Complaint without waiting for the resolution of
the boundary dispute case between Pasig and Cainta; and

2) Whether Sta. Lucia should continue paying its real

property taxes to Cainta, as it alleged to have always
done, or to Pasig, as the location stated in Sta. Lucias
TCTs.

We agree with the First Division of the Court of Appeals in

CA-G.R. SP No. 52874 that the resolution of the boundary dispute
between Pasig and Cainta would determine which local government unit
is entitled to collect realty taxes from Sta. Lucia.[26]

The Local Government Unit entitled

To Collect Real Property Taxes

The Former Seventh Division of the Court of Appeals held that the
resolution of the complaint lodged before the Pasig RTC did not
necessitate the assessment of the parties evidence on the metes and
bounds of their respective territories. It cited our ruling in Odsigue v.
Court of Appeals[27] wherein we said that a certificate of title is
conclusive evidence of both its ownership and location.[28] The Court of
Appeals even referred to specific provisions of the 1991 Local
Government Code and Act. No. 496 to support its ruling that Pasig had
the right to collect the realty taxes on the subject properties as the titles of
the subject properties show on their faces that they are situated in
Pasig.[29]

Under Presidential Decree No. 464 or the Real Property Tax Code,
the authority to collect real property taxes is vested in the locality where
the property is situated:
Sec. 5. Appraisal of Real Property. All real property,
whether taxable or exempt, shall be appraised at the current
and fair market value prevailing in the locality where the
property is situated.
xxxx
Sec. 57. Collection of tax to be the responsibility of
treasurers. The collection of the real property tax and all
penalties accruing thereto, and the enforcement of the remedies
provided for in this Code or any applicable laws, shall be the
responsibility of the treasurer of the province, city or
municipality where the property is situated. (Emphases
ours.)

This requisite was reiterated in Republic Act No. 7160, also known
as the 1991 the Local Government Code, to wit:

Section 201. Appraisal of Real Property. All real

property, whether taxable or exempt, shall be appraised at the
current and fair market value prevailing in the locality where
the property is situated. The Department of Finance shall
promulgate the necessary rules and regulations for the
classification, appraisal, and assessment of real property
pursuant to the provisions of this Code.

Section 233. Rates of Levy. A province or city or a

municipality within the Metropolitan Manila Area shall fix a
 uniform rate of basic real property tax applicable to their
respective localities as follows: x x x. (Emphases ours.)

The only import of these provisions is that, while a local

government unit is authorized under several laws to collect real estate tax
on properties falling under its territorial jurisdiction, it is imperative to
first show that these properties are unquestionably within its
geographical boundaries.

Accentuating on the importance of delineating territorial

boundaries, this Court, in Mariano, Jr. v. Commission on
Elections[30] said:

The importance of drawing with precise strokes the

territorial boundaries of a local unit of government cannot be
overemphasized. The boundaries must be clear for they
define the limits of the territorial jurisdiction of a local
government unit. It can legitimately exercise powers of
government only within the limits of its territorial
jurisdiction. Beyond these limits, its acts are ultra
vires. Needless to state, any uncertainty in the boundaries of
local government units will sow costly conflicts in the exercise
of governmental powers which ultimately will prejudice the
people's welfare. This is the evil sought to be avoided by the
Local Government Code in requiring that the land area of a
local government unit must be spelled out in metes and bounds,
with technical descriptions.[31] (Emphasis ours.)

The significance of accurately defining a local government units

boundaries was stressed in City of Pasig v. Commission on
Elections,[32] which involved the consolidated petitions filed by the
parties herein, Pasig and Cainta, against two decisions of the Commission
on Elections (COMELEC) with respect to the plebiscites scheduled by
Pasig for the ratification of its creation of two new Barangays. Ruling on
the contradictory reliefs sought by Pasig and Cainta, this Court affirmed
the COMELEC decision to hold in abeyance the plebiscite to ratify the
creation of Barangay Karangalan; but set aside the COMELECs other
decision, and nullified the plebiscite that ratified the creation of Barangay
Napico in Pasig, until the boundary dispute before the Antipolo RTC had
been resolved. The aforementioned case held as follows:

1. The Petition of the City of Pasig in G.R. No. 125646 is

DISMISSED for lack of merit; while

2. The Petition of the Municipality of Cainta in G.R. No.

128663 is GRANTED. The COMELEC Order in UND No.
97-002, dated March 21, 1997, is SET ASIDE and the
plebiscite held on March 15, 1997 to ratify the creation of
Barangay Napico in the City of Pasig is declared null and
void. Plebiscite on the same is ordered held in abeyance
until after the courts settle with finality the boundary
dispute between the City of Pasig and the Municipality of
Cainta, in Civil Case No. 94-3006.[33]

Clearly therefore, the local government unit entitled to collect real

property taxes from Sta. Lucia must undoubtedly show that the subject
properties are situated within its territorial jurisdiction; otherwise, it
would be acting beyond the powers vested to it by law.

Certificates of Title as
Conclusive Evidence of Location

While we fully agree that a certificate of title is conclusive as to its

ownership and location, this does not preclude the filing of an action for
the very purpose of attacking the statements therein. In De Pedro v.
Romasan Development Corporation,[34] we proclaimed that:

We agree with the petitioners that, generally, a

certificate of title shall be conclusive as to all matters
contained therein and conclusive evidence of the ownership of
the land referred to therein. However, it bears stressing that
while certificates of title are indefeasible, unassailable and
binding against the whole world, including the government
itself, they do not create or vest title. They merely confirm or
record title already existing and vested. They cannot be used to
protect a usurper from the true owner, nor can they be used as
 a shield for the commission of fraud; neither do they permit
one to enrich himself at the expense of other.[35]

In Pioneer Insurance and Surety Corporation v. Heirs of Vicente

Coronado,[36] we set aside the lower courts ruling that the property
subject of the case was not situated in the location stated and described in
the TCT, for lack of adequate basis. Our decision was in line with the
doctrine that the TCT is conclusive evidence of ownership and
location. However, we refused to simply uphold the veracity of the
disputed TCT, and instead, we remanded the case back to the trial court
for the determination of the exact location of the property seeing that it
was the issue in the complaint filed before it.[37]

In City Government of Tagaytay v. Guerrero,[38] this Court

reprimanded the City of Tagaytay for levying taxes on a property that was
outside its territorial jurisdiction, viz:

In this case, it is basic that before the City of Tagaytay

may levy a certain property for sale due to tax delinquency, the
subject property should be under its territorial jurisdiction. The
city officials are expected to know such basic principle of
law. The failure of the city officials of Tagaytay to verify if
the property is within its jurisdiction before levying taxes
on the same constitutes gross negligence.[39] (Emphasis ours.)

Although it is true that Pasig is the locality stated in the TCTs of

the subject properties, both Sta. Lucia and Cainta aver that the metes and
bounds of the subject properties, as they are described in the TCTs, reveal
that they are within Caintas boundaries.[40] This only means that there
may be a conflict between the location as stated and the location as
technically described in the TCTs. Mere reliance therefore on the face of
the TCTs will not suffice as they can only be conclusive evidence of the
subject properties locations if both the stated and described locations
point to the same area.

The Antipolo RTC, wherein the boundary dispute case between

Pasig and Cainta is pending, would be able to best determine once and for
all the precise metes and bounds of both Pasigs and Caintas respective
territorial jurisdictions. The resolution of this dispute would necessarily
ascertain the extent and reach of each local governments authority, a
prerequisite in the proper exercise of their powers, one of which is the
power of taxation. This was the conclusion reached by this Court in City
of Pasig v. Commission on Elections,[41] and by the First Division of the
Court of Appeals in CA-G.R. SP No. 52874. We do not see any reason
why we cannot adhere to the same logic and reasoning in this case.

The Prejudicial Question Debate

It would be unfair to hold Sta. Lucia liable again for real property
taxes it already paid simply because Pasig cannot wait for its boundary
dispute with Cainta to be decided. Pasig has consistently argued that the
boundary dispute case is not a prejudicial question that would entail the
suspension of its collection case against Sta. Lucia. This was also its
argument in City of Pasig v. Commission on Elections,[42] when it sought
to nullify the COMELECs ruling to hold in abeyance (until the settlement
of the boundary dispute case), the plebiscite that will ratify its creation
of Barangay Karangalan. We agreed with the COMELEC therein that
the boundary dispute case presented a prejudicial question and explained
our statement in this wise:

To begin with, we agree with the position of the

COMELEC that Civil Case No. 94-3006 involving the
boundary dispute between the Municipality of Cainta and the
City of Pasig presents a prejudicial question which must first
be decided before plebiscites for the creation of the
proposed barangays may be held.

The City of Pasig argues that there is no prejudicial

question since the same contemplates a civil and criminal
action and does not come into play where both cases are civil,
as in the instant case. While this may be the general rule,
this Court has held in Vidad v. RTC of Negros
Oriental, Br. 42, that, in the interest of good order, we can
very well suspend action on one case pending the final
outcome of another case closely interrelated or linked to
the first.
 In the case at bar, while the City of Pasig vigorously
claims that the areas covered by the proposed Barangays
Karangalan and Napico are within its territory, it can not deny
that portions of the same area are included in the boundary
dispute case pending before the Regional Trial Court of
Antipolo. Surely, whether the areas in controversy shall be
decided as within the territorial jurisdiction of the Municipality
of Cainta or the City of Pasig has material bearing to the
creation of the proposed Barangays Karangalan and Napico.
Indeed, a requisite for the creation of a barangay is for its
territorial jurisdiction to be properly identified by metes and
bounds or by more or less permanent natural
boundaries. Precisely because territorial jurisdiction is an issue
raised in the pending civil case, until and unless such issue is
resolved with finality, to define the territorial jurisdiction of
the proposed barangays would only be an exercise in futility.
Not only that, we would be paving the way for potentially ultra
vires acts of such barangays. x x x.[43] (Emphases ours.)

It is obvious from the foregoing, that the term prejudicial question,

as appearing in the cases involving the parties herein, had been used
loosely. Its usage had been more in reference to its ordinary meaning,
than to its strict legal meaning under the Rules of Court.[44] Nevertheless,
even without the impact of the connotation derived from the term, our
own Rules of Court state that a trial court may control its own
proceedings according to its sound discretion:

POWERS AND DUTIES OF COURTS AND JUDICIAL

OFFICERS
Rule 135

SEC. 5. Inherent powers of courts. Every court shall have

power:

xxxx

(g) To amend and control its process and orders so as to make

them comformable to law and justice.
 Furthermore, we have acknowledged and affirmed this inherent
power in our own decisions, to wit:

The court in which an action is pending may, in the

exercise of a sound discretion, upon proper application for a
stay of that action, hold the action in abeyance to abide the
outcome of another pending in another court, especially where
the parties and the issues are the same, for there is power
inherent in every court to control the disposition of causes (sic)
on its dockets with economy of time and effort for itself, for
counsel, and for litigants. Where the rights of parties to the
second action cannot be properly determined until the
questions raised in the first action are settled the second action
should be stayed.

The power to stay proceedings is incidental to the power

inherent in every court to control the disposition of the cases
on its dockets, considering its time and effort, that of counsel
and the litigants. But if proceedings must be stayed, it must be
done in order to avoid multiplicity of suits and prevent
vexatious litigations, conflicting judgments, confusion between
litigants and courts. It bears stressing that whether or not the
RTC would suspend the proceedings in the SECOND CASE is
submitted to its sound discretion.[45]

In light of the foregoing, we hold that the Pasig RTC should have
held in abeyance the proceedings in Civil Case No. 65420, in view of the
fact that the outcome of the boundary dispute case before the Antipolo
RTC will undeniably affect both Pasigs and Caintas rights. In fact, the
only reason Pasig had to file a tax collection case against Sta. Lucia was
not that Sta. Lucia refused to pay, but that Sta. Lucia had already paid,
albeit to another local government unit. Evidently, had the territorial
boundaries of the contending local government units herein been
delineated with accuracy, then there would be no controversy at all.

In the meantime, to avoid further animosity, Sta. Lucia is directed

to deposit the succeeding real property taxes due on the subject
properties, in an escrow account with the Land Bank of the Philippines.
 WHEREFORE, the instant petition is GRANTED. The June 30,
2004 Decision and the January 27, 2005 Resolution of the Court of
Appeals in CA-G.R. CV No. 69603 are SET ASIDE.The City of Pasig
and the Municipality of Cainta are both directed to await the judgment in
their boundary dispute case (Civil Case No. 94-3006), pending before
Branch 74 of the Regional Trial Court in Antipolo City, to determine
which local government unit is entitled to exercise its powers, including
the collection of real property taxes, on the properties subject of the
dispute. In the meantime, Sta. Lucia Realty and Development, Inc. is
directed to deposit the succeeding real property taxes due on the lots and
improvements covered by TCT Nos. 532250, 598424, 599131, 92869,
92870 and 38457 in an escrow account with the Land Bank of the
Philippines.

FIRST DIVISION

G.R. No. 166102, August 05, 2015

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY TREASURER OF
LUCENA CITY, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by Manila
Electric Company (MERALCO), seeking the reversal of the Decision1 dated May 13, 2004 and
Resolution2dated November 18, 2004 of the Court of Appeals in CA-G.R. SP No. 67027. The appellate
court affirmed the Decision3 dated May 3, 2001 of the Central Board of Assessment Appeals (CBAA) in
CBAA Case No. L-20-98, which, in turn, affirmed with modification the Decision4 dated June 17, 19985 of
the Local Board of Assessment Appeals (LBAA) of Lucena City, Quezon Province, as regards Tax
Declaration Nos. 019-6500 and 019-7394, ruling that MERALCO is liable for real property tax on its
transformers, electric posts (or poles), transmission lines, insulators, and electric meters, beginning
1992.

MERALCO is a private corporation organized and existing under Philippine laws to operate as a public
utility engaged in electric distribution. MERALCO has been successively granted franchises to operate in
Lucena City beginning 1922 until present time, particularly, by: (1) Resolution No. 36 6 dated May 15,
1922 of the Municipal Council of Lucena; (2) Resolution No. 1087 dated July 1, 1957 of the Municipal
Council of Lucena; (3) Resolution No. 26798 dated June 13, 1972 of the Municipal Board of Lucena
City;9(4) Certificate of Franchise10 dated October 28, 1993 issued by the National Electrification
Commission; and (5) Republic Act No. 920911 approved on June 9, 2003 by Congress.12

On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of Tax Declaration No.
019-650013 covering the following electric facilities, classified as capital investment, of the company: (a)
transformer and electric post; (b) transmission line; (c) insulator; and (d) electric meter, located in
Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under Tax Declaration No. 019-6500, these electric
facilities had a market value of P81,811,000.00 and an assessed value of P65,448,800.00, and were
subjected to real property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City, which was docketed
as LBAA-89-2. MERALCO claimed that its capital investment consisted only of its substation facilities,
the true and correct value of which was only P9,454,400.00; and that MERALCO was exempted from
payment of real property tax on said substation facilities.

The LBAA rendered a Decision14 in LBAA-89-2 on July 5, 1989, finding that under its franchise, MERALCO
was required to pay the City Government of Lucena a tax equal to 5% of its gross earnings, and "[s]aid
tax shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind, nature, or
description levied, established, or collected x x x, on its poles, wires, insulators, transformers and
structures, installations, conductors, and accessories, x x x, from which taxes the grantee (MERALCO) is
hereby expressly exempted."15 As regards the issue of whether or not the poles, wires, insulators,
transformers, and electric meters of MERALCO were real properties, the LBAA cited the 1964 case
of Board of Assessment Appeals v. Manila Electric Company16 (1964 MERALCO case) in which the Court
held that: (1) the steel towers fell within the term "poles" expressly exempted from taxes under the
franchise of MERALCO; and (2) the steel towers were personal properties under the provisions of the Civil
Code and, hence, not subject to real property tax. The LBAA lastly ordered that Tax Declaration No.
019-6500 would remain and the poles, wires, insulators, transformers, and electric meters of MERALCO
would be continuously assessed, but the City Assessor would stamp on the said Tax Declaration the word
"exempt." The LBAA decreed in the end: cralawlawlibra ry

WHEREFORE, from the evidence adduced by the parties, the

Board overrules the claim of the [City Assessor of Lucena]
and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render

an accounting to the City Treasurer of Lucena and to pay the
City Government of Lucena the amount corresponding to the
Five (5%) per centum of the gross earnings in compliance with
paragraph 13 both Resolutions 108 and 2679, respectively,
retroactive from November 9, 1957 to date, if said tax has
not yet been paid.17 chanrobl eslaw

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed as CBAA Case No.
248.In its Decision18 dated April 10, 1991, the CBAA affirmed the assailed LBAA judgment. Apparently,
the City Assessor of Lucena no longer appealed said CBAA Decision and it became final and executory.

Six years later, on October 29, 1997, MERALCO received a letter19 dated October 16, 1997 from the City
Treasurer of Lucena, which stated that the company was being assessed real property tax delinquency on
its machineries beginning 1990, in the total amount of P17,925,117.34, computed as follows: chanRoblesvirtual Lawlib ra ry

COVERE
TAX ASSESSED
D TAX DUE PENALTY TOTAL
DEC. # VALUE
PERIOD

019-65 P65,448,800 P3,272,440. P2,356,156. P5,628,596.

1990-94
00 .00 00 80 80
019-73 78,538,560. 1,319,447.8
1995 785,385.60 534,062.21
94 00 1
 1,130,955.2
1996 785,385.60 345,569.66
6
lst-3rd/19
589,039.20 117,807.84 706,847.04
97
4th 1997 196,346.40 (19,634.64) 176,711.76
P8,962,558.
BASIC----
67
8,962,558.6
SEF----
7
P17,925,117
TOTAL TAX DELINQUENCY----
.34

The City Treasurer of Lucena requested that MERALCO settle the payable amount soon to avoid
accumulation of penalties. Attached to the letter were the following documents: (a) Notice of
Assessment20 dated October 20, 1997 issued by the City Assessor of Lucena, pertaining to Tax
Declaration No. 019-7394, which increased the market value and assessed value of the machinery; (b)
Property Record Form;21 and (c) Tax Declaration No. 019-6500.22

MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of Lucena City on
December 23, 1997 and posted a surety bond23 dated December 10, 1997 to guarantee payment of its
real property tax delinquency. MERALCO asked the LBAA to cancel and nullify the Notice of Assessment
dated October 20, 1997 and declare the properties covered by Tax Declaration Nos. 019-6500 and
019-7394 exempt from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and 019-7394, the LBAA
declared that Sections 234 and 534(f) of the Local Government Code repealed the provisions in the
franchise of MERALCO and Presidential Decree No. 55124 pertaining to the exemption of MERALCO from
payment of real property tax on its poles, wires, insulators, transformers, and meters. The LBAA refused
to apply as res judicata its earlier judgment in LBAA-89-2, as affirmed by the CBAA, because it involved
collection of taxes from 1985 to 1989, while the present case concerned the collection of taxes from 1989
to 1997; and LBAA is only an administrative body, not a court or quasi-judicial body. The LBAA though
instructed that the computation of the real property tax for the machineries should be based on the
prevailing 1991 Schedule of Market Values, less the depreciation cost allowed by law. The LBAA
ultimately disposed: cralawlawlibra ry

WHEREFORE, in view of the foregoing, it is hereby ordered

that: chanRobl esvirt ualLaw librar y

1) MERALCO's appeal be dismissed for lack of merit; ChanRobl esVirt ualawl ibrary

2) MERALCO be required to pay the realty tax on the questioned

properties, because they are not exempt by law, same to be
based on the 1991 level of assessment, less depreciation cost
allowed by law.25 chanrobl eslaw

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No. L-20-98. The CBAA,
in its Decision dated May 3, 2001, agreed with the LBAA that MERALCO could no longer claim exemption
from real property tax on its machineries with the enactment of Republic Act No. 7160, otherwise known
as the Local Government Code of 1991, thus: cralawlawlib rary
Indeed, the Central Board of Assessment Appeals has had the
opportunity of ruling in [MERALCO's] favor in connection with
this very same issue. The matter was settled on April 10, 1991
where this Authority ruled that "wires, insulators,
transformers and electric meters which are mounted on poles
and can be separated from the poles and moved from place to
place without breaking the material or causing [the]
deterioration of the object, are deemed movable or personal
property". The same position of MERALCO would have been
tenable and that decision may have stood firm prior to the
enactment of R.A. 7160 but not anymore in this jurisdiction.
The Code provides and now sets a more stringent yet broadened
concept of machinery, x x x: chanRobl esvirt ualLaw librar y

x x x x

The pivotal point where the difference lie between the former
and the current case is that by the very wordings of [Section
199(0)], the ground being anchored upon by MERALCO concerning
the properties in question being personal in nature does not
hold anymore for the sole reason that these come now within
the purview and new concept of Machineries. The new law has
treated these in an unequivocal manner as machineries in the
sense that they are instruments, mechanical contrivances or
apparatus though not attached permanently to the real
properties of [MERALCO] are actually, directly and
exclusively used to meet their business of distributing
electricity.

x x x x

Clearly, [Section 234 of the Local Government Code] lists

down the instances of exemption in real property taxation and
very apparent is the fact that the enumeration is exclusive
in character in view of the wordings in the last paragraph.
Applying the maxim "Expressio Unius est Exclusio Alterius",
we can say that "Where the statute enumerates those who can
avail of the exemption, it is construed as excluding all
others not mentioned therein". Therefore, the above-named
company [had] lost its previous exemptions under its
franchise because of non-inclusion in the enumeration in
Section 234. Furthermore, all tax exemptions being enjoyed
by all persons, whether natural or juridical, including all
government-owned or controlled corporations are expressly
withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal

Board of Lucena passed Resolution No. 108 on July 1, 1957
extending the franchise of MERALCO to operate in Lucena city
an electric light system for thirty-five years, which should
have expired on November 9, 1992 and under Resolution No. 2679
passed on June 13, 1972 by the City Council of Lucena City
awarding [MERALCO] a franchise to operate for twenty years
an electric light, heat and power system in Lucena City, also
to expire in the year 1992. Under those franchises, they were
only bound to pay franchise taxes and nothing more.

Now, granting arguendo that there is no express revocation

of the exemption under the franchise of [MERALCO] since,
unquestionably [MERALCO] is a recipient of another franchise
granted this time by the National Electrification Commission
as evidenced by a certificate issued on October 28, 1993, such
conferment does not automatically include and/or award
exemption from taxes, nor does it impliedly give the
franchisee the right to continue the privileges like
exemption granted under its previous franchise. It is just
a plain and simple franchise. In countless times, the Supreme
Court has ruled that exemption must be clear in the language
of the law granting such exemption for it is strictly
construed and favored against the person invoking it. In
addition, a franchise though in the form of a contract is also
a privilege that must yield to the sublime yet inherent powers
of the state, one of these is the power of taxation.

Looking into the law creating the National Electrification

Administration (Commission), P.D. 269 as amended by P.D. 1645,
nowhere in those laws can we find such authority to bestow
upon the grantee any tax exemption of whatever nature except
those of cooperatives. This we believe is basically in
consonance with the provisions of the Local Government Code
more particularly Section 234.
 Furthermore, Section 534(f) of R.A. 7160 which is taken in
relation to Section 234 thereof states that "All general and
special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations or part or
parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified
accordingly". Anent this unambiguous mandate, P.D. 551 is
mandatorily repealed due to its contradictory and
irreconcilable provisions with R.A. 7160.26
chanrobl eslaw

Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax deficiency
assessment the years 1990 to 1991, considering that: cra lawlawlib rary

In the years 1990 and 1991, the exemption granted to MERALCO

under its franchise which incidentally expired upon the
effectivity of the Local Government Code of 1991 was very much
in effect and the decision rendered by the Central Board of
Assessment Appeals (CBAA) classifying its poles, wires,
insulators, transformers and electric meters as personal
property was still controlling as the law of the case. So,
from 1990 to 1991, it would be inappropriate and illegal to
make the necessary assessment on those properties, much more
to impose any penalty for nonpayment of such.

But, assessments made beginning 1992 until 1997 by the City

Government of Lucena is legal, both procedurally and
substantially. When R.A. 7160, which incorporated amended
provisions of the Real Property Tax Code, took effect on
January 1, 1992, as already discussed, the nature of the
aforecited questioned properties considered formerly as
personal metamorphosed to machineries and the exemption
being invoked by [MERALCO] was automatically withdrawn
pursuant to the letter and spirit of the law. x x x.27 chanrobl eslaw

Resultantly, the decretal portion of said CBAA Decision reads: cralawlawl ibra ry

WHEREFORE, in view of the foregoing, the Decision appealed

from is hereby modified. The City Assessor of Lucena City is
hereby directed to make a new assessment on the subject
properties to retroact from the year 1992 and the City
Treasurer to collect the tax liabilities in accordance with
the provisions of the cited Section 222 of the Local
Government Code.28 chanrobl eslaw
The CBAA denied the Motion for Reconsideration of MERALCO in a Resolution29 dated August 16, 2001.

Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition for Review under
Rule 43 of the Rules of Court, which was docketed as CA-G.R. SP No. 67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments proffered by
MERALCO. The appellate court found no deficiency in the Notice of Assessment issued by the City
Assessor of Lucena:cralawlawlib rary

It was not disputed that [MERALCO] failed to provide the [City

Assessor and City Treasurer of Lucena] with a sworn statement
declaring the true value of each of the subject transformer
and electric post, transmission line, insulator and electric
meter which should have been made the basis of the fair and
current market value of the aforesaid property and which
would enable the assessor to identify the same for assessment
purposes. [MERALCO] merely claims that the assessment made
by the [City Assessor and City Treasurer of Lucena] was
incorrect but did not even mention in their pleading the true
and correct assessment of the said properties. Absent any
sworn statement given by [MERALCO], [the City Assessor and
City Treasurer of Lucena] were constrained to make an
assessment based on the materials within [their reach].30 chanrobl eslaw

The Court of Appeals further ruled that there was no more basis for the real property tax exemption of
MERALCO under the Local Government Code and that the withdrawal of said exemption did not violate
the non-impairment clause of the Constitution, thus:cralawlaw lib rary

Although it could not be denied that [MERALCO] was previously

granted a Certificate of Franchise by the National
Electrification Commission on October 28, 1993 x x x, such
conferment does not automatically include an exemption from
the payment of realty tax, nor does it impliedly give the
franchisee the right to continue the privileges granted under
its previous franchise considering that Sec. 534(f) of the
Local Government Code of 1991 expressly repealed those
provisions which are inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193
of the LGC prescribes the general rule, viz., tax exemptions
or incentives granted to or presently enjoyed by natural or
juridical persons are withdrawn upon the effectivity of the
LGC except with respect to those entities expressly
enumerated. In the same vein, We must hold that the express
withdrawal upon effectivity of the LGC of all exemptions
 except only as provided therein, can no longer be invoked by
MERALCO to disclaim liability for the local tax." (City
Government of San Pablo, Laguna vs. Reyes, 305 SCRA 353,
362-363)

In fine, [MERALCO's] invocation of the non-impairment clause

of the Constitution is accordingly unavailing. The LGC was
enacted in pursuance of the constitutional policy to ensure
autonomy to local governments and to enable them to attain
fullest development as self-reliant communities. The power
to tax is primarily vested in 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 [a] direct authority conferred by Section 5,
Article X of the Constitution. The important legal effect of
Section 5 is that henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will be
resolved in favor of the municipal corporations. (Ibid. pp.
363-365)31 chanrobl eslaw

MERALCO similarly failed to persuade the Court of Appeals that the transformers, transmission lines,
insulators, and electric meters mounted on the electric posts of MERALCO were not real properties. The
appellate court invoked the definition of "machinery" under Section 199(o) of the Local Government
Code and then wrote that: cralawlawli bra ry

We firmly believe and so hold that the wires, insulators,

transformers and electric meters mounted on the poles of
[MERALCO] may nevertheless be considered as improvements on
the land, enhancing its utility and rendering it useful in
distributing electricity. The said properties are actually,
directly and exclusively used to meet the needs of [MERALCO]
in the distribution of electricity.

In addition, "improvements on land are commonly taxed as

realty even though for some purposes they might be considered
personalty. It is a familiar personalty phenomenon to see
things classed as real property for purposes of taxation
which on general principle might be considered personal
property." (Caltex (Phil) Inc. vs. Central Board of
Assessment Appeals, 114 SCRA 296, 301-302)32 chanrobl eslaw

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO shall retroact to 1992.
Hence, the Court of Appeals adjudged: cralawlawlib rary

WHEREFORE, premises considered, the assailed Decision

[dated] May 3, 2001 and Resolution dated August 16, 2001 are
hereby AFFIRMED in toto and the present petition is hereby
DENIED DUE COURSE and accordingly DISMISSED for lack of
merit.33
chanrobl eslaw

In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion for Reconsideration of
MERALCO.

MERALCO is presently before the Court via the instant Petition for Review on Certiorari grounded on the
following lone assignment of error: cralawlawlib rary

THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN

AFFIRMING IN TOTO THE DECISION OF THE CENTRAL BOARD OF
ASSESSMENT APPEALS WHICH HELD THAT THE SUBJECT PROPERTIES ARE
REAL PROPERTIES SUBJECT TO REAL PROPERTY TAX; AND THAT
ASSESSMENT ON THE SUBJECT PROPERTIES SHOULD BE MADE TO TAKE
EFFECT RETROACTIVELY FROM 1992 UNTIL 1997, WITH PENALTIES;
THE SAME BEING UNJUST, WHIMSICAL AND NOT IN ACCORD WITH THE
LOCAL GOVERNMENT CODE.34 chanrobl eslaw

MERALCO argues that its transformers, electric posts, transmission lines, insulators, and electric meters
are not subject to real property tax, given that: (1) the definition of "machinery" under Section 199(o) of
the Local Government Code, on which real property tax is imposed, must still be within the contemplation
of real or immovable property under Article 415 of the Civil Code because it is axiomatic that a statute
should be construed to harmonize with other laws on the same subject matter as to form a complete,
coherent, and intelligible system; (2) the Decision dated April 10, 1991 of the CBAA in CBAA Case No.
248, which affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2, ruling that the
transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO are movable
or personal properties, is conclusive and binding; and (3) the electric poles are not exclusively used to
meet the needs of MERALCO alone since these are also being utilized by other entities such as cable and
telephone companies.

MERALCO further asserts that even if it is assumed for the sake of argument that the transformers,
electric posts, transmission lines, insulators, and electric meters are real properties, the assessment of
said properties by the City Assessor in 1997 is a patent nullity. The collection letter dated October 16,
1997 of the City Treasurer of Lucena, Notice of Assessment dated October 20, 1997 of the City Assessor
of Lucena, the Property Record Form dated October 20, 1997, and Tax Declaration No. 019-6500 simply
state a lump sum market value for all the transformers, electric posts, transmission lines, insulators, and
electric meters covered and did not provide an inventory/list showing the actual number of said
properties, or a schedule of values presenting the fair market value of each property or type of property,
which would have enabled MERALCO to verify the correctness and reasonableness of the valuation of its
properties. MERALCO was not furnished at all with a copy of Tax Declaration No. 019-7394, and while it
received a copy of Tax Declaration No. 019-6500, said tax declaration did not contain the requisite
information regarding the date of operation of MERALCO and the original cost, depreciation, and market
value for each property covered. For the foregoing reasons, the assessment of the properties of
MERALCO in 1997 was arbitrary, whimsical, and without factual basis - in patent violation of the right to
due process of MERALCO. MERALCO additionally explains that it cannot be expected to make a
declaration of its transformers, electric posts, transmission lines, insulators, and electric meters, because
all the while, it was of the impression that the said properties were personal properties by virtue of the
Decision dated July 5, 1989 of the LBAA in LBAA-89-2 and the Decision dated April 10, 1991 of the CBAA
in CBAA Case No. 248.
Granting that the assessment of its transformers, electric posts, transmission lines, insulators, and
electric meters by the City Assessor of Lucena in 1997 is valid, MERALCO alternatively contends that: (1)
under Sections 22135 and 22236 of the Local Government Code, the assessment should take effect only
on January 1, 1998 and not retroact to 1992; (2) MERALCO should not be held liable for penalties and
interests since its nonpayment of real property tax on its properties was in good faith; and (3) if interest
may be legally imposed on MERALCO, it should only begin to run on the date it received the Notice of
Assessment on October 29, 1997 and not all the way back to 1992.

At the end of its Petition, MERALCO prays: cralawlawli bra ry

WHEREFORE, it is respectfully prayed of this Honorable Court

that the appealed Decision dated May 13, 2004 of the Court
of Appeals, together with its Resolution dated November 18,
2004 be reversed and set aside, and judgment be rendered x
x x nullifying and cancel[l]ing the Notice of Assessment,
dated October 20, 1997, issued by respondent City Assessor,
and the collection letter dated October 16, 1997 of
respondent City Treasurer.

Petitioner also prays for such other relief as may be deemed

just and equitable in the premises.37
chanrobl eslaw

The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was obliged to pay the real
property tax due, instead of posting a surety bond, while its appeal was pending, because Section 231 of
the Local Government Code provides that the appeal of an assessment shall not suspend the collection of
the real property taxes; (2) the cases cited by MERALCO can no longer be applied to the case at bar since
they had been decided when Presidential Decree No. 464, otherwise known as the Real Property Tax
Code, was still in effect; (3) under the now prevailing Local Government Code, which expressly repealed
the Real Property Tax Code, the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO fall within the new definition of "machineries," deemed as real properties subject to
real property tax; and (4) the Notice of Assessment dated October 20, 1997 covering the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO only retroacts to 1992,
which is less than 10 years prior to the date of initial assessment, so it is in compliance with Section 222
of the Local Government Code, and since MERALCO has yet to pay the real property taxes due on said
assessment, then it is just right and appropriate that it also be held liable to pay for penalties and
interests from 1992 to present time. Ultimately, the City Assessor and City Treasurer of Lucena seek
judgment denying the instant Petition and ordering MERALCO to pay the real property taxes due.

The Petition is partly meritorious.

The Court finds that the transformers, electric posts, transmission lines, insulators, and electric meters
of MERALCO are no longer exempted from real property tax and may qualify as "machinery" subject to
real property tax under the Local Government Code. Nevertheless, the Court declares null and void the
appraisal and assessment of said properties of MERALCO by the City Assessor in 1997 for failure to
comply with the requirements of the Local Government Code and, thus, violating the right of MERALCO
to due process.

By posting a surety bond before

filing its appeal of the assessment with
the LBAA, MERALCO substantially complied
with the requirement of payment under
protest in Section 252 of the Local
Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be entertained unless the
taxpayer first pays the tax." It is settled that the requirement of "payment under protest" is a
condition sine qua non before an appeal may be entertained.38 Section 231 of the same Code also
dictates that "[a]ppeal on assessments of real property x x x shall, in no case, suspend the collection of
the corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal." Clearly,
under the Local Government Code, even when the assessment of the real property is appealed, the real
property tax due on the basis thereof should be paid to and/or collected by the local government unit
concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16, 1997, sought to collect
from MERALCO the amount of P17,925,l 17.34 as real property taxes on its machineries, plus penalties,
for the period of 1990 to 1997, based on Tax Declaration Nos. 019-6500 and 019-7394 issued by the City
Assessor of Lucena. MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 with the LBAA,
but instead of paying the real property taxes and penalties due, it posted a surety bond in the amount of
PI 7,925,117.34.

By posting the surety bond, MERALCO may be considered to have substantially complied with Section
252 of the Local Government Code for the said bond already guarantees the payment to the Office of the
City Treasurer of Lucena of the total amount of real property taxes and penalties due on Tax Declaration
Nos. 019-6500 and 019-7394. This is not the first time that the Court allowed a surety bond as an
alternative to cash payment of the real property tax before protest/appeal as required by Section 252 of
the Local Government Code. In Camp John Hay Development Corporation v. Central Board of
Assessment Appeals39 the Court affirmed the ruling of the CBAA and the Court of Tax Appeals en bane
applying the "payment under protest" requirement in Section 252 of the Local Government Code and
remanding the case to the LBAA for "further proceedings subject to a full and up-to-date
payment, either in cash or surety, of realty tax on the subject properties x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to the appeal of Tax
Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.

Beginning January 1, 1992,

MERALCO can no longer claim
exemption from real property tax of
its transformers, electric posts,
transmission lines, insulators, and
electric meters based on its
franchise.

MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248, which
affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2. Said decisions of the CBAA and the
LBAA, in turn, cited Board of Assessment Appeals v. Manila Electric Co.,40 which was decided by the Court
way back in 1964 (1964 MERALCO case). The decisions in CBAA Case No. 248 and the 1964 MERALCO
case recognizing the exemption from real property tax of the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO are no longer applicable because of subsequent
developments that changed the factual and legal milieu for MERALCO in the present case.

In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel towers of MERALCO as
real property and required MERALCO to pay real property taxes for the said steel towers for the years
1952 to 1956. MERALCO was operating pursuant to the franchise granted under Ordinance No. 44 dated
March 24, 1903 of the Municipal Board of Manila, which it acquired from the original grantee, Charles M.
Swift. Under its franchise, MERALCO was expressly granted the following tax exemption privilege: cralawlawlibrary

Par 9. The grantee shall be liable to pay the same taxes upon
its real estate, buildings, plant (not including poles, wires,
transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required
by law to pay. x x x Said percentage shall be due and payable
at the times stated in paragraph nineteen of Part One hereof,
x x x and shall be in lieu of all taxes and assessments of
whatsoever nature, and by whatsoever authority upon the
privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee from which taxes
 and assessments the grantee is hereby expressly exempted, x
x x.41 chanrobl eslaw

Given the express exemption from taxes and assessments of the "poles, wires, transformers, and
insulators" of MERALCO in the aforequoted paragraph, the sole issue in the 1964 MERALCO case was
whether or not the steel towers of MERALCO qualified as "poles" which were exempted from real property
tax. The Court ruled in the affirmative, ratiocinating that:
cra lawlawlib rary

Along the streets, in the City of Manila, may be seen

cylindrical metal poles, cubical concrete poles, and poles
of the PLDT Co. which are made of two steel bars joined
together by an interlacing metal rod. They are called "poles"
notwithstanding the fact that they are not made of wood. It
must be noted from paragraph 9, above quoted, that the concept
of the "poles" for which exemption is granted, is not
determined by their place or location, nor by the character
of the electric current it carries, nor the material or form
of which it is made, but the use to which they are dedicated.
In accordance with the definitions, a pole is not restricted
to a long cylindrical piece of wood or metal, but includes
"upright standards to the top of which something is affixed
or by which something is supported." As heretofore described,
respondent's steel supports consist of a framework of four
steel bars or strips which are bound by steel cross-arms atop
of which are cross-arms supporting five high voltage
transmission wires (See Annex A) and their sole function is
to support or carry such wires.

The conclusion of the CTA that the steel supports in question

are embraced in the term "poles" is not a novelty. Several
courts of last resort in the United States have called these
steel supports "steel towers", and they have denominated
these supports or towers, as electric poles. In their
decisions the words "towers" and "poles" were used
interchangeably, and it is well understood in that
jurisdiction that a transmission tower or pole means the same
thing.

x x x x

It is evident, therefore, that the word "poles", as used in

Act No. 484 and incorporated in the petitioner's franchise,
should not be given a restrictive and narrow interpretation,
 as to defeat the very object for which the franchise was
granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system
of the respondent Meralco, for the conveyance of electric
current from the source thereof to its consumers, x x x.42 chanrobleslaw

Similarly, it was clear that under the 20-year franchise granted to MERALCO by the Municipal Board of
Lucena City through Resolution No. 2679 dated June 13, 1972, the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO were exempt from real property tax.
Paragraph 13 of Resolution No. 2679 is quoted in full below:
cralaw lawlib rary

13. The grantee shall be liable to pay the same taxes upon
its real estate, building, machinery, and personal property
(not including poles, wires, transformers, and insulators)
as other persons are now or may hereafter be required by law
to pay. In consideration of the franchise and rights hereby
granted, the grantee shall pay into the City Treasury of
Lucena a tax equal to FIVE (5%) PER CENTUM of the gross
earnings received from electric current sold or supplied
under this franchise. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes of any
kind, nature or description levied, established, or
collected by any authority whatsoever, municipal,
provincial, or national, now or in the future, on its poles,
wires, insulators, switches, transformers and structures,
installations, conductors, and accessories, placed in and
over and under all the private and/or public property,
including public streets and highways, provincial roads,
bridges, and public squares, and on its franchise rights,
privileges, receipts, revenues and profits, from which
taxes the grantee is hereby expressly exempted. (Emphases
supplied.) chanrobl eslaw

In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO located in Lucena City beginning 1985
under Tax Declaration No. 019-6500. The CBAA in its Decision dated April 10, 1991 in CBAA Case No. 248
sustained the exemption of the said properties of MERALCO from real property tax on the basis of
paragraph 13 of Resolution No. 2679 and the 1964 MERALCO case.

Just when the franchise of MERALCO in Lucena City was about to expire, the Local Government Code took
effect on January 1, 1992, Sections 193 and 234 of which provide: cralawlawlib rary

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 nonprofit 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: chanRobl esvirt ualLaw librar y

(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; ChanRobl esVirt ualawl ibrary

(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; ChanRobl esVirt ualawl ibrary

(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; ChanRobl esVirt ualawl ibrary

(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.

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. chanrobl eslaw

The Local Government Code, in addition, contains a general repealing clause under Section 534(f) which
states that "[a]ll general and special laws, acts, city charters, decrees, executive orders, proclamations
and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions
of this Code are hereby repealed or modified accordingly."
Taking into account the above-mentioned provisions, the evident intent of the Local Government Code is
to withdraw/repeal all exemptions from local taxes, unless otherwise provided by the Code. The limited
and restrictive nature of the tax exemption privileges under the Local Government Code is consistent
with the State policy to ensure autonomy of local governments and the objective of the Local
Government Code to grant genuine and meaningful autonomy to enable local government units to attain
their fullest development as self-reliant communities and make them effective partners in the attainment
of national goals. The obvious intention of the law is to broaden the tax base of local government units
to assure them of substantial sources of revenue.43

Section 234 of the Local Government Code particularly identifies the exemptions from payment of real
property tax, based on the ownership, character, and use of the property, viz.:cralawlawl ibra ry

(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) nonprofit 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.44 chanrobl eslaw
The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of the Local
Government Code, exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided in the same section.

MERALCO, a private corporation engaged in electric distribution, and its transformers, electric posts,
transmission lines, insulators, and electric meters used commercially do not qualify under any of the
ownership, character, and usage exemptions enumerated in Section 234 of the Local Government Code.
It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.45 Not being among the recognized exemptions from real property tax in Section 234 of the Local
Government Code, then the exemption of the transformers, electric posts, transmission lines, insulators,
and electric meters of MERALCO from real property tax granted under its franchise was among the
exemptions withdrawn upon the effectivity of the Local Government Code on January 1, 1998.

It is worthy to note that the subsequent franchises for operation granted to MERALCO, i.e., under the
Certificate of Franchise dated October 28, 1993 issued by the National Electrification Commission and
Republic Act No. 9209 enacted on June 9, 2003 by Congress, are completely silent on the matter of
exemption from real property tax of MERALCO or any of its properties.

It is settled that tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption
must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption
from a common burden. Any doubt whether a tax exemption exists is resolved against the
taxpayer.46MERALCO has failed to present herein any express grant of exemption from real property tax
of its transformers, electric posts, transmission lines, insulators, and electric meters that is valid and
binding even under the Local Government Code.

The transformers, electric posts,

transmission lines, insulators, and electric
meters of MERALCO may qualify as
"machinery" under the Local Government
Code subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as real property subject
to real property tax. It is the definition of "machinery" that has been changing and expanding, as the
following table will show:
chanRoblesvi rtua lLawl ibra ry

Real Property Incidence of Real Definition of

Tax Law Property Tax Machinery47

Section 3. Property
exempt from tax. - The
Section 2. Incidence of exemptions shall be as
real property tax.- Except follows:
The Assessment in chartered cities, there xxxx
Law shall be levied, assessed, (f) Machinery, which
(Commonwealth and collected, an annual term shall embrace
Act No. 470) ad valorem tax on real machines, mechanical
property, including land, contrivances,
Effectivity: buildings, machinery, instruments, appliances,
January 1, 1940 and other improvements and apparatus attached
not hereinafter to the real estate, used
specifically exempted. for industrial agricultural
or manufacturing
purposes, during the first
five years of the
 operation of the
machinery.

Section 3. Definition of
Terms. -
When used in this Code -

Section 38. Incidence of
Real Property Tax. -
There shall be levied,
assessed and collected in
Real Property all provinces, cities and
Tax Code municipalities an annual
ad valorem tax on real
Effectivity: June property, such as land,
1, 1974 buildings, machinery and
other improvements
affixed or attached to real
property not hereinafter
specifically exempted.
xxxx
(m) Machinery - shall
embrace machines,
mechanical contrivances,
instruments, appliances
and apparatus attached
to the real estate. It
includes the physical
facilities available for
production, as well as the
installations and
appurtenant service
facilities, together with
all other equipment
designed for or essential
to its manufacturing,
industrial or agricultural
purposes.

Section 3. Definition of
Terms.
Section 38. Incidence of When used in this Code
Real Property Tax. - -
Real Property There shall be levied, x x x x
Tax Code, as assessed and collected in
amended by all provinces, cities and (m) Machinery - shall
Presidential municipalities an annual embrace machines,
Decree No. ad valorem tax on real equipment, mechanical
1383 property, such as land, contrivances,
buildings, machinery and instruments, appliances
Effectivity: May other improvements and apparatus attached
25, 1978 affixed or attached to real to the real estate. It shall
property not hereinafter include the physical
specifically exempted. facilities available for
production, as well as the
installations and
 appurtenant service
facilities, together with
all those not permanently
attached to the real
estate but are actually,
directly and essentially
used to meet the needs
of the particular industry,
business, or works, which
by their very nature and
purpose are designed for,
or essential to
manufacturing,
commercial, mining,
industrial or agricultural
purposes.

Section
199. Definitions. - When
used in this Title:
xxxx

(o) "Machinery"
embraces machines,
Section 232. Power to equipment, mechanical
Levy Real Property contrivances,
Tax. — A province or city instruments, appliances
or a municipality within or apparatuswhich may
Local
the Metropolitan Manila or may not be
Government
Area may levy an attached, permanently
Code
annual ad valorem tax on or temporarily, to the
real property such as real property. It
Effectivity:
land, includes the physical
January 1, 1992
building, machinery, facilities for production,
and other improvement the installations and
not hereinafter appurtenant service
specifically exempted. facilities, those which
are mobile,
self-powered or self-
propelled, and those not
permanently attached to
the real property which
are actually, directly, and
exclusively used to meet
 the needs of the
particular industry,
business or activity and
which by their very
nature and purpose are
designed for, or
necessary to its
manufacturing,
mining,logging,
commercial, industrial or
agricultural purposes[.]

MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts,
transmission lines, insulators, and electric meters constitute the physical facilities through which
MERALCO delivers electricity to its consumers. Each may be considered as one or more of the following:
a "machine,"48 "equipment,"49 "contrivance,"50 "instrument,"51 "appliance,"52 "apparatus,"53 or
"installation."54

The Court highlights that under Section 199(o) of the Local Government Code, machinery, to be deemed
real property subject to real property tax, need no longer be annexed to the land or building as these
"may or may not be attached, permanently or temporarily to the real property," and in fact, such
machinery may even be "mobile."55 The same provision though requires that to be machinery subject to
real property tax, the physical facilities for production, installations, and appurtenant service facilities,
those which are mobile, self-powered or self-propelled, or not permanently attached to the real property
(a) must be actually, directly, and exclusively used to meet the needs of the particular industry, business,
or activity; and (2) by their very nature and purpose, are designed for, or necessary for manufacturing,
mining, logging, commercial, industrial, or agricultural purposes. Thus, Article 290(o) of the Rules and
Regulations Implementing the Local Government Code of 1991 recognizes the following exemption: cralawlawlib ra ry

Machinery which are of general purpose use including but

not limited to office equipment, typewriters, telephone
equipment, breakable or easily damaged containers (glass or
cartons), microcomputers, facsimile machines, telex
machines, cash dispensers, furnitures and fixtures, freezers,
refrigerators, display cases or racks, fruit juice or
beverage automatic dispensing machines which are not
directly and exclusively used to meet the needs of a
particular industry, business or activity shall not be
considered within the definition of machinery under this Rule.
(Emphasis supplied.) chanr obleslaw

The 1964 MERALCO case was decided when The Assessment Law was still in effect and Section 3(f) of
said law still required that the machinery be attached to the real property. Moreover, as the Court pointed
out earlier, the ruling in the 1964 MERALCO case - that the electric poles (including the steel towers) of
MERALCO are not subject to real property tax - was primarily based on the express exemption granted
to MERALCO under its previous franchise. The reference in said case to the Civil Code definition of real
property was only an alternative argument: cralawlaw lib rary
Granting for the purpose of argument that the steel supports
or towers in question are not embraced within the term poles,
the logical question posited is whether they constitute real
properties, so that they can be subject to a real property
tax. The tax law does not provide for a definition of real
property; but Article 415 of the Civil Code does, by
stating the following are immovable property: cralawla wlibra ry

(1) Land, buildings, roads, and constructions of

all kinds adhered to the soil; ChanRobl esVirt ualawl ibrary

x x x x

(3) Everything attached to an immovable in a

fixed manner, in such a way that it cannot be
separated therefrom without breaking the
material or deterioration of the object; ChanR oblesVir tualaw librar y

x x x x

(5) Machinery, receptacles, instruments or

implements intended by the owner of the tenement
for an industry or works which may be carried in
a building or on a piece of land, and which tends
directly to meet the needs of the said industry
or works; ChanRobl esVirt ualawl ibrary

x x x x

The steel towers or supports in question, do not come within

the objects mentioned in paragraph 1, because they do not
constitute buildings or constructions adhered to the soil.
They are not constructions analogous to buildings nor
adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square
metal frame by means of bolts, which when unscrewed could
easily be dismantled and moved from place to place. They can
not be included under paragraph 3, as they are not attached
to an immovable in a fixed manner, and they can be separated
without breaking the material or causing deterioration upon
the object to which they are attached. Each of these steel
towers or supports consists of steel bars or metal strips,
 joined together by means of bolts, which can be disassembled
by unscrewing the bolts and reassembled by screwing the same.
These steel towers or supports do not also fall under
paragraph 5, for they are not machineries or receptacles,
instruments or implements, and even if they were, they are
not intended for industry or works on the land. Petitioner
is not engaged in an industry or works on the land in which
the steel supports or towers are constructed.56(Emphases
supplied.) chanrobl eslaw

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold true anymore under the
Local Government Code.

While the Local Government Code still does not provide for a specific definition of "real property,"
Sections 199(o) and 232 of the said Code, respectively, gives an extensive definition of what constitutes
"machinery" and unequivocally subjects such machinery to real property tax. The Court reiterates that
the machinery subject to real property tax under the Local Government Code "may or may not be
attached, permanently or temporarily to the real property;" and the physical facilities for production,
installations, and appurtenant service facilities, those which are mobile, self-powered or self-propelled,
or are not permanently attached must (a) be actually, directly, and exclusively used to meet the needs
of the particular industry, business, or activity; and (2) by their very nature and purpose, be designed for,
or necessary for manufacturing, mining, logging, commercial, industrial, or agricultural purposes.

Article 415, paragraph (1) of the Civil Code declares as immovables or real properties "[l]and, buildings,
roads and constructions of all kinds adhered to the soil." The land, buildings, and roads are immovables
by nature "which cannot be moved from place to place," whereas the constructions adhered to the soil
are immovables by incorporation "which are essentially movables, but are attached to an immovable in
such manner as to be an integral part thereof."57 Article 415, paragraph (3) of the Civil Code, referring to
"[ejverything attached to an immovable in a fixed manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration of the object," are likewise immovables by
incorporation. In contrast, the Local Government Code considers as real property machinery which "may
or may not be attached, permanently or temporarily to the real property," and even those which are
"mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real properties "[machinery,
receptacles, instruments or implements intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of
the said industry or works." The Civil Code, however, does not define "machinery."

The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or
"those which are essentially movables, but by the purpose for which they have been placed in an
immovable, partake of the nature of the latter because of the added utility derived therefrom." 58 These
properties, including machinery, become immobilized if the following requisites concur: (a) they are
placed in the tenement by the owner of such tenement; (b) they are destined for use in the industry or
work in the tenement; and (c) they tend to directly meet the needs of said industry or works.59 The first
two requisites are not found anywhere in the Local Government Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil Code and the Local
Government Code. The Court disagrees, however, for this would necessarily mean imposing additional
requirements for classifying machinery as real property for real property tax purposes not provided for,
or even in direct conflict with, the provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property relations, and the Local
Government Code, a special law granting local government units the power to impose real property tax,
then the latter shall prevail. As the Court pronounced in Disomangcop v. The Secretary of the
Department of Public Works and Highways Simeon A. Datumanong60: cralawlawlib ra ry

It is a finely-imbedded principle in statutory construction

that a special provision or law prevails over a general
 one. Lex specialis derogant generali. As this Court
expressed in the case of Leveriza v. Intermediate Appellate
Court, "another basic principle of statutory construction
mandates that general legislation must give way to special
legislation on the same subject, and generally be so
interpreted as to embrace only cases in which the special
provisions are not applicable, that specific statute
prevails over a general statute and that where two statutes
are of equal theoretical application to a particular case,
the one designed therefor specially should prevail."
(Citations omitted.) chanr obleslaw

The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco Corporation61 that: c ralawlawl ib rary

A general law and a special law on the same subject are

statutes in pah materia and should, accordingly, be read
together and harmonized, if possible, with a view to giving
effect to both. The rule is that where there are two acts,
one of which is special and particular and the other general
which, if standing alone, would include the same matter and
thus conflict with the special act, the special law must
prevail since it evinces the legislative intent more clearly
than that of a general statute and must not be taken as
intended to affect the more particular and specific
provisions of the earlier act, unless it is absolutely
necessary so to construe it in order to give its words any
meaning at all.

The circumstance that the special law is passed before or

after the general act does not change the principle. Where
the special law is later, it will be regarded as an exception
to, or a qualification of, the prior general act; and where
the general act is later, the special statute will be
construed as remaining an exception to its terms, unless
repealed expressly or by necessary implication. (Citations
omitted.) chanrobl eslaw

Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals,62 the Court
acknowledged that "[i]t is a familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real property tax, the definition
and requirements under the Local Government Code are controlling.

MERALCO maintains that its electric posts are not machinery subject to real property tax because said
posts are not being exclusively used by MERALCO; these are also being utilized by cable and telephone
companies. This, however, is a factual issue which the Court cannot take cognizance of in the Petition at
bar as it is not a trier of facts. Whether or not the electric posts of MERALCO are actually being used by
other companies or industries is best left to the determination of the City Assessor or his deputy, who has
been granted the authority to take evidence under Article 304 of the Rules and Regulations Implementing
the Local Government Code of 1991.

Nevertheless, the appraisal and

assessment of the transformers, electric
posts, transmission lines, insulators, and
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the
Local Government Code and in violation of
the right to due process of MERALCO and,
therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of determining the value of
property as of a specific date for a specific purpose." "Assessment" is "the act or process of determining
the value of a property, or proportion thereof subject to tax, including the discovery, listing, classification,
and appraisal of the properties[.]"63 When it comes to machinery, its appraisal and assessment are
particularly governed by Sections 224 and 225 of the Local Government Code, which read: cralaw lawlib rary

Section 224. Appraisal and Assessment of Machinery. - (a)

The fair market value of a brand-new machinery shall be the
acquisition cost. In all other cases, the fair market value
shall be determined by dividing the remaining economic life
of the machinery by its estimated economic life and
multiplied by the replacement or reproduction cost.

(b) If the machinery is imported, the acquisition cost

includes freight, insurance, bank and other charges,
brokerage, arrastre and handling, duties and taxes, plus cost
of inland transportation, handling, and installation charges
at the present site. The cost in foreign currency of imported
machinery shall be converted to peso cost on the basis of
foreign currency exchange rates as fixed by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For

purposes of assessment, a depreciation allowance shall be
made for machinery at a rate not exceeding five percent (5%)
of its original cost or its replacement or reproduction cost,
as the case may be, for each year of use: Provided,
however, That the remaining value for all kinds of machinery
shall be fixed at not less than twenty percent (20%) of such
original, replacement, or reproduction cost for so long as
the machinery is useful and in operation. chanrobl eslaw

It is apparent from these two provisions that every machinery must be individually appraised and
assessed depending on its acquisition cost, remaining economic life, estimated economic life,
replacement or reproduction cost, and depreciation.
Article 304 of the Rules and Regulations Implementing the Local Government Code of 1991 expressly
authorizes the local assessor or his deputy to receive evidence for the proper appraisal and assessment
of the real property: cralawlawlib rary

Article 304. Authority of Local Assessors to Take Evidence.

- For the purpose of obtaining information on which to base
the market value of any real property, the assessor of the
province, city, or municipality or his deputy may summon the
owners of the properties to be affected or persons having
legal interest therein and witnesses, administer oaths, and
take deposition concerning the property, its ownership,
amount, nature, and value.
chanrobl eslaw

The Local Government Code further mandates that the taxpayer be given a notice of the assessment of
real property in the following manner: cralawlawli bra ry

Section 223. Notification of New or Revised Assessment. -

When real property is assessed for the first time or when an
existing assessment is increased or decreased, the
provincial, city or municipal assessor shall within thirty
(30) days give written notice of such new or revised
assessment to the person in whose name the property is
declared. The notice may be delivered personally or by
registered mail or through the assistance of the punong
barangay to the last known address of the person to served. chanroblesla w

A notice of assessment, which stands as the first instance the taxpayer is officially made aware of the
pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the
tax.64 In Manila Electric Company v. Barlis,65 the Court described the contents of a valid notice of
assessment of real property and differentiated the same from a notice of collection: cralawlawl ibra ry

A notice of assessment as provided for in the Real Property

Tax Code should effectively inform the taxpayer of the value
of a specific property, or proportion thereof subject to tax,
including the discovery, listing, classification, and
appraisal of properties. The September 3, 1986 and October
31, 1989 notices do not contain the essential information
that a notice of assessment must specify, namely, the value
of a specific property or proportion thereof which is being
taxed, nor does it state the discovery, listing,
classification and appraisal of the property subject to
taxation. In fact, the tenor of the notices bespeaks an
intention to collect unpaid taxes, thus the reminder to the
taxpayer that the failure to pay the taxes shall authorize
 the government to auction off the properties subject to taxes
x x x.chanrobl eslaw

Although the ruling quoted above was rendered under the Real Property Tax Code, the requirement of a
notice of assessment has not changed under the Local Government Code.

A perusal of the documents received by MERALCO on October 29, 1997 reveals that none of them
constitutes a valid notice of assessment of the transformers, electric posts, transmission lines, insulators,
and electric meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly precedes the
purported Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena) is a notice of
collection, ending with the request for MERALCO to settle the payable amount soon in order to avoid
accumulation of penalties. It only presented in table form the tax declarations covering the machinery,
assessed values in the tax declarations in lump sums for all the machinery, the periods covered, and the
taxes and penalties due again in lump sums for all the machinery.

The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave a summary of the
new/revised assessment of the "machinery" located in "Quezon Avenue Ext., Brgy. Gulang-Gulang,
Lucena City," covered by Tax Declaration No. 019-7394, with total market value of P98,173,200.00 and
total assessed value of P78,538,560.00. The Property Record Form basically contained the same
information. Without specific description or identification of the machinery covered by said tax
declaration, said Notice of Assessment and Property Record Form give the false impression that there is
only one piece of machinery covered.

In Tax Declaration No. 019-6500, the City Assessor reported its findings under "Building and
Improvements" and not "Machinery." Said tax declaration covered "capital investment-commercial,"
specifically: (a) Transformer and Electric Post; (b) Transmission Line, (c) Insulator, and (d) Electric Meter,
with a total market value of P81,811,000.00, assessment level of 80%, and assessed value of
£65,448,800.00. Conspicuously, the table for "Machinery" - requiring the description, date of operation,
replacement cost, depreciation, and market value of the machinery - is totally blank.

MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not refute at all, that
MERALCO has not been furnished the Owner's Copy of Tax Declaration No. 019-7394, in which the total
market value of the machinery of MERALCO was increased by PI6,632,200.00, compared to that in Tax
Declaration No. 019-6500.

The Court cannot help but attribute the lack of a valid notice of assessment to the apparent lack of a valid
appraisal and assessment conducted by the City Assessor of Lucena in the first place. It appears that the
City Assessor of Lucena simply lumped together all the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO located in Lucena City under Tax Declaration Nos. 019-6500
and 019-7394, contrary to the specificity demanded under Sections 224 and 225 of the Local
Government Code for appraisal and assessment of machinery. The City Assessor and the City Treasurer
of Lucena did not even provide the most basic information such as the number of transformers, electric
posts, insulators, and electric meters or the length of the transmission lines appraised and assessed
under Tax Declaration Nos. 019-6500 and 019-7394. There is utter lack of factual basis for the
assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO.

The Court of Appeals laid the blame on MERALCO for the lack of information regarding its transformers,
electric posts, transmission lines, insulators, and electric meters for appraisal and assessment purposes
because MERALCO failed to file a sworn declaration of said properties as required by Section 202 of the
Local Government Code. As MERALCO explained, it cannot be expected to file such a declaration when all
the while it believed that said properties were personal or movable properties not subject to real property
tax. More importantly, Section 204 of the Local Government Code exactly covers such a situation,
thus:c ralawlawli bra ry

Section 204. Declaration of Real Property by the Assessor.

-When any person, natural or juridical, by whom real property
is required to be declared under Section 202 hereof, refuses
or fails for any reason to make such declaration within the
 time prescribed, the provincial, city or municipal assessor
shall himself declare the property in the name of the
defaulting owner, if known, or against an unknown owner, as
the case may be, and shall assess the property for taxation
in accordance with the provision of this Title. No oath shall
be required of a declaration thus made by the provincial, city
or municipal assessor. chanrobl eslaw

Note that the only difference between the declarations of property made by the taxpayer, on one hand,
and the provincial/city/municipal assessor, on the other, is that the former must be made under oath.
After making the declaration of the property himself for the owner, the provincial/city/municipal assessor
is still required to assess the property for taxation in accordance with the provisions of the Local
Government Code.

It is true that tax assessments by tax examiners are presumed correct and made in good faith, with the
taxpayer having the burden of proving otherwise.66 In this case, MERALCO was able to overcome the
presumption because it has clearly shown that the assessment of its properties by the City Assessor was
baselessly and arbitrarily done, without regard for the requirements of the Local Government Code.

The exercise of the power of taxation constitutes a deprivation of property under the due process clause,
and the taxpayer's right to due process is violated when arbitrary or oppressive methods are used in
assessing and collecting taxes. 67 The Court applies by analogy its pronouncements in Commissioner of
Internal Revenue v. United Salvage and Towage (Phils.), Inc.,68 concerning an assessment that did not
comply with the requirements of the National Internal Revenue Code: cralawlawlib rary

On the strength of the foregoing observations, we ought to

reiterate our earlier teachings that "in balancing the scales
between the power of the State to tax and its inherent right
to prosecute perceived transgressors of the law on one side,
and the constitutional rights of a citizen to due process of
law and the equal protection of the laws on the other, the
scales must tilt in favor of the individual, for a citizen's
right is amply protected by the Bill of Rights under the
Constitution." Thus, while "taxes are the lifeblood of the
government," the power to tax has its limits, in spite of all
its plenitude. Even as we concede the inevitability and
indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. (Citations
omitted.) chanrobl eslaw

The appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO under Tax Declaration Nos. 019-6500 and 019-7394, not being in
compliance with the Local Government Code, are attempts at deprivation of property without due
process of law and, therefore, null and void.

WHEREFORE, premises considered, the Court PARTLY GRANTS the instant Petition and AFFIRMS
with MODIFICATION the Decision dated May 13, 2004 of the Court of Appeals in CA-G.R. SP No. 67027,
affirming in toto the Decision dated May 3, 2001 of the Central Board of Assessment Appeals in CBAA
Case No. L-20-98. The Court DECLARES that the transformers, electric posts, transmission lines,
insulators, and electric meters of Manila Electric Company are NOT EXEMPTED from real property tax
under the Local Government Code. However, the Court also DECLARES the appraisal and assessment of
the said properties under Tax Declaration Nos. 019-6500 and 019-7394 as NULL and VOID for not
complying with the requirements of the Local Government Code and violating the right to due process of
Manila Electric Company, and ORDERS the CANCELLATION of the collection letter dated October 16,
1997 of the City Treasurer of Lucena and the Notice of Assessment dated October 20, 1997 of the City
Assessor of Lucena, but WITHOUT PREJUDICE to the conduct of a new appraisal and assessment of
the same properties by the City Assessor of Lucena in accord with the provisions of the Local Government
Code and guidelines issued by the Bureau of Local Government Financing.

THIRD DIVISION

May 30, 2016

G.R. No. 180110

CAPITOL WIRELESS, INC., Petitioner,

vs.
THE PROVINCIAL TREASURER OF BATANGAS, THE PROVINCIAL ASSESSOR OF
BATANGAS, THE MUNICIPAL TREASURER AND ASSESSOR OF NASUGBU,
BATANGAS, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the Court of Appeals’ Decision dated May 30, 2007 and
1

Resolution dated October 8, 2007 in CA-G.R. SP No. 82264, which both denied the
2

appeal of petitioner against the decision of the Regional Trial Court.

Below are the acts of the case.

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of

providing international telecommunications services. As such provider, Capwire has
3

signed agreements with other local and foreign telecommunications companies covering
an international network of

submarine cable systems such as the Asia Pacific Cable Network System (APCN) (which
connects Australia, Thailand, Malaysia, Singapore, Hong Kong, Taiwan, Korea, Japan,
Indonesia and the Philippines); the BruneiMalaysia-Philippines Cable Network System
(BMP-CNS), the PhilippinesItaly

(SEA-ME-WE-3 CNS), and the Guam Philippines (GP-CNS) systems. The agreements 4

provide for co-ownership and other rights among the parties over the network. 5
Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment" of the
APCN, while the landing stations or terminals and Segment E of APCN located in
Nasugbu, Batangas are allegedly owned by the Philippine Long Distance Telephone
Corporation (PLDT). Moreover, it alleges that the Wet Segment is laid in inten1ational,
6

and not Philippine, waters. 7

Capwire claims that as co-owner, it does not own any particular physical part of the cable
system but, consistent with its financial contributions, it owns the right to use a certain
capacity of the said systern. This property right is allegedly reported in its financial books
8

as "Indefeasible Rights in Cable Systems." 9

However, for loan restructuring purposes, Capwire claims that "it was required to register
the value of its right," hence, it engaged an appraiser to "assess the market value of the
international submarine cable system and the cost to Capwire." On May 15, 2000,
10

Capwire submitted a Sworn Statement of True Value of Real Properties at the Provincial
Treasurer's Office, Batangas City, Batangas Province, for the Wet Segment of the system,
stating:

System Sound Value

APCN P203,300,000.00

BMP-CNS p 65,662,000.00

SEA-ME-WE-3 CNSP P7,540,000.00

GP-CNS P1,789,000.00

Capwire claims that it also reported that the system "interconnects at the PLDT Landing
Station in Nasugbu, Batangas," which is covered by a transfer certificate of title and tax
declarations in the name of PLDT. 11

As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor) issued

the following Assessments of Real Property (ARP) against Capwire:

ARP Cable System Assessed Value

019-00967 BMP-CNS P52,529,600.00

019-00968 APCN P162,640,000.00

019-00969 SEA-ME-WE3-CNS P: 6,032,000.00

019-00970 GP-CNS P: 1,431,200.00

In essence, the Provincial Assessor had determined that the submarine cable systems
described in Capwire's Sworn Statement of True Value of Real Properties are taxable real
property, a determination that was contested by Capwire in an exchange of letters
between the company and the public respondent. The reason cited by Capwire is that
12

the cable system lies outside of Philippine territory, i.e., on international waters.
13

On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a
Notice of Auction Sale, respectively, from the respondent Provincial Treasurer of
Batangas (Provincial Treasurer). 14

On March I 0, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of
Warrant of Levy, Notice of Auction Sale and/or Auction Sale with the Regional Trial Court
(RTC) of Batangas City. 15

After the filing of the public respondents' Comment, on May 5, 2003, the RTC issued an
16

Order dismissing the petition for failure of the petitioner Capwire to follow the requisite of
payment under protest as well as failure to appeal to the Local Board of Assessment
Appeals (LBAA), as provided for in Sections 206 and 226 of Republic Act (R.A.) No. 7160,
or the Local Government Code. 17

Capwire filed a Motion for Reconsideration, but the same was likewise dismissed by the
18

RTC in an Order dated August 26, 2003. It then filed an appeal to the Court of Appeals.
19 20

On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal
filed by Capwire and affirming the order of the trial court. The dispositive portion of the
1âwphi 1

CA's decision states:

WHEREFORE, premises considered, the assailed Orders dated May 5,

2003 and August 26, 2003 of the Regional Trial Court, Branch II of
Batangas City, are AFFIRMED.

SO ORDERED. 21

The appellate court held that the trial court correctly dismissed Capwire's petition because
of the latter's failure to comply with the requirements set in Sections 226 and 229 of the
Local Government Code, that is, by not availing of remedies before administrative bodies
like the LBAA and the Central Board of Assessment Appeals (CBAA). Although Capwire
22

claims that it saw no need to undergo administrative proceedings because its petition
raises purely legal questions, the appellate comi did not share this view and noted that the
case raises questions of fact, such as the extent to which parts of the submarine cable
system lie within the territorial jurisdiction of the taxing authorities, the public
respondents. Further, the CA noted that Capwire failed to pay the tax assessed against it
23

under protest, another strict requirement under Section 252 of the Local Government
Code 24

Hence, the instant petition for review of Capwire.

Petitioner Capwire asserts that recourse to the Local Board of Assessment Appeals, or
payment of the tax under protest, is inapplicable to the case at bar since there is no
question of fact involved, or that the question involved is not the reasonableness of the
amount assessed but, rather, the authority and power of the assessor to impose the tax
and of the treasurer to collect it. It contends that there is only a pure question of law since
25

the issue is whether its submarine cable system, which it claims lies in international
waters, is taxable. Capwire holds the position that the cable system is not subject to tax.
26 27
Respondents assessors and treasurers of the Province of Batangas and Municipality of
Nasugbu, Batangas disagree with Capwire and insist that the case presents questions of
fact such as the extent and portion of the submarine cable system that lies within the
jurisdiction of the said local governments, as well as the nature of the so-called
indefeasible rights as property of Capwire. Such questions are allegedly resolvable only
28

before administrative agencies like the Local Board of Assessment Appeals. 29

The Court confronts the following issues: Is the case cognizable by the administrative
agencies and covered by the requirements in Sections 226 and 229 of the Local
Government Code which makes the dismissal of

Capwire's petition by the RTC proper? May submarine communications cables be

classified as taxable real property by the local governments?

The petition is denied. No error attended the ruling of the appellate court that the case
involves factual questions that should have been resolved before the appropriate
administrative bodies.

In disputes involving real property taxation, the general rule is to require the taxpayer to
first avail of administrative remedies and pay the tax under protest before allowing any
resort to a judicial action, except when the assessment itself is alleged to be illegal or is
made without legal authority. 30

For example, prior resort to administrative action is required when among the issues
raised is an allegedly erroneous assessment, like when the reasonableness of the amount
is challenged, while direct court action is permitted when only the legality, power, validity
or authority of the; assessment itself is in question.JI Stated differently, the general rule of
a prerequisite recourse to administrative remedies applies when questions of fact are
raised, but the exception of direct court action is allowed when purely questions of law are
involved.32

This Court has previously and rather succinctly discussed the difference between a
question of fact and a question of law. In Cosmos Bottling Corporation v. Nagrama, Jr., it 33

held:

The Court has made numerous dichotomies between questions of law and
fact. A reading of these dichotomies shows that labels attached to law and
fact are descriptive rather than definitive. We are not alone in Our difficult
task of clearly distinguishing questions of fact from questions of law. The
United States Supreme Court has ruled that: "we [do not] yet know of any
other rule or principle that will unerringly distinguish a factual finding from
a legal conclusion."

In Ramos v. Pepsi-Cola Bottling Co. of the PI., the Court

ruled:

There is a question of law in a given case when the doubt

or difference arises as to what the law is on a certain state
of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged
facts.
 We shall label this the doubt dichotomy.

In Republic v. Sandiganbayan, the Court ruled:

x x x A question of law exists when the doubt or

controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue
does not call for an examination of the probative value of
the evidence presented, the truth or falsehood of facts
being admitted. In contrast, a question of fact exists when
the doubt or difference arises as to the truth or falsehood
of facts or when the query invites calibration of the whole
evidence considering mainly the credibility of the
witnesses, the existence and relevancy of specific
surrounding circumstances as well as their relation to each
other and to the whole, and the probability of the situation.

For the sake of brevity, We shall label this the law application and
calibration dichotomy.

In contrast, the dynamic legal scholarship in the United States has birthed
many commentaries on the question of law and question of fact dichotomy.
As early as 1944, the law was described as growing downward toward
"roots of fact" which grew upward to meet it. In 1950, the late Professor
Louis Jaffe saw fact and law as a spectrum, with one shade blending
imperceptibly into the other. Others have defined questions of law as
those that deal with the general body of legal principles; questions of fact
deal with "all other phenomena xx x." Kenneth Culp Davis also weighed in
and noted that the difference between fact and law has been
characterized as that between "ought" questions and "is" questions. 34

Guided by the quoted pronouncement, the Court sustains the CA's finding that petitioner's
case is one replete with questions of fact instead of pure questions of law, which renders
its filing in a judicial forum improper because it is instead cognizable by local
administrative bodies like the Board of Assessment Appeals, which are the proper venues
for trying these factual issues. Verily, what is alleged by Capwire in its petition as "the crux
of the controversy," that is, "whether or not an indefeasible right over a submarine cable
system that lies in international waters can be subject to real property tax in the
Philippines,"35 is not the genuine issue that the case presents - as it is already obvious
and fundamental that real property that lies outside of Philippine territorial jurisdiction
cannot be subjected to its domestic and sovereign power of real property taxation - but,
rather, such factual issues as the extent and status of Capwire's ownership of the system,
the actual length of the cable/s that lie in Philippine territory, and the corresponding
assessment and taxes due on the same, because the public respondents imposed and
collected the assailed real property tax on the finding that at least a portion or some
portions of the submarine cable system that Capwire owns or co-owns lies inside
Philippine territory. Capwire's disagreement with such findings of the administrative
bodies presents little to no legal question that only the courts may directly resolve.

Instead, Capwire argues and makes claims on mere assumptions of certain facts as if
they have been already admitted or established, when they have not, since no evidence of
such have yet been presented in the proper agencies and even in the current petition. As
such, it remains unsettled whether Capwire is a mere co-owner, not full owner, of the
subject submarine cable and, if the former, as to what extent; whether all or certain
portions of the cable are indeed submerged in water; and whether the waters wherein the
cable/s is/are laid are entirely outside of Philippine territorial or inland waters, i.e., in
international waters. More simply, Capwire argues based on mere legal conclusions,
culminating on its claim of illegality of respondents' acts, but the conclusions are yet
unsupported by facts that should have been threshed out quasi-judicially before the
administrative agencies. It has been held that "a bare characterization in a petition of
unlawfulness, is merely a legal conclusion and a wish of the pleader, and such a legal
conclusion unsubstantiated by facts which could give it life, has no standing in any court
where issues must be presented and determined by facts in ordinary and concise
language." Therefore, Capwire's resort to judicial action, premised on its legal conclusion
36

that its cables (the equipment being taxed) lie entirely on international waters, without first
administratively substantiating such a factual premise, is improper and was rightly denied.
Its proposition that the cables lie entirely beyond Philippine territory, and therefore,
outside of Philippine sovereignty, is a fact that is not subject to judicial notice since, on the
contrary, and as will be explained later, it is in fact certain that portions of the cable would
definitely lie within Philippine waters. Jurisprudence on the Local Government Code is
clear that facts such as these must be threshed out administratively, as the courts in these
types of cases step in at the first instance only when pure questions of law are involved.

Nonetheless, We proceed to decide on whether submarine wires or cables used for

communications may be taxed like other real estate.

We hold in the affirmative.

Submarine or undersea communications cables are akin to electric transmission lines

which this Court has recently declared in Manila Electric Company v. City Assessor and
City Treasurer of Lucena City, as "no longer exempted from real prope1iy tax" and may
37

qualify as "machinery" subject to real property tax under the Local Government Code. To
the extent that the equipment's location is determinable to be within the taxing authority's
jurisdiction, the Court sees no reason to distinguish between submarine cables used for
communications and aerial or underground wires or lines used for electric transmission,
so that both pieces of property do not merit a different treatment in the aspect of real
property taxation. Both electric lines and communications cables, in the strictest sense,
are not directly adhered to the soil but pass through posts, relays or landing stations, but
both may be classified under the term "machinery" as real property under Article
415(5) of the Civil Code for the simple reason that such pieces of equipment serve the
38

owner's business or tend to meet the needs of his industry or works that are on real estate.
Even objects in or on a body of water may be classified as such, as "waters" is classified
as an immovable under Article 415(8)39 of the Code. A classic example is a boathouse
which, by its nature, is a vessel and, therefore, a personal property but, if it is tied to the
shore and used as a residence, and since it floats on waters which is immovable, is
considered real property. Besides, the Court has already held that "it is a familiar
40

phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property." 41

Thus, absent any showing from Capwire of any express grant of an exemption for its lines
and cables from real property taxation, then this interpretation applies and Capwire's
submarine cable may be held subject to real property tax.

Having determined that Capwire is liable, and public respondents have the right to impose
a real property tax on its submarine cable, the issue that is unresolved is how much of
such cable is taxable based on the extent of Capwire's ownership or co-ownership of it
and the length that is laid within respondents' taxing jurisdiction. The matter, however,
requires a factual determination that is best performed by the Local and Central Boards of
Assessment Appeals, a remedy which the petitioner did not avail of.

At any rate, given the importance of the issue, it is proper to lay down the other legal
bases for the local taxing authorities' power to tax portions of the submarine cables of
petitioner. It is not in dispute that the submarine cable system's Landing Station in
Nasugbu, Batangas is owned by PLDT and not by Capwire. Obviously, Capwire is not
liable for the real property tax on this Landing Station. Nonetheless, Capwire admits that it
co-owns the submarine cable system that is subject of the tax assessed and being
collected by public respondents. As the Court takes judicial notice that Nasugbu is a
coastal town and the surrounding sea falls within what the United Nations Convention on
the Law of the Sea (UN CLOS) would define as the country's territorial sea (to the extent
of 12 nautical miles outward from the nearest baseline, under Part II, Sections 1 and 2)
over which the country has sovereignty, including the seabed and subsoil, it follows that
indeed a portion of the submarine cable system lies within Philippine territory and thus
falls within the jurisdiction of the said local taxing authorities. It easily belies Capwire's
42

contention that the cable system is entirely in international waters. And even if such
portion does not lie in the 12-nautical-mile vicinity of the territorial sea but further inward,
in Prof Magallona v. Hon. Ermita, et al. this Court held that "whether referred to as
43

Philippine 'internal waters' under A1iicle I of the Constitution or as 'archipelagic waters'

44

under UNCLOS Part III, Article 49(1, 2, 4),45 the Philippines exercises sovereignty over
the body of water lying landward of (its) baselines, including the air space over it and the
submarine areas underneath." Further, under Part VI, Article 7946 of the UNCLOS, the
Philippines clearly has jurisdiction with respect to cables laid in its territory that are utilized
in support of other installations and structures under its jurisdiction.

And as far as local government units are concerned, the areas described above are to be
considered subsumed under the term "municipal waters" which, under the Local
Government Code, includes "not only streams, lakes, and tidal waters within the
municipality, not being the subject of private ownership and not comprised within the
national parks, public forest, timber lands, forest reserves or fishery reserves, but also
marine waters included between two lines drawn perpendicularly to the general coastline
from points where the boundary lines of the municipality or city touch the sea at low tide
and a third line parallel with the general coastline and fifteen (15) kilometers from
it." Although the term "municipal waters" appears in the Code in the context of the grant of
47

quarrying and fisheries privileges for a fee by local governments, its inclusion in the
48

Code's Book II which covers local taxation means that it may also apply as guide in
determining the territorial extent of the local authorities' power to levy real property
taxation.

Thus, the jurisdiction or authority over such part of the subject submarine cable system
lying within Philippine jurisdiction includes the authority to tax the same, for taxation is one
of the three basic and necessary attributes of sovereignty, and such authority has been
49

delegated by the national legislature to the local governments with respect to real
property. taxation.
50

As earlier stated, a way for Capwire to claim that its cable system is not covered by such
authority is by showing a domestic enactment or even contract, or an international
agreement or treaty exempting the same from real property taxation. It failed to do so,
however, despite the fact that the burden of proving exemption from local taxation is upon
whom the subject real property is declared. 51 Under the Local Government Code, every
person by or for whom real property is declared, who shall claim tax exemption for such
property from real property taxation "shall file with the provincial, city or municipal
assessor within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim." Capwire omitted to do so. And even
52

under Capwire's legislative franchise, RA 4387, which amended RA 2037, where it may
be derived that there was a grant of real property tax exemption for properties that are part
of its franchise, or directly meet the needs of its business, such had been expressly
53

withdrawn by the Local Government Code, which took effect on January l, 1992, Sections
193 and 234 of which provide: 54

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, nonstock
and nonprofit hospitals and educational institutions, arc hereby withdrawn upon the
effectivity of this Code.

xxxx

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 of 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.

Except as provided herein, any exemption from payment of real

property tax previously granted to, or presently enjoyed by, all
persons, whether natural or .iuridical, including all
government-owned or controlled corporations arc hereby withdrawn
upon the cffectivity of this Code. 55

Such express withdrawal had been previously held effective upon exemptions bestowed
by legislative franchises granted prior to the effectivity of the Local Government
Code. Capwire fails to allege or provide any other privilege or exemption that were
56

granted to it by the legislature after the enactment of the Local Government Code.
Therefore, the presumption stays that it enjoys no such privilege or exemption. Tax
exemptions arc strictly construed against the taxpayer because taxes are considered the
lifeblood of the nation.
57

WHEREFORE, the petition is DENIED. The Court of Appeals’ Decision dated May 30,
2007 and Resolution dated October 8. 2007 are AFFIRMED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 184203 November 26, 2014

CITY OF LAPU-LAPU, Petitioner,

vs.
PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.

x-----------------------x

G.R. No. 187583

PROVINCE OF BATAAN, represented by GOVERNOR ENRIQUE T. GARCIA, JR.,

and EMERLINDA S. TALENTO, in her capacity as Provincial Treasurer of
Bataan, Petitioners,
vs.
PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.

DECISION

LEONEN, J.:

The Philippine Economic Zone Authority is exempt from payment of real property taxes.

These are consolidated petitions for review on certiorari the City of Lapu-Lapu and the
1

Province of Bataan separately filed against the Philippine Economic Zone Authority
(PEZA).

In G.R. No. 184203, the City of Lapu-Lapu (the City) assails the Court of Appeals’
decision dated January 11, 2008 and resolution dated August 6, 2008, dismissing the
2 3

City’s appeal for being the wrong mode of appeal. The City appealed the Regional Trial
Court,Branch 111, Pasay City’s decision finding the PEZA exempt from payment of real
property taxes.

In G.R. No. 187583, the Province of Bataan (the Province) assails the Court of Appeals’
decision dated August 27, 2008 and resolution dated April 16, 2009, granting the PEZA’s
4 5

petition for certiorari. The Court of Appeals ruled that the Regional Trial Court, Branch 115,
Pasay City gravely abused its discretion in finding the PEZA liable for real property taxes
to the Province of Bataan.

Facts common to the consolidated petitions

In the exercise of his legislative powers, President Ferdinand E. Marcos issued
6

Presidential Decree No. 66 in 1972, declaring as government policy the establishment of

export processing zones in strategic locations in the Philippines. Presidential Decree No.
66 aimed "to encourage and promote foreign commerce as a means of making the
Philippines a center of international trade, of strengthening our export trade and foreign
exchange position, of hastening industrialization,of reducing domestic unemployment,
and of accelerating the development of the country." 7

To carry out this policy, the Export Processing Zone Authority (EPZA) was created to
operate, administer, and manage the export processing zones established in the Port of
Mariveles, Bataan and such other export processing zones that may be created by virtue
8

of the decree.9

The decree declared the EPZA non-profit in character with all its revenues devoted to its
10

development, improvement, and maintenance. To maintain this non-profit character, the

11

EPZA was declared exempt from all taxes that may be due to the Republic of the
Philippines, its provinces, cities, municipalities, and other government agencies and
instrumentalities. Specifically, Section 21 of Presidential Decree No. 66 declared the
12

EPZA exempt from payment of real property taxes:

Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority
shall be non-profit and shall devote and use all its returns from its capital investment, as
well as excess revenues from its operations, for the development, improvement and
maintenance and other related expenditures of the Authority to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy enunciated in
Section 1 of this Decree. In consonance therewith, the Authority is hereby declared
exempt:

....

(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and
licenses to be paid to the National Government, its provinces, cities, municipalities and
other government agenciesand instrumentalities[.]

In 1979, President Marcos issued Proclamation No. 1811, establishing the Mactan Export
Processing Zone. Certain parcels of land of the public domain located in the City of
Lapu-Lapuin Mactan, Cebu were reserved to serve as site of the Mactan Export
Processing Zone.

In 1995, the PEZA was created by virtue of Republic Act No. 7916 or "the Special
Economic Zone Act of 1995" to operate, administer, manage, and develop economic
13

zones in the country. The PEZA was granted the power to register, regulate, and
14

supervise the enterprises located in the economic zones. By virtue of the law, the export
15

processing zone in Mariveles, Bataan became the Bataan Economic Zone and the 16

Mactan Export Processing Zone the Mactan Economic Zone. 17

As for the EPZA, the law required it to "evolve into the PEZA in accordance with the
guidelines and regulations set forth in an executive order issued for [the] purpose." 18

On October 30, 1995, President Fidel V. Ramos issued Executive Order No. 282,
directing the PEZA to assume and exercise all of the EPZA’s powers, functions, and
responsibilities "as provided in Presidential Decree No. 66, as amended, insofar as they
are not inconsistent with the powers, functions, and responsibilities of the PEZA, as
mandated under [the Special Economic Zone Act of 1995]." All of EPZA’s properties,
19

equipment, and assets, among others, were ordered transferred to the PEZA. 20

Facts of G.R. No. 184203

In the letter dated March 25, 1998, the City of Lapu-Lapu, through the Office of the
21

Treasurer, demanded from the PEZA 32,912,350.08 in real property taxes for the period
from 1992 to 1998 on the PEZA’s properties located in the Mactan Economic Zone.

The City reiterated its demand in the letter dated May 21, 1998. It cited Sections 193 and
22

234 of the Local Government Code of 1991 that withdrew the real property tax exemptions
previously granted to or presently enjoyed by all persons. The City pointed out that no
provision in the Special Economic Zone Act of 1995 specifically exempted the PEZA from
payment of real property taxes, unlike Section 21 of Presidential Decree No. 66 that
explicitly provided for EPZA’s exemption. Since no legal provision explicitly exempted the
PEZA from payment of real property taxes, the City argued that it can tax the PEZA.

The City made subsequent demands on the PEZA. In its last reminder dated May 13,
23 24

2002, the City assessed the PEZA 86,843,503.48 as real property taxes for the period
from 1992 to 2002.

On September 11, 2002, the PEZAfiled a petition for declaratory Relief with the Regional
25

Trial Court of Pasay City, praying that the trial court declare it exempt from payment ofreal
property taxes. The case was raffled to Branch 111.

The City answered the petition, maintaining that the PEZA is liable for real property taxes.
26

To support its argument, the City cited a legal opinion dated September 6, 1999 issued by
the Department of Justice, which stated that the PEZA is not exempt from payment of
27

real property taxes. The Department of Justice based its opinion on Sections 193 and 234
of the Local Government Code that withdrew the tax exemptions, including real property
tax exemptions, previously granted to all persons.

A reply was filed by the PEZA to which the City filed a rejoinder.
28 29

Pursuant to Rule 63, Section 3 of Rules of Court, the Office of the Solicitor General filed
30

a comment on the PEZA’s petition for declaratory relief. It agreed that the PEZA is
31

exempt from payment of real property taxes, citing Sections 24 and 51 of the Special
Economic Zone Act of 1995.

The trial court agreed with the Solicitor General. Section 24 of the Special Economic Zone
Act of 1995 provides:

SEC. 24. Exemption from National and Local Taxes. – Except for real property taxes on
land owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the
gross income earned by all business enterprises within the ECOZONE shall be paid and
remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located.

Section 51 of the law, on the other hand, provides:

SEC. 51. Ipso-Facto Clause. – All privileges, benefits, advantages or exemptions granted
to special economic zones under Republic Act No. 7227, shall ipso-facto be accorded to
special economic zones already created or to be created under this Act. The free port
status shall not be vested upon new special economic zones.

Based on Section 51, the trial court held that all privileges, benefits, advantages, or
exemptions granted tospecial economic zones created under the Bases Conversion and
Development Act of 1992 apply to special economic zones created under the Special
Economic ZoneAct of 1995.

Since these benefits include exemption from payment of national or local taxes, these
benefits apply to special economic zones owned by the PEZA.

According to the trial court, the PEZA remained tax-exempt regardless of Section 24 of
the Special Economic Zone Act of 1995. It ruled that Section 24, which taxes real property
owned by developers of economic zones, only applies to private developers of economic
zones, not to public developers like the PEZA. The PEZA, therefore, is not liable for real
property taxes on the land it owns.

Characterizing the PEZA as an agency of the National Government, the trial court ruled
that the City had no authority to tax the PEZA under Sections 133(o) and 234(a) of the
Local Government Code of 1991.

In the resolution dated June 14, 2006, the trial court granted the PEZA’s petition for
32

declaratory relief and declared it exempt from payment of real property taxes.

The City filed a motion for reconsideration, which the trial court denied in its
33

resolution dated September 26, 2006.

34

The City then appealed to the Court of Appeals.

35

The Court of Appeals noted the following issues the City raised in its appellant’s brief: (1)
whether the trial court had jurisdiction over the PEZA’s petition for declaratory relief; (2)
whether the PEZA is a government agency performing governmental functions; and (3)
whether the PEZA is exempt from payment of real property taxes.

The issues presented by the City, according to the Court of Appeals, are pure questions of
law which should have been raised in a petition for review on certiorari directly filed before
this court. Since the City availed itself of the wrong mode of appeal, the Court of Appeals
dismissed the City’s appeal in the decision dated January 11, 2008.
36

The City filed a motion for extension of time to file a motion for reconsideration, which the
37

Court of Appeals denied in the resolution dated April 11, 2008.

38

Despite the denial of its motion for extension, the City filed a motion for
reconsideration. In the resolution dated August 6, 2008, the Court of Appeals denied
39 40

that motion.
In its petition for review on certiorari with this court, the City argues that the Court of
41

Appeals "hid under the skirts of technical rules" in resolving its appeal. The City
42

maintains that its appeal involved mixed questions of fact and law. According to the City,
whether the PEZA performed governmental functions "cannot completely be addressed
by law but [by] the factual and actual activities [the PEZA is] carrying out."
43

Even assuming that the petition involves pure questions of law, the City contends that the
subject matter of the case "is of extreme importance with [far-reaching] consequence that
[its magnitude] would surely shape and determine the course ofour nation’s future." The 44

Court of Appeals, the City argues, should have resolved the case on the merits.

The City insists that the trial court had no jurisdiction to hear the PEZA’s petition for
declaratory relief. According to the City, the case involves real property located in the City
of Lapu-Lapu. The petition for declaratory relief should have been filed before the
Regional Trial Court of the City of Lapu-Lapu. 45

Moreover, the Province of Bataan, the City of Baguio, and the Province of Cavite allegedly
demanded real property taxes from the PEZA. The City argues that the PEZA should have
likewise impleaded these local government units as respondents in its petition for
declaratory relief. For its failure to do so, the PEZA violated Rule 63, Section 2 of the
Rules of Court, and the trial court should have dismissed the petition. 46

This court ordered the PEZA to comment on the City’s petition for review on certiorari. 47

At the outset of its comment, the PEZA argues that the Court of Appeals’ decision dated
January 11, 2008 had become final and executory. After the Court of Appeals had denied
the City’s appeal, the City filed a motion for extension of time to file a motion for
reconsideration. Arguing that the time to file a motion for reconsideration is not extendible,
the PEZA filed its motion for reconsideration out of time. The Cityhas no more right to
appeal to this court.
48

The PEZA maintains that the City availed itself of the wrong mode of appeal before the
Court of Appeals. Since the City raised pure questions of law in its appeal, the PEZA
argues that the proper remedy is a petition for review on certiorari with this court, not an
ordinary appeal before the appellate court. The Court of Appeals, therefore, correctly
dismissed outright the City’s appeal under Rule 50, Section 2 of the Rules of Court. 49

On the merits, the PEZA argues that it is an agency and instrumentality of the National
Government. It is therefore exempt from payment of real property taxes under Sections
133(o) and 234(a) of the Local Government Code. It adds that the tax privileges under
50

Sections 24 and 51 of the Special Economic Zone Act of 1995 applied to it. 51

Considering that the site of the Mactan Economic Zoneis a reserved land under
Proclamation No. 1811, the PEZA claims that the properties sought to be taxed are lands
of public dominion exempt from real property taxes. 52

As to the jurisdiction issue, the PEZA counters that the Regional Trial Court of Pasay had
jurisdiction to hear its petition for declaratory relief under Rule 63, Section 1 of the Rules
of Court.[53]] It also argued that it need not implead the Province of Bataan, the City of
Baguio, and the Province of Cavite as respondents considering that their demands came
after the PEZA had already filed the petition in court. 54
Facts of G.R. No. 187583

After the City of Lapu-Lapu had demanded payment of real property taxes from the PEZA,
the Province of Bataan followed suit. In its letter dated May 29, 2003, the Province,
55

through the Office of the Provincial Treasurer, informed the PEZA that it would be sending
a real property tax billing to the PEZA. Arguing that the PEZA is a developer of economic
zones, the Province claimed that the PEZA is liable for real property taxes under Section
24 of the Special Economic Zone Act of 1995.

In its reply letter dated June 18, 2003, the PEZA requested the Province to suspend the
56

service of the real property tax billing. It cited its petition for declaratory relief against the
City of Lapu-Lapu pending before the Regional Trial Court, Branch 111, Pasay City as
basis.

The Province argued that serving a real property tax billing on the PEZA "would not in any
way affect [its] petition for declaratory relief before [the Regional Trial Court] of Pasay
City." Thus, in its letter dated June 27, 2003, the Province notified the PEZAof its real
57 58

property tax liabilities for June 1, 1995 to December 31, 2002 totalling ₱110,549,032.55.

After having been served a tax billing, the PEZA again requested the Province to suspend
collecting its alleged real property tax liabilities until the Regional Trial Court of Pasay
Cityresolves its petition for declaratory relief. 59

The Province ignored the PEZA’s request. On January 20, 2004, the Province served on
the PEZA a statement of unpaid real property tax for the period from June 1995 to
December 2004. 60

The PEZA again requested the Province to suspend collecting its alleged real property
taxes. The Province denied the request in its letter dated January 29, 2004, then
61 62

servedon the PEZA a warrant of levy covering the PEZA’s real properties located in
63

Mariveles, Bataan.

The PEZA’s subsequent requests for suspension of collection were all denied by the
64

Province. The Province then served on the PEZA a notice of delinquency in the payment
65

of real property taxes and a notice of sale of real property for unpaid real property
66

tax. The Province finally sent the PEZA a notice of public auction of the latter’s properties
67

in Mariveles, Bataan. 68

On June 14, 2004, the PEZA filed a petition for injunction with prayer for issuance of a
69

temporary restraining order and/or writ of preliminary injunction before the Regional Trial
Court of Pasay City, arguing that it is exempt from payment ofreal property taxes. It added
that the notice of sale issued by the Province was void because it was not published in a
newspaper ofgeneral circulation asrequired by Section 260 of the Local Government
Code. 70

The case was raffled to Branch 115.

In its order dated June 18, 2004, the trial court issued a temporary restraining order
71

against the Province. After the PEZA had filed a ₱100,000.00 bond, the trial court issued
72

a writ of preliminary injunction, enjoining the Province from selling the PEZA’s real
73

properties at public auction.

On March 3, 2006, the PEZA and Province both manifested that each would file a
memorandum after which the case would be deemed submitted for decision. The parties
then filed their respective memoranda. 74

In the order dated January 31, 2007, the trial court denied the PEZA’s petition for
75

injunction. The trial court ruled that the PEZA is not exempt from payment of real property
taxes. According to the trial court, Sections 193 and 234 of the Local Government Code
had withdrawn the real property tax exemptions previously granted to all persons, whether
natural or juridical. As to the tax exemptions under Section 51 of the Special Economic
76

Zone Act of 1995, the trial court ruled that the provision only applies to businesses
operating within the economic zones, not to the PEZA. 77

The PEZA filed before the Court of Appeals a petition for certiorari with prayer for
78

issuance of a temporary restraining order.

The Court of Appeals issued a temporary restraining order, enjoining the Province and its
Provincial Treasurer from selling PEZA's properties at public auction scheduled on
October 17, 2007. It also ordered the Province to comment on the PEZA’s petition.
79

In its comment, the Province alleged that it received a copy of the temporary restraining
80

order only on October 18, 2007 when it had already sold the PEZA’s properties at public
auction. Arguing that the act sought to be enjoined was already fait accompli, the Province
prayed for the dismissal of the petition for certiorari.

The PEZA then filed a supplemental petition for certiorari, prohibition, and
mandamus against the Province, arguing that the Provincial Treasurer of Bataan acted
81

with grave abuse of discretion in issuing the notice of delinquency and notice of sale. It
maintained that it is exempt from payment of real property taxes because it is a
government instrumentality. It added that its lands are property of public dominion which
cannot be sold at public auction.

The PEZA also filed a motion for issuance of an order affirming the temporary restraining
82

order and a writ of preliminary injunction to enjoin the Province from consolidating title
over the PEZA’s properties.

In its resolution dated January 16, 2008,the Court of Appeals admitted the supplemental
83

petition for certiorari, prohibition, and mandamus. It required the Province to comment on
the supplemental petition and to file a memorandum on the PEZA’s prayer for issuance of
temporary restraining order.

The Province commented on the PEZA’s supplemental petition, to which the PEZA
84

replied.
85

The Province then filed a motion for leave to admit attached rejoinder with motion to
86

dismiss. In the rejoinder with motion to dismiss, the Province argued for the first time that
87

the Court of Appeals had no jurisdiction over the subject matter of the action.

According to the Province, the PEZA erred in filing a petition for certiorari. Arguing that the
PEZA sought to reverse a Regional Trial Court decision in a local tax case, the Province
claimed that the court with appellate jurisdiction over the action is the Court of Tax
Appeals. The PEZA then prayed that the Court of Appeals dismiss the petition for
certiorari for lack of jurisdiction over the subject matter of the action.
The Court of Appeals held that the issue before it was whether the trial court judge gravely
abused his discretion in dismissing the PEZA’s petition for prohibition. This issue,
according to the Court of Appeals, is properly addressed in a petition for certiorari over
which it has jurisdiction to resolve. It, therefore, maintained jurisdiction to resolve the
PEZA’s petition for certiorari. 88

Although it admitted that appeal, not certiorari, was the PEZA’s proper remedy to reverse
the trial court’s decision, the Court of Appeals proceeded to decide the petition for
89

certiorari in "the broader interest of justice."

90

The Court of Appeals ruled that the trial court judge gravely abused his discretion in
dismissing the PEZA’s petition for prohibition. It held that Section 21 of Presidential
Decree No. 66 and Section 51 of the Special Economic Zone Act of 1995 granted the
PEZA exemption from payment of real property taxes. Based on the criteria set in Manila
91

International Airport Authority v. Court of Appeals, the Court of Appeals found that the
92

PEZA is an instrumentality of the national government. No taxes, therefore, could be

levied on it by local government units. 93

In the decision dated August 27, 2008, the Court of Appeals granted the PEZA’s petition
94

for certiorari. It set aside the trial court’s decision and nullified all the Province’s
proceedings with respect to the collection of real property taxes from the PEZA.

The Province filed a motion for reconsideration, which the Court of Appeals denied in the
95

resolution dated April 16, 2009 for lack of merit.

96

In its petition for review on certiorari with this court, the Province of Bataan insists that the
97

Court of Appeals had no jurisdiction to take cognizance of the PEZA’s petition for certiorari.
The Province maintains that the Court of Tax Appeals had jurisdiction to hear the PEZA’s
petition since it involved a local tax case decided by a Regional Trial Court. 98

The Province reiterates that the PEZA is not exempt from payment of real property taxes.
The Province points out that the EPZA, the PEZA’s predecessor, had to be categorically
exempted from payment of real property taxes. The EPZA, therefore, was not inherently
exempt from payment of real property taxes and so is the PEZA. Since Congress omitted
from the Special Economic Zone Act of 1995 a provision specifically exempting the PEZA
from payment of real property taxes, the Province argues that the PEZA is a taxable entity.
It cited the rule in statutory construction that provisions omitted in revised statutes are
deemed repealed. 99

With respect to Sections 24 and 51 of the Special Economic Zone Act of 1995 granting tax
exemptions and benefits, the Province argues that these provisions only apply to business
establishments operating within special economic zones, not to the PEZA.
100

This court ordered the PEZA tocomment on the Province’s petition for review on
certiorari. In its comment, the PEZA argues that the Court of Appeals had jurisdiction to
101 102

hear its petition for certiorari since the issue was whether the trial court committed grave
abuse of discretion in denying its petition for injunction. The PEZA maintains thatit is
exempt from payment of real property taxes under Section 21 of Presidential Decree No.
66 and Section 51 of the Special Economic Zone Act of 1995.
The Province filed its reply, reiterating its arguments in its petition for review on certiorari.
103

On the PEZA’s motion, this court consolidated the petitions filed by the City of
104

Lapu-Lapu and the Province of Bataan. 105

The issues for our resolution are the following:

I. Whether the Court of Appeals erred in dismissing the City of Lapu-Lapu’s appeal for
raising pure questions of law;

II. Whether the Regional Trial Court, Branch 111, Pasay City had jurisdiction to hear, try,
and decide the City of Lapu-Lapu’s petition for declaratory relief;

III. Whether the petition for injunction filed before the Regional Trial Court, Branch 115,
Pasay City, is a local tax case appealable to the Court of Tax Appeals; and

IV. Whether the PEZA is exempt from payment of real property taxes.

We deny the consolidated petitions.

I.

The Court of Appeals did not err in

dismissing the City of Lapu-Lapu’s
appeal for raising pure questions of law

Under the Rules of Court, there are three modes of appeal from Regional Trial Court
decisions. The first mode is through an ordinary appeal before the Court of Appeals where
the decision assailed was rendered in the exercise of the Regional Trial Court’s original
jurisdiction. Ordinary appeals are governed by Rule 41, Sections 3 to 13 of the Rules of
Court. In ordinary appeals, questions of fact or mixed questions of fact and law may be
raised.106

The second mode is through a petition for review before the Court of Appeals where the
decision assailed was rendered by the Regional Trial Court in the exercise of its appellate
jurisdiction. Rule 42 of the Rules of Court governs petitions for review before the Court of
Appeals. In petitions for review under Rule 42, questions of fact, of law, or mixed
questions of fact and law may be raised. 107

The third mode is through an appealby certiorari before this court under Rule 45 where
only questions of law shall be raised. 108

A question of fact exists when there is doubt as to the truth or falsity of the alleged
facts. On the other hand, there is a question of law if the appeal raises doubt as to the
109

applicable law on a certain set of facts. 110

Under Rule 50, Section 2, an improper appeal before the Court of Appeals is dismissed
outright and shall not be referred to the proper court:

SEC. 2. Dismissal of improper appeal to the Court of Appeals. – An appeal under Rule 41
taken from the Regional Trial Court to the Court of Appeals raising only questions of law
shall be dismissed, issues purely of law not being reviewable by said court. Similarly, an
appeal by notice of appeal instead of by petition for review from the appellate judgment of
a Regional Trial Court shall be dismissed.

An appeal erroneously taken to the Court of Appeals shall not be transferred to the
appropriate court but shall be dismissed outright.

Rule 50, Section 2 repealed Rule 50, Section 3 of the 1964 Rules of Court, which provided
that improper appeals to the Court of Appeals shall not be dismissed but shall be certified
to the proper court for resolution:

Sec. 3. Where appealed case erroneously, brought. — Where the appealed case has
been erroneously brought to the Court of Appeals, it shall not dismiss the appeal, but shall
certify the case to the proper court, with a specific and clear statement of the grounds
therefor.

With respect to appeals by certiorari directly filed before this court but which raise
questions of fact, paragraph 4(b) of Circular No. 2-90 dated March 9, 1990 states that this
court "retains the option, in the exercise of its sound discretion and considering the
attendant circumstances, either itself to take cognizance of and decide such issues or to
refer them to the Court of Appeals for determination." In Indoyon, Jr. v. Court of
Appeals, we said that this court "cannot tolerate ignorance of the law on appeals." It is
111 112

not this court’s task to determine for litigants their proper remedies under the Rules.113

We agree that the City availed itself of the wrong mode of appeal before the Court of
Appeals. The City raised pure questions of law in its appeal. The issue of whether the
Regional Trial Court of Pasay had jurisdiction over the PEZA’s petition for declaratory
relief is a question of law, jurisdiction being a matter of law. The issue of whether the
114

PEZA is a government instrumentality exempt from payment of real property taxes is

likewise a question of law since this question is resolved by examining the provisions of
the PEZA’s charter as well as other laws relating to the PEZA. 115

The Court of Appeals, therefore, did not err in dismissing the City’s appeal pursuant to
Rule 50, Section 2 of the Rules of Court.

Nevertheless, considering the important questions involved in this case, we take

cognizance of the City’s petition for review on certiorari in the interest of justice.

In Municipality of Pateros v. The Honorable Court of Appeals, the Municipality of Pateros

116

filed an appeal under Rule 42 before the Court of Appeals, which the Court of Appeals
denied outright for raising pure questions of law. This court agreed that the Municipality of
Pateros "committed a procedural infraction" and should have directly filed a petition for
117

review on certiorari before this court. Nevertheless, "in the interest of justice and in order
to write finisto [the] controversy," this court "opt[ed] to relax the rules" and proceeded to
118 119

decide the case. This court said:

While it is true that rules of procedure are intended to promote rather than frustrate the
ends of justice, and while the swift unclogging of the dockets of the courts is a laudable
objective, it nevertheless must not be met at the expense of substantial justice.

The Court has allowed some meritorious cases to proceed despite inherent procedural
defects and lapses. Thisis in keeping with the principle that rules of procedure are mere
tools designed to facilitate the attainment of justice, and that strict and rigid application
ofrules which should result in technicalities that tend to frustrate rather than promote
substantial justice must always be avoided. It is a far better and more prudent cause of
action for the court to excuse a technical lapse and afford the parties a review of the case
to attain the ends of justice, rather than dispose of the case on technicality and cause
grave injustice to the parties, giving a false impression of speedy disposal of cases while
actually resulting in more delay, if not a miscarriage of justice.120

Similar to Municipality of Pateros, we opt to relax the rules in this case. The PEZA
operates or otherwise administers special economic zones all over the country. Resolving
the substantive issue of whether the PEZA is taxable for real property taxes will clarify the
taxing powers of all local government units where special economic zones are operated.
This case, therefore, should be decided on the merits.

II.

The Regional Trial Court of Pasay had no

jurisdiction to hear, try, and decide the
PEZA’s petition for declaratory relief
against the City of Lapu-Lapu

Rule 63 of the Rules of Court governs actions for declaratory relief. Section 1 of Rule 63
provides:

SECTION 1. Who may file petition. – Any person interested under a deed, will, contract or
other written instrument, or whose rights are affected by a statute, executive order or
regulation, ordinance, or any other governmental regulation may, before breach or
violation, thereof, bring an action in the appropriate Regional Trial Court to determine any
question of construction or validity arising, and for a declaration of his rights or duties,
thereunder.

An action for reformation of an instrument, to quiet title to real property or remove clouds
therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be
brought under this Rule.

The court with jurisdiction over petitions for declaratory relief is the Regional Trial Court,
the subject matter of litigation in an action for declaratory relief being incapable of
pecuniary estimation. Section 19 of the Judiciary Reorganization Act of 1980 provides:
121

SEC. 19. Jurisdiction in Civil Cases. – Regional Trial Courts shall exercise exclusive
original jurisdiction:

(1) In all civil actions in which the subject of litigation is incapable of pecuniary
estimation[.]

Consistent with the law, the Rules state that a petition for declaratory relief is filed "in the
appropriate Regional Trial Court." 122

A special civil action for declaratory relief is filed for a judicial determination of any
question of construction or validity arising from, and for a declaration of rights and duties,
under any of the following subject matters: a deed, will, contract or other written
instrument, statute, executive order or regulation, ordinance, orany other governmental
regulation. However, a declaratory judgment may issue only if there has been "no
123
breach of the documents in question." If the contract or statute subject matter of the
124

action has already been breached, the appropriate ordinary civil action must be filed. If 125

adequate relief is available through another form of action or proceeding, the other action
must be preferred over an action for declaratory relief. 126

In Ollada v. Central Bank of the Philippines, the Central Bank issued CB-IED Form No. 5
127

requiring certified public accountants to submit an accreditation under oath before they
were allowed to certify financial statements submitted to the bank. Among those financial
statements the Central Bank disallowed were those certified by accountant Felipe B.
Ollada. Claiming that the requirement "restrained the legitimate pursuit of one’s trade,"
128 129

Ollada filed a petition for declaratory relief against the Central Bank.

This court ordered the dismissal of Ollada’s petition "without prejudice to [his] seeking
relief in another appropriate action." According to this court, Ollada’s right had already
130

been violated when the Central Bank refused to accept the financial statements he
prepared. Since there was already a breach, a petition for declaratory relief was not
proper. Ollada must pursue the "appropriate ordinary civil action or proceeding." This 131

court explained:

Petitioner commenced this action as, and clearly intended it to be one for Declaratory
Relief under the provisions of Rule 66 of the Rules of Court. On the question of when a
special civil action of this nature would prosper, we have already held that the complaint
for declaratory relief will not prosper if filed after a contract, statute or right has been
breached or violated. In the present case such is precisely the situation arising from the
facts alleged in the petition for declaratory relief. As vigorously claimed by petitioner
himself, respondent had already invaded or violated his right and caused him injury — all
these giving him a complete cause of action enforceable in an appropriate ordinary civil
action or proceeding. The dismissal of the action was, therefore, proper in the lightof our
ruling in De Borja vs. Villadolid, 47 O.G. (5) p. 2315, and Samson vs. Andal, G.R. No.
L-3439, July 31, 1951, where we held that an action for declaratory relief should be filed
before there has been a breach of a contract, statutes or right, and that it is sufficient tobar
such action, that there had been a breach — which would constitute actionable violation.
The rule is that an action for Declaratory Relief is proper only if adequate relief is not
available through the means of other existing forms of action or proceeding (1 C.J.S.
1027-1028). 132

It is also required that the parties to the action for declaratory relief be those whose rights
or interests are affected by the contract or statute in question. "There must be an actual
133

justiciable controversy or the ‘ripening seeds’ of one" between the parties. The issue
134

between the parties "must be ripe for judicial determination." An action for declaratory
135

relief based on theoreticalor hypothetical questions cannot be filed for our courts are not
advisory courts. 136

In Republic v. Roque, this court dismissed respondents’ petition for declaratory relief for
137

lack of justiciable controversy. According to this court, "[the respondents’] fear of

prospective prosecution [under the Human Security Act] was solely based on remarks of
certain government officials which were addressed to the general public." 138

In Velarde v. Social Justice Society, this court refused to resolve the issue of "whether or
139

not [a religious leader’s endorsement] of a candidate for elective office or in urging or

requiring the members of his flock to vote for a specific candidate is violative [of the
separation clause]." According to the court, there was no justiciable controversy and
140
ordered the dismissal of the Social Justice Society’s petition for declaratory relief. This
court explained: Indeed, SJS merely speculated or anticipated without factual moorings
that, as religious leaders, the petitioner and his co-respondents below had endorsed or
threatened to endorse a candidate or candidates for elective offices; and that such actual
or threatened endorsement "will enable [them] to elect men to public office who [would] in
turn be forever beholden to their leaders, enabling them to control the government"[;] and
"pos[ing] a clear and present danger ofserious erosion of the people’s faith in the electoral
process[;] and reinforc[ing] their belief that religious leaders determine the ultimate result
of elections," which would then be violative of the separation clause.

Such premise is highly speculative and merely theoretical, to say the least. Clearly, it does
not suffice to constitute a justiciable controversy. The Petition does not even allege any
indication or manifest intent on the part of any of the respondents below to champion an
electoral candidate, or to urge their so-called flock to vote for, or not to vote for, a
particular candidate. It is a time-honored rule that sheer speculation does not give rise to
an actionable right.

Obviously, there is no factual allegation that SJS’ rights are being subjected to any
threatened, imminent and inevitable violation that should be prevented by the declaratory
relief sought. The judicial power and duty of the courts to settle actual controversies
involving rights that are legally demandable and enforceable cannot be exercised when
there is no actual or threatened violation of a legal right.

All that the 5-page SJS Petition prayed for was "that the question raised in paragraph 9
hereof be resolved." In other words, it merely sought an opinion of the trial court on
whether the speculated acts of religious leaders endorsing elective candidates for political
offices violated the constitutional principle on the separation of church and state. SJS did
not ask for a declaration of its rights and duties; neither did it pray for the stoppage of any
threatened violation of its declared rights. Courts, however, are proscribed from rendering
an advisory opinion. In sum, a petition for declaratory relief must satisfy six requisites:
141

[F]irst, the subject matter of the controversy must be a deed, will, contract or other written
instrument, statute, executive order or regulation, or ordinance; second, the terms of said
documents and the validity thereof are doubtful and require judicial construction; third,
there must have been no breach of the documents in question; fourth, there must be an
actual justiciable controversy or the "ripening seeds" of one between persons whose
interests are adverse; fifth, the issue must be ripe for judicial determination; and sixth,
adequate relief is not available through other means or other forms of action or
proceeding. (Emphases omitted)
142

We rule that the PEZA erred in availing itself of a petition for declaratory relief against the
City. The City had already issued demand letters and real property tax assessment
against the PEZA, in violation of the PEZA’s alleged tax-exempt status under its charter.
The Special Economic Zone Act of 1995, the subject matter of PEZA’s petition for
declaratory relief, had already been breached. The trial court, therefore, had no
jurisdiction over the petition for declaratory relief. There are several aspects of
jurisdiction. Jurisdiction over the subject matter is "the power to hear and determine
143

cases of the general class to which the proceedings in question belong." It is conferred
144

by law, which may either be the Constitution or a statute. Jurisdiction over the subject
145

matter means "the nature of the cause of action and the relief sought." Thus, the cause
146

of action and character of the relief sought as alleged in the complaint are examinedto
determine whether a court had jurisdiction over the subject matter. Any decision 147

rendered by a court without jurisdiction over the subjectmatter of the action is void. 148
Another aspect of jurisdiction is jurisdiction over the person. It is "the power of [a] court to
render a personal judgment or to subject the parties in a particular action to the judgment
and other rulings rendered in the action." A court automatically acquires jurisdiction over
149

the person of the plaintiff upon the filing of the initiatory pleading. With respect to the
150

defendant, voluntary appearance in court or a valid service of summons vests the court
with jurisdiction over the defendant’s person. Jurisdiction over the person of the
151

defendant is indispensable in actions in personamor those actions based on a party’s

personal liability. The proceedings in an action in personamare void if the court had no
152

jurisdiction over the person of the defendant. 153

Jurisdiction over the resor the thing under litigation is acquired either "by the seizure of the
property under legal process, whereby it is brought into actual custody of the law; or asa
result of the institution of legal proceedings, in which the power of the court is recognized
and made effective." Jurisdiction over the res is necessary in actions in remor those
154

actions "directed against the thing or property or status of a person and seek judgments
with respect thereto as against the whole world." The proceedings in an action in rem
155

are void if the court had no jurisdiction over the thing under litigation.
156

In the present case, the Regional Trial Court had no jurisdiction over the subject matter of
the action, specifically, over the remedy sought. As this court explained in Malana v.
Tappa: 157

. . . an action for declaratory relief presupposes that there has been no actual breach of
the instruments involved or of rights arising thereunder. Since the purpose of an action for
declaratory relief is to secure an authoritative statement of the rights and obligations of the
parties under a statute, deed, or contract for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an alleged breach thereof, it
may be entertained only before the breach or violation of the statute, deed, or contract to
which it refers. A petition for declaratory relief gives a practical remedy for ending
controversies that have not reached the state where another relief is immediately
available; and supplies the need for a form of action that will set controversies at rest
before they lead to a repudiation of obligations, an invasion of rights, and a commission of
wrongs.

Where the law or contract has already been contravened prior to the filing of an action for
declaratory relief, the courts can no longer assume jurisdiction over the action. In other
words, a court has no more jurisdiction over an action for declaratory relief if its subject
has already been infringed or transgressed before the institution of the
action. (Emphasis supplied)
158

The trial court should have dismissed the PEZA’s petition for declaratory relief for lack of
jurisdiction.

Once an assessment has already been issued by the assessor, the proper remedy of a
taxpayer depends on whether the assessment was erroneous or illegal.

An erroneous assessment "presupposes that the taxpayer is subject to the tax but is
disputing the correctness of the amount assessed." With an erroneous assessment, the
159

taxpayer claims that the local assessor erred in determining any of the items for
computing the real property tax, i.e., the value of the real property or the portion thereof
subject to tax and the proper assessment levels. In case of an erroneous assessment, the
taxpayer must exhaust the administrative remedies provided under the Local Government
Code before resorting to judicial action.
The taxpayer must first pay the realproperty tax under protest. Section 252 of the Local
Government Code provides:

SECTION 252. Payment Under Protest. -(a) No protest shall be entertained unless the
taxpayer first paysthe tax. There shall be annotated on the tax receipts the words "paid
under protest". The protest in writing must be filed within thirty (30) days from payment of
the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality
within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from
receipt.

(b) The tax or a portion thereof paidunder protest, shall be held in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty day period
prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in
Chapter 3, Title II, Book II of this Code.

Should the taxpayer find the action on the protest unsatisfactory, the taxpayer may appeal
with the Local Board of Assessment Appeals within 60 days from receipt of the decision
on the protest:

SECTION 226. Local Board of Assessment Appeals. - Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the Board of Assessment
Appeals of the provincial or city by filing a petition under oath in the form prescribed for the
purpose, together with copies of the tax declarations and such affidavits or documents
submitted in support of the appeal.

Payment under protest and appeal to the Local Board of Assessment Appeals are
"successive administrative remedies to a taxpayer who questions the correctness of an
assessment." The Local Board Assessment Appeals shall not entertain an appeal
160

"without the action of the local assessor" on the protest.

161

If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment
Appeals, the taxpayer may appeal with the Central Board of Assessment Appeals within
30 days from receipt of the Local Board’s decision:

SECTION 229. Action by the Local Board of Assessment Appeals. - (a) The Board shall
decide the appeal within one hundred twenty (120) days from the date of receipt of such
appeal. The Board, after hearing, shall render its decision based on substantial evidence
or such relevant evidence on record as a reasonable mind might accept as adequate to
support the conclusion. (b) In the exercise ofits appellate jurisdiction, the Board shall have
the power to summon witnesses, administer oaths, conduct ocular inspection, take
depositions, and issue subpoena and subpoena duces tecum. The proceedings of the
Board shall be conducted solely for the purpose of ascertaining the facts without
necessarily adhering to technical rules applicable in judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property or the person having
legal interest therein and the provincial or city assessor with a copy of the decision of the
Board. In case the provincial or city assessor concurs in the revision or the assessment, it
shall be his duty to notify the owner of the property or the person having legal interest
therein of such factusing the form prescribed for the purpose. The owner of the property or
the person having legal interest therein or the assessor who is not satisfied with the
decision of the Board, may, within thirty (30) days after receipt of the decision of said
Board, appeal to the Central Board of Assessment Appeals, as herein provided. The
decision of the Central Board shall be final and executory. (Emphasis supplied)

On the other hand, an assessment is illegal if it was made without authority under the
law. In case of an illegal assessment, the taxpayer may directly resort to judicial action
162

without paying under protest the assessed tax and filing an appeal with the Local and
Central Board of Assessment Appeals.

In Ty v. Trampe, the Municipal Assessor of Pasig sent Alejandro B. Ty a notice of

163

assessment with respect to Ty’s real properties in Pasig. Without resorting to the
administrative remedies under the Local Government Code, Ty filed before the Regional
Trial Court a petition, praying that the trial court nullify the notice of assessment. In
assessing the real property taxes due, the Municipal Assessor used a schedule of market
values solely prepared by him. This, Ty argued, was void for being contrary to the Local
Government Code requiring that the schedule of market values be jointly prepared by the
provincial, city, and municipal assessors of the municipalities within the Metropolitan
Manila Area.

This court ruled that the assessmentwas illegal for having been issued without authority of
the Municipal Assessor. Reconciling provisions of the Real Property Tax Code and the
Local Government Code, this court held that the schedule of market valuesmust be jointly
prepared by the provincial, city, and municipal assessors of the municipalities within the
Metropolitan Manila Area.

As to the issue of exhaustion of administrative remedies, this court held that Ty did not err
in directly resorting to judicial action. According to this court, payment under protest is
required only "where there is a question as to the reasonableness of the amount
assessed." As to appeals before the Local and Central Board of Assessment Appeals,
164

they are "fruitful only where questions of fact are involved."

165

Ty raised the issue of the legality of the notice of assessment, an issue that did not go into
the reasonableness of the amount assessed. Neither did the issue involve a question of
fact. Ty raised a question of law and, therefore, need not resort to the administrative
remedies provided under the Local Government Code.

In the present case, the PEZA did not avail itself of any of the remedies against a notice of
assessment. A petition for declaratory relief is not the proper remedy once a notice of
assessment was already issued.

Instead of a petition for declaratory relief, the PEZA should have directly resorted to a
judicial action. The PEZA should have filed a complaint for injunction, the "appropriate
ordinary civil action" to enjoin the City from enforcing its demand and collecting the
166

assessed taxes from the PEZA. After all, a declaratory judgment as to the PEZA’s
tax-exempt status is useless unless the City isenjoined from enforcing its demand.
Injunction "is a judicial writ, process or proceeding whereby a party is ordered to do or
refrain from doing a certain act." "It may be the main action or merely a provisional
167

remedy for and as incident in the main action." The essential requisites of a writ of
168

injunction are: "(1) there must be a right in esseor the existence of a right to be protected;
and (2) the act against which the injunction is directed to constitute a violation of such
right." 169

We note, however, that the City confused the concepts of jurisdiction and venue in
contending that the Regional Trial Court of Pasay had no jurisdiction because the real
properties involved in this case are located in the City of Lapu-Lapu.

On the one hand, jurisdiction is "the power to hear and determine cases of the general
class to which the proceedings in question belong." Jurisdiction is a matter of
170

substantive law. Thus, an action may be filed only with the court or tribunal where the
171

Constitution or a statute says it can be brought. Objections to jurisdiction cannot be

172

waived and may be brought at any stage of the proceedings, even on appeal. When a 173

case is filed with a court which has no jurisdiction over the action, the court shall motu
propriodismiss the case. 174

On the other hand, venue is "the place of trial or geographical location in which an action
or proceeding should be brought." 175 In civil cases, venue is a matter of procedural
law. A party’s objections to venue must be brought at the earliest opportunity either in a
176

motion to dismiss or in the answer; otherwise the objection shall be deemed

waived. When the venue of a civil action is improperly laid, the court cannot motu
177

propriodismiss the case. 178

The venue of an action depends on whether the action is a real or personal action. Should
the action affect title to or possession of real property, or interest therein, it is a real action.
The action should be filed in the proper court which has jurisdiction over the area wherein
the real property involved, or a portion thereof, is situated. If the action is a personal
179

action, the action shall be filed with the proper court where the plaintiff or any of the
principal plaintiffs resides, or where the defendant or any of the principal defendants
resides, or in the case of a non-resident defendant where he may be found, at the election
of the plaintiff. 180

The City was objecting to the venue of the action, not to the jurisdiction of the Regional
Trial Court of Pasay. In essence, the City was contending that the PEZA’s petition is a real
action as it affects title to or possession of real property, and, therefore, the PEZA should
have filed the petition with the Regional Trial Court of Lapu-Lapu City where the real
properties are located. However, whatever objections the City has against the venue of
the PEZA’s action for declaratory relief are already deemed waived. Objections to venue
must be raised at the earliest possible opportunity. The City did not file a motion to
181

dismiss the petition on the ground that the venue was improperly laid. Neither did the City
raise this objection in its answer.

In any event, the law sought to be judicially interpreted in this case had already been
breached. The Regional Trial Court of Pasay, therefore, had no jurisdiction over the
PEZA’s petition for declaratory relief against the City.

III.
 The Court of Appeals had no jurisdiction
over the PEZA’s petition for certiorari
against the Province of Bataan

Appeal is the remedy "to obtain a reversal or modification of a judgment on the merits." A 182

judgment on the merits is one which "determines the rights and liabilities of the parties
based on the disclosed facts, irrespective of the formal, technical or dilatory
objections." It is not even necessary that the case proceeded to trial. So long as the
183 184

"judgment is general" and "the parties had a full legal opportunity to be heard on their
185

respective claims and contentions," the judgment is on the merits.

186

On the other hand, certiorari is a special civil action filed to annul or modify a proceeding
of a tribunal, board, or officer exercising judicial or quasi-judicial functions. Certiorari,
187

which in Latin means "to be more fully informed," was originally a remedy in the common
188

law. This court discussed the history of the remedy of certiorari in Spouses Delos Santos v.
Metropolitan Bank and Trust Company: 189

In the common law, from which the remedy of certiorari evolved, the writ of certiorari was
issued out of Chancery, or the King’s Bench, commanding agents or officers of the inferior
courts to return the record of a cause pending before them, so as to give the party more
sure and speedy justice, for the writ would enable the superior court to determine froman
inspection of the record whether the inferior court’s judgment was rendered without
authority. The errors were of such a nature that, if allowed to stand, they would result in a
substantial injury to the petitioner to whom no other remedy was available. If the inferior
court acted without authority, the record was then revised and corrected in matters of law.
The writ of certiorari was limited to cases in which the inferior court was said to be
exceeding its jurisdiction or was not proceeding according to essential requirements of
law and would lie only to review judicial or quasi-judicial acts. 190

In our jurisdiction, the term "certiorari" is used in two ways. An appeal before this court
raising pure questions of law is commenced by filing a petition for reviewon certiorari
under Rule 45 of the Rules of Court. An appeal by certiorari, which continues the
proceedings commenced before the lower courts, is filed to reverse or modify judgments
191

or final orders. Under the Rules, an appeal by certiorarimust be filed within 15 days from
192

notice of the judgment or final order, or of the denial of the appellant’s motion for new trial
or reconsideration. 193

A petition for certiorari under Rule 65, on the other hand, is an independent and original
action filed to set aside proceedings conducted without or in excess of jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction. Under the Rules, a
194

petition for certiorari may only be filed if there is no appeal or any plain, speedy, or
adequate remedy in the ordinary course of law. The petition must be filed within 60 days
195

from notice of the judgment, order, or resolution. 196

Because of the longer period to file a petition for certiorari, some litigants attempt to file
petitions for certiorari as substitutes for lost appeals by certiorari. However, Rule 65 is
clear that a petition for certiorari will not prosper if appeal is available. Appealis the proper
remedy even if the error, or one of the errors, raised is grave abuse of discretion on the
part of the court rendering judgment. If appeal is available, a petition for certiorari cannot
197

be filed.

In this case, the trial court’s decision dated January 31, 2007 is a judgment on the merits.
Based on the facts disclosed by the parties, the trial court declared the PEZA liable to the
Province of Bataan for real property taxes. The PEZA’s proper remedy against the trial
court’s decision, therefore, is appeal.

Since the PEZA filed a petition for certiorari against the trial court’s decision, it availed
itself of the wrong remedy. As the Province of Bataan contended, the trial court’s decision
dated January 31, 2007 "is only an error of judgment appealable to the higher level court
and may not be corrected by filing a petition for certiorari." That the trial court judge
198

allegedly committed grave abuse of discretion does not make the petition for certiorari the
correct remedy. The PEZA should haveraised this ground in an appeal filed within 15 days
from notice of the assailed resolution.

This court, "in the liberal spirit pervading the Rules of Court and in the interest of
substantial justice," has treated petitions for certiorari as an appeal: "(1) if the petition for
199

certiorari was filed within the reglementary period within which to file a petition for review
on certiorari; (2) when errors of judgment are averred; and (3) when there is sufficient
reason to justify the relaxation of the rules." Considering that "the nature of an action is
200

determined by the allegationsof the complaint or the petition and the character of the relief
sought," a petition which "actually avers errors of judgment rather than errors than that of
201

jurisdiction" may be considered a petition for review.

202

However, suspending the application of the Rules has its disadvantages. Relaxing
procedural rules may reduce the "effective enforcement of substantive rights," leading to
203

"arbitrariness, caprice, despotism, or whimsicality in the settlement of

disputes." Therefore, for this court to suspend the application of the Rules, the
204

accomplishment of substantial justice must outweigh the importance of predictability of

court procedures.

The PEZA’s petition for certiorari may be treated as an appeal. First, the petition for
certiorari was filed withinthe 15-day reglementary period for filing an appeal. The PEZA
filed its petition for certiorari before the Court of Appeals on October 15, 2007, which was
205

12 days from October 3, 2007 when the PEZA had notice of the trial court’s order
206

denying the motion for reconsideration.

Second, the petition for certiorari raised errors of judgment. The PEZA argued that the trial
court erred in ruling that it is not exempt from payment of real property taxes given Section
21 of Presidential Decree No. 66 and Sections 11 and 51 of the Special Economic Zone
Act of 1995. 207

Third, there is sufficient reason to relax the rules given the importance of the substantive
issue presented in this case.

However, the PEZA’s petition for certiorari was filed before the wrong court. The PEZA
should have filed its petition before the Court of Tax Appeals.

The Court of Tax Appeals has the exclusive appellate jurisdiction over local tax cases
decided by Regional Trial Courts. Section 7, paragraph (a)(3) of Republic Act No. 1125,
as amended by Republic Act No. 9282, provides:

Sec. 7. Jurisdiction. – The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

 ....

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction[.]

The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as
amended, include cases involving real property taxes. Real property taxation is governed
by Book II of the Local Government Code on "Local Taxation and Fiscal Matters." Real
property taxes are collected by the Local Treasurer, not by the Bureau of Internal
208

Revenue in charge of collecting national internal revenue taxes, fees, and charges. 209

Section 7, paragraph (a)(5) of Republic Act No. 1125, as amended by Republic Act No.
9282, separately provides for the exclusive appellate jurisdiction of the Court of Tax
Appeals over decisions of the Central Board of Assessment Appeals involving the
assessment or collection of real property taxes:

Sec. 7. Jurisdiction. – The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

....

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals[.]

This separate provision, nevertheless, does not bar the Court of Tax Appeals from taking
cognizance of trial court decisions involving the collection of real property tax cases.
Sections 256 and 266 of the Local Government Code expressly allow localgovernment
210 211

units to file "in any court of competent jurisdiction" civil actions to collect basic real
property taxes. Should the trial court rule against them, local government units cannot be
barred from appealing before the Court of Tax Appeals – the "highly specialized body
specifically created for the purpose of reviewing tax cases." 212

We have also ruled that the Court of Tax Appeals, not the Court of Appeals, has the
exclusive original jurisdiction over petitions for certiorari assailing interlocutory orders
issued by Regional Trial Courts in a local tax case. We explained in The City of Manila v.
Hon. Grecia-Cuerdo that while the Court of Tax Appeals has no express grant of power
213

to issue writs of certiorari under Republic Act No. 1125, as amended, the tax court’s
214

judicial power as defined in the Constitution includes the power to determine "whether or
215

not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of the [Regional Trial Court] in issuing an interlocutory order of jurisdiction in
cases falling within the exclusive appellate jurisdiction of the tax court." We further
216

elaborated:

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it
must have the authority to issue, among others, a writ of certiorari. In transferring
exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed
that the law intended to transfer also such power as is deemed necessary, if not
indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the
transfer should only be considered as partial, not total.
 ....

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari
petition lies with the CA, this Court would be confirming the exercise by two judicial bodies,
the CA and the CTA, of jurisdiction over basically the same subject matter – precisely the
split-jurisdiction situation which is anathema to the orderly administration of justice.The
Court cannot accept that such was the legislative motive, especially considering that the
law expressly confers on the CTA, the tribunal with the specialized competence over tax
and tariff matters, the role of judicial review over local tax cases without mention of any
other court that may exercise such power. Thus, the Court agrees with the ruling of the CA
that since appellate jurisdiction over private respondents' complaint for tax refund is
vested in the CTA, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the same court.
To rule otherwise would lead to an absurd situation where one court decides an appeal in
the main case while another court rules on an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial

abhorrence to split jurisdiction to conclude that the intention of the law is to divide the
authority over a local tax case filed with the RTC by giving to the CA or this Court
jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to
the CTA the jurisdiction over the appeal from the decision of the trial court in the same
case. It is more in consonance with logic and legal soundness to conclude that the grant
of appellate jurisdiction to the CTA over tax cases filed in and decided by the RTC carries
withit the power to issue a writ of certiorari when necessary in aid of such appellate
jurisdiction. The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in
aid of its appellate jurisdiction should co-exist with, and be a complement to, its appellate
jurisdiction to review, by appeal, the final orders and decisionsof the RTC, in order to have
complete supervision over the acts of the latter. (Citations omitted)
217

In this case, the petition for injunction filed before the Regional Trial Court of Pasay was a
local tax case originally decided by the trial court in its original jurisdiction. Since the PEZA
assailed a judgment, not an interlocutory order, of the Regional Trial Court, the PEZA’s
proper remedy was an appeal to the Court of Tax Appeals.

Considering that the appellate jurisdiction of the Court of Tax Appeals is to the exclusion
of all other courts, the Court of Appeals had no jurisdiction to take cognizance of the
PEZA’s petition. The Court of Appeals acted without jurisdiction in rendering the decision
in CA-G.R. SP No. 100984. Its decision in CA-G.R. SP No. 100984 is void. 218

The filing of appeal in the wrong court does not toll the period to appeal. Consequently,
the decision of the Regional Trial Court, Branch 115, Pasay City, became final and
executory after the lapse of the 15th day from the PEZA’s receipt of the trial court’s
decision. The denial of the petition for injunction became final and executory.
219

IV.

The remedy of a taxpayer depends on the

stage in which the local government unit
is enforcing its authority to impose real
property taxes

The proper remedy of a taxpayer depends on the stage in which the local government unit
is enforcing its authority to collect real property taxes. For the guidance of the members of
the bench and the bar, we reiterate the taxpayer’s remedies against the erroneous or
illegal assessment of real property taxes.

Exhaustion of administrative remedies under the Local Government Code is necessary in

cases of erroneous assessments where the correctness of the amount assessed is
assailed. The taxpayer must first pay the tax then file a protest with the Local Treasurer
within 30 days from date of payment of tax. If protest is denied or upon the lapse of the
220

60-day period to decide the protest, the taxpayer may appeal to the Local Board of
Assessment Appeals within 60 days from the denial of the protest or the lapse of the
60-day period to decide the protest. The Local Board of Assessment Appeals has 120
221

days to decide the appeal. 222

If the taxpayer is unsatisfied withthe Local Board’s decision, the taxpayer may appeal
before the Central Board of Assessment Appeals within 30 days from receipt of the Local
Board’s decision. 223

The decision of the Central Board of Assessment Appeals is appealable before the Court
of Tax Appeals En Banc. The appeal before the Court of Tax Appeals shall be filed
224

following the procedure under Rule 43 of the Rules of Court. 225

The Court of Tax Appeals’ decision may then be appealed before this court through a
petition for review on certiorari under Rule 45 of the Rules of Court raising pure questions
of law.
226

In case of an illegal assessment where the assessment was issued without authority,
exhaustion of administrative remedies is not necessary and the taxpayer may directly
resort to judicial action. The taxpayer shall file a complaint for injunction before the
227

Regional Trial Court to enjoin the local government unit from collecting real property
228

taxes.

The party unsatisfied with the decision of the Regional Trial Court shall file an appeal, not
a petition for certiorari, before the Court of Tax Appeals, the complaint being a local tax
case decided by the Regional Trial Court. The appeal shall be filed within fifteen (15)
229

days from notice of the trial court’s decision.

The Court of Tax Appeals’ decision may then be appealed before this court through a
petition for review on certiorari under Rule 45 of the Rules of Court raising pure questions
of law.
230

In case the local government unit has issued a notice of delinquency, the taxpayer may
file a complaint for injunction to enjoin the impending sale of the real property at public
auction. In case the local government unit has already sold the property at public auction,
the taxpayer must first deposit with the court the amount for which the real property was
sold, together with interest of 2% per month from the date ofsale to the time of the
institution of action. The taxpayer may then file a complaint to assail the validity of the
public auction. The decisions of the Regional Trial Court in these cases shall be
231

appealable before the Court of Tax Appeals, and the latter’s decisions appealable before
232

this court through a petition for review on certiorari under Rule 45 of the Rules of Court.
233

V.
 The PEZA is exempt from payment of
real property taxes

The jurisdictional errors in this case render these consolidated petitions moot. We do not
review void decisions rendered without jurisdiction.

However, the PEZA alleged that several local government units, including the City of
Baguio and the Province of Cavite, have issued their respective real property tax
assessments against the PEZA. Other local government units will likely follow suit, and
either the PEZA or the local government units taxing the PEZA may file their respective
actions against each other.

In the interest of judicial economy and avoidance of conflicting decisions involving the
234

same issues, we resolve the substantive issue of whether the PEZA is exempt from
235

payment of real property taxes.

Real property taxes are annual taxes levied on real property such as lands, buildings,
machinery, and other improvements not otherwise specifically exempted under the Local
Government Code. Real property taxes are ad valorem, with the amount charged based
236

on a fixed proportion of the value of the property. Under the law, provinces, cities, and
237

municipalities within the Metropolitan Manila Area have the power to levy real property
taxes within their respective territories.
238

The general rule is that real properties are subject to real property taxes. This is true
especially since the Local Government Code has withdrawn exemptions from real
property taxes of all persons, whether natural or juridical:

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from
payment of 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, 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 under R.A. No.
6938; and

(e) Machinery and equipment usedfor pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property taxes 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. (Emphasis supplied)
The person liable for real property taxes is the "taxable person who had actual or
beneficial use and possession [of the real property for the taxable period,] whether or not
[the person owned the property for the period he or she is being taxed]." 239

The exceptions to the rule are provided in the Local Government Code. Under Section
133(o), local government units have no power to levy taxes of any kind on the national
government, its agencies and instrumentalities and local government units:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. –
Unless otherwise provided herein, the exercise of taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

....

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.

Specifically on real property taxes, Section 234 enumerates the persons and real property
exempt from real property taxes:

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from
payment of 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, nonprofitor 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 under R.A. No.
6938; and

(e) Machinery and equipment used for pollution control and environmental 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. (Emphasis supplied)

For persons granted tax exemptions or incentives before the effectivity of the Local
Government Code, Section 193 withdrew these tax exemption privileges. These persons
consist of both natural and juridical persons, including government-owned or controlled
corporations:

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 effectivity of
this Code.

As discussed, Section 234 withdrew all tax privileges with respect to real property taxes.
Nevertheless, local government units may grant tax exemptions under such terms and
conditions asthey may deem necessary:

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.

In Mactan Cebu International Airport Authority v. Hon. Marcos, this court classified the
240

exemptions from real property taxes into ownership, character, and usage exemptions.
Ownership exemptions are exemptions based on the ownership of the real property. The
exemptions of real property owned by the Republic of the Philippines, provinces, cities,
municipalities, barangays, and registered cooperatives fall under this
classification. Character exemptions are exemptions based on the character of the real
241

property. Thus, no real property taxes may be levied on charitable institutions, houses and
temples of prayer like churches, parsonages, or convents appurtenant thereto, mosques,
and non profitor religious cemeteries.242

Usage exemptions are exemptions based on the use of the real property. Thus, no real
property taxes may be levied on real property such as: (1) lands and buildings actually,
directly, and exclusively used for religious, charitable or educational purpose; (2)
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 (3) machinery and
equipment used for pollution control and environmental protection. 243

Persons may likewise be exempt from payment of real properties if their charters, which
were enacted or reenacted after the effectivity of the Local Government Code, exempt
them payment of real property taxes. 244

V.

(A) The PEZA is an instrumentality of the national government

An instrumentality is "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." 245

Examples of instrumentalities of the national government are the Manila International

Airport Authority, the Philippine Fisheries Development Authority, the Government
246 247

Service Insurance System, and the Philippine Reclamation Authority. These entities
248 249

are not integrated within the department framework but are nevertheless vested with
special functions to carry out a declared policy of the national government.

Similarly, the PEZA is an instrumentality of the national government. It is not integrated

within the department framework but is an agency attached to the Department of Trade
and Industry. Book IV, Chapter 7, Section 38(3)(a) of the Administrative Code of 1987
250

defines "attachment": SEC. 38. Definition of Administrative Relationship.– Unless

otherwise expressly stated in the Code or in other laws defining the special relationships
of particular agencies, administrative relationships shall be categorized and defined as
follows:

....

(3) Attachment.– (a) This refers to the lateral relationship between the department or its
equivalent and the attached agency or corporation for purposes of policy and program
coordination. The coordination may be accomplished by having the department
represented in the governing board of the attached agency or corporation, either as
chairman or as a member, with or without voting rights, if this is permitted by the charter;
having the attached corporation or agency comply with a system of periodic reporting
which shall reflect the progress of the programs and projects; and having the department
or its equivalent provide general policies through its representative in the board, which
shall serve as the framework for the internal policies of the attached corporation or
agency[.]

Attachment, which enjoys "a larger measure of independence" compared with other
251

administrative relationships such as supervision and control, is further explained in Beja,

Sr. v. Court of Appeals:252

An attached agency has a larger measure of independence from the Department to which
it is attached than one which is under departmental supervision and control or
administrative supervision. This is borne out by the "lateral relationship" between the
Department and the attached agency. The attachment is merely for "policy and program
coordination." With respect to administrative matters, the independence of an attached
agency from Departmental control and supervision is further reinforced by the fact that
even an agency under a Department’s administrative supervision is free from
Departmental interference with respect to appointments and other personnel actions "in
accordance with the decentralization of personnel functions" under the Administrative
Code of 1987. Moreover, the Administrative Code explicitly provides that Chapter 8 of
Book IV on supervision and control shall not apply to chartered institutions attached to a
Department. 253

With the PEZA as an attached agency to the Department of Trade and Industry, the
13-person PEZA Board is chaired by the Department Secretary. Among the powers and
254

functions of the PEZA is its ability to coordinate with the Department of Trade and Industry
for policy and program formulation and implementation. In strategizing and prioritizing
255

the development of special economic zones, the PEZA coordinates with the Department
of Trade and Industry.256

The PEZA also administers its own funds and operates autonomously, with the PEZA
Board formulating and approving the PEZA’s annual budget. Appointments and other
257

personnel actions in the PEZA are also free from departmental interference, with the
PEZA Board having the exclusive and final authority to promote, transfer, assign and
reassign officers of the PEZA.258

As an instrumentality of the national government, the PEZA is vested with special

functions or jurisdiction by law. Congress created the PEZA to operate, administer,
manage and develop special economic zones in the Philippines. Special economic259

zones are areas with highly developed or which have the potential to be developed into
agro-industrial, industrial tourist/recreational, commercial, banking, investment and
financial centers. By operating, administering, managing, and developing special
260

economic zones which attract investments and promote use of domestic labor, the PEZA
carries out the following policy of the Government: SECTION 2. Declaration of Policy. — It
is the declared policy of the government to translate into practical realities the following
State policies and mandates in the 1987 Constitution, namely:

(a) "The State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments." (Sec. 20, Art. II)

(b) "The State shall promote the preferential use of Filipino labor, domestic materials and
locally produced goods, and adopt measures that help make them competitive." (Sec. 12,
Art. XII) In pursuance of these policies, the government shall actively encourage, promote,
induce and accelerate a sound and balanced industrial, economic and social development
of the country in order to provide jobs to the people especially those in the rural areas,
increase their productivity and their individual and family income, and thereby improve the
level and quality of their living condition through the establishment, among others, of
special economic zones in suitable and strategic locations in the country and through
measures that shall effectively attract legitimate and productive foreign investments. 261

Being an instrumentality of the national government, the PEZA cannot be taxed by local
government units.

Although a body corporate vested with some corporate powers, the PEZA is not a
262

government-owned or controlled corporation taxable for real property taxes.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines
the term "government-owned or controlled corporation":

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:

....

(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) per cent of its capital stock: Provided, That
government owned or controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission, and the Commission on Audit
for purposes of the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.

Government entities are created by law, specifically, by the Constitution or by statute. In

the case of government-owned or controlled corporations, they are incorporated by virtue
of special charters to participate in the market for special reasons which may be related
263

to dysfunctions or inefficiencies of the market structure. This is to adjust reality as against

the concept of full competition where all market players are price takers. Thus, under the
Constitution, government-owned or controlled corporations are created in the interest of
the common good and should satisfy the test of economic viability. Article XII, Section 16
264

of the Constitution provides:

Section 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.

Economic viability is "the capacity to function efficiently in business." To be economically

265

viable, the entity "should not go into activities which the private sector can do better."
266

To be considered a government-owned or controlled corporation, the entity must have

been organized as a stock or non-stock corporation. 267

Government instrumentalities, on the other hand, are also created by law but partake of
sovereign functions. When a government entity performs sovereign functions, it need not
meet the test of economic viability. In Manila International Airport Authority v. Court of
Appeals, this court explained:
268

In contrast, government instrumentalities vested with corporate powers and performing

governmental orpublic 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 meetthe test of
economic viability because they compete in the market place.

....

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 ₱115 billion for the entire
government, about ₱28 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.

....

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 noneconomic viability of rendering such essential public service does not
excuse the State from withholding such essential services from the public. (Emphases
269

and citations omitted)

The law created the PEZA’s charter. Under the Special Economic Zone Act of 1995, the
PEZA was established primarily to perform the governmental function of
operating,administering, managing, and developing special economic zones to attract
investments and provide opportunities for preferential use of Filipino labor.

Under its charter, the PEZA was created a body corporate endowed with some corporate
powers. However, it was not organized as a stock or non-stock corporation. Nothing in
270 271

the PEZA’s charter provides that the PEZA’s capital is divided into shares. The PEZA
272

also has no members who shall share in the PEZA’s profits.

The PEZA does not compete with other economic zone authorities in the country. The
government may even subsidize the PEZA’s operations. Under Section 47 of the Special
Economic Zone Act of 1995, "any sum necessary to augment [the PEZA’s] capital outlay
shall be included in the General Appropriations Act to be treated as an equity of the
national government." 273

The PEZA, therefore, need not be economically viable. It is not a government-owned or

controlled corporation liable for real property taxes.

V. (B)

The PEZA assumed the non-profit character, including the tax exempt status, of the EPZA

The PEZA’s predecessor, the EPZA, was declared non-profit in character with all its
revenues devoted for its development, improvement, and maintenance. Consistent with
this non-profit character, the EPZA was explicitly declared exempt from real property
taxes under its charter. Section 21 of Presidential Decree No. 66 provides:

Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority
shall be non-profit and shall devote and use all its returns from its capital investment, as
well as excess revenues from its operations, for the development, improvement and
maintenance and other related expenditures of the Authority to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy enunciated in
Section 1 of this Decree. In consonance therewith, the Authority is hereby declared
exempt:

....
(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and
licenses to be paid to the National Government, its provinces, cities, municipalities and
other government agencies and instrumentalities[.]

The Special Economic Zone Act of 1995, on the other hand, does not specifically exempt
the PEZA from payment of real property taxes.

Nevertheless, we rule that the PEZA is exempt from real property taxes by virtue of its
charter. A provision in the Special Economic Zone Act of 1995 explicitly exempting the
PEZA is unnecessary. The PEZA assumed the real property exemption of the EPZA
under Presidential Decree No. 66.

Section 11 of the Special Economic Zone Act of 1995 mandated the EPZA "to evolve into
the PEZA in accordance with the guidelines and regulations set forth in an executive order
issued for this purpose." President Ramos then issued Executive Order No. 282 in 1995,
ordering the PEZA to assume the EPZA’s powers, functions, and responsibilities under
Presidential Decree No. 66 not inconsistent with the Special Economic Zone Act of 1995:

SECTION 1. Assumption of EPZA’s Powers and Functions by PEZA. All the powers,
functions and responsibilities of EPZA as provided under its Charter, Presidential Decree
No. 66, as amended, insofar as they are not inconsistent with the powers,functions and
responsibilities of the PEZA, as mandated under Republic Act No. 7916, shall hereafter be
assumed and exercised by the PEZA. Henceforth, the EPZA shall be referred to as the
PEZA.

The following sections of the Special Economic Zone Act of 1995 provide for the PEZA’s
powers,functions, and responsibilities:

SEC. 5. Establishment of ECOZONES. – To ensure the viability and geographical

dispersal of ECOZONES through a system of prioritization, the following areas are initially
identified as ECOZONES, subject to the criteria specified in Section 6:

....

The metes and bounds of each ECOZONE are to be delineated and more particularly
described in a proclamation to be issued by the President of the Philippines, upon the
recommendation of the Philippine Economic Zone Authority (PEZA), which shall be
established under this Act, in coordination with the municipal and / or city council, National
Land Use Coordinating Committee and / or the Regional Land Use Committee.

SEC. 6. Criteria for the Establishment of Other ECOZONES. – In addition to the

ECOZONES identified in Section 5 of this Act, other areas may be established as
ECOZONES in a proclamation to be issued by the President of the Philippines subject to
the evaluation and recommendation of the PEZA, based on a detailed feasibility and
engineering study which must conform to the following criteria:

(a) The proposed area must be identified as a regional growth center in the Medium-Term
Philippine Development Plan or by the Regional Development Council;

(b) The existence of required infrastructure in the proposed ECOZONE, such as roads,
railways, telephones, ports, airports, etc., and the suitability and capacity of the proposed
site to absorb such improvements;
(c) The availability of water source and electric power supply for use of the ECOZONE;

(d) The extent of vacant lands available for industrial and commercial development and
future expansion of the ECOZONE as well as of lands adjacent to the ECOZONE
available for development of residential areas for the ECOZONE workers;

(e) The availability of skilled, semi-skilled and non-skilled trainable labor force in and
around the ECOZONE;

(f) The area must have a significant incremental advantage over the existing economic
zones and its potential profitability can be established;

(g) The area must be strategically located; and

(h) The area must be situated where controls can easily be established to curtail
smuggling activities.

Other areas which do not meet the foregoing criteria may be established as ECOZONES:
Provided, That the said area shall be developed only through local government and/or
private sector initiative under any of the schemes allowed in Republic Act No. 6957 (the
build-operate-transfer law), and without any financial exposure on the part of the national
government: Provided, further, That the area can be easily secured to curtail smuggling
activities: Provided, finally, That after five (5) years the area must have attained a
substantial degree of development, the indicators of which shall be formulated by the
PEZA.

SEC. 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial /

Trading, Tourist, Investment and Financial Community. - Within the framework of the
Constitution, the interest of national sovereignty and territorial integrity of the Republic,
ECOZONE shall be developed, as much as possible, into a decentralized, self-reliant and
self-sustaining industrial, commercial/trading, agro-industrial, tourist, banking, financial
and investment center with minimum government intervention. Each ECOZONE shall be
provided with transportation, telecommunications, and other facilities needed to generate
linkage with industries and employment opportunitiesfor its own inhabitants and those of
nearby towns and cities.

The ECOZONE shall administer itself on economic, financial, industrial, tourism

development and such other matters within the exclusive competence of the national
government.

The ECOZONE may establish mutually beneficial economic relations with other entities
within the country, or, subject to the administrative guidance of the Department of Foreign
Affairs and/or the Department of Trade and Industry, with foreign entities or enterprises.

Foreign citizens and companies owned by non-Filipinos in whatever proportion may set
up enterprises in the ECOZONE, either by themselves or in joint venture with Filipinos in
any sector of industry, international trade and commerce within the ECOZONE. Their
assets, profits and other legitimate interests shall be protected: Provided, That the
ECOZONE through the PEZA may require a minimum investment for any ECOZONE
enterprises in freely convertible currencies: Provided, further, That the new investment
shall fall under the priorities, thrusts and limits provided for in the Act.
SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory. – The
ECOZONE shall be managed and operated by the PEZA as separate customs territory.

The PEZA is hereby vested with the authority to issue certificate of origin for products
manufactured or processed in each ECOZONE in accordance with the prevailing rules or
origin, and the pertinent regulations of the Department of Trade and Industry and/or the
Department of Finance.

SEC. 9. Defense and Security. – The defense of the ECOZONE and the security of its
perimeter fence shall be the responsibility of the national government in coordination with
the PEZA. Military forces sent by the national government for the purpose of defense shall
not interfere in the internal affairs of any of the ECOZONE and expenditure for these
military forces shall be borne by the national government. The PEZA may provide and
establish the ECOZONES’ internal security and firefighting forces.

SEC. 10. Immigration. – Any investor within the ECOZONE whose initial investment shall
not be less than One Hundred Fifty Thousand Dollars ($150,000.00), his/her spouse and
dependent children under twenty-one (21) years of age shall be granted permanent
resident status within the ECOZONE. They shall have freedom of ingress and egress to
and from the ECOZONE without any need of special authorization from the Bureau of
Immigration.

The PEZA shall issue working visas renewable every two (2) years to foreign executives
and other aliens, processing highly-technical skills which no Filipino within the ECOZONE
possesses, as certified by the Department of Labor and Employment. The names of aliens
granted permanent resident status and working visas by the PEZA shall be reported to the
Bureau of Immigration within thirty (30) days after issuance thereof.

SEC. 13. General Powers and Functions of the Authority. – The PEZA shall have the
following powers and functions:

(a) To operate, administer, manage and develop the ECOZONE according to the
principles and provisions set forth in this Act;

(b) To register, regulate and supervise the enterprises in the ECOZONE in an efficient and
decentralized manner;

(c) To coordinate with local government units and exercise general supervision over the
development, plans, activities and operations of the ECOZONES, industrial estates,
export processing zones, free trade zones, and the like;

(d) In coordination with local government units concerned and appropriate agencies, to
construct,acquire, own, lease, operate and maintain on its own or through contract,
franchise, license, bulk purchase from the private sector and build-operate-transfer
scheme or joint venture, adequate facilities and infrastructure, such as light and power
systems, water supply and distribution systems, telecommunication and transportation,
buildings, structures, warehouses, roads, bridges, ports and other facilities for the
operation and development of the ECOZONE;

(e) To create, operate and/or contractto operate such agencies and functional units or
offices of the authority as it may deem necessary;
(f) To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise
dispose of personal or real property; sue and be sued; and otherwise carry out its duties
and functions as provided for in this Act;

(g) To coordinate the formulation and preparation of the development plans of the different
entities mentioned above;

(h) To coordinate with the National Economic Development Authority (NEDA), the
Department of Trade and Industry (DTI), the Department of Science and Technology
(DOST), and the local government units and appropriate government agencies for policy
and program formulation and implementation; and

(i) To monitor and evaluate the development and requirements of entities in subsection (a)
and recommend to the local government units or other appropriate authorities the location,
incentives, basic services, utilities and infrastructure required or to be made available for
said entities.

SEC. 17. Investigation and Inquiries. – Upon a written formal complaint made under oath,
which on its face provides reasonable basis to believe that some anomaly or irregularity
might have been committed, the PEZA or the administrator of the ECOZONE concerned,
shall have the power to inquire into the conduct of firms or employees of the ECOZONE
and to conduct investigations, and for that purpose may subpoena witnesses, administer
oaths, and compel the production of books, papers, and other evidences: Provided, That
to arrive at the truth, the investigator(s) may grant immunity from prosecution to any
person whose testimony or whose possessions of documents or other evidence is
necessary or convenient to determine the truth in any investigation conducted by him or
under the authority of the PEZA or the administrator of the ECOZONE concerned.

SEC. 21. Development Strategy of the ECOZONE. - The strategy and priority of
development of each ECOZONE established pursuant to this Act shall be formulated by
the PEZA, in coordination with the Department of Trade and Industry and the National
Economic and Development Authority; Provided, That such development strategy is
consistent with the priorities of the national government as outlined in the medium-term
Philippine development plan. It shall be the policy of the government and the PEZA to
encourage and provide Incentives and facilitate private sector participation in the
construction and operation of public utilities and infrastructure in the ECOZONE, using
any of the schemes allowed in Republic Act No. 6957 (the build-operate-transfer law).

SEC. 22. Survey of Resources. The PEZA shall, in coordination with appropriate
authorities and neighboring cities and municipalities, immediately conduct a survey of the
physical, natural assets and potentialities of the ECOZONE areas under its jurisdiction.

SEC. 26. Domestic Sales. – Goods manufactured by an ECOZONE enterprise shall be

made available for immediate retail sales in the domestic market, subject to payment of
corresponding taxes on the raw materials and other regulations that may be adopted by
the Board of the PEZA. However, in order to protect the domestic industry, there shall be
a negative list of Industries that willbe drawn up by the PEZA. Enterprises engaged in the
industries included in the negative list shall not be allowed to sell their products locally.
Said negative list shall be regularly updated by the PEZA.

The PEZA, in coordination with the Department of Trade and Industry and the Bureau of
Customs, shall jointly issue the necessary implementing rules and guidelines for the
effective Implementation of this section.
SEC. 29. Eminent Domain. – The areas comprising an ECOZONE may be expanded or
reduced when necessary. For this purpose, the government shall have the power to
acquire, either by purchase, negotiation or condemnation proceedings, any private lands
within or adjacent to the ECOZONE for:

a. Consolidation of lands for zone development purposes;

b. Acquisition of right of way to the ECOZONE; and

c. The protection of watershed areas and natural assets valuable to the prosperity of the
ECOZONE.

If in the establishment of a publicly-owned ECOZONE, any person or group of persons

who has been occupying a parcel of land within the Zone has to be evicted, the PEZA
shall provide the person or group of persons concerned with proper disturbance
compensation: Provided, however, That in the case of displaced agrarian reform
beneficiaries, they shall be entitled to the benefits under the Comprehensive Agrarian
Reform Law, including but not limited to Section 36 of Republic Act No. 3844, in addition
to a homelot in the relocation site and preferential employment in the project being
undertaken.

SEC. 32. Shipping and Shipping Register. – Private shipping and related business
including private container terminals may operate freely in the ECOZONE, subject only to
such minimum reasonable regulations of local application which the PEZA may prescribe.

The PEZA shall, in coordination with the Department of Transportation and

Communications, maintain a shipping register for each ECOZONE as a business register
of convenience for ocean-going vessels and issue related certification.

Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the
ECOZONE, subject only to such reasonable requirement as may be prescribed by the
PEZA In coordination with the appropriate agencies of the national government.

SEC. 33. Protection of Environment. - The PEZA, in coordination with the appropriate
agencies, shall take concrete and appropriate steps and enact the proper measure for the
protection of the local environment.

SEC. 34. Termination of Business. - Investors In the ECOZONE who desire to terminate
business or operations shall comply with such requirements and procedures which the
PEZA shall set, particularly those relating to the clearing of debts. The assets of the
closed enterprise can be transferred and the funds con be remitted out of the ECOZONE
subject to the rules, guidelines and procedures prescribed jointly by the Bangko Sentral
ng Pilipinas, the Department of Finance and the PEZA.

SEC. 35. Registration of Business Enterprises. - Business enterprises within a designated

ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for
in this Act.

SEC. 36. One Stop Shop Center. - The PEZA shall establish a one stop shop center for
the purpose of facilitating the registration of new enterprises in the ECOZONE. Thus, all
appropriate government agencies that are Involved In registering, licensing or issuing
permits to investors shall assign their representatives to the ECOZONE to attend to
Investor’s requirements.

SEC. 39. Master Employment Contracts. - The PEZA, in coordination with the Department
of Tabor and Employment, shall prescribe a master employment contract for all
ECOZONE enterprise staff members and workers, the terms of which provide salaries
and benefits not less than those provided under this Act, the Philippine Labor Code, as
amended, and other relevant issuances of the national government.

SEC. 41. Migrant Worker. - The PEZA, in coordination with the Department of Labor and
Employment, shall promulgate appropriate measures and programs leading to the
expansion of the services of the ECOZONE to help the local governments of nearby areas
meet the needs of the migrant workers.

SEC. 42. Incentive Scheme. - An additional deduction equivalent to one- half (1/2) of the
value of training expenses incurred in developing skilled or unskilled labor or for
managerial or other management development programs incurred by enterprises in the
ECOZONE can be deducted from the national government's share of three percent (3%)
as provided In Section 24.

The PEZA, the Department of Labor and Employment, and the Department of Finance
shall jointly make a review of the incentive scheme provided In this section every two (2)
years or when circumstances so warrant.

SEC. 43. Relationship with the Regional Development Council. - The PEZA shall
determine the development goals for the ECOZONE within the framework of national
development plans, policies and goals, and the administrator shall, upon approval by the
PEZA Board, submit the ECOZONE plans, programs and projects to the regional
development council for inclusion in and as inputs to the overall regional development
plan.

SEC. 44. Relationship with the Local Government Units. - Except as herein provided, the
local government units comprising the ECOZONE shall retain their basic autonomy and
identity. The cities shall be governed by their respective charters and the municipalities
shall operate and function In accordance with Republic Act No. 7160, otherwise known as
the Local Government Code of 1991.

SEC. 45. Relationship of PEZA to Privately-Owned Industrial Estates. – Privately-owned

industrial estates shall retain their autonomy and independence and shall be monitored by
the PEZA for the implementation of incentives.

SEC. 46. Transfer of Resources. - The relevant functions of the Board of Investments over
industrial estates and agri-export processing estates shall be transferred to the PEZA.
The resources of government owned Industrial estates and similar bodies except the
Bases Conversion Development Authority and those areas identified under Republic Act
No. 7227, are hereby transferred to the PEZA as the holding agency. They are hereby
detached from their mother agencies and attached to the PEZA for policy, program and
operational supervision.

The Boards of the affected government-owned industrial estates shall be phased out and
only the management level and an appropriate number of personnel shall be retained.
Government personnel whose services are not retained by the PEZA or any government
office within the ECOZONE shall be entitled to separation pay and such retirement and
other benefits theyare entitled to under the laws then in force at the time of their
separation: Provided, That in no case shall the separation pay be less than one and
one-fourth (1 1/4) month of every year of service.

The non-profit character of the EPZA under Presidential Decree No. 66 is not inconsistent
with any of the powers, functions, and responsibilities of the PEZA. The EPZA’s non-profit
character, including the EPZA’s exemption from real property taxes, must be deemed
assumed by the PEZA.

In addition, the Local Government Code exempting instrumentalities of the national

government from real property taxes was already in force when the PEZA’s charter was
274

enacted in 1995. It would have been redundant to provide for the PEZA’s exemption in its
charter considering that the PEZA is already exempt by virtue of Section 133(o) of the
Local Government Code.

As for the EPZA, Commonwealth Act No. 470 or the Assessment Law was in force when
the EPZA’s charter was enacted. Unlike the Local Government Code, Commonwealth Act
No. 470 does not contain a provision specifically exempting instrumentalities of the
national government from payment of real property taxes. It was necessary to put an
275

exempting provision in the EPZA’s charter.

Contrary to the PEZA’s claim, however, Section 24 of the Special Economic Zone Act of
1995 is not a basis for the PEZA’s exemption. Section 24 of the Special Economic Zone
Act of 1995 provides:

Sec. 24. Exemption from National and Local Taxes. — Except for real property taxes on
land owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the
gross income earned by all business enterprises within the ECOZONEshall be paid and
remitted as follows:

(a) Three percent (3%) to the National Government;

(b) Two percent (2%) which shall be directly remitted by the business establishments to
the treasurer's office of the municipality or city where the enterprise is located. (Emphasis
supplied)

Tax exemptions provided under Section 24 apply only to business establishments

operating within economic zones. Considering that the PEZA is not a business
establishment but an instrumentality performing governmental functions, Section 24 is
inapplicable to the PEZA. Also, contrary to the PEZA’s claim, developers ofeconomic
zones, whether public or private developers, are liable for real property taxes on lands
they own. Section 24 does not distinguish between a public and private developer. Thus,
courts cannot distinguish. Unless the public developer is exempt under the Local
276

Government Code or under its charter enacted after the Local Government Code’s
effectivity, the public developer must pay real property taxes on their land.

At any rate, the PEZA cannot be taxed for real property taxes even if it acts as a developer
or operator of special economic zones. The PEZA is an instrumentality of the national
government exempt from payment of real property taxes under Section 133(o) of the
Local Government Code. As this court said in Manila International Airport Authority, "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." 277

V. (C)

Real properties under the PEZA’s title are owned by the Republic of the Philippines

Under Section 234(a) of the LocalGovernment Code, real properties owned by the
Republic of the Philippines are exempt from real property taxes:

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from
payment of 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[.]

Properties owned by the state are either property of public dominion or patrimonial
property. Article 420 of the Civil Code of the Philippines enumerates property of public
dominion:

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 belonging for public use, and are intended for
some public service or for the development of the national wealth.

Properties of public dominion are outside the commerce of man. These properties are
exempt from "levy, encumbrance or disposition through public or private sale." As this
278

court explained in Manila International Airport Authority:

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[.] 279

On the other hand, all other properties of the state that are not intended for public use or
are not intended for some public service or for the development of the national wealth are
patrimonial properties. Article 421 of the Civil Code of the Philippines provides:

Art. 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.

Patrimonial properties are also properties of the state, but the state may dispose of its
patrimonial property similar to private persons disposing of their property. Patrimonial
properties are within the commerce of man and are susceptible to prescription, unless
otherwise provided.280

In this case, the properties sought to be taxed are located in publicly owned economic
zones. These economic zones are property of public dominion. The City seeks to tax
properties located within the Mactan Economic Zone, the site of which was reserved by
281

President Marcos under Proclamation No. 1811, Series of 1979. Reserved lands are
lands of the public domain set aside for settlement or public use, and for specific public
purposes by virtue of a presidential proclamation. Reserved lands are inalienable and
282

outside the commerce of man, and remain property of the Republic until withdrawn from
283

publicuse either by law or presidential proclamation. Since no law or presidential

284

proclamation has been issued withdrawing the site of the Mactan Economic Zone from
public use, the property remains reserved land.

As for the Bataan Economic Zone, the law consistently characterized the property as a
port. Under Republic Act No. 5490, Congress declared Mariveles, Bataan "a principal port
of entry" to serve as site of a foreign trade zone where foreign and domestic
285

merchandise may be brought in without being subject to customs and internal revenue
laws and regulations of the Philippines.
286

Section 4 of Republic Act No. 5490 provided that the foreign trade zone in Mariveles,
Bataan "shall at all times remain to be owned by the Government":

SEC. 4. Powers and Duties.– The Foreign Trade Zone Authority shall have the following
powers and duties:

a. To fix and delimit the site of the Zone which at all times remain to be owned by the
Government, and which shall have a contiguous and adequate area with well defined and
policed boundaries, with adequate enclosures to segregate the Zone from the customs
territory for protection of revenues, together with suitable provisions for ingress and
egress of persons, conveyance, vessels and merchandise sufficient for the purpose of this
Act[.] (Emphasis supplied)

The port in Mariveles, Bataan then became the Bataan Economic Zone under the Special
Economic Zone Act of 1995. Republic Act No. 9728 then converted the Bataan
287

Economic Zone into the Freeport Area of Bataan. 288

A port of entry, where imported goods are unloaded then introduced in the market for
public consumption, is considered property for public use. Thus, Article 420 of the Civil
Code classifies a port as property of public dominion. The Freeport Area of Bataan, where
the government allows tax and duty-free importation of goods, is considered property of
289

public dominion. The Freeport Area of Bataan is owned by the state and cannot be taxed
under Section 234(a) of the Local Government Code.

Properties of public dominion, even if titled in the name of an instrumentality as in this

case, remain owned by the Republic of the Philippines. If property registered in the name
of an instrumentality is conveyed to another person,the property is considered conveyed
on behalf of the Republic of the Philippines. Book I, Chapter 12, Section 48 of the
Administrative Code of 1987 provides:
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:

....

(2) For property belonging to the Republic of the Philippines, but titled in the name of any
political subdivision orof any corporate agency or instrumentality, by the executive head of
the agency or instrumentality. (Emphasis supplied)

In Manila International Airport Authority, this court explained:

[The exemption under Section 234(a) of the Local Government Code] should be read in
relation with Section 133(o) of the same Code, which prohibits local governments from
imposing "[t]axes, fess 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 remained owned by the Republic of the Philippines and
continue to be exempt from real estate tax.

The Republic may grant the beneficialuse 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." . . . (Emphasis in the original; italics
290

supplied)

Even the PEZA’s lands and buildings whose beneficial use have been granted to other
persons may not be taxed with real property taxes. The PEZA may only lease its lands
and buildings to PEZA-registered economic zone enterprises and entities. These 291

PEZA-registered enterprises and entities, which operate within economic zones, are not
subject to real property taxes. Under Section 24 of the Special Economic Zone Act of
1995, no taxes, whether local or national, shall be imposed on all business establishments
operating within the economic zones: SEC. 24. Exemption from National and Local Taxes.
– Except for real property on land owned by developers, no taxes, local and national, shall
be imposed on business establishments operating within the ECOZONE. In lieu thereof,
five percent (5%) of the gross income earned by all business enterprises within the
ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located. (Emphasis
292

supplied)

In lieu of revenues from real property taxes, the City of Lapu-Lapu collects two-fifths of 5%
final tax on gross income paid by all business establishments operating withinthe Mactan
Economic Zone:
SEC. 24. Exemption from National and Local Taxes. – Except for real property on land
owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the
gross income earned by all business enterprises within the ECOZONE shall be paid and
remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located. (Emphasis
293

supplied)

For its part, the Province of Bataan collects a fifth of the 5% final tax on gross income paid
by all business establishments operating within the Freeport Area of Bataan:

Section 6. Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned. - No
taxes, local and national, shall be imposed on business establishments operating
withinthe FAB. In lieu thereof, said business establishments shall pay a five percent (5%)
final tax on their gross income earned in the following percentages:

(a) One per centum (1%) to the National Government;

(b) One per centum (1%) to the Province of Bataan;

(c) One per centum (1%) to the treasurer's office of the Municipality of Mariveles; and

(d) Two per centum (2%) to the Authority of the Freeport of Area of Bataan. (Emphasis
294

supplied)

Petitioners, therefore, are not deprived of revenues from the operations of economic
zones within their respective territorial jurisdictions.

The national government ensured that loeal government units comprising economic
zones shall retain their basic autonomy and identity. 295

All told, the PEZA is an instrumentality of the national government. Furthermore, the
1âwphi1

lands owned by the PEZA are real properties owned by the Republic of the Philippines.
The City of Lapu-Lapu and the Province of Bataan cannot collect real property taxes from
the PEZA.

WHEREFORE, the consolidated petitions are DENIED.

THIRD DIVISION

G.R. No. 209303, November 14, 2016

NATIONAL POWER CORPORATION, Petitioner, v. THE PROVINCIAL TREASURER OF BENGUET,
THE PROVINCIAL ASSESSOR OF BENGUET, THE MUNICIPAL TREASURER OF ITOGON,
BENGUET AND THE MUNICIPAL ASSESSOR OF ITOGON, BENGUET, Respondent.

DECISION

PERALTA,**J.:

For this Court's resolution is a petition for review on certiorari filed by petitioner National Power
Corporation (NPC) seeking to reverse and set aside the Decision1 dated September 12, 2013 of the Court
of Tax Appeals (CTA) En Banc in E.B. No. 891.

Below are the facts of the case.

NPC is a government-owned and controlled corporation created and existing under and by virtue of
Republic Act (R.A.) No. 6395 with principal office address at NPC Office Building Complex, corner Quezon
Avenue and BIR Road, East Triangle, Diliman, Quezon City. NPC was created to undertake the
development of power generation and production from hydroelectric or other sources, and may
undertake the construction, operation and maintenance of power plants, dams, reservoirs, and other
works. It operates and maintains the Binga Hydro-Electric Power Plant.2 chanroble slaw

Respondents Provincial Treasurer, Provincial Assessor, Municipal Treasurer and Municipal Assessor of
Itogon are representatives of the province of Benguet, a local government unit. Respondents issued the
subject assessment in their official capacities.3 chanrobleslaw

Sometime in May 2000, the Municipal Assessor of Itogon, Benguet assessed NPC the amount of
P62,645,668.80 real property tax for the following properties located within the Binga Hydro-Electric
Power Plant:ChanRobles Vi rtua lawlib rary

Tax Declaration No. Classification

99-006-01448 Home Economics Building

99-006-01457 Nursery School

99-006-01458 Elem. School Bldg.

99-006-01505 Power House

99-006-01506 Industrial Road

99-006-01516 (N) High School Building

99-007-02221 Equipment/ Structure

99-008-01509 Machineries/ Equipment

On March 17, 2006, NPC received a letter dated February 16, 2006 from OIC- Provincial Treasurer of
Benguet demanding the payment of real property tax delinquency in the amount of P62,645,668.80.4 chanrobles law

On April 20, 2006, NPC challenged before the Local Board of Assessment Appeals (LBAA) the legality of
the assessment and the authority of the respondents to assess and collect real property taxes from it
when its properties are exempt pursuant to Section 234 (b) and (c) of Republic Act (R.A.) No. 7160,
otherwise known as the Local Government Code (LGC) of 1991. In the letters dated September 3, 2000
and April 19, 2001, NPC filed its requests for exemption, which the respondent Municipal Treasurer of
Itogon, Benguet has not acted upon.5 chanrobleslaw

In their Answer dated June 30, 2006, respondents alleged that NPC's properties were not exempt from
tax since the properties were classified in their tax declarations as "industrial," "for industrial use," or
"machineries" and "equipment." There was no evidence that the properties were being used for
generation and transmission of electric power. Respondents alleged that the period to assess had not
prescribed as the demand letter in 2006 was for collection of delinquency taxes, and not an initial
assessment which was issued in 2003 but was not settled by NPC. Respondents also alleged that the
appeal to the LBAA was filed out of time.6 chanrobles law

In an Order dated July 28, 2006, the LBAA deferred the proceedings upon NPC's payment under protest
of the assessed amount, or upon filing of a surety bond to cover the disputed amount of tax. NPC moved
to reconsider the Order on the ground of lack of legal basis, but the same was denied in a Resolution
dated October 3, 2006.7 chanrobles law

NPC filed a petition for review before the Central Board of Assessment Appeals (CBAA) claiming that
payment under protest was not required before it could challenge the authority of respondents to assess
tax on tax exempt properties before the LBAA.8 chanrobles law

In their Answer, respondents reiterated their contentions about the taxability of the subject properties.
They added that, pursuant to Section 252 of the LGC, payment under protest was a necessary condition
to a protest against the assessment issued by respondents.9 chanroble slaw

On July 28, 2011, the CBAA dismissed the appeal for being filed out of time, thus: ChanRoblesVi rt ualawlib ra ry

IN VIEW THEREOF, the instant appeal is hereby dismissed for

having filed out of time. (Petitioner) is advised to proceed
under Section 206 of R.A. No. 7160 (the Local Government Code
of 1991) and take the necessary steps in support of its claim
for exemption (sic) to be dropped from the assessment roll.

SO ORDERED.10 chanrobl esvirt uallaw librar y

The CBAA, in an Order dated February 23, 2012, denied NPC's motion for reconsideration. It ruled that
it is incumbent upon NPC to pay under protest before the LBAA could entertain its appeal as provided
under Section 252 of the LGC. It also stressed that the meetings and ocular inspection during the
pendency of the case were all pursuant to R.A. 928511 or the Alternative Dispute Resolution Act of 2004.

Undaunted, NPC appealed to the CTA En Banc by filing a Petition for Review dated April 13, 2012. The
CTA En Banc denied the same for lack of merit.12 It ruled that as expressly provided in Section 252 of the
LGC, a written protest against the assessment may be filed before the LBAA within thirty (30) days from
payment under protest. NPC failed to pay under protest the contested assessment, a condition sine qua
non for invocation of LBAA's appellate authority.13 chanrobleslaw

Hence, NPC filed the instant petition raising the sole issue: ChanRoblesVi rtualaw lib rary

THE CTA EN BANC ERRED IN DISMISSING THE PETITION BASED ON

PRESCRIPTION AS SAID ISSUE WAS NEVER RAISED IN THE LBAA. IN
FACT, WHEN PETITIONER ELEVATED THE CASE BEFORE THE CBAA, THE
LATTER EVEN CONCLUDED THAT THE ONLY ISSUE TO BE RESOLVED
THEREIN WAS WHETHER THE QUESTIONED PROPERTIES ARE
MACHINERIES AND EQUIPMENT THAT ARE ACTUALLY, DIRECTLY AND
EXCLUSIVELY USED BY NPC IN THE GENERATION AND TRANSMISSION
OF ELECTRIC POWER. THUS, THE CTA EN BANCSHOULD HAVE RESOLVED
THE CASE BASED ON THE ISSUE PRESENTED AND ON THE MERITS
 CONSIDERING THE FAR-REACHING IMPLICATIONS OF ITS DECISION ON
THE OTHER PROPERTIES OF NPC WHICH ARE SIMILARLY SITUATED AS
THE SUBJECT PROPERTIES HEREIN, INSTEAD OF DENYING THE
PETITION BASED ON PRESCRIPTION.14 chanrobl esvirt uallaw librar y

This Court finds the instant petition without merit.

At the outset, settled is the rule that should the taxpayer/real property owner question the excessiveness
or reasonableness of the assessment, Section 252 of the LGC of 1991 directs that the taxpayer should
first pay the tax due before his protest can be entertained, thus: ChanRobles Vi rt ualawlib ra ry

SEC. 252. Payment Under Protest. — (a) No protest shall be

entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under
protest". The protest in writing must be filed within
thirty (30) days from payment of the tax to the provincial,
city treasurer, or municipal treasurer, in the case of a
municipality within Metropolitan Area, who shall decide the
protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest shall be

held in trust by the treasurer concerned.

(c) In the event that the protest is finally decided in favor

of the taxpayer, the amount or portion of the tax protested
shall be refunded to the protestant, or applied as tax credits
against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse
of the sixty-day period prescribed in subparagraph (a), the
taxpayer may avail of the remedies as provided for in Chapter
3, Title Two, Book II of this Code.15 chanroblesvirtual lawlib rary

There shall be annotated on the tax receipts the words "paid under protest." It is only after the taxpayer
has paid the tax due that he may file a protest in writing within 30 days from payment of the tax to the
Provincial, City or Municipal Treasurer, who shall decide the protest within sixty days from receipt. In no
case is the local treasurer obliged to entertain the protest unless the tax due has been paid.16 chanrobles law

Relevant thereto, Chapter 3, Title Two, Book II of the LGC of 1991, Sections 226 to 231,17 provides for
the administrative remedies available to a taxpayer or real property owner who does not agree with the
assessment of the real property tax sought to be collected, particularly, the procedural and substantive
aspects of appeal before the LBAA and CBAA, including its effect on the payment of real property taxes.

NPC alleges that payment under protest under Section 252 of the LGC is required when the
reasonableness of the amount assessed is being questioned. Challenging the very authority and power of
the assessor to impose the assessment and of the treasurer to collect the tax is an attack on the very
validity on any increase and not merely on the amounts of increase in tax. Thus, such payment is not a
condition sine qua non for the LBAA to entertain the NPC's challenge on the validity of the tax imposed on
its tax-exempt properties.18chanrobles law

We are not persuaded. As settled in jurisprudence, a claim for exemption from the payment of real
property taxes does not actually question the assessor's authority to assess and collect such taxes, but
pertains to the reasonableness or correctness of the assessment by the local assessor, a question of fact
which should be resolved, at the very first instance, by the LBAA.19 The same may be inferred in Section
206 of the LGC of 1991, to wit:ChanRobles Vi rtua lawlib rary

SEC. 206. Proof of Exemption of Real Properly from Taxation.

— Every person by or for whom real property is
declared, who shall claim tax exemption for such
propertyunder this Title shall file with the provincial, city
or municipal assessor within thirty (30) days from the date
of the declaration of real prpperty sufficient documentary
evidence in support of such claim including corporate
charters, title of ownership, articles of incorporation,
bylaws, contracts, affidavits, certifications and mortgage
deeds, and similar documents.

If the required evidence is not submitted within the period

herein prescribed, the property shall be listed as taxable
in the assessment roll. However, if the property shall be
proven to be tax exempt, the same shall be dropped from the
assessment roll.20 chanroblesvir tualla wlibra ry

Section 206 of the LGC categorically provides that every person by or for whom real property is declared,
who shall claim exemption from payment of real property taxes imposed against said property, shall file
with the provincial, city or municipal assessor sufficient documentary evidence in support of such claim.
The burden of proving exemption from local taxation is upon whom the subject real property is declared.
By providing that real property not declared and proved as tax-exempt shall be included in the
assessment roll, the above quoted provision implies that the local assessor has the authority to assess
the property for realty taxes, and any subsequent claim for exemption shall be allowed only when
sufficient proof has been adduced supporting the claim. Thus, if the property being taxed has not
been dropped from the assessment roll, taxes must be paid under protest if the exemption
from taxation is insisted upon.21 chanrobles law

As held in Camp John Hay Development Corp. v. Central Board of Assessment Appeals:22

x x x the restriction upon the power of courts to impeach tax

assessment without a prior payment, under protest, of the
taxes assessed is consistent with the doctrine that taxes are
the lifeblood of the nation and as such their collection
cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government
unit, shall be crippled in dispensing the needed services to
the people, and its machinery gravely disabled. The right of
local government units to collect taxes due must always be
upheld to avoid severe erosion. This consideration is
consistent with the State policy to guarantee the autonomy
of local governments and the objective of RA No. 7160 or the
LGC of 1991 that they enjoy genuine and meaningful local
autonomy to empower them to achieve their fullest development
 as self-reliant communities and make them effective partners
in the attainment of national goals.

x x x23 chanrobl esvirt uallaw librar y

Records reveal that the petitioner sent a letter dated September 5, 2000 to the respondent Municipal
Treasurer seeking clarification on the assessment levels used by the Assessor in the billing taxes, as well
as claiming tax exemption on certain properties. It reiterated its claim of exemption in its letter dated
April 19, 2001. NPC received the final demand for payment of tax delinquency issued by the Provincial
Treasurer in a letter dated February 16, 2006. Thereafter, petitioner filed a petition purportedly
questioning the authority of the respondents to assess and to collect taxes against some of its properties
before the LBAA, without payment under protest of the assessed real property taxes.

Nothing in the said petition before the LBAA supports petitioner's claim regarding the respondents'
alleged lack of authority. Instead, it raises the following issues, which involve a question of fact: 1.) the
properties such as reservoir, machineries and equipment which are actually, directly and exclusively
used by NPC in the generation and transmission of electricity, and the school buildings are exempt from
taxation; and 2.) regarding the escape revision which was made retroactive from 1994, said taxes could
no longer be assessed and collected since they should have been assessed within five (5) years from the
date they became due.24 Though couched in terms which challenge the validity of the assessment and
authority of the respondents, NPC, as a government-owned and controlled corporation engaged in the
generation and transmission of electric power, essentially anchors its petition based on a claim of
exemption from real property tax.

Records are bereft of evidence which proves that, within 30 days from the filing of its Tax Declaration,
NPC filed with the Municipal Assessor of Itogon, Benguet an application for exemption or any
documentary evidence of the exempt status of its properties. Respondent Municipal Assessor assessed
petitioner's properties for real property tax since they were not dropped from the assessment roll upon
failure of NPC to comply with the requirements of the law. As found by the CTA En Banc: ChanRobles Virtualawl ibra ry

x x x Evidently, the two letters requesting exemption from

payment of realty tax dated September 3, 2000 and April 19,
2001 addressed to respondent Municipal Assessor were filed
beyond the required thirty (30)-day period from the
declaration of the subject properties for realty tax purposes
in May 2000. There is also no showing that petitioner
submitted together with the said formal requests sufficient
documents in support of such claim. Significantly, in the
proceedings below, respondents categorically stated that
petitioner failed to prove its claimed tax exemption. This
declaration remains undisputed to date. Precisely, the
subject properties were listed as taxable in the assessment
roll giving respondents the authority to issue the assailed
assessment.

x x x25 cralawre dchanr oblesv irtual lawlib rary

Based on the foregoing backdrop and the above-cited jurisprudence, it is evident that NPC's failure to
comply with the mandatory requirement of payment under protest in accordance with Section 252 of the
LGC was fatal to its appeal. We note that it is not the first occasion where this Court ruled that the NPC,
in claiming tax exemption, questions the reasonableness or correctness of the assessment by the local
assessor and not the legality of the assessment or his authority to assess real property tax. 26 As such,
petitioner should have first complied with Section 252. Its failure to prove that this requirement has been
complied with renders its administrative protest under Section 226 of the LGC without any effect. No
protest shall be entertained unless the taxpayer first pays the tax.
Notwithstanding such failure to comply therewith, the LBAA opted not to immediately dismiss the case
but instead deferred the hearing subject to the condition that payment of the real property tax should
first be made before proceeding, as provided for under Section 7,27 Rule V of the Rules of Procedure of
the LBAA. We held that, in requiring the payment under protest before proceeding with the case, the
LBAA simply recognized the importance of the requirement of "payment under protest" before an appeal
may be entertained, pursuant to Section 252, and in relation with Section 23128 of the same Code as to
non-suspension of collection of the realty tax pending appeal.29 chanrob leslaw

NPC alleged that the filing of the motion for reconsideration before the LBAA, though not required under
Section 229 (c) of the LGC, should not be taken against it for choosing to exhaust all the means to prove
that the properties are tax-exempt. It should not be deprived of its right to appeal and ventilate its case
before the courts where the decision on the issue of taxability of the properties will have a far-reaching
implication on its other properties similarly situated. It would have been more prudent for the CBAA and
the CTA En Banc to have resolved the case based on the evidence and arguments advanced rather than
dismiss the same on pure technicality and require NPC to present all over again its evidence of exemption
of its properties, which are already deemed exempt during the proceedings before the CBAA.30 chanroble slaw

In its statement of the timeliness of the appeal, the NPC alleged that as provided under Section 229 (c)
of the LGC, it has 30 days from its receipt of the assailed Order on October 16, 2006 to file its appeal
before the CBAA. However, the CBAA dismissed the same on the ground that it was filed beyond the
period of appeal, viz.: ChanRobles Vi rtualawl ib rary

x x x [NPC] failed to realize that the period of prescription

starts from receipt of the Order of the LBAA which deferred
the hearing on the [NPC]'s Petition. By its own admission,
said Order was "received by [NPC] on August 9, 2006," hence
the period of appeal to the CBAA should have prescribed thirty
(30) days thereafter, or to be exact, on September 8, 2006.

The provision does not require [NPC] to file a Motion for

Reconsideration. But if it does, it files the same at its own
risk as the Motion for Reconsideration does not stay the
period of prescription.

To repeat therefore, [NPC] has thirty (30) days from August

9, 2006 or not later than September 8, 2006 within which to
appeal to the Central Board of Assessment Appeals (CBAA).
Clearly timeliness has been considerably breached when the
herein Appeal reached this Board on November 22, 2006,
seventy-five (75) days, way beyond the September 8, 2006
deadline.

x x x31 chanrobl esvirt uallaw librar y

On August 9, 2006, NPC received the LBAA's Order dated July 28, 2009 postponing the hearing.
Thereafter, petitioner opted to file a motion for reconsideration before the LBAA on August 25, 2006, or
on the sixteenth day from receipt of the Order.32 On October 17, 2006, NPC received the Resolution of
the LBAA dated October 3, 2006 denying its motion for reconsideration. Therefore, NPC had the
remaining period of 14 days, or until October 31, 2006, within which to appeal.

While it is evident in jurisprudence that the filing of motion for reconsideration before the LBAA is
allowed,33 this Court finds that, inevitably, the filing of the appeal before the CBAA through registered
mail on November 16, 2006 was already late. It is settled that the "fresh period rule" in the case
of Domingo Neypes, et al. v. Court of Appeals, et al..34 applies only to judicial appeals and not to
administrative appeals.35 chanrobles law

In Panolino v. Tajala,36 We elucidated that: ChanRoblesVirt ualawli bra ry

x x x The "fresh period rule" in Neypes declares:

To standardize the appeal periods provided in the Rules

chanRobl esvirt ualLaw librar y

and to afford litigants fair opportunity to appeal their

cases, the Court deems it practical to allow a fresh period
of 15 days within which to file the notice of appeal in the
Regional Trial Court, counted from receipt of the order
dismissing a motion for a new trial or motion for
reconsideration.

Henceforth, this "fresh period rule" shall also apply to Rule

40 governing appeals from the Municipal Trial Courts to the
Regional Trial Courts; Rule 42 on petitions for review from
the Regional Trial Courts to the Court of Appeals; Rule 43
on appeals from quasi-judicialagencies to the Court of
Appeals; and Rule 45 governing appeals by certiorari to
the Supreme Court. The new rule aims to regiment or make the
appeal period uniform, to be counted from receipt of the order
denying the motion for new trial, motion for reconsideration
(whether full or partial) or any final order or resolution.

x x x

As reflected in the above-quoted portion of the decision

in Neypes, the "fresh period rule" shall apply to Rule 40
(appeals from the Municipal Trial Courts to the Regional
Trial Courts); Rule 41 (appeals from the Regional Trial
Courts to the Court of Appeals or Supreme Court); Rule 42
(appeals from the Regional Trial Courts to the Court of
Appeals); Rule 43 (appeals from quasi-judicial agencies to
the Court of Appeals); and Rule 45 (appeals
by certiorari to the Supreme Court). Obviously, these
Rules cover judicialproceedings under the 1997 Rules of
Civil Procedure.

Petitioner's present case is administrative in nature

involving an appeal from the decision or order of the DENR
regional office to the DENR Secretary. Such appeal is indeed
 governed by Section 1 of Administrative Order No. 87, Series
of 1990. As earlier quoted, Section 1 clearly provides that
if the motion for reconsideration is denied, the movant
shall perfect his appeal "during the remainder of the period
of appeal, reckoned from receipt of the resolution of
denial;" whereas if the decision is reversed, the adverse
party has a fresh 15-day period to perfect his appeal.
(Emphasis supplied.)

x x x37 chanrobl esvirt uallaw librar y

In the instant case, the subject appeal, i.e., appeal from a decision of the LBAA to the CBAA, is not
judicial but administrative in nature. Thus, the "fresh period rule" in Neypes does not apply. Contrary to
NPC's allegation that it has 30 days from receipt of the Order denying its motion for reconsideration
within which to appeal before the CBAA, it only has the remaining 14 days from the 30-day period of
appeal.

Considering that the LBAA has not resolved the merits of the case, the CBAA cannot rule on the very issue
of real property tax exemption of some of NPC's properties as it has yet to acquire jurisdiction. This Court,
in compliance with the procedural steps prescribed in the law, cannot delve on the issue of NPC'S alleged
non-taxability on the ground of exemption. As such, this Court's role in addressing NPC's concerns and
the interests at stake is not all-encompassing. This Court cannot tackle the feared far-reaching
implication of the decision on the other properties of NPC similarly situated as the subject properties, as
discussed earlier, the LBAA has yet to decide on the merits of the case. We can only resolve the current
controversy through a reading and interpretation of the law.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En
Bancin C.T.A. EB No. 891 is AFFIRMED. The case is REMANDED to the Local Board of Assessment
Appeals for further proceedings subject to payment under protest of the assailed assessment.