G.R. No.
168557             February 16, 2007 In a letter7 dated September 7, 1995, NPC sought
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.
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 Distraint 13 over
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 Order 14 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 Intervention 15 dated
August 7, 1998 in the proceedings before the CBAA. This
was approved by the CBAA in an Order 16 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 Resolution 20 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:
I
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.net
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.
SO ORDERED.
G.R. No. 171470               January 30, 2009
NATIONAL POWER CORPORATION, Petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA),
LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) OF
LA UNION, PROVINCIAL TREASURER, LA UNION and
MUNICIPAL ASSESSOR OF BAUANG, LA
UNION, Respondents.
DECISION
BRION, J.:
What are the real property tax implications of a Build-
Operate-Transfer (BOT) agreement between a government-
owned and controlled corporation (GOCC) that enjoys tax
exemption and a private corporation? Specifically, under
the terms of the BOT Areement, can the GOCC be deemed
the actual, direct, and exclusive user of machineries and
equipment for tax exemption purposes? If not, can it pass
on its tax-exempt status to its BOT partner, a private
corporation, through the BOT agreement?
The National Power Corporation (NAPOCOR) claims in this
case that the machineries and equipment used in a project
covered by a BOT agreement, to which it is a party, should
be accorded the tax-exempt status it enjoys. The Local
Board of Assessment Appeals of the Province of La Union
(LBAA), the Central Board of Assessment Appeals (CBAA)
and the Court of Tax Appeals (CTA) were one in rejecting
NAPOCOR’s claim.
The present petition for review on certiorari filed under Rule
45 of the Rules of Court by NAPOCOR challenges this
uniform ruling and seeks the reversal of the CTA’s Decision
dated February 13, 2006 in the consolidated cases of
NAPOCOR v. CBAA, et al.1 and Bauang Private Power Corp.
v. Sangguniang Panlalawigan ng La Union, et al.,2 and of
the denial of the motion for reconsideration that followed.
THE ANTECEDENTS
On January 11, 1993, First Private Power Corporation
(FPPC) entered into a BOT agreement with NAPOCOR
for the construction of the 215 Megawatt Bauang
Diesel Power Plant in Payocpoc, Bauang, La Union.
The BOT Agreement provided, via an Accession
Undertaking, for the creation of the Bauang Private
Power Corporation (BPPC) that will own, manage and
operate the power plant/station, and assume and
perform FPPC’s obligations under the BOT agreement.
For a fee,3 BPPC will convert NAPOCOR’s supplied
diesel fuel into electricity and deliver the product to
NAPOCOR.
The pertinent provisions of the BOT agreement, as
they relate to the submitted issues in the present
case, read:
2.03 NAPOCOR shall make available the Site to
CONTRACTOR for the purpose of building and operating the
Power Station at no cost to CONTRACTOR for the period
commencing on the Effective Date and ending on the
Transfer Date and NAPOCOR shall be responsible for
the payment of all real estate taxes and assessments,
rates, and other charges in respect of the Site and the
buildings and improvements thereon.
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2.08 From the date hereof until the Transfer Date,
CONTRACTOR shall, directly or indirectly, own the
Power Station and all the fixtures, fittings,
machinery, and equipment on the Site or used in
connection with the Power Station which have been
supplied by it or at its cost and it shall operate and
manage the Power Station for the purpose of
converting fuel of NAPOCOR into electricity.
2.09 Until the Transfer Date, NAPOCOR shall, at its own
cost, supply and deliver all Fuel for the Power Station and
shall take all electricity generated by the Power Station at
the request of NAPOCOR which shall pay to CONTRACTOR
fees as provided in Clause 11.
xxxx
2.11 On the Transfer Date, the Power Station shall be
transferred by the CONTRACTOR to NAPOCOR without
payment of any compensation.
The Officer-in-Charge of the Municipal Assessor’s
Office of Bauang, La Union initially issued Declaration
of Real Property Nos. 25016 and 25022 to 25029
declaring BPPC’s machineries and equipment as tax-
exempt. On the initiative of the Bauang Vice Mayor,
the municipality questioned before the Regional
Director of the Bureau of Local Government Finance
(BLGF) the declared tax exemption; later, the issue
was elevated to the Deputy Executive Director and
Officer-in-Charge of the BLGF, Department of
Finance, who ruled that BPPC’s machineries and
equipment’s are subject to real property tax and
directed the Assessors’ Office to take appropriate
action.
The Provincial/Municipal Assessors thereupon issued
Revised Tax Declaration Nos. 30026 to 30033 and
30337, and cancelled the earlier issued Declarations
of Real Property. The Municipal Assessor of Bauang
then issued a Notice of Assessment and Tax Bill to
BPPC assessing/taxing the machineries and
equipments in the total sum of ₱288,582,848.00 for the
1995-1998 period, sans interest of two percent (2%) on the
unpaid amounts. BPPC’s Vice-President and Plant Manager
received the Notice of Assessment and Tax Bill on August 7,
1998.
On October 5, 1998, NAPOCOR filed a petition (styled In
Re Petition to Declare Exempt the Revised and Retroactive
to 1995 Tax Declaration Nos. 30026 to 30033 and 30037)
with the LBAA. The petition asked that, retroactive to
1995, the machineries covered by the tax
declarations be exempt from real property tax under
Section 234(c) of Republic Act No. 7160 (the Local
Government Code or LGC); and, that these properties
be dropped from the assessment roll pursuant to
Section 206 of the LGC. Section 234(c) of the LGC
provides: 4
Section 234. Exemptions from Real Property Tax. – The
following are exempted from the payment of 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;
x x x x.
The LBAA denied NAPOCOR’s petition for exemption
in a Decision dated October 26, 2001. It ruled that
the exemption provided by Section 234(c) of the LGC
applies only when a government-owned or controlled
corporation like NAPOCOR owns and/or actually uses
machineries and equipment for the generation and
transmission of electric power; in this case, NAPOCOR
does not own and does not even actually and directly
use the machineries. It is the BPPC, a non-
government entity, which owns, maintains, and
operates the machineries and equipment; using
these, it generates electricity and then sells this to
NAPOCOR. Additionally, it ruled that the liability for
the payment of the real estate taxes is determined by
law and not by the agreement of the parties; hence,
the provision in the BOT Agreement whereby
NAPOCOR assumed responsibility for the payment of
all real estate taxes and assessments, rates, and
other charges, in relation with the site, buildings, and
improvements in the BOT project, is an arrangement
between the parties that cannot be the basis in
identifying who is liable to the government for the
real estate tax.
NAPOCOR appealed the LBAA ruling to the CBAA.
BPPC moved to intervene on the ground that it has a direct
interest in the outcome of the litigation.5 The CBAA
subsequently dismissed the appeal based on its
finding that the BPPC, and not NAPOCOR, is the
actual, direct and exclusive user of the equipment
and machineries; thus, the exemption under Section
234(c) does not apply. The CBAA ruled:
Sec. 234 (c), R.A. 7160 (supra), is clear and unambiguous:
"there is no room for construction." (citations omitted)
xxxx
Actual use, according to Sec. 199 (b) of R.A. 7160, "refers
to the purpose for which the property is principally or
predominantly utilized by the person in possession thereof."
In Velez v. Locsin, 55 SCRA 152: "The word ‘use’ means to
employ for the attainment of some purpose or end." In the
"Operation of the Power Station" (Clause 8.01 of the BOT
Agreement), CONTRACTOR shall, at its own cost, be
responsible for the management, operation, maintenance
and repair of the Power Station during the Co-operation
period x x x." Said Co-operation period is fifteen (15) years,
after which the Power Station will be turned over or
transferred to NAPOCOR. Does this determine when
NAPOCOR should take over the actual, direct and exclusive
use of the Power Station? That is fifteen (15) years
therefrom?
It has been established that BPPC manufactures or
generates the power which is sold to NAPOCOR and
NAPOCOR distributes said power to the consumers.
In other words, the relationship between BPPC and
NAPOCOR is one of manufacturer or seller and
exclusive distributor or buyer. The general perception
is that the exclusive distributor or buyer of goods has
nothing to do with the manufacturing thereof but as
exclusive distributor the latter has the right to
acquire all the goods to be sold to the exclusion of all
others.
In terms of the definitions under Sec. 199 (b) and that
offered by Respondents-Appelless (supra), the machineries
and equipment are principally or predominantly utilized by
BPPC. In terms of the Velez vs. Locsin case (supra), BPPC
employs the machineries and equipment to attain its
purpose of generating power to be sold to NAPOCOR and
collect payment therefrom to compensate for its
investment. The BOT Agreement is not a contract for
nothing.
The following definitions are given by Black’s Law
Dictionary, Third Edition:
"Actually is opposed to seemingly, pretendedly, or
feignedly, as actually engaged in farming means
really, truly in fact."
"Directly. In a direct way without anything
intervening; not by secondary, but by direct means."
"Exclusively. Apart from all others; without admission
of others to participation; in a manner to exclude."
Indeed BPPC does not use said machineries and
equipment pretendedly or feignedly but truly and
factually hence, "actually." BPPC uses them without
anything intervening hence, directly. BPPC uses the
same machineries and equipment apart from all
others hence, exclusively. This is the fact – against the
fact there is no argument. This same fact will also deny
NAPOCOR’s claim to a ten (10%) assessment level provided
for under Sec. 218 of R.A. 7160 (supra) as to the
requirement thereto is simply the same as that in realty tax
exemption. The BPPC is a private entity, not a Government
Owned or Controlled Corporation (GOCC), hence, not
entitled to a 10% assessment level.
NAPOCOR then filed with the CTA a petition for
review, docketed as CTA E.B. No. 51, to challenge the
CBAA decision. BPPC filed its own petition for review of the
CBAA decision with the CTA which was docketed as CTA
E.B. No. 58. The two petitions were subsequently
consolidated.
THE APPEALED CTA RULING
The CTA rendered on February 13, 2006 a decision
dismissing the consolidated petitions. It ruled on two
issues: (1) whether BPPC seasonably filed its protest
against the assessment; and (2) whether the machineries
and equipments are actually, directly, and exclusively used
by NAPOCOR in the generation and transmission of electric
power, and are therefore not subject to tax.
On the first issue, the CTA applied Section 226 of the LGC
which provides the remedy from an assessment as follows:
SEC. 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 in the province or city by filing a petition under
oath in the form prescribed for the purpose, together with
copies of tax declarations and such affidavits or documents
submitted in support of the appeal.
It found that BPPC never filed an appeal to contest or
question the assessment; instead, it was NAPOCOR that
filed the purported appeal – a petition for exemption of the
machineries and equipment. The CTA, however, said that
NAPOCOR is not the proper party, and the purported appeal
did not substantially comply with the requisites of the law.
According to the CTA, NAPOCOR is not the registered
owner of the machineries and equipment. These are
registered in BPPC’s name as further confirmed by
Section 2.08 of the BOT Agreement. 6 Thus, the CTA
declared that until the transfer date of the power
station, NAPOCOR does not own any of the
machineries and equipment, and therefore has no
legal right, title, or interest over these properties.
Thus, the CTA concluded that NAPOCOR has no cause
of action and no legal personality to question the
assessment. As the respondent local government
units claim, NAPOCOR is an interloper in the issue of
BPPC’s real estate tax liabilities.
The CTA additionally found that BPPC’s subsequent attempt
to question the assessment via a motion for intervention
with the CBAA failed to follow the correct process
prescribed by the Rules Governing Appeals to the CBAA; 7 its
appeal was not accompanied by an appeal bond.
Also, the CTA found NAPOCOR’s petition to be an
inappropriate remedy, as it is not the appeal contemplated
by law; NAPOCOR was in fact asserting an exemption on
the basis of the provisions of the BOT Agreement. An
exemption is an evidentiary matter for the assessors, not
for the LBAA, to decide pursuant to Section 206 of the
LGC;8 NAPOCOR cannot simply bypass the authority
granted to concerned administrative agencies, as these
available administrative remedies must first be exhausted.
On the more substantive second issue, the CTA saw it
clear from the BOT Agreement that BPPC owns and
uses the machineries and equipment in the power
station, thus directly addressing and disproving
NAPOCOR’s "actual, direct, and exclusive use"
argument. It noted that under the BOT Agreement,
NAPOCOR shall have a right over the machineries and
equipments only after their transfer at the end of the
15-year co-operation period. "By the nature of the
agreement and work of BPPC, the [machineries] are
actually, directly, and exclusively used by it in the
conversion of bunker fuel to electricity for
[NAPOCOR] for a fee," the CTA said.
Section 234(c) of the LGC, according to the CTA, is
clear. The exemption under the law does not apply
because BPPC is not a GOCC – it is an independent
power corporation currently operating and
maintaining the power plant pursuant to the BOT
Agreement. The BOT agreement cannot likewise be
the basis for the claimed exemption; tax exemption
cannot be agreed upon by mere contract between the
parties (BPPC and NAPOCOR), as it must be expressly
granted by the Constitution, statute, or franchise. A tax
exemption, if and when granted, is also not transferrable,
as it is a personal privilege and it must be strictly
construed, the CTA said in closing.
THE SEPARATE APPEALS
Thereupon, NAPOCOR and BPPC sought separate reviews of
the CTA decision with us.
G.R. No. 173811
BPPC filed on September 11, 2006 its petition separately
from NAPOCOR. The BPPC petition was docketed as G.R.
No. 173811 and was raffled to the First Division of the
Court.
The First Division denied BPPC’s petition in its Resolution
dated October 4, 2006 on the reasoning that BPPC failed to
sufficiently show that the CTA committed any reversible
error in the challenged decision and resolution as to warrant
the exercise of the Court’s discretionary appellate
jurisdiction.
BPPC moved to reconsider the denial of its petition, but the
Third Division (after the Court’s reorganization) denied the
motion for reconsideration with finality after finding no
substantial arguments to warrant reconsideration. The
resolution denying BPPC’s petition for review had become
final and executory and was thus recorded in the Book of
Entries of Judgment on April 3, 2007.
G.R. No. 171470 – The Present Case
The NAPOCOR petition now pending with us was filed on
April 6, 2006 and was docketed as G.R. No. 171470. We
required the respondents to comment on the petition in our
Resolution of May 3, 2006. The respondents filed the
required comments. NAPOCOR subsequently filed its Reply.
NAPOCOR cited the following as grounds for its petition:
I.
THE CTA ERRED ON A QUESTION OF LAW IN NOT RULING
THAT PETITIONER IS THE ACTUAL, DIRECT, AND
EXCLUSIVE USER OF THE BAUANG DIESEL POWER PLANT.
II.
THE CTA ERRED ON A QUESTION OF LAW IN
DISREGARDING THAT THE REAL PROPERTY TAX
EXEMPTION IS RETAINED UNDER R.A. NO. 7160.
III.
THE CTA ERRED ON A QUESTION OF LAW IN RULING THAT
PETITIONER MUST BE ENGAGED IN BOTH GENERATION
AND TRANSMISSION OF POWER BEFORE THE EXEMPTION
UNDER SECTION 234(C) OF R.A. NO. 7160 CAN APPLY.
IV.
THE CTA ERRED ON A QUESTION OF LAW IN NOT
CONSTRUING THE EXEMPTIONS UNDER R.A. NO. 7160 IN
HARMONY WITH PETITIONER’S CHARTER AND THE BOT
LAW.
V.
ASSUMING THE 215 MW BAUANG DIESEL POWER PLANT IS
TAXABLE, THE SAME SHOULD BE CLASSIFIED AS
"SPECIAL" FOR REAL PROEPRTY TAX PURPOSES SUBJECT
TO A 10% ASSESSMENT LEVEL, AND NOT AS
COMMERCIAL/INDUSTRIAL PROPERTIES SUBJECT TO AN
80% ASSESSMENT RATE.
In the interim and in light of the sale at public auction of
the machineries and equipments, NAPOCOR filed a
Supplemental Petition based on the following grounds:
I.
THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING
PETITIONER’S APPEAL BECAUSE THE LATTER IS A
GOVERNMENT INSTRUMENTALITY WHOSE FOREIGN AND
DOMESTIC INDEBTEDNESS ARE GUARANTEED BY THE
NATIONAL GOVERNMENT, IS THE BENEFICIAL OWNER OF
THE SUBJECT POWER PLANT AND [IS] THUS EXEMPT FROM
THE PAYMENT OF REAL PROPERTY TAXES.
II.
THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING
PETITIONER’S APPEAL BECAUSE THIS LED TO THE SALE OF
THE BAUANG POWER PLANT TO THE PROVINCIAL
GOVERNMENT OF LA UNION, THUS SERIOUSLY VIOLATING
PETITIONER’S STATUTORY MANDATE TO CARRY OUT THE
TOTAL ELECTRIFICATION OF THE COUNTRY.
To support its claim that it is entitled to tax
exemption as the actual, direct, and exclusive user of
the machineries and equipment, NAPOCOR argues
that:
a. the BOT agreement is a financing
agreement where it (NAPOCOR) is the
beneficial owner and the actual, direct, and
exclusive user of the power plant, while BPPC
is the lender/creditor that retains the plant’s
legal ownership until it is fully paid; the
power plant is a NAPOCOR project and BPPC
is just the financier-contractor, and any BPPC
activity is made on NAPOCOR’s behalf as a
contractor for NAPOCOR; in this way,
NAPOCOR takes advantage of BPPC’s
financial resources and technical expertise to
secure a continuous supply of electric power.
b. its payment of energy fees, fixed operating
fees, and other infrastructure fees to BPPC is
not inconsistent with its (NAPOCOR’s)
beneficial ownership and actual, direct, and
exclusive use of the power plant, since the
collection of the fees is the repayment
scheme prescribed by Section 6 9 of Republic
Act No. 6957,10 as amended by Republic Act
No. 7718 (BOT Law, as amended); its
amortizations over the 15-year co-operation
period constitute full payment for the power
plant that would warrant the transfer of
ownership without payment of additional
compensation; finally, that Republic Act No.
9136 or the Electric Power Industry Reform
Act of 2001 has booked the power plant as
NAPOCOR’s asset for privatization purposes.
 c. its tax exemption should apply to a BOT
project, citing the conditions that gave rise to
the BOT law and its own mandate to provide
electricity nationwide; BOT projects are really
government projects where the private sector
participates to provide the heavy initial
financial requirements; and that Congress
specifically considered NAPOCOR’s situation
in granting tax exemption to machineries and
equipment used in power generation and
distribution.
d. in the interpretation of Section 234(c) of
the LGC, related statutes must be considered
and the task of the courts is to harmonize all
these laws, if possible; specifically, Section
234(c) of the LGC was enacted to clarify or restore
NAPOCOR’s real property tax exemption so that
NAPOCOR can perform its public function of
supplying electricity to the entire country at
affordable rates, while the BOT law was enacted,
among others, to authorize NAPOCOR to enter into
BOT contracts with the private sector so that
NAPOCOR can carry out its mandate; the tax
exemption under Section 234(c) of the LGC must
be given effect as the only legal and cogent way of
harmonizing it with NAPOCOR’s Charter and the
BOT law.
NAPOCOR concludes that the CTA’s ruling clearly defeats
the spirit behind its creation, the enactment of the BOT
Law, and the tax exemption provision under the LGC.
THE COURT’S RULING
We find the petition devoid of merit. Like the Court’s First
Division (later, Third Division) in G.R. No. 173811, we find
that NAPOCOR failed to sufficiently show that the CTA
committed any reversible error in its ruling.
NAPOCOR’s basis for its claimed exemption – Section
234(c) of the LGC – is clear and not at all ambiguous in its
terms. Exempt from real property taxation are: (a) all
machineries and equipment; (b) [that are] actually,
directly, and exclusively used by; (c) [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.
We note, in the first place, that the present case is not the
first occasion where NAPOCOR claimed real property tax
exemption for a contract partner under Sec. 234 (c) of the
LGC. In FELS Energy, Inc. v. The Province of
Batangas11 (that was consolidated with NAPOCOR v. Local
Board of Assessment Appeals of Batangas, et al.), 12 the
Province of Batangas assessed real property taxes against
FELS Energy, Inc. – the owner of a barge used in
generating electricity under an agreement with NAPOCOR.
Their agreement provided that NAPOCOR shall pay all of
FELS’ real estate taxes and assessments. We concluded in
that case that we could not recognize the tax exemption
claimed, since NAPOCOR was not the actual, direct and
exclusive user of the barge as required by Sec. 234 (c). In
making this ruling, we cited the required standard of
construction applicable to tax exemptions and said:
Time and again, the Supreme Court has stated that
taxation is the rule and exemption is the exception. 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. 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.
We also recognized this strictissimi juris standard in
NAPOCOR v. City of Cabanatuan.13 Under this standard, the
claimant must show beyond doubt, with clear and
convincing evidence, the factual basis for the claim. Thus,
the real issue in a tax exemption case such as the present
case is whether NAPOCOR was able to convincingly show
the factual basis for its claimed exception.
The records show that NAPOCOR, no less, admits BPPC’s
ownership of the machineries and equipment in the power
plant.14 Likewise, the provisions of the BOT agreement cited
above clearly show BPPC’s ownership. Thus, ownership is
not a disputed issue.
Rather than ownership, NAPOCOR’s use of the
machineries and equipment is the critical issue, since
its claim under Sec. 234(c) of the LGC is premised on
actual, direct and exclusive use. To support this
claim, NAPOCOR characterizes the BOT Agreement as
a mere financing agreement where BPPC is the
financier, while it (NAPOCOR) is the actual user of
the properties.
As in the fact of ownership, NAPOCOR’s assertion is
belied by the documented arrangements between the
contracting parties, viewed particularly from the
prism of the BOT law.
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.
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.15
As envisioned in the BOT law, the parties’ agreement
assumes that within the agreed BOT period, BPPC – the
investor–private corporation – shall recover its investment
and earn profits through the agreed compensation scheme;
thereafter, it shall transfer the whole project, including
machineries and equipment, to NAPOCOR without additional
cost or compensation. The latter, for its part, derives
benefit from the project through the fulfillment of its
mandate of delivering electricity to consumers at the
soonest possible time, without immediately shouldering the
huge financial requirements that the project would entail if
it were to undertake the project on its own. Its obligation,
in exchange, is to shoulder specific operating costs under a
compensation scheme that includes the purchase of all the
electricity that BPPC generates.
For these same reasons, we reject NAPOCOR’s argument
that the machineries and equipment must be subjected to a
lower assessment level. NAPOCOR cites as support Section
216 of the LGC which provides:
Section 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.
in relation with Section 218 (d) of the LGC which provides:
Section 218. Assessment Levels. - The assessment levels to
be applied to the fair market value of real property to
determine its assessed value shall be fixed by ordinances of
the Sangguniang Panlalawigan, Sangguniang
Panlungsod or Sangguniang Bayan of a municipality within
the Metropolitan Manila Area, at the rates not exceeding the
following:
xxxx

That some kind of "financing" arrangement is contemplated (d) On Special Classes: The assessment levels for all lands
– in the sense that the private sector proponent shall buildings, machineries and other improvements;
initially shoulder the heavy cost of constructing the
project’s buildings and structures and of purchasing the
needed machineries and equipment – is undeniable. The Actual Use Assessment Level
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 Cultural 15%
project, but operates and manages it as well during an
agreed period that would allow it to recover its basic costs Scientific 15%
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 Hospital 15%
the government at all during the agreed period, these are
pre-agreed items of assistance geared to ensure that the
Local water districts 10%
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 Government-owned or controlled 10%
from the usual financing arrangements where funds are corporations engaged in the supply
advanced to a borrower who uses the funds to establish a and distribution of water and/or
project that it owns, subject only to a collateral security generation and transmission of
arrangement to guard against the nonpayment of the loan. electric power
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
Since the basis for the application of the claimed
beginning, and the lender-operator is merely its agent in
differential treatment or assessment level is the same
running the project.
as the claimed tax exemption, the lower tribunals
correctly found that there is no basis to apply the
If the BOT Agreement under consideration departs at all lower assessment level of 10%.
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
As our last point, we note that a real concern for NAPOCOR
selling to facility users or to the general public at large, the
in this case is its assumption under the BOT agreement of
generated electricity is purchased by NAPOCOR which then
BPPC’s real property tax liability (which in itself is a
resells it to power distribution companies. This deviation,
recognition that BPPC’s real properties are not really tax
however, is dictated, more than anything else, by the
exempt). NAPOCOR argues that if no tax exemption will be
structure and usages of the power industry and does not
recognized, the responsibility it assumed carries practical
change the BOT nature of the transaction between the
implications that are very difficult to ignore. In fact,
parties.
NAPOCOR’s supplemental petition is anchored on these
practical implications – the alleged detriment to the public
Consistent with the BOT concept and as implemented, BPPC interest that will result if the levy, sale, and transfer of the
– the owner-manager-operator of the project – is the actual machineries and equipment were to be completed.
user of its machineries and equipment. BPPC’s ownership NAPOCOR’s reference is to the fact that the machineries
and use of the machineries and equipment are actual, and equipment have been sold in public auction and the
direct, and immediate, while NAPOCOR’s is contingent and, buyer – the respondent Province – will consolidate its
at this stage of the BOT Agreement, not sufficient to ownership over these properties on February 1, 2009.
support its claim for tax exemption. Thus, the CTA
committed no reversible error in denying NAPOCOR’s claim
for tax exemption.
We fully recognize these concerns. However, these
considerations are not relevant to our disposition of the
issues in this case. We are faced here with the application
of clear provisions of law and settled jurisprudence to a
case that, to our mind, should not be treated differently
solely because of non-legal or practical considerations.
Significantly, local government real property taxation also
has constitutional underpinnings, based on Section 5 of
Article X of the Constitution,16 that we cannot simply ignore.
In FELS
Energy, Inc. v. The Province of Batangas, 17 earlier cited, we
said:
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.
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 governments 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.
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. [Emphasis
supplied.]
This ruling reminds us of the other side of the coin in terms
of concerns and protection of interests. La Union, as a local
government unit, has no less than its own constitutional
interests to protect in pursuing this case. These are
interests that this Court must also be sensitive to and has
taken into account in this Decision.
We close with the observation that our role in addressing
the concerns and the interests at stake is not all-
encompassing. The Judiciary can only resolve the current
dispute through our reading and interpretation of the law.
The other branches of government which act on policy and
which execute these policies, including NAPOCOR itself and
the respondent local government unit, are more in the
position to act in tackling feared practical consequences.
This ruling on the law can be their springboard for action.
In light of these conclusions and observations, we need not
discuss the other issues raised.
WHEREFORE, premises considered, we DENY NAPOCOR’s
petition for lack of merit. We AFFIRM the appealed decision
of the Court of Tax Appeals. Costs against NAPOCOR.
SO ORDERED.
G.R. No. L-47943 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD
OF ASSESSMENT APPEALS OF BATANGAS and
PROVINCIAL ASSESSOR OF BATANGAS, respondents.
This case is about the imposition of the realty tax on
two oil storage tanks installed in 1969 by Manila
Electric Company on a lot in San Pascual, Batangas
which it leased in 1968 from Caltex (Phil.), Inc. The
tanks are within the Caltex refinery compound. They have a
total capacity of 566,000 barrels. They are used for storing
fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of steel
plates welded and assembled on the spot. Their bottoms
rest on a foundation consisting of compacted earth as the
outermost layer, a sand pad as the intermediate layer and a
two-inch thick bituminous asphalt stratum as the top layer.
The bottom of each tank is in contact with the asphalt
layer,
The steel sides of the tank are directly supported
underneath by a circular wall made of concrete, eighteen
inches thick, to prevent the tank from sliding. Hence,
according to Meralco, the tank is not attached to its
foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not
attached to any part of the foundation by bolts,
screws or similar devices. The tank merely sits on its
foundation. Each empty tank can be floated by flooding its
dike-inclosed location with water four feet deep. (pp. 29-30,
Rollo.)
On the other hand, according to the hearing
commissioners of the Central Board of Assessment
Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel poles
on top thereof and is divided into two parts as the
site of each tank. The foundation of the tanks is
elevated from the remaining area. On both sides of
the earthen dikes are two separate concrete steps
leading to the foundation of each tank.
Tank No. 2 is supported by a concrete foundation
with an asphalt lining about an inch thick. Pipelines
were installed on the sides of each tank and are
connected to the pipelines of the Manila Enterprises
Industrial Corporation whose buildings and pumping
station are near Tank No. 2.
The Board concludes that while the tanks rest or sit
on their foundation, the foundation itself and the
walls, dikes and steps, which are integral parts of the
tanks, are affixed to the land while the pipelines are
attached to the tanks. (pp. 60-61, Rollo.) In 1970, the
municipal treasurer of Bauan, Batangas, on the basis
of an assessment made by the provincial assessor,
required Meralco to pay realty taxes on the two
tanks. For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27, Rollo). The
Board required Meralco to pay the tax and penalties as a
condition for entertaining its appeal from the adverse
decision of the Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed
of Acting Secretary of Finance Pedro M. Almanzor as
chairman and Secretary of Justice Vicente Abad Santos and
Secretary of Local Government and Community
Development Jose Roño as members) in its decision dated
November 5, 1976 ruled that the tanks together with
the foundation, walls, dikes, steps, pipelines and
other appurtenances constitute taxable
improvements.
Meralco received a copy of that decision on February 28,
1977. On the fifteenth day, it filed a motion for
reconsideration which the Board denied in its resolution of
November 25, 1977, a copy of which was received by
Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil
action of certiorari to annul the Board's decision and
resolution. It contends that the Board acted without
jurisdiction and committed a grave error of law in
holding that its storage tanks are taxable real
property.
Meralco contends that the said oil storage tanks do
not fall within any of the kinds of real property
enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by
nature, by incorporation, by destination nor by
analogy. Stress is laid on the fact that the tanks are
not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or
penumbral cases on the classification of property where
strong divergent opinions are inevitable. The issue raised by
Meralco has to be resolved in the light of the provisions of
the Assessment Law, Commonwealth Act No. 470, and the
Real Property Tax Code, Presidential Decree No. 464 which
took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty
tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is reproduced
with some modification in the Real Property Tax Code which
provides:
Sec. 38. Incidence of Real Property Tax.
— They shall be levied, assessed and
collected in all provinces, cities and
municipalities an annual ad valorem
tax on real property, such as land,
buildings, machinery and
other improvements affixed or attached to
real property not hereinafter specifically
exempted.
The Code contains the following definition in its section 3:
k) Improvements — is a valuable addition
made to property or an amelioration in its
condition, amounting to more than mere
repairs or replacement of waste, costing
labor or capital and intended to enhance
its value, beauty or utility or to adapt it
for new or further purposes.
We hold that while the two storage tanks are not
embedded in the land, they may, nevertheless, be
considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry. It
is undeniable that the two tanks have been installed
with some degree of permanence as receptacles for
the considerable quantities of oil needed by Meralco
for its operations.
Oil storage tanks were held to be taxable realty in Standard
Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property"
may include things which should generally be
regarded as personal property(84 C.J.S. 171, Note 8).
It is a familiar phenomenon to see things classed as
real property for purposes of taxation which on
general principle might be considered personal
property (Standard Oil Co. of New York vs. Jaramillo, 44
Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila Electric
Company, 119 Phil. 328, wherein Meralco's steel towers
were held not to be subject to realty tax, is not in point
because in that case the steel towers were regarded as
poles and under its franchise Meralco's poles are exempt
from taxation. Moreover, the steel towers were not
attached to any land or building. They were removable from
their metal frames.
Nor is there any parallelism between this case and
Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, where
the tools and equipment in the repair, carpentry and
blacksmith shops of a transportation company were held
not subject to realty tax because they were personal
property.
WHEREFORE, the petition is dismissed. The Board's
questioned decision and resolution are affirmed. No costs.
SO ORDERED.
[G.R. No. L-28034. February 27, 1971.]
THE BOARD OF ASSESSMENT APPEALS OF
ZAMBOANGA DEL SUR and PLACIDO L. LUMBAY, in his
capacity as Provincial Assessor of Zamboanga del
Sur, Petitioners, v. SAMAR MINING COMPANY, INC.
and THE COURT OF TAX APPEALS, Respondents.
Solicitor General Antonio P. Barredo, Assistant
Solicitor General Pacifico P. de Castro and Solicitor
Lolita O. Gal-lang, for Petitioners.
Pacifico de Ocampo and Sofronio G. Sayo for
respondent Samar Mining Company, Inc.
DECISION
ZALDIVAR, J.:
Appeal from the decision of the Court of Tax Appeals, in its
CTA Case No. 1705, declaring respondent Samar Mining
Company, Inc. (hereinafter referred to as Samar, for short)
exempt from paying the real property tax assessed against
it by the Provincial Assessor of Zamboanga del Sur.
There is no dispute as to the facts of this case. Samar is a
domestic corporation engaged in the mining industry.
As the mining claims and the mill of Samar are
located inland and at a great distance from the
loading point or pier site, it decided to construct a
gravel road as a convenient means of hauling its ores
from the mine site at Buug to the pier area at
Pamintayan, Zamboanga del Sur; that as an initial
step in the construction of a 42-kilometer road which
would traverse public lands Samar, in 1958 and 1959,
filed with the Bureau of Lands and the Bureau of
Forestry miscellaneous lease applications for a road
right of way on lands under the jurisdiction of said
bureaus where the proposed road would traverse;
that having been given temporary permit to occupy
and use the lands applied for by it, said respondent
constructed a road thereon, known as the Samico
road; that although the gravel road was finished in
1959, and had since then been used by the
respondent in hauling its iron from its mine site to
the pier area, and that its lease applications were
approved on October 7, 1965, the execution of the
corresponding lease contracts were held in abeyance
even up to the time this case was brought to the
Court of Tax Appeals. 1
On June 5, 1964, Samar received a letter from the
Provincial Assessor of Zamboanga del Sur assessing
the 13.8 kilometer road 2 constructed by it for real
estate tax purposes in the total sum of P1,117,900.00.
On July 14, 1964, Samar appealed to the Board of
Assessment Appeals of Zamboanga del Sur,
(hereinafter referred to as Board, for short), contesting
the validity of the assessment upon the ground that
the road having been constructed entirely on a public
land cannot be considered an improvement subject to
tax within the meaning of section 2 of
Commonwealth Act 470, and invoking further the
decision of this Court in the case of Bislig Bay Lumber
Company, Inc. v. The Provincial Government of
Surigao, G.R. No. L-9023, promulgated on November 13,
1956. On February 10, 1965, after the parties had
submitted a stipulation of facts, Samar received a
resolution of the Board, dated December 22, 1964,
affirming the validity of the assessment made by the
Provincial Assessor of Zamboanga del Sur under tax
declaration No. 3340, but holding in abeyance its
enforceability until the lease contracts were duly
executed.
On February 16, 1965, Samar moved to reconsider the
resolution of the Board, praying for the cancellation
of tax declaration No. 3340, and on August 3, 1965,
Samar received Resolution No. 13 not only denying
its motion for reconsideration but modifying the
Board’s previous resolution of December 22, 1964
declaring the assessment immediately enforceable,
and that the taxes to be paid by Samar should accrue or
commence with the year 1959. When its second motion
for reconsideration was again denied by the Board,
Samar elevated the case to the Court of Tax Appeals.
The jurisdiction of the Court of Tax Appeals to take
cognizance of the case was assailed by herein
petitioners (the Board and the Provincial Assessor of
Zamboanga del Sur) due to the failure of Samar to first
pay the realty tax imposed upon it before interposing
the appeal, and prayed that the resolution of the
Board appealed from be affirmed. On June 28, 1967,
the Court of Tax Appeals ruled that it had jurisdiction
to entertain the appeal and then reversed the
resolution of the Board. The Court of Tax Appeals
ruled that since the road is constructed on public
lands such that it is an integral part of the land and
not an independent improvement thereon, and that
upon the termination of the lease the road as an
improvement will automatically be owned by the
national government, Samar should be exempt from
paying the real estate tax assessed against it.
Dissatisfied with the decision of the Court of Tax
Appeals, petitioners Board and Placido L. Lumbay, as
Provincial Assessor of Zamboanga del Sur, interposed the
present petition for review before this Court.
The issue to be resolved in the present appeal is whether or
not respondent Samar should pay realty tax on the
assessed value of the road it constructed on alienable or
disposable public lands that are leased to it by the
government.
Petitioners maintain that the road is an improvement and,
therefore, taxable under Section 2 of the Assessment Law
(Commonwealth Act No. 470) which provides as
follows:jgc:chanrobles.com.ph
"Sec. 2. Incidence of real property tax. — Except in
chartered cities, there shall be levied, assessed, and
collected, an annual, ad valorem tax on real property
including land, buildings, machinery, and other
improvements not hereinafter specifically exempted."cralaw
virtua1aw library
There is no question that the road constructed by
respondent Samar on the public lands leased to it by
the government is an improvement. But as to
whether the same is taxable under the aforequoted
provision of the Assessment Law, this question has
already been answered in the negative by this Court.
In the case of Bislig Bay Lumber Co., Inc. v. Provincial
Government of Surigao, 100 Phil. 303, where a similar issue
was raised as to whether the timber concessionaire should
be required to pay realty tax for the road it constructed at
its own expense within the territory of the lumber
concession granted to it, this Court, after citing Section 2 of
Commonwealth Act 470, held:jgc:chanrobles.com.ph
"Note that said section authorizes the levy of real tax not
only on lands, buildings, or machinery that may be erected
thereon, but also on any other improvements, and
considering the road constructed by appellee on the timber
concession granted to it as an improvement, appellant
assessed the tax now in dispute upon the authority of the
above provision of the law.
"It is the theory of appellant that, inasmuch as the road
was constructed by appellee for its own use and benefit it is
subject to real tax even if it was constructed on a public
land. On the other hand, it is the theory of appellee that
said road exempt from real tax because (1) the road
belongs to the national government by right of accession,
(2) the road belongs to the be removed or separated from
the land on which it is constructed and so it is part and
parcel of the public land, and (3), according to the
evidence, the road was built not only for the use and
benefit of appellee but also of the public in general.
"We are inclined to uphold the theory of appellee. In
the first place, it cannot be disputed that the
ownership of the road that was constructed by
appellee belongs to the government by right of
accession not only because it is inherently
incorporated or attached to the timber land leased to
appellee but also because upon the expiration of the
concession, said road would ultimately pass to the
national government (Articles 440 and 445, new Civil
Code; Tobatabo v. Molero, 22 Phil., 418). In the second
place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not
exclusive, for, under the lease contract entered into
by the appellee and the government, its use can also
be availed of by the employees of the government
and by the public in general. . . . In other words, the
government has practically reserved the rights to use
the road to promote its varied activities. Since, as
above shown, the road in question cannot be
considered as an improvement which belongs to
appellee, although in part is for its benefit, it is clear
that the same cannot be the subject of assessment
within the meaning of section 2 of Commonwealth Act No.
470.
"We are not oblivious of the fact that the present
assessment was made by appellant on the strength of
an opinion rendered by the Secretary of Justice, but
we find that the same is predicated on authorities
which are not in point, for they refer to
improvements that belong to the lessees although
constructed on lands belonging to the government. It
is well settled that a real tax, being a burden upon the
capital, should be paid by the owner of the land and not by
a usufructuary (Mercado v. Rizal, 67 Phil., 608; Article 597,
new Civil Code). Appellee is but a partial usufructuary of
the road in question."cralaw virtua1aw library
Again, in the case of Municipality of Cotabato, Et. Al. v.
Santos, Et Al., 105 Phil. 963, this Court ruled that the
lessee who introduced improvements consisting of dikes,
gates and guard-houses on swamp lands leased to him by
the Bureau of Fisheries, in converting the swamps into
fishponds, is exempt from payment of realty taxes on those
improvements. This Court held:jgc:chanrobles.com.ph
"We however believe that the assessment on the
improvements introduced by defendant on the fishpond has
included more than what is authorized by law. The
improvements as assessed consist of dikes, gates and
guard-houses and bodegas totals P6,850.00 which
appellants are not now questioning, but they dispute the
assessment on the dikes and gates in this wise: ‘After the
swamps were leased to appellants, the latter cleared the
swamps and built dikes, by pushing the soil to form these
dikes in the same way that paddies are built on lands
intended for the cultivation of palay, the only difference
being that dikes used in fishponds are relatively much
larger than the dikes used in ricelands.’ We believe this
contention to be correct, because those dikes can really be
considered as integral parts of the fishponds and not as
independent improvements. They cannot be taxed under
the assessment law. The assessment, therefore, with
regard to improvements should be modified excluding the
dikes and gates."cralaw virtua1aw library
It is contended by petitioners that the ruling in the Bislig
case is not applicable in the present case because if the
concessionaire in the Bislig case was exempt from paying
the realty tax it was because the road in that case was
constructed on a timberland or on an indisposable public
land, while in the instant case what is being taxed is 13.8
kilometer portion of the road traversing alienable public
lands. This contention has no merit. The pronouncement in
the Bislig case contains no hint whatsoever that the road
was not subject to tax because it was constructed on
inalienable public lands. What is emphasized in the lease is
that the improvement is exempt from taxation because it is
an integral part of the public land on which it is constructed
and the improvement is the property of the government by
right of accession. Under Section 3(a) of the Assessment
Law (Com. Act 470), all properties owned by the
government, without any distinction, are exempt from
taxation.
It is also contended by petitioners that the Court of Tax
Appeals can not take cognizance of the appeal of Samar
from the resolution of the Board assessing realty tax on the
road in question, because Samar had not first paid under
protest the realty tax assessed against it as required under
the provisions of Section 54 of the Assessment Law (Com.
Act 470), which partly reads as
follows:jgc:chanrobles.com.ph
"SEC. 54. Restriction upon power of Court to impeach tax.
— No court shall entertain any suit assailing the validity of a
tax assessment under ‘this Act until the taxpayer shall have
paid under protest the taxes assessed against him, no shall
any court declare any tax invalid by reason . . ."cralaw
virtua1aw library
The extent and scope of the jurisdiction of the Court of Tax
Appeals regarding matters related to assessment or real
property taxes are provided for in Section 7, paragraph (3)
and Section 11 of Republic Act No. 1125, which partly read
as follows:jgc:chanrobles.com.ph
"SEC. 7. Jurisdiction. — The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by
appeal, as herein provided —
x       x       x
(3) Decisions of provincial or city Board of Assessment
Appeals in cases involving the assessment and taxation of
real property or other matters arising under the Assessment
Law, including rules and regulations relative thereto."cralaw
virtua1aw library
"SEC. 11. Who may appeal; effect of appeal. — Any person,
association or corporation adversely affected by a decision
or ruling of . . . any provincial or city Board of Assessment
Appeals may file an appeal in the Court of Tax Appeals
within thirty days after the receipt of such decision or
ruling."cralaw virtua1aw library
In this connection the Court of Tax Appeals, in the decision
appealed from, said:jgc:chanrobles.com.ph
"Prior to the enactment of Republic Act No. 1125, all civil
actions involving the legality of any tax, impost or
assessment were under the jurisdiction of the Court of First
Instance (Sec. 44, Republic Act No. 296). It is clear,
therefore, that before the creation of the Court of Tax
Appeals all cases involving the legality of assessments for
real property taxes, as well as the refund thereof, were
properly brought and taken cognizance by the said court.
However, with the passage by Congress and the approval
by the President of Republic Act No. 1125, the jurisdiction
over cases involving the validity of realty tax assessment
were transferred from the Court of First Instance to the
Court of Tax Appeals (See Sec. 22, Rep. Act No. 1125). The
only exception to the grant of exclusive appellate
jurisdiction to the Tax Court relates to cases involving the
refund of real property taxes which remained with the Court
of First Instance (See of Cabanatuan, Et. Al. v. Gatmaitan,
Et Al., G.R. No. L-19129, February 28, 1963).
"A critical and analytical study of Section 7 of Republic Act
No. 1125, in relation to subsections (1), (2) and (3)
thereof, will readily show that it was the intention of
Congress to lodge in the Court of Tax Appeals the exclusive
appellate jurisdiction over cases involving the legality of
real property tax assessment. as distinguished from cases
involving the refund of real property taxes. To require the
taxpayer, as contended by respondents, to pay first the
disputed real property tax before he can file an appeal
assailing the legality and validity of the realty tax
assessment will render nugatory the appellate jurisdictional
power of the Court of Tax Appeals as envisioned in Section
7 (3), in relation to Section 11, of Republic Act No. 1125. If
we follow the contention of respondents to its logical
conclusion, we cannot conceive of a case involving the
legality and validity of real property tax assessment,
decided by the Board of Assessment Appeals, which can be
appealed to the Court of Tax Appeals, The position taken by
respondents is, therefore, in conflict with the Explanatory
Note contained in House Bill No. 175, submitted during the
First Session, Third Congress of the Republic of the
Philippines, and the last paragraph of Section 21 of Republic
Act No. 1125 which provide as follows:chanrob1es virtual
1aw library
SEC. 21. General provisions. —
x       x       x
Any law or part of law, or any executive order, rule or
regulation or part thereof, inconsistent with the provisions
of this Act is hereby repealed.
"Accordingly, we hold that this Court can entertain and give
due course to petitioner’s appeal assailing the legality and
validity of the real property tax assessment here in
question without paying first the disputed real property tax
as required by Section 54 of the Assessment Law."cralaw
virtua1aw library
We agree with the foregoing view of the Court of Tax
Appeals. It should be noted that what is involved in the
present case is simply an assessment of realty tax, as fixed
by the Provincial Assessor of Zamboanga del Sur, which
was disputed by Samar before the Board of Assessment
Appeals of said province. There was no demand yet for
payment of the realty tax. In fact the letter of Provincial
Assessor, of June 5, 1964, notifying Samar of the
assessment, states as follows:jgc:chanrobles.com.ph
"Should you find the same to be not in accordance with law
or its valuation to be not satisfactory, you may appeal this
assessment under Section 17 of Commonwealth Act 470 to
the Board of Assessment Appeals, through the Municipal
Treasurer of Buug, Zamboanga del Sur, within 60 days from
the date of your receipt hereof." 3

Accordingly Samar appealed to the Board questioning the
validity of the assessment. The Board rendered a resolution
over-ruling the contention of Samar that the assessment
was illegal. Then Samar availed of its right to appeal from
the decision of the Board to the Court of Tax Appeals as
provided in Section 11 of Republic Act 1125. Section 11
does not require that before an appeal from the decision of
the Board of Assessment Appeals can be brought to the
Court of Tax Appeals it must first be shown that the party
disputing the assessment had paid under protest the realty
tax assessed. In the absence of such a requirement under
the law, all that is necessary for a party aggrieved by the
decision of the Board of Assessment Appeals is to file his
notice of appeal to the Court of Tax Appeals within 30 days
after receipt of the decision of the Board of Assessment
Appeals, as provided in Section 11 of Republic Act 1125.
This Court, in the case of City of Cabanatuan v. Gatmaitan,
4 said:jgc:chanrobles.com.ph
". . . if the real estate tax has already been paid it is futile
for a taxpayer to take the matter to the City Board of
Assessment Appeals for the jurisdiction of that body is
merely confined to the determination of the reasonableness
of the assessment or taxation of the property and is not
extended to the authority of requiring the refund of the tax
unlike cases involving assessment of internal revenue
taxes. In the circumstances, we hold that this case comes
under the jurisdiction of the proper court of first instance it
involving the refund of a real estate tax which does not
come under the appellate jurisdiction of the Court of Tax
Appeals."cralaw virtua1aw library
From the aforequoted portion of the decision of this Court,
We gather that the only question that may be brought
before the City or Provincial Board of Assessment Appeals is
the question which relates to the reasonableness or legality
of the realty tax that is assessed against a taxpayer. Such
being the case, it would be unjust to require the realty
owner to first pay the tax, that he precisely questions,
before he can lodge an appeal to the Court of Tax Appeals.
We believe that it is not the intendment of the law that in
questioning before the Court of Tax Appeals the validity or
reasonableness of the assessment approved by the Board
of Assessment Appeals the taxpayer should first pay the
questioned tax. It is Our view that in so far as appeals from
the decision or resolution of the Board of Assessment
Appeals, Section 54 of Commonwealth Act 470 does not
apply, and said section can be considered as impliedly
repealed by Sections 7, 11 and 21 of Republic Act 1125.
IN VIEW OF THE FOREGOING, the decision of the Court of
Tax Appeals, appealed from, is affirmed, without
pronouncement as to costs. It is so ordered.
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY
ASSESSOR OF PASAY, respondents.
This case is about the realty tax on machinery and
equipment installed by Caltex (Philippines) Inc. in its
gas stations located on leased land.
The machines and equipment consists of
underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing
pumps, water pumps, car washer, car hoists, truck
hoists, air compressors and tireflators. The city
assessor described the said equipment and machinery in
this manner:
A gasoline service station is a piece of lot
where a building or shed is erected, a
water tank if there is any is placed in one
corner of the lot, car hoists are placed in
an adjacent shed, an air compressor is
attached in the wall of the shed or at the
concrete wall fence.
The controversial underground tank,
depository of gasoline or crude oil, is dug
deep about six feet more or less, a few
meters away from the shed. This is done
to prevent conflagration because gasoline
and other combustible oil are very
inflammable.
This underground tank is connected with
a steel pipe to the gasoline pump and the
gasoline pump is commonly placed or
constructed under the shed. The footing
of the pump is a cement pad and this
cement pad is imbedded in the pavement
under the shed, and evidence that the
gasoline underground tank is attached
and connected to the shed or building
through the pipe to the pump and the
pump is attached and affixed to the
cement pad and pavement covered by the
roof of the building or shed.
The building or shed, the elevated water
tank, the car hoist under a separate shed,
the air compressor, the underground
gasoline tank, neon lights signboard,
concrete fence and pavement and the lot
where they are all placed or erected, all of
them used in the pursuance of the
gasoline service station business formed
the entire gasoline service-station.
As to whether the subject properties are
attached and affixed to the tenement, it is
clear they are, for the tenement we
consider in this particular case are (is) the
pavement covering the entire lot which
was constructed by the owner of the
gasoline station and the improvement
which holds all the properties under
question, they are attached and affixed to
the pavement and to the improvement.
The pavement covering the entire lot of
the gasoline service station, as well as all
the improvements, machines, equipments
and apparatus are allowed by Caltex
(Philippines) Inc. ...
The underground gasoline tank is
attached to the shed by the steel pipe to
the pump, so with the water tank it is
connected also by a steel pipe to the
pavement, then to the electric motor
which electric motor is placed under the
shed. So to say that the gasoline pumps,
water pumps and underground tanks are
outside of the service station, and to
consider only the building as the service
station is grossly erroneous. (pp. 58-60,
Rollo).
The said machines and equipment are loaned by
Caltex to gas station operators under an appropriate
lease agreement or receipt. It is stipulated in the
lease contract that the operators, upon demand, shall
return to Caltex the machines and equipment in good
condition as when received, ordinary wear and tear
excepted.
The lessor of the land, where the gas station is
located, does not become the owner of the machines
and equipment installed therein. Caltex retains the
ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said
items of gas station equipment and machinery as
taxable realty. The realty tax on said equipment amounts
to P4,541.10 annually (p. 52, Rollo). The city board of
tax appeals ruled that they are personalty. The
assessor appealed to the Central Board of
Assessment Appeals.
The Board, which was composed of Secretary of Finance
Cesar Virata as chairman, Acting Secretary of Justice
Catalino Macaraig, Jr. and Secretary of Local Government
and Community Development Jose Roño, held in its
decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of
sections 3(k) & (m) and 38 of the Real Property Tax
Code, Presidential Decree No. 464, which took effect
on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and
416 of the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister
Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's
motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein
it prayed for the setting aside of the Board's decision and
for a declaration that t he said machines and equipment are
personal property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax
Appeals has exclusive appellate jurisdiction over this case is
not correct. When Republic act No. 1125 created the Tax
Court in 1954, there was as yet no Central Board of
Assessment Appeals. Section 7(3) of that law in providing
that the Tax Court had jurisdiction to review by appeal
decisions of provincial or city boards of assessment appeals
had in mind the local boards of assessment appeals but not
the Central Board of Assessment Appeals which under the
Real Property Tax Code has appellate jurisdiction over
decisions of the said local boards of assessment appeals
and is, therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the
decision of the Central Board of Assessment Appeals shall
become final and executory after the lapse of fifteen days
from the receipt of its decision by the appellant. Within that
fifteen-day period, a petition for reconsideration may be
filed. The Code does not provide for the review of the
Board's decision by this Court.
Consequently, the only remedy available for seeking a
review by this Court of the decision of the Central Board of
Assessment Appeals is the special civil action of certiorari,
the recourse resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station
equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved
primarily under the provisions of the Assessment Law and
the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty
tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is reproduced
with some modification in the Real Property Tax Code which
provides:
SEC. 38. Incidence of Real Property Tax.
— There shall be levied, assessed and
collected in all provinces, cities and
municipalities an annual ad valorem
tax on real property, such as land,
buildings, machinery and other
improvements affixed or attached to real
property not hereinafter specifically
exempted.
The Code contains the following definitions in its section 3:
k) Improvements — is a valuable addition
made to property or an amelioration in its
condition, amounting to more than mere
repairs or replacement of waste, costing
labor or capital and intended to enhance
its value, beauty or utility or to adapt it
for new or further purposes.
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 (See sec. 3[f], Assessment
Law).
We hold that the said equipment and machinery, as
appurtenances to the gas station building or shed
owned by Caltex (as to which it is subject to realty
tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas
station would be useless, and which have been
attached or affixed permanently to the gas station
site or embedded therein, are taxable improvements
and machinery within the meaning of the Assessment
Law and the Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in
its nature only becomes immobilized when placed in a plant
by the owner of the property or plant but not when so
placed by a tenant, a usufructuary, or any person having
only a temporary right, unless such person acted as the
agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil
709).
That ruling is an interpretation of paragraph 5 of article 415
of the Civil Code regarding machinery that becomes real
property by destination. In the Davao Saw Mills case the
question was whether the machinery mounted on
foundations of cement and installed by the lessee on leased
land should be regarded as real property for purposes of
execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court
sustained the sheriff's action. (Compare with Machinery &
Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70,
where in a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment
and machinery permanently affixed by Caltex to its gas
station and pavement (which are indubitably taxable realty)
should be subject to the realty tax. This question is
different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty
even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and
41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation
which on general principle might be considered
personal property" (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of
Assessment Appeals vs. Manila Electric Co., 119 Phil. 328,
where Meralco's steel towers were considered poles within
the meaning of paragraph 9 of its franchise which exempts
its poles from taxation. The steel towers were considered
personalty because they were attached to square metal
frames by means of bolts and could be moved from place to
place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the
same as tools and equipment in the repair shop of a bus
company which were held to be personal property not
subject to realty tax (Mindanao Bus Co. vs. City Assessor,
116 Phil. 501).
The Central Board of Assessment Appeals did not commit a
grave abuse of discretion in upholding the city assessor's is
imposition of the realty tax on Caltex's gas station and
equipment.
WHEREFORE, the questioned decision and resolution of the
Central Board of Assessment Appeals are affirmed. The
petition for certiorari is dismissed for lack of merit. No
costs.
SO ORDERED.
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 1 dated May 30, 2007 and
Resolution2 dated October 8, 2007 in CA-G.R. SP No.
82264, which both denied the 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. 3 As such
provider, Capwire has 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
Philippines Italy SEA-ME-WE-3 CNS), and the Guam
Philippines (GP-CNS) systems. 4 The agreements
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). 6 Moreover, it alleges that the Wet Segment
is laid in inten1ational, 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. 8 This property right is allegedly reported in
its financial books 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." 10 On May 15, 2000,
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-
BMP-CNS P52,529,600.00
00967
019-
APCN P162,640,000.00
00968
019- SEA-ME-WE3-
P: 6,032,000.00
00969 CNS
019-
GP-CNS P: 1,431,200.00
00970
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. 12 The reason cited by Capwire is that 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, 16 on May 5, 2003, the RTC issued an 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, 18 but the
same was likewise dismissed by the RTC in an
Order19 dated August 26, 2003. It then filed an appeal
to the Court of Appeals. 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.1âwphi1 The
dispositive portion of the 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). 22 Although Capwire 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. 23 Further, the CA
noted that Capwire failed to pay the tax assessed against it
under protest, another strict requirement under Section 252
of the Local Government Code24
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. 25 It contends that there is
only a pure question of law since the issue is whether its
submarine cable system, which it claims lies in international
waters, is taxable.26 Capwire holds the position that the
cable system is not subject to tax.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. 28 Such questions
are allegedly resolvable only 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., 33 it
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."36 Therefore, Capwire's resort to judicial
action, premised on its legal conclusion 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, 37 as "no longer exempted
from real prope1iy tax" and may 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) 38 of
the Civil Code for the simple reason that such pieces of
equipment serve the 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. 40 Besides, the Court has already
held that "it is a familiar 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.42 It easily belies Capwire's 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.43 this Court held that "whether referred to as
Philippine 'internal waters' under A1iicle I of the
Constitution44 or as 'archipelagic waters' 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."47 Although the term "municipal waters" appears
in the Code in the context of the grant of quarrying
and fisheries privileges for a fee by local
governments,48 its inclusion in the 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, 49 and such
authority has been delegated by the national
legislature to the local governments with respect to
real property.50 taxation.
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." 52 Capwire
omitted to do so. And even 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, 53 such had been
expressly 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.56 Capwire fails to allege or provide any other privilege
or exemption that were 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.
SO ORDERED
G.R. No. 127139 February 19, 1999
JAIME C. LOPEZ, petitioner, 
vs.
CITY OF MANILA and HON. BENJAMIN A.G. VEGA,
Presiding Judge, RTC, Manila, Branch 39, respondent.
 
QUISUMBING, J.:
This petition for review on certiorari, assails the Order 1 of
the Regional Trial Court of Manila, Branch 39, promulgated
on October 24, 1996, dismissing Civil Case No. 96-77510
which sought the declaration of nullity of City of Manila
Ordinance No. 7894, fled by petitioner Jaime C. Lopez.
The facts as found by the trial court are as follows:
Sec. 219 of Republic Act 7160 (R.A. 7160) or the
Local Government Code of 1991 requires the conduct
of the general revision of real property as follows:
General Revision of Assessment  2 and Property
Classification — The provincial, city or municipal assessor
shall undertake a general revision of real property
assessments within two (2) years after the effectivity of this
Code and every three (3) years thereafter.
Although R.A. 7160 took effect on January 1, 1992,
the revision of real property assessments prescribed
therein was not yet enforced in the City of Manila.
However, the process of real property valuation had
already been started and done by the former city
assessor.
In 1992, the schedule of real property values in the
city was prepared and submitted to the City Council
of Manila, but for unknown reason, was not acted
upon. Nevertheless, despite the inaction of the City
Council, there was a continuous update of the fair
market values of the real properties within the city.
Until the year 1995, the basis for collection of real
estate taxes in the City of Manila was the old, year-
1979, real estate market values.
Mrs. Lourdes Laderas, the newly appointed City
Assessor of Manila, received Memorandum Circular
No. 04-95 dated March 20, 1995, from the Bureau of Local
Government Finance, Department of Finance. This
memorandum relates to the failure of most of the
cities and municipalities of Metropolitan Manila,
including the City of Manila, to conduct the general
revision of real property. For this purpose, Mrs.
Laderas embarked in a working dialogue with the
Office of the City Mayor and the City Council for the
completion of the task.
After obtaining the necessary funds from the City
Council, the City Assessor began the process of
general revision based on the updated fair market
values of the real properties.
In the year 1995, the increase in valuation of real
properties compared to the year-1979 market values
ranges from 600% to 3,330%, but the City Assessor's
office initially fixed the general average of increase to
1,700%. Mrs. Laderas felt that the increase may have
adverse reactions from the public, hence, she ended
up reducing the increase in the valuation of real
properties to 1,020%.
In September 1995, the City Assessor's Office
submitted the proposed schedule of fair market
values to the City Council for its appropriate action.
The Council acting on the proposed schedule,
conducted public hearings as required by law. The
proposed ordinance was subjected to the regular process in
the enactment of ordinances pursuant to the City Charter of
Manila. The first reading was held on September 12, 1995,
the second on October 28, 1995, and the third on
December 12, 1995. In between these dates, public
hearings on the general revision, which included the
schedule of values of real properties, were had, viz.; on
September 28, 1995, October 5, 12 and 19, 1995 and
November 27 and 29, 1995.
The proposed ordinance with the schedule of fair market
values of real properties was published in the Manila
Standard on October 28, 1995, and the Balita on November
1, 1995. On December 12, 1995, the City Council enacted
Manila Ordinance No. 7894, entitled: "An Ordinance
Prescribed as the Revised Schedule of Fair Market Values of
Real Properties the City of Manila." The ordinance was
approved by the City Mayor on December 27, 1995,
and made effective on Jan. 01, 1996. Thereafter,
notices of the revised assessments were distributed to the
real property owners of Manila pursuant to Sec. 223 of R.A.
7160.3
With the implementation of Manila Ordinance No.
7894, the tax on the land owned by the petitioner
was increased by five hundred eighty percent
(580%). With respect to the improvement on
petitioner's property, the tax increased by two
hundred fifty percent (250%).
As a consequence of these increases, petitioner Jaime
C. Lopez, filed on March 18, 1996, a special
proceeding for the declaration of nullity of the City of
Manila Ordinance No. 7894 with preliminary injunction
and prayer for temporary restraining order (TRO). The
petition alleged that Manila Ordinance No. 7894
appears to be "unjust, excessive, oppressive or
confiscatory." The case was originally raffled to the
Regional Trial Court of Manila, Branch 5, which issued the
TRO on April 10, 1996.
On the same date, Manila Ordinance No. 7905 4 took
effect, reducing by fifty percent (50%) the
assessment levels 5(depending on the use of
property, e.g., residential, commercial) for the
computation of tax due. The new ordinance amended
the assessment levels provided by Section
74, 6 paragraph (A) of Manila Ordinance No. 7794.
Moreover, Section 2 of Manila Ordinance No.
7905 7 provides that the amendment embodied
therein shall take effect retroactively to January 1,
1996. The same provision indicates the, maximum
realty tax increases, as follows:
Sec. 2 — . . . Provided, however, that the tax increase on
residential lands and improvements shall in no case
exceed by two hundred percent (200%) of the levied
thereon in calendar year 1995 and the tax increase
on commercial and industrial land, building and other
structures shall not exceed by three hundred percent
(300%) of the tax imposed thereon in calendar year
1995; Provided further, that the tax on all lands and
improvements shall in no case be lower than tax
imposed thereon in calendar year 1995.
As a result, Manila Ordinance No. 7905 reduced the
tax increase of petitioner's residential land to one
hundred fifty-five percent (155%), while the tax
increase for residential improvement was eighty-two
percent (82%).
The maximum tax increase on classified commercial estates
is three hundred percent (300%) but the tax increase on
commercial land was only, two hundred eighty-eight
percent (288%), and seventy-two percent (72%) on
commercial portion of the improvement.
On April 12, 1996, respondent filed a motion for inhibition
of the presiding judge of RTC, Branch 5, alleging that Judge
Amelia Andrade had shown "markedly indulgent attitude
towards the petitioner." Hence, Judge Andrade inhibited
herself and directed the forwarding of the case record to
the Clerk of Court for its re-raffle to another branch of the
court.
Despite the amendment brought about by Manila
Ordinance No. 7905, the controversy proceeded and
the case was re-raffled to Branch 39 of the court which
acted on the motions submitted by the parties for
resolution, viz.: 1) application for preliminary injunction by
the petitioner, and 2) motion to dismiss by the respondent.
The reason relied upon by the City of Manila for the
dismissal of the petition was for failure of the
petitioner to exhaust administrative remedies.
On May 9, 1996, the court directed the issuance of a writ of
injunction and denied, in the meanwhile, the motion to
dismiss by the respondent. The reason for the denial of the
respondent's motion to dismiss was not detailed to avoid a
repetition of the unfortunate situation in RTC-Manila,
Branch 5, wherein the counsel for the respondent assumed
bias on the part of Judge Andrade.
On May 22, 1996, the respondent filed the instant
motion for reconsideration on the denial of its motion
to dismiss. The movant-respondent aside from
reiterating the basic ground alleged in its motion to
dismiss underscored the additional premise, which is
the happening of a supervising event, i.e., the
enactment and approval of the City Mayor of Manila
Ordinance No. 7905.
On October 24, 1996, the trial court granted the motion
to dismiss filed by the respondent. The dismissal order
was justified by petitioner's failure to exhaust the
administrative remedies and that the petition had
become moot and academic when Manila Ordinance
No. 7894 was repealed by Manila Ordinance No.
7905. Notwithstanding, the trial court likewise
revolved all other interlocking issues.
The dispositive portion of the trial court's order is as
follows:
WHEREFORE, finding the motion dated May 19, 1996 filed
by the here in respondent on May 22, 1996 sufficiently well-
taken, the order dated May 9, 1996 is hereby set aside. Let
the petition filed by the herein petitioner on March 8, 1996
be, as it is, hereby DISMISSED. The order of preliminary
injunction dated May 9, 1996, is also set aside and the writ
of injunction likewise issued pursuant thereto, dissolved.
SO ORDERED. 8
The petitioner filed a motion for reconsideration, but it was
denied for lack of merit.
Hence, the petitioner now comes before this Court raising in
his petition the following issues:
I DID THE RESPONDENT TRIAL COURT IN CIVIL CASE NO.
96-77510 ERR IN HOLDING THAT THE PETITIONER FAILED
TO EXHAUST ALL ADMINISTRATIVE REMEDIES, AND
THEREFORE, THE PETITION OUGHT TO BE DISMISSED?
AND;
II DID THE RESPONDENT COURT ERR IN FAILING TO
CORRECTLY APPLY SECTIONS 212 AND 221 OF THE LOCAL
GOVERNMENT CODE OF 1991?
Petitioner contends that when the trial court ruled that it
has jurisdiction over the case, the question of whether he
needs to resort to the exhaustion of administrative
remedies becomes moot and academic. He claims that
resort to administrative remedies on constitutionality of law
merely permissive as provided by Sec. 187 of R.A.
7160, viz.:
. . . Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue
measures may be raised on appeal within thirty (30) days
from the effectivity thereof to the Secretary of Justice who
shall render a decision within sixty (60) days from the date
of receipt of the appeal. . . . (emphasis supplied)
Petitioner further asserts that the question of the
constitutionality of the city ordinance may be raised on
appeal, either to the Secretary of Justice or the Regional
Trial Court, both having concurrent jurisdiction over the
case, in accordance with Batas Pambansa Blg. 129. He
states that at the time he instituted this complaint, it was
premature to resort to the remedies provided by R.A. 7160
because he has not received the formal notice of
assessment yet, hence, he could not be expected to pay
under protest and elevate the exorbitant assessment to the
Board of Assessment Appeals.
On the other hand, respondent argues that the adjustment
of the fair market values of real properties in the City of
Manila was long overdue, being updated only after fifteen
(15) years. According to the respondent, petitioner filed the
case, merely to take advantage of the situation to gain
political mileage and help advance his mayoralty bid.
As a general rule, where the law provides for the remedies
against the action of an administrative board, body, or
officer, relief to courts can be sought only after exhausting
all remedies provided. The reason rests upon the
presumption that the administrative body, if given the
chance to correct its mistake or error, may amend its
decision on a given matter and decide it properly.
Therefore, where a remedy is available within the
administrative machinery, this should be resorted to before
resort can be made to the courts, not only to give the
administrative agency the opportunity to decide the matter
by itself correctly, but also to prevent unnecessary and
premature resort to courts.9This rule, however, admits
certain exceptions.10
With regard to question on the legality of a tax ordinance,
the remedies available to the taxpayers are provided under
Section 187, 226, and 252 of R.A. 7160.
Sec. 187 of R.A. 7160 provides, that the taxpayer may
question the constitutionality or legality of tax ordinance on
appeal within thirty (30) days from effectivity thereof, to
the Secretary of Justice. The petitioner after finding that his
assessment is unjust, confiscatory, or excessive, must have
brought the case before the Secretary of Justice for
question of legality or constitutionality of the city ordinance.
Under Section 226 of R.A. 7160, an owner of real property
who in not satisfied with the assessment of his property
may, within sixty (60) days from notice of assessment,
appeal to the Board of Assessment Appeals. 11
Should the taxpayers question the excessiveness of the
amount of tax, he must first pay the amount due, in
accordance with Section 252 of R.A. 7160. Then, he must
request the annotation of the phrase "paid under protest"
and accordingly appeal to the Board of Assessment Appeals
by filing a petition under oath together with copies of the
tax declarations and affidavits or documents to support his
appeal.12
The rule is well-settled that courts will not interfere in
matters which addressed to the sound discretion of
government agencies entrusted with the regulations of
activities coming under the special technical knowledge and
training of such agencies.13 Furthermore, the crux of
petitioner's cause of action is the determination of whether
or not the tax is excessive, oppressive or confiscatory. This
issue is essentially a question of fact and thereby, precludes
this Court from reviewing the same. 14
We have carefully scrutinized the record of this case and we
found no cogent reason to depart from the findings made
by the trial court on this point. As correctly found by the
trial court, the petition does not fall under any of the
exceptions to excuse compliance with the rule on
exhaustion of administrative remedies, to wit:
One of the reasons for the doctrine of exhaustion is the
separation of powers which enjoins upon the judiciary a
becoming policy of non-interference with matters coming
primarily within the competence of other department. . . .
There are however a number of instances when the doctrine
may be dispensed with and judicial action validly resorted
to immediately. Among these exceptional cases are: (1)
when the question raised is purely legal, (2) when the
administrative body is in estoppel; (3) when the act
complained of is patently illegal; (4) when there is urgent
need for judicial intervention; (5) when the claim involved
is small; (6) when irreparable damage will be suffered, (7)
when there is no other plain, speedy and adequate remedy,
(8) when strong public interest is involved; (9) when the
subject of controversy is private land; and (10) in quo-
warranto proceeding (citation omitted).
In the court's opinion, however, the instant petition does
not fall within any of the exceptions above mentioned. . . .
. . . Instant petition involves not only questions of law but
more importantly the questions of facts which therefore
needed the reception of evidence contrary to the position of
the respondent before the hearing of its motion for
reconsideration
Now, on the second exception on the rule of exhaustion of
administrative remedies, supra, there: is no showing that
administrative bodies, viz., The Secretary of Justice, the
City Treasurer, Board of Assessment Appeals, and the
Central Board of Assessment Appeals are in estoppel. On
the third exception, it does not appear that Ordinance No.
7894 or the amendatory Ordinance No. 7905 are patently
illegal. Re the fourth exception, in the light of circumstances
as pointed elsewhere herein, the matter does not need a
compelling judicial intervention. On the fifth exception, the
claim of the petitioner is not small. Re the sixth exception,
the court does not see any irreparable damage that the
petitioner will suffer if he had paid or will pay under protest
as per the ordinance. He could always ask for a refund of
the excess amount he paid under protest or be credited
thereof if the administrative bodies mentioned in the law
(R.A. 718015) will find that his position is meritorious. Re
the seventh exception, the court is of the opinion that
administrative relief provided for in the law are plain,
speedy and adequate. On the eight exception, while the
controversy involves public interest, judicial intervention as
the petitioner would like this court to do should be avoided
as demonstrated herein below in the discussion of the third
issue. The ninth and tenth exception obviously are not
applicable in the instant case. 16
Proceeding to the second issue, petitioner contends that the
respondent court failed to apply correctly Sections 212 and
221 of R.A. 7160. The pertinent provisions are set forth
below:
Sec. 212. Preparation of Schedule of Fair Market Values —
Before any general revision of property assessment is made
pursuant to the provisions of this Title, there shall be
prepared a schedule of fair market values by the provincial,
city and the municipal assessors of the municipalities within
the Metropolitan Manila Area for the different classes of real
property situated in their respective local government units
[LGU] for enactment by ordinance of the sanggunian
concerned. The schedule of fair market values shall be
published in a newspaper of general circulation in the
province, city or municipality concerned, or in the absence
thereof, shall be posted in the provincial capitol, city or
municipal hall and in two other conspicuous public places
therein.
Sec. 221. Date of Effectivity of Assessment of
Reassessment — All assessments or reassessments made
after the first (1st) day of January of any year shall take
effect on the first (1st) day of January of the succeeding
year: Provided, however, That the reassessment of real
property due to its partial or total destruction, or to a major
change in its actual use, or to any great and sudden
inflation or deflation of real property values, or to the gross
illegality of the assessment when made or to any other
abnormal causes, shall be made within ninety (90) days
from the date any such cause or causes occurred, and shall
take effect at the beginning of the quarter next following
assessment.
The petitioner claims that the effectivity date of Manila
Ordinance No. 7894 and the schedule of the fair market
values is January 1, 1996. He contends that Sec. 212 of the
R.A. 7160 prohibits the general revision of real property
assessment before the approval of the schedule of the fair
market values. Thus, the alleged revision of real property
assessment in 1995 is illegal.
Based on the evidence presented by the parties, the steps
to be followed for the mandatory conduct of General
Revision of Real Property assessments, pursuant to the
provision of Sec. 219, of R.A. No. 7160 are as follows:
1. The preparation of Schedule of Fair Market Values.
2. The enactment of Ordinances:
a) levying an annual "ad valorem" tax on real property and
an additional tax accruing to the SEF.
b) fixing the assessment levels to be applied to the market
values of real properties;
c) providing necessary appropriation to defray expenses
incident to general revision of real property assessments;
and
d) adopting the Schedule of Fair Market Values prepared by
the assessors.17
The preparation of fair market values as a preliminary step
in the conduct of general revision was set forth in Section
212 of R.A. 7160, to wit: (1) The city or municipal assessor
shall prepare a schedule of fair market values for the
different classes of real property situated in their respective
Local Government Units for the enactment of an ordinance
by the sanggunian concerned. (2) The schedule of fair
market values shall be published in a newspaper of general
circulation in the province, city or municipality concerned or
the posting in the provincial capitol or other places as
required by law.
It was clear from the records that Mrs. Lourdes Laderas, the
incumbent City Assessor, prepared the fair market values of
real properties and in preparation thereof, she considered
the fair market values prepared in the calendar year 1992.
Upon that basis, the City Assessor's Office updated the
schedule for the year 1995. In fact, the initial schedule of
fair market values of real properties showed an increase in
real estate costs, which rages from 600% — 3,330 % over
the values determined in the year 1979. However, after a
careful study on the movement of prices, Mrs. Laderas
eventually lowered the average increase to 1,020%.
Thereafter, the proposed ordinance with the schedule of the
fair market values of real properties was published in the
Manila Standard on October 28, 1995 and Balita on
November 1, 1995.18 Under the circumstances of this case,
was compliance with the requirement provided under Sec.
212 of R.A. 7160.
Thereafter, on January 1, 1996, the Sanggunian approved
Manila Ordinance No. 7894. The schedule of values of real
properties in the City of Manila, which formed an integral
part of the ordinance, was likewise approved on the same
date.
When Manila Ordinance No. 7894 took effect on January 1,
1996, the existing assessment levels to be multiplied by the
market value of the property in computing the assessed
value (taxable value) subject to tax were those enumerated
in Section 74 paragraph (A) of Manila Ordinance Number
7794.
Coming down to specifics, we find it desirable to lay down
the procedure in computing the real property tax. With the
introduction of assessment levels, tax rates could be
maintained, although tax payments can be made either
higher or lower depending on their percentage (assessment
level) applied to the fair market value of property to derive
its assessed value which is subject to tax. Moreover, classes
and values of real properties can be given proper
consideration, like assigning lower assessment levels to
residential properties and higher levels to properties used in
business.19 The procedural steps in computing the real
property tax are as follows:
1) Ascertain the assessment level of the property
2) Multiply the market value by the applicable assessment
level of the property
3) Find the tax rate which corresponds to the class (use) of
the property and multiply the assessed value by the
applicable tax
rates. 20
For easy reference, the computation of real property tax is
cited below:
Market Value P x x x
On April 10, 1996, Manila Ordinance No. 7905 was enacted
and approved to take effect, retroactively to January 1,
1996. As a result of this new ordinance, the assessment
levels applicable to the market values of real properties
were lowered into half. A comparative evaluation between
the old and the new assessment levels is as follows:
Despite the favorable outcome of Manila Ordinance No.
7905, the petitioner insists that since it was approved on
April 10, 1996, it cannot be implemented in the year 1996.
Using Section 221 of R.A. 7160 as basis for his argument,
petitioner claims that the assessments or reassessments
made after the first (1st) day of January of any year shall
take effect on the first (1st) day of January of the
succeeding year.
Contrarily, the trial court viewed that Manila Ordinance No.
7905 affects the resulting tax imposed on the market
values of real properties as specified in Manila Ordinance
No. 7894. Therefore, this supervening circumstance has
rendered the petition, moot and academic, for failure of the
petitioner to amend his cause of action. The trial court said:
A mere cursory reading of his petition that he questioned
fair market values and the assessment levels and the
resulting tax based thereon as imposed by Ordinance No.
7894. The petitioner, however, failed to amend his petition.
Thus, it is clear that the petition has become moot and
academic. As correctly stated by the respondent, the
facts, viz., the tax rates on level prescribed by Ordinance
7894 upon which the petition was anchored no longer exist
because the tax rates in Ordinance No. 7894 have been
amended, otherwise, impliedly repealed by Ordinance No.
7905. If only for this, the petition could be dismissed but
this court followed the advice of the Supreme Court in the
case of National Housing Authority vs. Court of Appeals,
et. al. (121 SCRA 777) that the case may be decided in its
totality resolving all interlocking issues in order to render
justice to all concerned and end litigation once and for all. 21
Although, we are in full accord with the ruling of the trial
court, it is likewise necessary to stress that Manila
Ordinance No. 7905 is favorable to the taxpayers when it
specifically states that the reduced assessment levels shall
be applied retroactively to January 1, 1996. The reduced
assessment levels multiplied by the schedule of fair market
values of real properties, provided by Manila Ordinance No.
7894, resulted to decrease in taxes. To that extent, the
ordinance is likewise, a social legislation intended to soften
the impact of the tremendous increase in the value of the
real properties subject to tax. The lower taxes will ease, in
part, the economic predicament of the low and middle-
income groups of taxpayers. In enacting this ordinance, the
due process of law was considered by the City of Manila so
that the increase in realty tax will not amount to the
confiscation of the property.
WHEREFORE, the instant petition is hereby DENIED, and
the assailed Order of Regional Trial Court of Manila, Branch
39 in Civil Case No. 96-77510 is hereby AFFIRMED. COSTS
against the petitioner.
SO ORDERED.
G.R. No. L-59463 November 19, 1982 
PROVINCE OF NUEVA ECIJA, plaintiff-appellant, 
vs.
IMPERIAL MINING COMPANY, INC., defendant-appellee.
Isabelo Tadianan counsel for appellant.
Romeo Derez counsel for respondent.
PLANA, J.:
This is an appeal from the decision of the Court of First
Instance of Nueva Ecija, Branch VIII, in Civil Case No. C-4
for collection of real property tax, which has been certified
to this Court by the Court of Appeals as a case involving
purely a question of law. The legal issue is whether
defendant-appellee Imperial Mining Company, Inc. (IMC),
lessee of some parcels of mineral land (placer mining
claims) in Carranglan, Nueva Ecija, is liable for real
property tax thereon, although the said mineral land forms
part of the public domain.
The antecedent facts are simple. In 1968, IMC leased
from the Government thru the Department of
Agriculture and Natural Resources placers mining
claims (192 hectares) with the right to explore,
develop, mine, extract and dispose of mineral
products. In the lease contract, it was stipulated that
"the Lessee shall pay real estate tax on all buildings
and other improvements built on the land leased."
The contract however was silent on the obligation of
the lessee to pay realty tax on the mineral land itself,
as distinguished from the improvements thereon.
In 1974, the Provincial Assessor of Nueva Ecija
declared the leased property in the name of IMC; and
subsequently, IMC was assessed for real property
tax.
In September, 1976, the Province of Nueva Ecija
instituted the instant suit for the collection of real
property tax on the mineral land in question covering
1970-1976 in the amount of P38,836.22. The defendant
resisted, maintaining that the mineral land subject of
the assessment was owned by the Government and
therefore exempt from real estate tax. After trial, the
Court of First Instance dismissed the complaint in
reliance upon the terms of the lease contract and the
provisions of Section 87 of the old Mining Act
(Commonwealth Act 137) which did not subject
leased mineral lands to the payment of real estate
tax. The trial court observed that the Real Property
Tax Code of 1974 (Presidential Decree 464) which
took effect on June 1, 1974 did not change the rule.
Hence, this appeal.
When IMC in 1968 obtained a lease on the mineral
land in question, the law governing real property
taxation was the former Assessment Law,
Commonwealth Act 470, and the basis of realty
taxation thereunder was ownership  or interest
tantamount to ownership. A mere lessee of mineral land
was therefore not liable for the payment of realty tax
thereon. This was recognized in the Mining Act then in
force, Commonwealth Act 137, under which leased mineral
land was not subject to real estate tax. (Sec. 87.). The
lease contract of IMC was executed in accordance
with these laws. The absence of a stipulation therein
making the lessee liable for realty tax on the leased
mineral land was just a recognition of the real
property tax principle then prevailing; it was not a
contractual commitment or guarantee by the Department of
Agriculture and Natural Resources that with respect to the
leased mineral land, IMC would permanently be exempt
from real property taxation. That agency could not have
made that commitment because it was not authorized to do
so; and it could not bind the lawmaking body by stipulating
in effect against amendment of the law on real property
taxation.
In 1974, a new Real Property Tax Code came into
being when Presidential Decree 464 was issued. It
changed the basis of real property taxation. It
adopted the policy of taxing real property on the
basis of actual use, even if the user is not the owner.
Actual use - shall refer to the purpose for which the
property is principally or predominantly utilized by the
person in possession of the property. [Sec. 3(a).]
Actual Use of Real Property as Basis for Assessment.-Real
property shall be assessed on the basis of its actual use
regardless of where located and whoever uses it. (Section
19. Emphasis supplied.)
The above policy declaration is given substance in various
provisions of the new law. Thus, Section 40 of
Presidential Decree 464 specifies the exemptions
from real property tax.
SEC. 40. Exemption from Real Property Tax. — The
exemption shall be as follows:
a) Real property owned by the Republic of the
Philippines or any of its political subdivisions and any
government owned corporation so exempt by its
charter: Provided, however, That this exemption shall
not apply to real property of the abovenamed entities
the beneficial use of which has been granted, for
consideration or otherwise, to a taxable person.
xxx xxx xxx
e) Land acquired by grant, purchase or lease from
the public domain for conversion into dairy farms for
a period of five years from the time of such
conversion . . .
Incidentally, Presidential Decree 939 was subsequently
enacted exempting from real property tax "pasture and/or
grazing lands acquired by grant, purchase or lease from
the public domain actually used for livestock production, for
a period of five years . . .
The foregoing exemptions make it very clear
that leased  lands of the public domain would
otherwise be subject to real property tax; if that were
not so, there would have been no need to specifically
exempt some of them from real property tax.
Presidential Decree 464 also prescribes the classification of
real property for assessment purposes, specifically including
mineral land: "For purposes of assessment, real property
shall be classified as residential, agricultural, commercial or
industrial and also as mineral in the case of lands." (Section
18.) And for purposes of real property taxation, the
assessment levels to be applied as regards mineral lands
are laid down:
Mineral Lands - For purposes of taxation, mineral lands not
covered by lease shall be appraised at fifty per cent of their
market value to be determined by the Secretary of Finance
upon consultation with the Director of Mines; Provided
however, that mineral lands covered by leases shall be
declared for taxation purposes either by the owner of the
land or lessee and the assessment level thereof shall be
maintained at the current level of fifty per cent. [Sec. 20
(b). Emphasis supplied.]
It is true that Presidential Decree 464 recognizes and
respects real property tax exemption "under other
laws", and one such law, with respect to mineral
land, is Presidential Decree 463, the Mineral
Resources Development Decree of 1974, which
provides:
SEC. 53. Tax Exemptions. — Machineries, equipment,
tools for production, plants to convert mineral ores
into saleable form, spare parts, supplies, materials,
accessories, explosives, chemicals and transportation
and communication facilities imported by and for the
use of new mines and old mines which resume
operation, when certified as such by the Secretary (of
Natural Resources) upon recommendation of the
Director (of Mines), are exempt from the payment of
customs duties and all taxes except income tax for a
period starting from the first date of actual
commercial production of saleable mineral products.
xxx xxx xxx
All mining claims, improvements thereon and mineral
products derived therefrom shag likewise be exempt
from the payment of an taxes, except income tax, for
the same period provided for in the first paragraph of
this section.
It does not appear however that IMC was entitled to
tax exemption, including exemption from real
property tax, under Section 53 of Presidential Decree
463 during the period here in question.
We therefore conclude that under the provisions of
Presidential Decree 464, IMC is subject to the
payment of real property tax on the mineral land
leased by it. Since the said law took effect on June 1,
1974, and assessment in pursuance thereof was
made after January 1, 1974, the liability of IMC for
real property tax on the mineral land leased by it
should start on January 1, 1975 pursuant to Section
24 of P.D. 464:
Date of Effectivity of Assessment or Reassessment.-All
assessment or reassessment made after the first day of
January of any year shall take effect on the first day of
January of the succeeding year.
Wherefore, the decision of the lower court dismissing the
complaint in Civil Case No. C-4 is hereby modified as
regards the real property tax liability of defendant-appellee
under P.D. 464. The records of the case are ordered
remanded to the trial court for further proceedings to
determine the amount of real property tax due from IMC in
accordance with this decision. Costs against defendant-
appellee.
SO ORDERED.
G.R. No. 90639 February 21, 1990
TESTATE ESTATE OF CONCORDIA T. LIM, plaintiff-
appellant,  a protested action of the City Assessor which should
vs.
CITY OF MANILA, JESUS I. CALLEJA, in his capacity as
City Treasurer of Manila, NICOLAS CATIIL, in his
capacity as City Assessor of Manila, and/or
GOVERNMENT SERVICE INSURANCE
SYSTEM, defendants-appellees.
Melquiades P. De Leon for plaintiff-appellant.
GUTIERREZ, JR., J.:
This is an appeal from the decision of the Regional Trial
Court of Manila, Branch 29 dismissing a complaint for a
"sum of money and/or recovery of real estate taxes paid
under protest" which was certified and elevated to this
Court by the Court of Appeals as a case involving pure
questions of law.
On February 13, 1969, the late Concordia Lim obtained
a real estate loan from the defendant-appellee
Government Service Insurance System (GSIS) in the
amount of P875,488.54, secured by a mortgage
constituted on two (2) parcels of land formerly covered
by Transfer Certificates of Title Nos. 64075 and 63076
(later changed to TCT Nos. 125718 and 125719) registered
in Manila with a three-story building thereon and
located on No. 810 Nicanor Reyes St. (formerly Morayta),
Sampaloc, Manila. When Lim failed to pay the loan, the
mortgage was extrajudicially foreclosed and the
subject properties sold at public auction. The GSIS,
being the highest bidder, bought the properties. Upon
Lim's failure to exercise her right of redemption, the
titles to the properties were consolidated in favor of
the GSIS in 1977.
However, pursuant to Resolution No. 188 of the Board
of Trustees of the GSIS dated March 29, 1979, the
estate of Lim, through Ernestina Crisologo Jose (the
administratrix) was allowed to repurchase the
foreclosed properties. On April 11, 1979, a Deed of
Absolute Sale was executed. (Exhibit B, Table of
Exhibits, pp. 3-5)
The defendant City Treasurer of Manila required the
plaintiff-appellant to pay the real estate taxes due on
the properties for the years 1977, 1978 and the first
quarter of 1979 in the amount of P67,960.39, before the
titles could be transferred to the plaintiff-appellant. The
latter paid the amount under protest.
On July 11, 1979, the plaintiff-appellants counsel sent
a demand letter requesting the GSIS to reimburse the
taxes paid under protest. The GSIS refused.
On September 6, 1979, a demand letter was sent to the
City Treasurer of Manila to refund the amount but the
latter also refused.
On March 14, 1980, the plaintiff filed an action before
the trial court for a sum of money for the refund or
reimbursement of the real estate taxes paid under
protest.
During the pendency of the case, the plaintiff-
appellant admitted that the foreclosed properties had
been sold, through the administratrix, to another
person. (2nd par. of Plaintiffs Manifestation dated
December 21, 1981, Records, p. 105; TSN, March 4, 1982,
p. 37)
After trial, the lower court dismissed the complaint
for lack of jurisdiction. It ruled that the case involves
have been flied before the Local Board of Assessment
Appeals of Manila (citing Section 30 of the Real
Property Tax Code [P.D. No. 464]) in line with the
principle that all administrative remedies must first
be exhausted. The lower court also cited by way
of obiter dictum, the case of City of Baguio v. Busuego, 100
SCRA 116 (1980) wherein this Court ruled that while the
GSIS may be exempt from the payment of real estate
tax, the exemption does not cover properties the
beneficial use of which was granted to other taxable
persons. This ruling supports the lower court's view that
the tax had attached to the subject properties for the years
1977, 1978 and first quarter of 1979. The lower court
further stated that the plaintiff-appellant had
assumed liability for the real estate taxes because of
the provision in the Deed of Sale with the GSIS that:
"any and all the taxes, ... relative to the execution
and/or implementation of this Deed, ... shall be for
the account of and paid by the VENDEE" (Exhibit B,
Table of Exhibits, p. 5)
Hence, this appeal raising several issues that can be
summed up into the following: (1) whether or not the trial
court has jurisdiction over the action for refund of real
estate taxes paid under protest; (2) whether or not
plaintiff-appellant has the right to recover; and (3) whether
or not the plaintiff-appellant has personality to sue.
The plaintiff-appellant argues that the lower court
has jurisdiction over a complaint for refund as well as
for reimbursement of the real estate taxes
erroneously collected by the City of Manila from it
and paid under protest.
The records show that the subject properties were
leased to other persons during the time when GSIS
held their titles, as was the case during the
ownership of the late Concordia Lim.
However, the real estate taxes later assessed on the
said properties for the years 1977, 1978 and the first
quarter of 1979 were charged against the plaintiff-
appellant even if the latter was not the beneficial
user of the parcels of land.
In real estate taxation, 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. (Sections 3(a) and 19 of
P.D. No. 464; Province of Nueva Ecija v. Imperial Mining
Co., Inc., 118 SCRA 632 [1982]). Raising doubts on
the validity of the imposition and collection of the real
property tax for the designated periods before the title to
the properties may be transferred, the plaintiff-appellant
paid under protest. This step was taken in accordance with
the provision of Section 62 of P.D. No. 464, which states:
Sec. 62. Payment under protest. — (a) When a taxpayer
desires for any reason to pay his tax under protest, he shall
indicate the amount or portion thereof he is contesting and
such protest shall be annotated on the tax receipts by
writing thereon the words paid under protest.' Verbal
protest shall be confirmed in writing, with a statement of
the ground, therefor, within thirty days. The tax may be
paid under protest, and in such case it shall be the duty of
the Provincial, City or Municipal Treasurers to annotate the
ground or grounds therefor on the receipt.
(b) In case of payments made under protest, the amount or
portion of the tax contested shall be held in trust by the
treasurer and the difference shall be treated as revenue.
(c) In the event that the protest is finally decided in favor of
the government, the amount or portion of the tax held in
trust by the treasurer shall accrue to the revenue account,
but if the protest shall be decided finally in favor of the
protestant, the amount or portion of the tax protested
against may either be refunded to the protestant or applied
as tax credit to any other existing or future tax liability of
the said protestant. (Emphasis Supplied)
The Court rules that the plaintiff-appellant correctly filed
the action for refund/reimbursement with the lower court as
it is the courts which have jurisdiction to try cases involving
the right to recover sums of money.
Section 30 of the Real Property Tax Code is not applicable
because what is questioned is the imposition of the tax
assessed and who should shoulder the burden of the tax.
There is no dispute over the amount assessed on the
properties for tax purposes. Section 30 pertains to the
administrative act of listing and valuation of the
property for purposes of real estate taxation. It
provides:
Section 30. Local Board of Assessment Appeals — Any
owner who is not satisfied with the action of the provincial
or city assessor in the assessment of his property may,
within sixty days from the date of receipt by him of the
written notice of assessment as provided in this Code,
appeal to the Board of Assessment Appeals of the province
or city by filing with it a petition under oath using the form
prescribed for the purpose, together with copies of the tax
declarations and such affidavit or documents submitted in
support of the appeal.
In further support of the conclusion that the lower court has
jurisdiction to try the instant case, we note Section 64 of
the Real Property Tax Code which provides that a "court
shall entertain a suit assailing the validity of a tax
assessed" after the taxpayer shall have paid under protest.
The issue on the existence or non-existence of the
appellant's right to recover the amounts paid hinges on the
basic question of the validity of the tax imposition. If the
imposition is valid and in accordance with law, then there is
no right to recover. Otherwise, the amounts paid must be
refunded by the respondent City Treasurer of Manila acting
in his official capacity. (Sec. 62 [c], PD 464)
The opinion of the lower court that the ruling in City of
Baguio v. Busuego, supra justifies the imposition of the tax
on plaintiff-appellant is erroneous. The facts in that case
are different from those in the case at bar. It was shown
that Busuego purchased, by way of installment, a parcel of
land and building within a housing project of the GSIS. In a
Contract to Sell with the GSIS, he agreed to: (1) the
delivery of the possession of the properties to him pending
the full payment of the price although the title remained
with the GSIS; and (2) his liability to pay and shoulder all
taxes and assessments on the lot and building or
improvements thereon during the term of the contract to
sell.
Despite the tax exemption enjoyed by the GSIS, the realty
tax liability imposed on the purchaser was held to be valid
on the basis of the contractual obligation that he entered
into and the fact that beneficial use had been given to him.
The instant case does not present a similar contractual
stipulation. The contract here which is alleged to include the
condition that the buyer shall shoulder the taxes is a
Contract of Sale. In the Busuego case, there was merely a
Contract to Sell for the duration of which the party who
shall be liable for the taxes about to be due is the buyer as
per agreement. In the case at bar, what was assumed by
the vendee was the liability for taxes and other expenses
"relative to the execution and/or implementation" of the
Deed of Absolute Sale "including among others,
documentation, documentary and science stamps, expenses
for registration and transfer of titles ... " This clause was
stipulated for the purpose of clarifying which of the parties
should bear the costs of execution and implementation of
the sale and to comply with Article 1487 of the Civil Code
which states:
ART. 1487 — The expenses for the execution and
registration of the sale shall be borne by the vendor, unless
there is a stipulation to the contrary.
Moreover, the taxes mentioned in the clause here refer to
those necessary to the completion of the sale and accruing
after the making of such sale on April 11, 1990 such as
documentary stamp tax and capital gains tax.
In the Busuego case, the assumption by the vendee of the
liability for real estate taxes prospectively due was in
harmony with the tax policy that the user of the property
bears the tax. In the instant case, the interpretation that
the plaintiff-appellant assumed a liability for overdue real
estate taxes for the periods prior to the contract of sale is
incongruent with the said policy because there was no
immediate transfer of possession of the properties previous
to full payment of the repurchase price.
The facts of the case constrain us to rule that the plaintiff-
appellant is not liable to pay the real property tax due for
the years 1977, 1978 and first quarter of 1979. The clause
in the Deed of Sale cannot be interpreted to include taxes
for the periods prior to April 11, 1979, the date of
repurchase.
To impose the real property tax on the estate which was
neither the owner nor the beneficial user of the property
during the designated periods would not only be contrary to
law but also unjust. If plaintiff-appellant intended to
assume the liability for realty taxes for the prior periods,
the contract should have specifically stated "real estate
taxes" due for the years 1977,1978 and first quarter of
1979. The payments made by the plaintiff-appellant cannot
be construed to be an admission of a tax liability since they
were paid under protest and were done only in compliance
with one of the requirements for the consummation of the
sale as directed by the City Treasurer of Manila.
Hence, the tax assessed and collected from the plaintiff-
appellants is not valid and a refund by the City government
is in order.
The Court rules, however, that the plaintiff-appellant
is not entitled to a reimbursement from the
respondent GSIS because: (1) the GSIS is exempt
from payment of the real property tax under Sec. 33
of the Revised Charter of the GSIS; and (2) the tax
should be based on "actual use" of the property.
Section 40 of the Real Property Tax Code supports
the view that not even the GSIS is liable to pay real
property tax on public land leased to other persons.
Section 40 provides:
Sec. 40. Exemption from Real Property Tax. — The
exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines
or any of its political subdivisions and any government
owned corporation so exempt by its charter: Provided,
however, That this exemption shall not apply to real
property of the abovenamed entities the beneficial use of
which has been granted, for consideration or otherwise, to
a taxable person.
In fact, if there is anyone liable the law and
applicable jurisprudence point to the lessees of land
owned by the government-owned and controlled
corporations. (Province of Nueva Ecija v. Imperial Mining
Co., Inc., supra) In this case, the Court can only declare the
non-liability of a right to a refund. We cannot rule on the
liability of the lessees whose Identities are not even clear
because they were never impleaded.
The contention of the plaintiff-appellant that the respondent
GSIS is liable to reimburse the tax because the latter
allegedly failed to exercise its claim to the tax exemption
privilege is without merit. The exemption is explicitly
granted by law and need not be applied for.
Regarding the issue on the existence of the personality to
sue, the plaintiff-appellant asserts that since it was the one
which paid under protest the amount of P67,960.39 as real
property tax, then it is the real party in interest to sue for
refund.
The lower court, noting the transfer of the title to the
properties to a third person, ruled that assuming arguendo
that there is a right to seek recovery, the subsequent sale
"must have included the tax" and "as such all the credits
including the taxes that were paid was (sic) transfered
already to the buyer." It ruled that plaintiff-appellant had
no personality to sue and the right of action must be
between the subsequent buyer and the plaintiff-appellant.
The Court finds that the above ruling and the facts on which
it is based are not sufficiently supported by the records of
the case. The evidence merely shows an admission of a
subsequent sale of the properties by the plaintiff-appellant,
nothing more.
WHEREFORE, IN VIEW OF THE FOREGOING, the judgment
appealed from is hereby REVERSED and SET ASIDE. The
defendants appellees City of Manila, the City Treasurer and
City Assessor of Manila are hereby ordered to refund to the
TESTATE ESTATE OF CONCORDIA LIM, through
administratrix ERNESTINA CRISOLOGO-JOSE, the amount
of P67,960.39 as real estate taxes paid under protest.
SO ORDERED.
G.R. No. 119172 March 25, 1999
BELEN C. FIGUERRES, petitioner,  regulations for the classification, appraisal and assessment
vs.
COURT OF APPEALS, CITY OF ASSESSORS OF
MANDALUYONG CITY TREASURER OF MANDALUYONG,
and SANGGUNIANG BAYAN OF
MANDALUYONG, respondents.
 MENDOZA, J.:
This is a petition for review on certiorari of the decision of
the Court of Appeals, dated February 8, 1995, dismissing a
prohibition suit brought by petitioner against the
respondent officials of the Municipality, now City, of
Mandaluyong to prevent them from enforcing certain
ordinances revising the schedule of fair market values of
the various classes of real property in that municipality and
the assessment levels applicable thereto.
Petitioner Belen C. Figuerres is the owner of a parcel
of land, covered by Transfer Certificate of Title No.
413305, and located at Amarillo Street, Barangay Mauway,
City of Mandaluyong. In 1993, she received a notice of
assessment, dated October 20, 1993, from the
municipal assessor of the then Municipality of
Mandaluyong, containing the following specifics:
TYPE AREA BASE VALUE MARKET ASSESSMENTS ASSESSED
PER SQ.M VALUE LEVEL VALUE
Residential 530sq.m. P2,500.00 P1,325,000.00 20
P265,006·.00 1
The assessment, effective in the year 1994, was
based on Ordinance Nos. 119 and 125, series of 1993,
and Ordinance No. 135, series of 1994, of the
Sangguniang Bayan of Mandaluyong. Ordinance No.
119, series of 1993, which was promulgated on April 22,
1993, contains a schedule of fair market values of the
different classes of real property in the
municipality. 2 Ordinance No. 125, series of 1993, which
was promulgated on November 11, 1993, on the other
hand, fixes the assessment levels applicable to such classes
of real property. 3 Finally, Ordinance No. 135, series of
1994, which was promulgated on February 24, 1994,
amended Ordinance No. 119, §6 by providing that only one
third (1/3) of the increase in the market values applicable
to residential lands pursuant to the said ordinance shall be
implemented in the years 1994, 1995, and 1996. 4
Petitioner brought a prohibition suit in the Court of
Appeals against the Assessor, the Treasurer, and the
Sangguniang Bayan to stop them from enforcing the
ordinances in question on the ground that the
ordinances were invalid for having been adopted
allegedly without public hearings and prior
publication or posting and without complying with
the implementing rules yet to be issued by the
Department of Finance.5
In its decision, dated February 8, 1995, 6 the Court of
Appeals threw out the petition. The appellate court said in
part:
Petitioner's claim that Ordinance Nos. 119, 125 and
135 are null and void since they were prepared
without the approval and determination of the
Department of Finance is without merit.
The approval and determination by the Department of
Finance is not needed under the Local Government
Code of 1991, since it is now the city council of
Mandaluyong that is empowered to determine and
approve the aforecited ordinances. Furthermore,
contrary to the claim of petitioner that the Department of
Finance "has not promulgated the necessary rules and
of real property as prescribed by the 1991 Local
Government Code," Department of Finance Local
Assessment Regulation No. 1-92 dated October 6, 1992,
which is addressed to provincial, city, and municipal
assessors and others concerned with the proper
implementation of Section 219 of R.A. No. 7160, provides
for the rules relative to the conduct of general revisions of
real property assessment pursuant to Sections 201 and 219
of the Local Government Code of 1991.
Regarding petitioner's claim that there is need for
municipal ordinances to be published in the Official
Gazette for their effectivity, the same is also without
merit.
Sec. 511 of R.A. No. 7160 provides that —
x x x           x x x          x x x
The secretary to the Sanggunian concerned shall
transmit official copies of such ordinances to the
chief executive officer of the Official Gazette within
seven (7) days following the approval of the said
ordinances for publication purposes. The Official
Gazette may publish ordinances with penal sanctions
for archival and reference purposes.
Thus, the posting and publication in the Official
Gazette of ordinances with penal sanctions is not a
prerequisite for their effectivity. This finds support in
the case of Tañada v. Tuvera (146 SCRA 446),
wherein the Supreme Court declared that municipal
ordinances are covered by the Local Government
Code.
Moreover, petitioner failed to exhaust the
administrative remedies available to him as provided
for under Section 187 of R.A. No. 7160, before filing
the instant petition with this Court.
xxx xxx xxx
In fact, aside from filing an appeal to the Secretary of
Justice as provided under Section 187 of R.A. No. 7160, the
petitioner . . . could have appealed to the Local Board of
Assessment Appeals, the decision of which is in turn
appealable to the Central Board of Assessment Appeals as
provided under Sections 226 and 230 of the said law.
According to current jurisprudence, administrative remedies
must be exhausted before seeking judicial intervention.
(Gonzales v. Secretary of Education, 5 SCRA 657). If a
litigant goes to court without first pursuing the available
administrative remedies, his action is considered premature
and not yet ripe for judicial determination (Allied Brokerage
Corporation v. Commissioner of Customs, 40 SCRA 555).
As the petitioner has not pursued the administrative
remedies available to him, his petition for prohibition
cannot prosper (Gonzales v. Provincial Auditor of Iloilo, 12
SCRA 711).
WHEREFORE, the petition is hereby DENIED due course and
is hereby DISMISSED.7
Petitioner Figuerres assails the above decision.
contends that —
1. THE HONORABLE COURT OF APPEALS PATENTLY ERRED
IN FINDING LACK OF EXHAUSTION OF ADMINISTRATIVE
REMEDIES ON THE PART OF HEREIN PETITIONER WHEN
UNDER THE CIRCUMSTANCES EXHAUSTION OF
ADMINISTRATIVE REMEDIES IS NOT REQUIRED BY LAW
AND WOULD HAVE BEEN A USELESS FORMALITY.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
STATED THAT THE CITY COUNCIL OF MANDALUYONG IS
EMPOWERED TO DETERMINE AND APPROVE THE
AFORECITED ORDINANCES WITHOUT TAKING INTO
ACCOUNT THE MANDATORY PUBLIC HEARINGS REQUIRED
BY R.A. No. 7160.
3. WITH DUE RESPECT, THE HONORABLE COURT OF
APPEALS PATENTLY ERRED IN STATING THAT THERE IS NO
NEED FOR PUBLICATION OF TAX ORDINANCES.
4. THERE IS NON COMPLIANCE BY PUBLIC RESPONDENTS
OF ASSESSMENT REGULATION No. 1-92 DATED OCTOBER
6, 1992, EVEN IF THE HONORABLE COURT OF APPEALS
MENTIONED THE EXISTENCE OF THE SAID ASSESSMENT
REGULATIONS. 8
On the other hand, the Municipality of Mandaluyong
contends:
(1) the present case does not fall within any of the
exceptions to the doctrine of exhaustion of administrative
remedies;
(2) apart from her bare allegations, petitioner Figuerres has
not presented any evidence to show that no public hearings
were conducted prior to the enactment of the ordinances in
question;
(3) although an ordinance concerning the imposition of real
property taxes is not required to be published in the Official
Gazette in order to be valid, still the subject ordinances
were disseminated before their effectivity in accordance
with the relevant provisions of R.A. No. 7160; and
(4) the Municipality of Mandaluyong complied with the
regulations of the Department of Finance in enacting the
ordinances.
Exhaustion of administrative remedies
In Lopez v. City of Manila, 9 we recently held:
. . . Therefore, where a remedy is available within the
administrative machinery, this should be resorted to before
resort can be made to the courts, not only to give the
administrative agency the opportunity to decide the matter
by itself correctly, but also to prevent unnecessary and
premature resort to courts. . . .
With regard to questions on the legality of a tax ordinance,
the remedies available to the taxpayer are provided under
Sections 187, 226, and 252 of R.A. 7160.
Sec. 187 of R.A. 7160 provides, that the taxpayer may
question the constitutionality or legality of a tax ordinance
on appeal within thirty (30) days from effectivity thereof, to
the Secretary of Justice. The petitioner after finding that his
assessment is unjust, confiscatory, or excessive, may bring
the case before the Secretary of Justice for questions of
legality or constitutionality of the city ordinance.
Under Section 226 of R.A. 7160, an owner of real property
who is not satisfied with the assessment of his property
may, within sixty (60) days from notice of assessment,
appeal to the Board of Assessment Appeals.
She Should the taxpayer question the excessiveness of the
amount of tax, he must first pay the amount due, in
accordance with Section 252 of R.A. No. 7160. Then, he
must request the annotation of the phrase "paid under
protest" and accordingly appeal to the Board of Assessment
Appeals by filing a petition under oath together with copies
of the tax declarations and affidavits or documents to
support his appeal.
Although cases raising purely legal questions are excepted
from the rule requiring exhaustion of administrative
remedies before a party may resort to the courts, in the
case at bar, the legal questions raised by petitioner require,
as will presently be shown, proof of facts for their
resolution. Therefore, the petitioner's action in the Court of
Appeals was premature, and the appellate court correctly
dismissed her action on the ground that she failed to
exhaust available administrative remedies as above stated.
Petitioner argues that resort to the Secretary of Justice is
not mandatory but only directory because R.A. No. 7160,
§187 provides that "any question on the constitutionality or
legality of tax ordinances or revenue measures" may be
appealed to the Secretary of Justice. Precisely, the
Secretary of Justice can take cognizance of a case involving
the constitutionality or legality of tax ordinances where, as
in this case, there are factual issues involved.
There need be no fear that compliance with the rule on
exhaustion of administrative remedies will unduly delay
resort to the courts to the detriment of taxpayers. Although
R.A. No. 7160, §187 provides that an appeal to the
Secretary of Justice "shall not have the effect of suspending
the effectivity of the ordinance and the accrual and
payment of the tax, fee, or charge levied therein," it
likewise requires the Secretary of Justice to "render a
decision within sixty (60) days from the date of receipt of
the appeal," after which "the aggrieved party may file
appropriate proceedings with a court of competent
jurisdiction."
Public hearings on tax ordinance.
Petitioner is right in contending that public hearings are
required to be conducted prior to the enactment of an
ordinance imposing real property taxes. R.A. No. 7160,
§186 provides that an ordinance levying taxes, fees, or
charges "shall not be enacted without any prior public
hearing conducted for the purpose."
However, it is noteworthy that apart from her bare
assertions, petitioner Figuerres has not presented any
evidence to show that no public hearings were conducted
prior to the enactment of the ordinances in question. On
the other hand, the Municipality of Mandaluyong claims that
public hearings were indeed conducted before the subject
ordinances were adopted, 10 although it likewise failed to
submit any evidence to establish this allegation. However,
in accordance with the presumption of validity in favor of an
ordinance, their constitutionality or legality should be
upheld in the absence of evidence showing that the
procedure prescribed by law was not observed in their
enactment. In an analogous case, United States
v. Cristobal, 11 it was alleged that the ordinance making it a
crime for anyone to obstruct waterways had not been
submitted by the provincial board as required by §§2232-
2233 of the Administrative Code. In rejecting this
contention, the Court held:
From the judgment of the Court of First Instance the
defendant appealed to this court upon the theory that the
ordinance in question was adopted without authority on the
part of the municipality and was therefore unconstitutional.
The appellant argues that there was no proof adduced
during the trial of the cause showing that said ordinance
had been approved by the provincial board. Considering the
provisions of law that it is the duty of the provincial board
to approve or disapprove ordinances adopted by the
municipal councils of the different municipalities, we will
assume, in the absence of proof to the contrary, that the
law has been complied with. We have a right to assume
that officials have done that which the law requires them to
do, in the absence of positive proof to the contrary. 12
Furthermore, the lack of a public hearing is a negative
allegation essential to petitioner's cause of action in the
present case. Hence, as petitioner is the party asserting it,
she has the burden of proof. 13 Since petitioner failed to
rebut the presumption of validity in favor of the subject
ordinances and to discharge the burden of proving that no
public hearings were conducted prior to the enactment
thereof, we are constrained to uphold their constitutionality
or legality.
Publication and posting of schedule of fair market
values
Petitioner is also right that publication or posting of the
proposed schedule of fair market values of the difference
classes of real property in a local government unit is
required pursuant to R.A. No. 7160, §212 which in part
states:
. . . The schedule of fair market values shall be published in
a newspaper of general circulation in the province, city, or
municipality concerned, or in the absence thereof, shall be
posted in the provincial capitol, city or municipal hall and in
two other conspicuous public places therein.
In Ty v. Trampe, 14 it was held that, if the local government
unit is part of Metro Manila, the abovequoted portion of
§212 must be understood to refer to the schedule of fair
market values of the different classes of real property in the
district to which the city or municipality belongs, as
prepared jointly by the local assessors concerned.
In addition, an ordinance imposing real property taxes
(such as Ordinance Nos. 119 and 135) must be posted or
published as required by R.A. No. 7160, §188 which
provides:
Sec. 188. Publication of Tax Ordinances and Revenue
Measures. — Within ten (10) days after their approval,
certified true copies of all provincial, city, and municipal tax
ordinances or revenue measures shall be published in full
for three (3) consecutive days in a newspaper of local
circulation: Provided, however, That in provinces, cities and
municipalities where there no newspapers of local
circulation, the same may be posted in at least two (2)
conspicuous and publicly accessible places.
Hence, after the proposed schedule of fair market values of
the different classes of real property in a local government
unit within Metro Manila, as prepared jointly by the local
assessors of the district to which the city or municipality
belongs, has been published or posted in accordance with
§212 of R.A. No. 7160 and enacted into ordinances by the
sanggunians of the municipalities and cities concerned, the
ordinances containing the schedule of fair market values
must themselves be published or posted in the manner
provided by §188 of R.A. No. 7160.
With respect to ordinances which fix the assessment levels
(such as Ordinance No. 125), being in the nature of a tax
ordinance, §188 likewise applies. Moreover, as, Ordinance
No. 125, §7 provides for a penal sanction for violations
thereof by means of a fine of not less than P1,000.00 nor
more than P5,000.00, or imprisonment of not less than one
(1) month nor more than six (6) months, or both, in the
discretion of the court, not only §188 but §511(a) also must
be observed:
Ordinances with penal sanctions shall be posted at
prominent places in the provincial capitol, city, municipal or
barangay hall, as the case may be, for a minimum period of
three (3) consecutive weeks. Such ordinances shall also be
published in a newspaper of general circulation, where
available, within the territorial jurisdiction of the local
government unit concerned, except in the case of barangay
ordinances. Unless otherwise provided therein, said
ordinances shall take effect on the day following its
publication, or at the end of the period of posting,
whichever occurs later.
In view of §§188 and 511(a) of R.A. No. 7160, an
ordinance fixing the assessment levels applicable to the
different classes of real property in a local government unit
and imposing penal sanctions for violations thereof (such as
Ordinance No. 125) should be published in full for three (3)
consecutive days in a newspaper of local circulation, where
available, within ten (10) days of its approval, and posted
in at least two (2) prominent places in the provincial
capitol, city, municipal, or barangay hall for a minimum of
three (3) consecutive weeks.
Apart from her allegations, petitioner has not presented any
evidence to show that the subject ordinances were nor
disseminated in accordance with these provisions of R.A.
No. 7160. On the other hand, the Municipality of
Mandaluyong presented a certificate, dated November 12,
1993, of Williard S. Wong, Sanggunian Secretary of the
Municipality of Mandaluyong that "Ordinance No. 125, S-
1993 . . . has been posted in accordance with §59(b) of
R.A. No. 7160, otherwise known as the Local Government
Code of 1991." 15 Thus, considering the presumption of
validity in favor of the ordinances and the failure of
petitioner to rebut such presumption, we are constrained to
dismiss the petition in this case.
Compliance with regulations issued by the
Department of Finance
Also without merit is the contention of petitioner that
Ordinance No, 119 and Ordinance No. 135 are void for not
having been enacted in accordance with Local Assessment
Regulation No. 1-92, dated October 6, 1992, of the
Department of Finance, which provides guidelines for the
preparation of proposed schedules of fair market values of
the different classes of real property in a local government
unit, such as time tables for obtaining information from
owners of affected lands and buildings regarding the value
thereof. As in the case of the procedural requirements for
the enactment of tax ordinances and revenue measures,
however, petitioner has not shown that the ordinances in
this case were enacted in accordance with the applicable
regulations of the Department of Finance. The Municipality
of Mandaluyong claims that, although the regulations are
merely directory, it has complied with them. 16 Hence, in
the absence of proof that the ordinances were not enacted
in accordance with such regulations, said ordinances
presumed to have been enacted in accordance with such
regulations.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,  and an owner of three parcels of land. He alleges the
vs.
JAIME B. ONGPIN, in his capacity as Minister of
Finance and FIDELINA CRUZ, in her capacity as
Acting Municipal Treasurer of the Municipality of Las
Piñas, respondents, REALTY OWNERS ASSOCIATION
OF THE PHILIPPINES, INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys
to Combat Injustice and Oppression (Bonifacio) for
petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for
movant Realty Owners Association.
MEDIALDEA, J.:
The petition seeks to declare unconstitutional
Executive Order No. 73 dated November 25, 1986, which
We quote in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL
PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER
SECTION 21 OF THE REAL PROPERTY TAX CODE, AS
AMENDED
WHEREAS, the collection of real property taxes is still based
on the 1978 revision of property values;
WHEREAS, the latest general revision of real property
assessments completed in 1984 has rendered the 1978
revised values obsolete;
WHEREAS, the collection of real property taxes based
on the 1984 real property values was deferred to take
effect on January 1, 1988 instead of January 1, 1985,
thus depriving the local government units of an
additional source of revenue;
WHEREAS, there is an urgent need for local
governments to augment their financial resources to
meet the rising cost of rendering effective services to
the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of
the Philippines, do hereby order:
SECTION 1. Real property values as of December 31,
1984 as determined by the local assessors during the
latest general revision of assessments shall take
effect beginning January 1, 1987 for purposes of real
property tax collection.
SEC. 2. The Minister of Finance shall promulgate the
necessary rules and regulations to implement this Executive
Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is
hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and
regulations or parts thereof inconsistent with this Executive
Order are hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued
suspending the implementation of Executive Order No. 73
until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer
following: that Executive Order No. 73 accelerated
the application of the general revision of assessments
to January 1, 1987 thereby mandating an excessive
increase in real property taxes by 100% to 400% on
improvements, and up to 100% on land; that any
increase in the value of real property brought about
by the revision of real property values and
assessments would necessarily lead to a
proportionate increase in real property taxes; that
sheer oppression is the result of increasing real
property taxes at a period of time when harsh
economic conditions prevail; and that the increase in
the market values of real property as reflected in the
schedule of values was brought about only by
inflation and economic recession.
The intervenor Realty Owners Association of the
Philippines, Inc. (ROAP), which is the national
association of owners-lessors, joins Chavez in his
petition to declare unconstitutional Executive Order
No. 73, but additionally alleges the following: that
Presidential Decree No. 464 is unconstitutional
insofar as it imposes an additional one percent (1%)
tax on all property owners to raise funds for
education, as real property tax is admittedly a local
tax for local governments; that the General Revision
of Assessments does not meet the requirements of
due process as regards publication, notice of hearing,
opportunity to be heard and insofar as it authorizes
"replacement cost" of buildings (improvements)
which is not provided in Presidential Decree No. 464,
but only in an administrative regulation of the
Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86 2 is even
more oppressive and unconstitutional as it imposes
successive increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the
petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the
constitutionality of Executive Order No. 73 insofar as the
revision of the assessments and the effectivity thereof are
concerned. It should be emphasized that Executive Order
No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984
as determined by the local assessors during the latest
general revision of assessments shall take effect beginning
January 1, 1987 for purposes of real property tax collection.
(emphasis supplied)
The general revision of assessments completed in 1984 is
based on Section 21 of Presidential Decree No. 464 which
provides, as follows:
SEC. 21. General Revision of Assessments. — Beginning
with the assessor shall make a calendar year 1978, the
provincial or city general revision of real property
assessments in the province or city to take effect January
1, 1979, and once every five years thereafter: Provided;
however, That if property values in a province or city, or in
any municipality, have greatly changed since the last
general revision, the provincial or city assesor may, with
the approval of the Secretary of Finance or upon bis
direction, undertake a general revision of assessments in
the province or city, or in any municipality before the fifth
year from the effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that
the attack on Executive Order No. 73 has no legal basis as
the general revision of assessments is a continuing process
mandated by Section 21 of Presidential Decree No. 464. If
at all, it is Presidential Decree No. 464 which should be
challenged as constitutionally infirm. However, Chavez
failed to raise any objection against said decree. It was
ROAP which questioned the constitutionality thereof.
Furthermore, Presidential Decree No. 464 furnishes the
procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. — Any owner
who is not satisfied with the action of the provincial or city
assessor in the assessment of his property may, within
sixty days from the date of receipt by him of the written
notice of assessment as provided in this Code, appeal to the
Board of Assessment Appeals of the province or city, by
filing with it a petition under oath using the form prescribed
for the purpose, together with copies of the tax declarations
and such affidavit or documents submitted in support of the
appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals.
— The Local Board of Assessment Appeals shall decide the
appeal within one hundred and twenty days from the date
of receipt of such appeal. The decision rendered must be
based on substantial evidence presented at the hearing or
at least contained in the record and disclosed to the parties
or such relevant evidence as a reasonable mind might
accept as adequate to support the conclusion.
In the exercise of its 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 truth without-necessarily adhering to
technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner
and the Provincial or City Assessor with a copy each 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 property owner of such fact using the
form prescribed for the purpose. The owner or
administrator of the property or the assessor who is not
satisfied with the decision of the Board of Assessment
Appeals, may, within thirty days after receipt of the
decision of the local Board, appeal to the Central Board of
Assessment Appeals by filing his appeal under oath with the
Secretary of the proper provincial or city Board of
Assessment Appeals using the prescribed form stating
therein the grounds and the reasons for the appeal, and
attaching thereto any evidence pertinent to the case. A
copy of the appeal should be also furnished the Central
Board of Assessment Appeals, through its Chairman, by the
appellant.
Within ten (10) days from receipt of the appeal, the
Secretary of the Board of Assessment Appeals concerned
shall forward the same and all papers related thereto, to
the Central Board of Assessment Appeals through the
Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. — The Central
Board of Assessment Appeals shall have jurisdiction over
appealed assessment cases decided by the Local Board of
Assessment Appeals. The said Board shall decide cases
brought on appeal within twelve (12) months from the date
of receipt, which decision shall become final and executory
after the lapse of fifteen (15) days from the date of receipt
of a copy of the decision by the appellant.
In the exercise of its appellate jurisdiction, the Central
Board of Assessment Appeals, or upon express authority,
the Hearing Commissioner, shall have the power to
summon witnesses, administer oaths, take depositions, and
issue subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and
promulgate rules of procedure relative to the conduct of its
business.
Simply stated, within sixty days from the date of receipt of
the, written notice of assessment, any owner who doubts
the assessment of his property, may appeal to the Local
Board of Assessment Appeals. In case the, owner or
administrator of the property or the assessor is not satisfied
with the decision of the Local Board of Assessment Appeals,
he may, within thirty days from the receipt of the decision,
appeal to the Central Board of Assessment Appeals. The
decision of the Central Board of Assessment Appeals shall
become final and executory after the lapse of fifteen days
from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in
real property taxes brought about by Executive Order No.
73 amounts to a confiscation of property repugnant to the
constitutional guarantee of due process, invoking the cases
of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No.
L-24693, July 31, 1967, 20 SCRA 849) and Sison v.
Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA
654).
The reliance on these two cases is certainly
misplaced because the due process requirement
called for therein applies to the "power to tax."
Executive Order No. 73 does not impose new taxes
nor increase taxes.
Indeed, the government recognized the financial burden to
the taxpayers that will result from an increase in real
property taxes. Hence, Executive Order No. 1019 was
issued on April 18, 1985, deferring the implementation of
the increase in real property taxes resulting from the
revised real property assessments, from January 1, 1985 to
January 1, 1988. Section 5 thereof is quoted herein as
follows:
SEC. 5. The increase in real property taxes resulting from
the revised real property assessments as provided for under
Section 21 of Presidential Decree No. 464, as amended by
Presidential Decree No. 1621, shall be collected beginning
January 1, 1988 instead of January 1, 1985 in order to
enable the Ministry of Finance and the Ministry of Local
Government to establish the new systems of tax collection
and assessment provided herein and in order to alleviate
the condition of the people, including real property owners,
as a result of temporary economic difficulties. (emphasis
supplied)
The issuance of Executive Order No. 73 which changed the
date of implementation of the increase in real property
taxes from January 1, 1988 to January 1, 1987 and
therefore repealed Executive Order No. 1019, also finds
ample justification in its "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on
the 1984 real property values was deferred to take effect
on January 1, 1988 instead of January 1, 1985, thus
depriving the local government units of an additional source
of revenue;
WHEREAS, there is an urgent need for local governments to
augment their financial resources to meet the rising cost of
rendering effective services to the people; (emphasis
supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No.
464 is unconstitutional, is not proper to be resolved in the
present petition. As stated at the outset, the issue here is
limited to the constitutionality of Executive Order No. 73.
Intervention is not an independent proceeding, but an
ancillary and supplemental one which, in the nature of
things, unless otherwise provided for by legislation (or
Rules of Court), must be in subordination to the main
proceeding, and it may be laid down as a general rule that
an intervention is limited to the field of litigation open to
the original parties (59 Am. Jur. 950. Garcia, etc., et al. v.
David, et al., 67 Phil. 279).
We agree with the observation of the Office of the Solicitor
General that without Executive Order No. 73, the basis for
collection of real property taxes win still be the 1978
revision of property values. Certainly, to continue collecting
real property taxes based on valuations arrived at several
years ago, in disregard of the increases in the value of real
properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal adequacy,
which is one of the characteristics of a sound tax system,
requires that sources of revenues must be adequate to
meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention
are hereby DISMISSED.
SO ORDERED.
G.R. No. 152904              June 8, 2007
CITY ASSESSOR OF CEBU CITY, petitioner, 
vs.
ASSOCIATION OF BENEVOLA DE CEBU,
INC., respondent.
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 respondent’s 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 Decision3 and October 25, 2000 Resolution 4of the
Central Board of Assessment Appeals (CBAA); and the
March 11, 2002 Resolution 5 of the same court denying
petitioner’s 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 1990’s, respondent constructed the CHH
Medical Arts Center (CHHMAC). Thereafter, an April 17,
1998 Certificate of Occupancy7 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 buildings—the CHH’s 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
CHH’s 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, respondent’s 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 respondent’s
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
Appeal9 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 Answer11 to petitioner’s appeal.
Subsequently, on January 24, 2000, the CBAA rendered a
Decision12 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 Appeals13 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
petitioner’s Motion for Reconsideration.16
The Ruling of the Court of Appeals
Not satisfied, petitioner brought before the CA a petition for
review17 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 Decision18 of the LBAA.
On October 31, 2001, the appellate court rendered the
assailed Decision19 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 Herrera20 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 training—their findings and conclusions are
accorded not only respect but even finality.
Through the assailed March 11, 2002 Resolution, 21 the CA
denied petitioner’s 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 Court’s Ruling
The petition is devoid of merit.
It is petitioner’s 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 Assessor’s 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 hospital’s 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 hospital’s 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 CHH’s 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 Service––The 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 Service––These 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 hospital’s
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-à-vis the over-all operation of the hospital
and the benefits to the hospital’s 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
hospital’s 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 hospital’s operation.
For one, as found by the appellate court, the CHHMAC
facility is primarily used by the hospital’s 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, respondent’s charge of rentals for the offices and
clinics its accredited physicians occupy cannot be equated
to a commercial venture, which is mainly for profit.
Respondent’s 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 respondent’s 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 CHH’s patients, should be accorded
the 10% special assessment.
In this regard, we point with approbation the
appellate court’s 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.
SO ORDERED.
G.R. No. L-51223 November 25, 1983
NATIONAL DEVELOPMENT COMPANY, defendant-
appellant,  more particularly described as follows: têñ.£îhqwâ£
vs.
PROVINCE OF NUEVA ECIJA and HON. EUFROCINIO S.
DELA MERCED, Presiding Judge, Court of First
Instance of Nueva Ecija, plaintiff-appellee/s.
Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M.
Brillantes for defendant-appellant NDC.
Antero P. Tomas for plaintiff-appellee Prov. of Nueva Ecija.
RELOVA, J.:ñé+.£ªwph!1
On October 16, 1972, the Province of Nueva Ecija a filed
with the then Court of First Instance of Nueva Ecija
complaint against the National Development Company
(NDC, for short) for the collection of real estate taxes.
On April 17, 1975, the trial court rendered judgment in
favor of the plaintiff and against the defendant ordering the
latter "to pay the sum of P32,402.94, representing the
unpaid real estate taxes and penalties from the fourth
quarter of 1970 up to the year 1972, and to continue
paying up to the present, and to pay the costs. " (p. 35,
Record on Appeal)
The NDC, not satisfied with the aforementioned judgment,
appealed on the following assignment of errors: têñ.
£îhqwâ£
1. The trial court erred in holding that the defendant-
appellant National Development Company is liable for real
estate taxes on the land subject of the case.
2. The trial court erred in not ruling that plaintiff-appellee,
Province of Nueva Ecija should refund to defendant-
appellant National Development Company the amount paid
as real estate taxes for the land subject matter of this case
from 1962 to 1970.
Defendant-appellant NDC submits that it is a government-
owned and controlled corporation duly organized and
existing by virtue of Commonwealth Act No. 182, as
amended, and Executive Order No. 399, otherwise known
as the Uniform Charter for Government Corporations; that
under Section 2 of said Act, fifty-one per centum of the
capital stock shall be subscribed by the government of the
Commonwealth of the Philippines and the remainder thereof
may be offered to the provincial, municipal and city
governments; and, that the NDC being owned by the
Republic of the Philippines, it follows that its real properties,
particularly those situated at Gabaldon, Nueva Ecija, are
exempt from payment of real estate taxes. In support of
this contention, defendant-appellant cited the case of Board
of Assessment Appeals of Laguna vs. Court of Tax Appeals
and NAWASA, 8 SCRA 225, where the Court ruled that
"Section 3(a) of Commonwealth Act No. 470 makes no
distinction between property held in a sovereign,
government or political capacity and those possessed in a
private, proprietary or patrimonial character. ... Section 1
of Republic Act No. 104 only refers to the payment by
corporations, agencies, or instrumentalities owned or
controlled by the government, of duties, taxes, fees and
other charges upon "transactions, business industry, sale,
or income," but does not include taxes on property like real
estate taxes.
We find no merit in the appeal.
1. Commonwealth Act No. 182 which created the NDC
contains no provision exempting it from the payment of real
estate tax on properties it may acquire. Subject properties
are situated in the town of Gabaldon, Nueva Ecija, and are
These properties are not devoted to public use but were
acquired for resale to qualified persons. They were
developed for the purpose of reselling the same for
consideration to qualified tenants, Thus, defendant-
appellant is not exempt from payment of real estate tax
over said properties. There is justification in the contention
of plaintiff-appellee that — têñ.£îhqwâ£
... the 11,500 hectares of real properties of the National
Development Company in the town of Gabaldon, Nueva
Ecija must perforce, owing to its big area, constitute a very
substantial territory of the said town should be considered.
It is undeniable that to any municipality the principal source
of revenue with which it would defray its operation will
come from real property taxes. if the National Development
Company would be exempt from paying real property taxes
over these properties, the town of Gabaldon will be
deprived of much needed revenues with which it will
maintain itself and finance the compelling needs of its
inhabitants. (p. 6, Brief of Plaintiff-Appellee)
2. Defendant-appellant NDC does not come under the
classification of municipal or public corporation in the sense
that it may sue and be sued in the same manner as any
other private corporations, and in this sense, it is an entity
different from the government. Unlike the government,
defendant corporation may be sued without its consent, and
is subject to taxation. In the case of NDC vs. Jose Yulo
Tobias, 7 SCRA 692, it was held that "... plaintiff is neither
the Government of the Republic nor a branch or subdivision
thereof, but a government owned and controlled
corporation which cannot be said to exercise a sovereign
function (Associacion Cooperative de Credito Agricola de
Miagao vs. Monteclaro, 74 Phil. 281), it is a business
corporation, and as such, its causes of action are subject to
the statute of stations. ... That plaintiff herein does not
exercise sovereign powers and, hence, can not invoke the
exemptions thereof but is an agency for the performance of
purely corporate, proprietary or business functions, is
apparent from its Organic Act (Commonwealth Act 182, as
amended by Commonwealth Act 311) pursuant t to Section
3 of which it "shall be subject to the provisions of the
Corporation Law in so far as they are not inconsistent" with
the provisions of the Commonwealth Act, "and shall have
the general powers mentioned in said" Corporation Law
and, hence, "may engage in commercial, industrial, mining,
agricultural, and other enterprises which may be necessary
or contributory to the economic development of the
country, or important in the public interest," as well as
"acquire, hold, mortgage, and alienate personal and real
property in the Philippines or elsewhere; ... make contracts
of any kind and description," and "perform any and all acts
which a corporation or natural persons is authorized to
perform under the laws now existing or which may be
enacted hereafter."
WHEREFORE, the appeal of defendant-appellant National
Development Company is dismissed and the decision, dated
April 17,1975, of the lower court is hereby AFFIRMED.
SO ORDERED.1äwphï1.ñët
G.R. No. 169836             July 31, 2007
PHILIPPINE FISHERIES DEVELOPMENT
AUTHORITY, petitioner, 
vs.
COURT OF APPEALS, OFFICE OF THE PRESIDENT,
DEPARTMENT OF FINANCE and the CITY OF
ILOILO,respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the June 21, 2005
Decision1 of the Court of Appeals in CA-G.R. SP No. 81228,
which held that petitioner Philippine Fisheries Development
Authority (hereafter referred to as Authority) is liable to pay
real property taxes on the land and buildings of the Iloilo
Fishing Port Complex (IFPC) which are owned by the
Republic of the Philippines but operated and governed by
the Authority.
The facts are not disputed.
On August 11, 1976, then President Ferdinand E. Marcos
issued Presidential Decree No. 977 (PD 977) creating the
Authority and placing it under the direct control and
supervision of the Secretary of Natural Resources. On
February 8, 1982, Executive Order No. 772 (EO 772) was
issued amending PD 977, and renaming the Authority as
the now "Philippine Fisheries Development Authority," and
attaching said agency to the Ministry of Natural Resources.
Upon the effectivity of the Administrative Code (EO 292),
the Authority became an attached agency of the
Department of Agriculture.2
Meanwhile, beginning October 31, 1981, the then Ministry
of Public Works and Highways reclaimed from the sea a 21-
hectare parcel of land in Barangay Tanza, Iloilo City, and
constructed thereon the IFPC, consisting of breakwater, a
landing quay, a refrigeration building, a market hall, a
municipal shed, an administration building, a water and fuel
oil supply system and other port related facilities and
machineries. Upon its completion, the Ministry of Public
Works and Highways turned over IFPC to the Authority,
pursuant to Section 11 of PD 977, which places fishing port
complexes and related facilities under the governance and
operation of the Authority. Notwithstanding said turn over,
title to the land and buildings of the IFPC remained with the
Republic.
The Authority thereafter leased portions of IFPC to private
firms and individuals engaged in fishing related businesses.
Sometime in May 1988, the City of Iloilo assessed
the entire IFPC for real property taxes. The assessment
remained unpaid until the alleged total tax delinquency of
the Authority for the fiscal years 1988 and 1989 amounted
to P5,057,349.67, inclusive of penalties and interests. To
satisfy the tax delinquency, the City of Iloilo scheduled on
August 30, 1990, the sale at public auction of the IFPC.
The Authority filed an injunction case with the Regional Trial
Court. At the pre-trial, the parties agreed to avail of
administrative proceedings, i.e., for the Authority to file a
claim for tax exemption with the Iloilo City Assessor’s
Office. The latter, however, denied the claim for exemption,
hence, the Authority elevated the case to the Department
of Finance (DOF).
In its letter-decision3 dated March 6, 1992, the DOF ruled
that the Authority is liable to pay real property taxes to the
City of Iloilo because it enjoys the beneficial use of the
IFPC. The DOF added, however, that in satisfying the
amount of the unpaid real property taxes, the property that
is owned by the Authority shall be auctioned, and not the
IFPC, which is a property of the Republic.4
The Authority filed a petition before the Office of the
President but it was dismissed. 5 It also denied the motion
for reconsideration filed by the Authority.6
On petition with the Court of Appeals, the latter affirmed
the decision of the Office of the President. It opined,
however, that the IFPC may be sold at public auction to
satisfy the tax delinquency of the Authority.7 The dispositive
portion thereof, reads:
WHEREFORE, premises considered, the instant Petition for
Review is DENIED, and accordingly the June 30, 2003
Decision and December 3, 2003 Order of the Office of the
President are hereby AFFIRMED.
SO ORDERED.8
Hence, this petition.
The issues are as follows: Is the Authority liable to pay real
property tax to the City of Iloilo? If the answer is in the
affirmative, may the IFPC be sold at public auction to
satisfy the tax delinquency?
To resolve said issues, the Court has to determine (1)
whether the Authority is a government owned or controlled
corporation (GOCC) or an instrumentality of the national
government; and (2) whether the IFPC is a property of
public dominion.
The Court rules that the Authority is not a GOCC but an
instrumentality of the national government which is
generally exempt from payment of real property tax.
However, said exemption does not apply to the portions of
the IFPC which the Authority leased to private entities. With
respect to these properties, the Authority is liable to pay
real property tax. Nonetheless, the IFPC, being a property
of public dominion cannot be sold at public auction to
satisfy the tax delinquency.
In Manila International Airport Authority (MIAA) v. Court of
Appeals,9 the Court made a distinction between a GOCC and
an instrumentality. Thus:
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 (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.
xxxx
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.10 (Emphasis supplied)
Thus, for an entity to be considered as a GOCC, it must
either be organized as a stock or non-stock corporation.
Two requisites must concur before one may be classified as
a stock corporation, namely: (1) that it has capital stock
divided into shares, and (2) that it is authorized to
distribute dividends and allotments of surplus and profits to
its stockholders. If only one requisite is present, it cannot
be properly classified as a stock corporation. As for non-
stock corporations, they must have members and must not
distribute any part of their income to said members.11
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. Thus –
Some of the national government instrumentalities
vested by law with juridical personalities are:Bangko
Sentral ng Pilipinas, Philippine Rice Research Institute,
Laguna Lake Development Authority, Fisheries
Development Authority, Bases Conversion Development
Authority, Philippine Ports Authority, Cagayan de Oro Port
Authority, San Fernando Port Authority, Cebu Port
Authority, and Philippine National Railways.
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. 12 Also, it has no
stockholders or voting shares. Hence, it is not a stock
corporation. Neither it is 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. 13 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,14 and the power to levy fees and charges. 15 At the
same time, the Authority exercises "the general corporate
powers conferred by laws upon private and government-
owned or controlled corporations."16
The MIAA case held17 that unlike
GOCCs, instrumentalities of the national government,
like MIAA, are exempt from local taxes pursuant to Section
133(o) of the Local Government Code. This exemption,
however, admits of an exception with respect to real
property taxes. Applying Section 234(a) of the Local
Government Code, the Court ruled that when an
instrumentality of the national government grants to a
taxable person the beneficial use of a real property owned
by the Republic, said instrumentality becomes liable to pay
real property tax. Thus, while MIAA was held to be an
instrumentality of the national government which is
generally exempt from local taxes, it was at the same time
declared liable to pay real property taxes on the airport
lands and buildings which it leased to private persons. It
was held that the real property tax assessments and notices
of delinquencies issued by the City of Pasay to MIAA are
void except those pertaining to portions of the airport
which are leased to private parties. Pertinent portions of the
decision, reads:
Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons
"[u]nless otherwise provided in this Code." Now,
Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local
governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers
of Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend
to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the
National Government, its agencies
and instrumentalities, and local government units.
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national
government, its agencies and instrumentalities. The
taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities,
"[u]nless otherwise provided in this Code" as stated in the
saving clause of Section 133. x x x
xxxx
The saving clause in Section 133 refers to the exception to
the exemption in Section 234(a) of the Code, which makes
the national government subject to real estate tax
when it gives the beneficial use of its real properties
to a taxable entity. Section 234(a) of the Local
Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The
following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines
or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.
x x x18 (Emphasis supplied)
WHEREFORE, we GRANT the petition. We SET ASIDE the
assailed Resolutions of the Court of Appeals of 5 October
2001 and 27 September 2002 in CA-G.R. SP No. 66878.
We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority EXEMPT from the real
estate tax imposed by the City of Parañaque. We
declare VOID all the real estate tax assessments, including
the final notices of real estate tax delinquencies, issued by
the City of Parañaque on the Airport Lands and Buildings of
the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has
leased to private parties. We also declare VOID the
assailed auction sale, and all its effects, of the Airport Lands
and Buildings of the Manila International Airport Authority.
x x x x.19 (Emphasis added)
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.20
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
the real property taxes due thereon, said portions cannot
be sold at public auction to satisfy the tax delinquency.
In Chavez v. Public Estates Authority it was held
that reclaimed lands are lands of the public domain and
cannot, without Congressional fiat, be subject of a sale,
public or private, thus:21
The salient provisions of CA No. 141, on government
reclaimed, foreshore and marshy lands of the public
domain, are as follows:
Sec. 59. The lands disposable under this title shall be
classified as follows:
(a) Lands reclaimed by the Government by dredging,
filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering
upon the shores or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
xxxx
Sec. 61. The lands comprised in classes (a), (b), and
(c) of section fifty-nine shall be disposed of to private
parties by lease only and not otherwise, as soon
as the President, upon recommendation by the Secretary
of Agriculture, shall declare that the same are not
necessary for the public service and are open to
disposition under this chapter. The lands included in
class (d) may be disposed of by sale or lease under
the provisions of this Act." (Emphasis supplied)
xxxx
Since then and until now, the only way the government can
sell to private parties government reclaimed and marshy
disposable lands of the public domain is for the legislature
to pass a law authorizing such sale. CA No. 141 does not
authorize the President to reclassify government reclaimed
and marshy lands into other non-agricultural lands under
Section 59 (d). Lands classified under Section 59 (d) are
the only alienable or disposable lands for non-agricultural
purposes that the government could sell to private parties.
(Emphasis supplied)
In the same vein, the port built by the State in the Iloilo
fishing complex is a property of the public dominion and
cannot therefore be sold at public auction. Article 420 of the
Civil Code, provides:
ARTICLE 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed by
the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or
for the development of the national wealth.
The Iloilo fishing port which was constructed by the State
for public use and/or public service falls within the term
"port" in the aforecited provision. Being a property of public
dominion the same cannot be subject to execution or
foreclosure sale.22 In like manner, the reclaimed land on
which the IFPC is built cannot be the object of a private or
public sale without Congressional authorization. Whether
there are improvements in the fishing port complex that
should not be construed to be embraced within the term
"port," involves evidentiary matters that cannot be
addressed in the present case. As for now, considering that
the Authority is a national government instrumentality, any
doubt on whether the entire IFPC may be levied upon to
satisfy the tax delinquency should be resolved against the
City of Iloilo.
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.
WHEREFORE, the petition is GRANTED and the June 21,
2005 Decision of the Court of Appeals in CA-G.R. SP No.
81228 is SET ASIDE. The real property tax assessments
issued by the City Iloilo on the land and buildings of the
Iloilo Fishing Port Complex, is declared VOID except those
pertaining to the portions leased to private parties. The City
of Iloilo is DIRECTED to refrain from levying on the Iloilo
Fishing Port Complex to satisfy the payment of the real
property tax delinquency.
No costs.
SO ORDERED.
G.R. No. 155650             July 20, 2006
MANILA INTERNATIONAL AIRPORT
AUTHORITY, petitioner, 
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY
MAYOR OF PARAÑAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF
PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA)
operates the Ninoy Aquino International Airport (NAIA)
Complex in Parañaque City under Executive Order No. 903,
otherwise known as the Revised Charter of the Manila
International Airport Authority ("MIAA Charter"). Executive
Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive
Order Nos. 9091 and 2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers
the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land, 3 including the runways
and buildings ("Airport Lands and Buildings") then under
the Bureau of Air Transportation. 4 The MIAA Charter further
provides that no portion of the land transferred to MIAA
shall be disposed of through sale or any other mode unless
specifically approved by the President of the Philippines. 5
On 21 March 1997, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 061. The OGCC opined
that the Local Government Code of 1991 withdrew the
exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with
respondent City of Parañaque to pay the real estate tax
imposed by the City. MIAA then paid some of the real
estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real
Estate Tax Delinquency from the City of Parañaque for the
taxable years 1992 to 2001. MIAA's real estate tax
delinquency is broken down as follows:
1992-1997 RPT was paid on Dec. 24, 1997 as per
O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City
Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport
Lands and Buildings should MIAA fail to pay the real estate
tax delinquency. MIAA thus sought a clarification of OGCC
Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147
clarifying OGCC Opinion No. 061. The OGCC pointed out
that Section 206 of the Local Government Code requires
persons exempt from real estate tax to show proof of
exemption. The OGCC opined that Section 21 of the MIAA
Charter is the proof that MIAA is exempt from real estate
tax.
On 1 October 2001, MIAA filed with the Court of Appeals an
original petition for prohibition and injunction, with prayer
for preliminary injunction or temporary restraining order.
The petition sought to restrain the City of Parañaque from
imposing real estate tax on, levying against, and auctioning
for public sale the Airport Lands and Buildings. The petition
was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the
petition because MIAA filed it beyond the 60-day
reglementary period. The Court of Appeals also denied on
27 September 2002 MIAA's motion for reconsideration and
supplemental motion for reconsideration. Hence, MIAA filed
on 5 December 2002 the present petition for review. 7
Meanwhile, in January 2003, the City of Parañaque posted
notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public
market of Barangay La Huerta; and in the main lobby of the
Parañaque City Hall. The City of Parañaque published the
notices in the 3 and 10 January 2003 issues of
the Philippine Daily Inquirer, a newspaper of general
circulation in the Philippines. The notices announced the
public auction sale of the Airport Lands and Buildings to the
highest bidder on 7 February 2003, 10:00 a.m., at the
Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at
5:10 p.m., MIAA filed before this Court an Urgent Ex-
Parte and Reiteratory Motion for the Issuance of a
Temporary Restraining Order. The motion sought to restrain
respondents — the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng Parañaque, City
Treasurer of Parañaque, and the City Assessor of Parañaque
("respondents") — from auctioning the Airport Lands and
Buildings.
On 7 February 2003, this Court issued a temporary
restraining order (TRO) effective immediately. The Court
ordered respondents to cease and desist from selling at
public auction the Airport Lands and Buildings. Respondents
received the TRO on the same day that the Court issued it.
However, respondents received the TRO only at 1:25 p.m.
or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution
confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral
arguments. In compliance with the directive issued during
the hearing, MIAA, respondent City of Parañaque, and the
Solicitor General subsequently submitted their respective
Memoranda.
MIAA admits that the MIAA Charter has placed the title to
the Airport Lands and Buildings in the name of MIAA.
However, MIAA points out that it cannot claim ownership
over these properties since the real owner of the Airport
Lands and Buildings is the Republic of the Philippines. The
MIAA Charter mandates MIAA to devote the Airport Lands
and Buildings for the benefit of the general public. Since the
Airport Lands and Buildings are devoted to public use and
public service, the ownership of these properties remains
with the State. The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter
specifically exempts MIAA from the payment of real estate
tax. MIAA insists that it is also exempt from real estate tax
under Section 234 of the Local Government Code because
the Airport Lands and Buildings are owned by the Republic.
To justify the exemption, MIAA invokes the principle that
the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its
taxation would not inure to any public advantage, since in
such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government
Code, which expressly withdrew the tax exemption
privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local
Government Code. Respondents also argue that a basic rule
of statutory construction is that the express mention of one
person, thing, or act excludes all others. An international
airport is not among the exceptions mentioned in Section
193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan
International Airport v. Marcos8 where we held that the
Local Government Code has withdrawn the exemption from
real estate tax granted to international airports.
Respondents further argue that since MIAA has already paid
some of the real estate tax assessments, it is now estopped
from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the
Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Parañaque,
and all proceedings taken pursuant to such assessments,
are void. In such event, the other issues raised in this
petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt
from real estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second,
the real properties of MIAA are owned by the Republic of
the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled
Corporation
Respondents argue that MIAA, being a government-owned
or controlled corporation, is not exempt from real estate
tax. Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter"
in Section 234(e) of the Local Government Code withdrew
the real estate tax exemption of government-owned or
controlled corporations. The deleted phrase appeared in
Section 40(a) of the 1974 Real Property Tax Code
enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation.
Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned
or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to
any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent
of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be
"organized as a stock or non-stock corporation." MIAA
is not organized as a stock or non-stock corporation. MIAA
is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting
shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be
contributed by the National Government shall be increased
from Two and One-half Billion (P2,500,000,000.00) Pesos
to Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities,
runways and equipment and such other properties, movable
and immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies,
the valuation of which shall be determined jointly with the
Department of Budget and Management and the
Commission on Audit on the date of such contribution or
transfer after making due allowances for depreciation and
other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the
assets and other properties;
(b) That the amount of P605 million as of December 31,
1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983 to
1986 to be remitted to the National Treasury as provided
for in Section 11 of E. O. No. 903 as amended, shall be
converted into the equity of the National Government in the
Authority. Thereafter, the Government contribution to the
capital of the Authority shall be provided in the General
Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock
that is divided into shares.
Section 3 of the Corporation Code10 defines a stock
corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has
no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
MIAA is also not a non-stock corporation because it has no
members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income
is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members.
Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-
stock corporation. Non-stock corporations cannot distribute
any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National
Treasury.11 This prevents MIAA from qualifying as a non-
stock corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA is
not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation,
MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within
the National Government?
MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested
with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality
corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and
charges.14 At the same time, MIAA exercises "all the powers
of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of this
Executive Order."15
Likewise, when the law makes a government
instrumentality operationally autonomous, the
instrumentality remains part of the National Government
machinery although not integrated with the department
framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous
body"16 will make its operation more "financially viable." 17
Many government instrumentalities are vested with
corporate powers but they do not become stock or non-
stock corporations, which is a necessary condition before an
agency or instrumentality is deemed a government-owned
or controlled corporation. Examples are the Mactan
International Airport Authority, the Philippine Ports
Authority, the University of the Philippines and Bangko
Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as
stock or non-stock corporations as required by Section
2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they
are not government-owned or controlled corporations in the
strict sense as understood under the Administrative Code,
which is the governing law defining the legal relationship
and status of government entities.
A government instrumentality like MIAA falls under
Section 133(o) of the Local Government Code, which
states:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalitiesand
local government units.(Emphasis and underscoring
supplied)
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local
governments may only exercise such power "subject to
such guidelines and limitations as the Congress may
provide."18
When local governments invoke the power to tax on
national government instrumentalities, such power is
construed strictly against local governments. The rule is
that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local
governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national
government instrumentality from local taxation, such
exemption is construed liberally in favor of the national
government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of
exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that
has to be handled by government in the course of its
operations. For these reasons, provisions granting
exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local
governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds
from one government pocket to another.
There is also no reason for local governments to tax
national government instrumentalities for rendering
essential public services to inhabitants of local
governments. The only exception is when the
legislature clearly intended to tax government
instrumentalities for the delivery of essential public
services for sound and compelling policy
considerations. There must be express language in the
law empowering local governments to tax national
government instrumentalities. Any doubt whether such
power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states
that "unless otherwise provided" in the Code, local
governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to
retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)
This doctrine emanates from the "supremacy" of the
National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National
policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v. Sanchez,
340 US 42).
The power to tax which was called by Justice Marshall as
the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation
of the very entity which has the inherent power to wield
it. 20
2. Airport Lands and Buildings of MIAA are Owned by
the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property
of public dominion and therefore owned by the State
or the Republic of the Philippines. The Civil Code
provides:
ARTICLE 419. Property is either of public dominion or of
private ownership.
ARTICLE 420. The following things are property of
public dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of
similar character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. (Emphasis
supplied)
ARTICLE 421. All other property of the State, which is not
of the character stated in the preceding article, is
patrimonial property.
ARTICLE 422. Property of public dominion, when no longer
intended for public use or for public service, shall form part
of the patrimonial property of the State.
No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges constructed
by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands
and Buildings constitute a "port" constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use
because they are used by the public for international
and domestic travel and transportation. The fact that
the MIAA collects terminal fees and other charges from the
public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by
the government of a tollway does not change the character
of the road as one for public use. Someone must pay for
the maintenance of the road, either the public indirectly
through the taxes they pay the government, or only those
among the public who actually use the road through the toll
fees they pay upon using the road. The tollway system is
even a more efficient and equitable manner of taxing the
public for the maintenance of public roads.
The charging of fees to the public does not determine the
character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public
dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging
of fees, the limitation on the kind of vehicles that can use
the road, the speed restrictions and other conditions for the
use of the road do not affect the public character of the
road.
The terminal fees MIAA charges to passengers, as well as
the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA.
The collection of such fees does not change the character of
MIAA as an airport for public use. Such fees are often
termed user's tax. This means taxing those among the
public who actually use a public facility instead of taxing all
the public including those who never use the particular
public facility. A user's tax is more equitable — a principle
of taxation mandated in the 1987 Constitution. 21
The Airport Lands and Buildings of MIAA, which its Charter
calls the "principal airport of the Philippines for both
international and domestic air traffic,"22 are properties of
public dominion because they are intended for public
use. As properties of public dominion, they
indisputably belong to the State or the Republic of
the Philippines.
b. Airport Lands and Buildings are Outside the
Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to
public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and
Buildings are outside the commerce of man. The Court
has ruled repeatedly that properties of public dominion are
outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce
of man, thus:
According to article 344 of the Civil Code: "Property for
public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains,
and public waters, the promenades, and public works of
general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use,
the municipal council of Cavite could not in 1907 withdraw
or exclude from public use a portion thereof in order to
lease it for the sole benefit of the defendant Hilaria Rojas.
In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded
its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it
empowered so to do.
The Civil Code, article 1271, prescribes that everything
which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside of
this commerce, as was decided by the supreme court of
Spain in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they
are by their very nature outside of commerce are
those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared
that properties of public dominion are outside the
commerce of man:
xxx Town plazas are properties of public dominion, to
be devoted to public use and to be made available to the
public in general. They are outside the commerce of
man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was
tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use
must also cease, and the town officials should see to it that
the town plazas should ever be kept open to the public and
free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the subject
of an auction sale.25
Properties of public dominion, being for public use, are not
subject to levy, encumbrance or disposition through public
or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will
stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will
happen if the City of Parañaque can foreclose and compel
the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and
Buildings, the President must first withdraw from public
usethe Airport Lands and Buildings. Sections 83 and 88 of
the Public Land Law or Commonwealth Act No. 141, which
"remains to this day the existing general law governing the
classification and disposition of lands of the public domain
other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of
Agriculture and Natural Resources, the President may
designate by proclamation any tract or tracts of land of the
public domain as reservations for the use of the Republic of
the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including
reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal
pastures or lequas communales, public parks, public
quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under
the provisions of Section eighty-three shall be non-
alienable and shall not be subject to occupation,
entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or
by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation
withdrawing the Airport Lands and Buildings from public
use, these properties remain properties of public dominion
and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings
are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public
domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private
Domain of the Government. — (1) The President shall
have the power to reserve for settlement or public
use, and for specific public purposes, any of the lands
of the public domain, the use of which is not
otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public
purpose indicated until otherwise provided by law or
proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport
Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public
dominion, owned by the Republic and outside the
commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and
Buildings in trust for the Republic. Section 48, Chapter 12,
Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real
properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. —
Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the
Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.
(2) For property belonging to the Republic of the
Philippines but titled in the name of any political
subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport
Lands and Buildings is clearer because even its executive
head cannot sign the deed of conveyance on behalf of the
Republic. Only the President of the Republic can sign such
deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a
Reorganization
The MIAA Charter, which is a law, transferred to MIAA the
title to the Airport Lands and Buildings from the Bureau of
Air Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport
Authority. — x x x x
The land where the Airport is presently located as
well as the surrounding land area of approximately
six hundred hectares, are hereby transferred,
conveyed and assigned to the ownership and
administration of the Authority, subject to existing
rights, if any. The Bureau of Lands and other appropriate
government agencies shall undertake an actual survey of
the area transferred within one year from the promulgation
of this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion thereof
shall not be disposed through sale or through any
other mode unless specifically approved by the
President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible
Assets. — All existing public airport facilities, runways,
lands, buildings and other property, movable or
immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the
Bureau of Air Transportation relating to airport works or
air operations, including all equipment which are necessary
for the operation of crash fire and rescue facilities, are
hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as
a Division in the Bureau of Air Transportation and
Transitory Provisions. — The Manila International Airport
including the Manila Domestic Airport as a division under
the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and
Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the
rationale for the transfer of the Airport Lands and Buildings
to MIAA, thus:
WHEREAS, the Manila International Airport as the principal
airport of the Philippines for both international and domestic
air traffic, is required to provide standards of airport
accommodation and service comparable with the best
airports in the world;
WHEREAS, domestic and other terminals, general aviation
and other facilities, have to be upgraded to meet the
current and future air traffic and other demands of aviation
in Metro Manila;
WHEREAS, a management and organization study has
indicated that the objectives of providing high
standards of accommodation and service within the
context of a financially viable operation, will best be
achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as
amended by Presidential Decree No. 1772, the President of
the Philippines is given continuing authority to reorganize
the National Government, which authority includes
the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis
supplied)
The transfer of the Airport Lands and Buildings from the
Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the
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:
SEC. 234. Exemptions from Real Property Tax. — The
following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section
133(o) of the same Code, which prohibits local
governments from imposing "[t]axes, fees or charges of
any kind on the National Government, its agencies
and instrumentalitiesx x x." The real properties owned by
the Republic are titled either in the name of the Republic
itself or in the name of agencies or instrumentalities of the
National Government. The Administrative Code allows real
property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government.
Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real
property to an agency or instrumentality of the national
government. This happens when title of the real property is
transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax
exemption only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a taxable
person." MIAA, as a government instrumentality, is not a
taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the
Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these
real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that
MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars
that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the beneficial
use of such land area for a consideration to a taxable
person and therefore such land area is subject to real
estate tax. In Lung Center of the Philippines v. Quezon
City, the Court ruled:
Accordingly, we hold that the portions of the land leased to
private entities as well as those parts of the hospital leased
to private individuals are not exempt from such taxes. On
the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real
property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real
estate tax because Section 193 of the Local Government
Code of 1991 withdrew the tax exemption of "all persons,
whether natural or juridical" upon the effectivity of the
Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless
otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including
government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this
Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical
person. The minority argues that since the Local
Government Code withdrew the tax exemption of all
juridical persons, then MIAA is not exempt from real
estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local
Government Code that the withdrawn exemptions
from realty tax cover not just GOCCs, but all persons.
To repeat, the provisions lay down the explicit proposition
that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is only
clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes
of persons recognized under our laws, natural and
juridical persons. Obviously, MIAA is not a natural
person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the
original)
The minority posits that the "determinative test" whether
MIAA is exempt from local taxation is its status — whether
MIAA is a juridical person or not. The minority also insists
that "Sections 193 and 234 may be examined in isolation
from Section 133(o) to ascertain MIAA's claim of
exemption."
The argument of the minority is fatally flawed. Section 193
of the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise
provided in this Code." Now, Section 133(o) of the Local
Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing
any kind of tax on national government instrumentalities.
Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the
levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national
government, its agencies and instrumentalities. The taxing
powers of local governments do not extend to the national
government, its agencies and instrumentalities, "[u]nless
otherwise provided in this Code" as stated in the saving
clause of Section 133. The saving clause refers to Section
234(a) on the exception to the exemption from real estate
tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in
Section 193 itself, all juridical persons are subject to tax by
local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the three
classes of entities specifically enumerated as exempt in
Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a)
local water districts; (b) cooperatives duly registered under
Republic Act No. 6938; and (c) non-stock and non-profit
hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely
negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the
national government, which itself is a juridical person,
subject to tax by local governments since the national
government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local
governments can impose any kind of local tax, and not only
real estate tax, on the national government.
Under the minority's theory, many national government
instrumentalities with juridical personalities will also be
subject to any kind of local tax, and not only real estate
tax. Some of the national government instrumentalities
vested by law with juridical personalities are: Bangko
Sentral ng Pilipinas,30 Philippine Rice Research
Institute, Laguna Lake
31
Development Authority,32 Fisheries Development
Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways. 39
The minority's theory violates Section 133(o) of the Local
Government Code which expressly prohibits local
governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities
with or without juridical personalities. Where the law does
not distinguish, courts should not distinguish. Thus, Section
133(o) applies to all national government instrumentalities,
with or without juridical personalities. The determinative
test whether MIAA is exempt from local taxation is not
whether MIAA is a juridical person, but whether it is a
national government instrumentality under Section 133(o)
of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from
imposing any kind of tax on the national government, its
agencies and instrumentalities.
Section 133 of the Local Government Code starts with the
saving clause "[u]nless otherwise provided in this Code."
This means that unless the Local Government Code grants
an express authorization, local governments have no power
to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies
and instrumentalities. As an exception to this rule, local
governments may tax the national government, its agencies
and instrumentalities only if the Local Government Code
expressly so provides.
The saving clause in Section 133 refers to the exception to
the exemption in Section 234(a) of the Code, which makes
the national government subject to real estate tax when it
gives the beneficial use of its real properties to a taxable
entity. Section 234(a) of the Local Government Code
provides:
SEC. 234. Exemptions from Real Property Tax – The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the Philippines
or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic
is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use
of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the
only instance when the national government, its agencies
and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only
to real estate tax and not to any other tax. The justification
for the exception to the exemption is that the real property,
although owned by the Republic, is not devoted to public
use or public service but devoted to the private gain of a
taxable person.
The minority also argues that since Section 133 precedes
Section 193 and 234 of the Local Government Code, the
later provisions prevail over Section 133. Thus, the minority
asserts:
x x x Moreover, sequentially Section 133 antecedes Section
193 and 234. Following an accepted rule of construction, in
case of conflict the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject to real
property taxes, the general exemptions attaching to
instrumentalities under Section 133(o) of the Local
Government Code being qualified by Sections 193 and 234
of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict
between Section 133 on one hand, and Sections 193 and
234 on the other. No one has urged that there is such a
conflict, much less has any one presenteda persuasive
argument that there is such a conflict. The minority's
assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133
and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section
193 states "[u]nless otherwise provided in this Code." By its
own words, Section 193 admits the superiority of other
provisions of the Local Government Code that limit the
exercise of the taxing power in Section 193. When a
provision of law grants a power but withholds such power
on certain matters, there is no conflict between the grant of
power and the withholding of power. The grantee of the
power simply cannot exercise the power on matters
withheld from its power.
Second, Section 133 is entitled "Common Limitations on the
Taxing Powers of Local Government Units." Section 133
limits the grant to local governments of the power to tax,
and not merely the exercise of a delegated power to tax.
Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of
tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the
taxing power than this.
Since Section 133 prescribes the "common limitations" on
the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning
and purpose, the "common limitations" on the taxing power
prevail over the grant or exercise of the taxing power. If
the taxing power of local governments in Section 193
prevails over the limitations on such taxing power in
Section 133, then local governments can impose any kind
of tax on the national government, its agencies and
instrumentalities — a gross absurdity.
Local governments have no power to tax the national
government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code pursuant
to the saving clause in Section 133 stating "[u]nless
otherwise provided in this Code." This exception — which is
an exception to the exemption of the Republic from real
estate tax imposed by local governments — refers to
Section 234(a) of the Code. The exception to the exemption
in Section 234(a) subjects real property owned by the
Republic, whether titled in the name of the national
government, its agencies or instrumentalities, to real estate
tax if the beneficial use of such property is given to a
taxable entity.
The minority also claims that the definition in the
Administrative Code of the phrase "government-owned or
controlled corporation" is not controlling. The minority
points out that Section 2 of the Introductory Provisions of
the Administrative Code admits that its definitions are not
controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words
of the text, or the context as a whole, or a particular
statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the
Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2
of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the
Administrative Code. However, this does not automatically
mean that the definition in the Administrative Code does
not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific
words x x x of a particular statute shall require a different
meaning," the definition in Section 2 of the Administrative
Code shall apply. Thus, unless there is specific language in
the Local Government Code defining the phrase
"government-owned or controlled corporation" differently
from the definition in the Administrative Code, the definition
in the Administrative Code prevails.
The minority does not point to any provision in the Local
Government Code defining the phrase "government-owned
or controlled corporation" differently from the definition in
the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase
"government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states
that the Code "incorporates in a unified document the
major structural, functional and procedural principles and
rules of governance." Thus, the Administrative Code is the
governing law defining the status and relationship of
government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government
unit or entity, the provisions of the Administrative Code
prevail.
The minority also contends that the phrase "government-
owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the
general incorporation law, and not to corporations created
by special charters. The minority sees no reason why
government corporations with special charters should have
a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or
controlled corporations" under the Administrative Code
refer to those corporations owned by the government or its
instrumentalities which are created not by legislative
enactment, but formed and organized under the
Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs
without original charters.
xxxx
It might as well be worth pointing out that there is no point
in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic.
Such GOCCs are not empowered to declare dividends or
alienate their capital shares.
The contention of the minority is seriously flawed. It is not
in accord with the Constitution and existing legislations. It
will also result in gross absurdities.
First, the Administrative Code definition of the phrase
"government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation
Code or under a special charter. Where the law does not
distinguish, courts should not distinguish.
Second, Congress has created through special charters
several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the
Philippines and the Development Bank of the Philippines.
The special charter40 of the Land Bank of the Philippines
provides:
SECTION 81. Capital. — The authorized capital stock of the
Bank shall be nine billion pesos, divided into seven hundred
and eighty million common shares with a par value of ten
pesos each, which shall be fully subscribed by the
Government, and one hundred and twenty million preferred
shares with a par value of ten pesos each, which shall be
issued in accordance with the provisions of Sections
seventy-seven and eighty-three of this Code. (Emphasis
supplied)
Likewise, the special charter41 of the Development Bank of
the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The
capital stock of the Bank shall be Five Billion Pesos to be
divided into Fifty Million common shares with par value of
P100 per share. These shares are available for subscription
by the National Government. Upon the effectivity of this
Charter, the National Government shall subscribe to
Twenty-Five Million common shares of stock worth Two
Billion Five Hundred Million which shall be deemed paid for
by the Government with the net asset values of the Bank
remaining after the transfer of assets and liabilities as
provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock
corporations under their special charters are the Philippine
Crop Insurance Corporation,42 Philippine International
Trading Corporation,43 and the Philippine National
Bank44 before it was reorganized as a stock corporation
under the Corporation Code. All these government-owned
corporations organized under special charters as stock
corporations are subject to real estate tax on real
properties owned by them. To rule that they are not
government-owned or controlled corporations because they
are not registered with the Securities and Exchange
Commission would remove them from the reach of Section
234 of the Local Government Code, thus exempting them
from real estate tax.
Third, the government-owned or controlled corporations
created through special charters are those that meet the
two conditions prescribed in Section 16, Article XII of the
Constitution. The first condition is that the government-
owned or controlled corporation must be established for the
common good. The second condition is that the
government-owned or controlled corporation must meet the
test of economic viability. Section 16, Article XII of the
1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject to
the test of economic viability. (Emphasis and underscoring
supplied)
The Constitution expressly authorizes the legislature to
create "government-owned or controlled corporations"
through special charters only if these entities are required
to meet the twin conditions of common good and economic
viability. In other words, Congress has no power to create
government-owned or controlled corporations with special
charters unless they are made to comply with the two
conditions of common good and economic viability. The test
of economic viability applies only to government-owned or
controlled corporations that perform economic or
commercial activities and need to compete in the market
place. Being essentially economic vehicles of the State for
the common good — meaning for economic development
purposes — these government-owned or controlled
corporations with special charters are usually organized as
stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with
corporate powers and performing governmental or public
functions need not meet the test of economic viability.
These instrumentalities perform essential public services for
the common good, services that every modern State must
provide its citizens. These instrumentalities need not be
economically viable since the government may even
subsidize their entire operations. These instrumentalities
are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the
legislature creates government instrumentalities vested
with corporate powers but performing essential
governmental or public functions. Congress has plenary
authority to create government instrumentalities vested
with corporate powers provided these instrumentalities
perform essential government functions or public services.
However, when the legislature creates through special
charters corporations that perform economic or commercial
activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic
viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and
the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive
their income to meet operating expenses solely from
commercial transactions in competition with the private
sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations
that cannot survive on their own in the market place and
thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of
economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is
really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt
from the test of economic performance. We know what
happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers' money through
new equity infusions from the government and what is
always invoked is the common good. That is the reason
why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity
infusions to support a few government financial institutions.
And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health
and education, to augment the salaries of grossly underpaid
public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC
VIABILITY" together with the "common good," this becomes
a restraint on future enthusiasts for state capitalism to
excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam
President, I reiterate, for the committee's consideration and
I am glad that I am joined in this proposal by Commissioner
Foz, the insertion of the standard of "ECONOMIC VIABILITY
OR THE ECONOMIC TEST," together with the common
good.45
Father Joaquin G. Bernas, a leading member of the
Constitutional Commission, explains in his textbook The
1987 Constitution of the Republic of the Philippines: A
Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to
the test of economic viability." The addition includes the
ideas that they must show capacity to function efficiently in
business and that they should not go into activities which
the private sector can do better. Moreover, economic
viability is more than financial viability but also includes
capability to make profit and generate benefits not
quantifiable in financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and
performing essential public services. The State is obligated
to render essential public services regardless of the
economic viability of providing such service. The non-
economic viability of rendering such essential public service
does not excuse the State from withholding such essential
services from the public.
However, government-owned or controlled corporations
with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled
corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines.
These are the government-owned or controlled
corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that
fall under the definition of "government-owned or controlled
corporations" in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability
because the legislature did not create MIAA to compete in
the market place. MIAA does not compete in the market
place because there is no competing international airport
operated by the private sector. MIAA performs an essential
public service as the primary domestic and international
airport of the Philippines. The operation of an international
airport requires the presence of personnel from the
following government agencies:
1. The Bureau of Immigration and Deportation, to
document the arrival and departure of passengers,
screening out those without visas or travel documents, or
those with hold departure orders;
2. The Bureau of Customs, to collect import duties or
enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to
enforce health measures against the spread of infectious
diseases into the country;
4. The Department of Agriculture, to enforce measures
against the spread of plant and animal diseases into the
country;
5. The Aviation Security Command of the Philippine
National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport
premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation
and Communications, to authorize aircraft to enter or leave
Philippine airspace, as well as to land on, or take off from,
the airport; and
7. The MIAA, to provide the proper premises — such as
runway and buildings — for the government personnel,
passengers, and airlines, and to manage the airport
operations.
All these agencies of government perform government
functions essential to the operation of an international
airport.
MIAA performs an essential public service that every
modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees
that MIAA charges every passenger are regulatory or
administrative fees47 and not income from commercial
transactions.
MIAA falls under the definition of a government
instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis
supplied)
The fact alone that MIAA is endowed with corporate powers
does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA
remains a government instrumentality under Section 2(10)
of the Introductory Provisions of the Administrative Code.
More importantly, as long as MIAA renders essential public
services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase
"government-owned or controlled corporations" under
Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code
of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is
fatal. The 1987 Constitution prescribes explicit conditions
for the creation of "government-owned or controlled
corporations." The Administrative Code defines what
constitutes a "government-owned or controlled
corporation." To belittle this phrase as "clarificatory or
illustrative" is grave error.
To summarize, MIAA is not a government-owned or
controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because
it is not organized as a stock or non-stock corporation.
Neither is MIAA a government-owned or controlled
corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test
of economic viability. MIAA is a government instrumentality
vested with corporate powers and performing essential
public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of
the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the
beneficial use of real property owned by the Republic is
given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are
properties devoted to public use and thus are properties of
public dominion. Properties of public dominion are owned
by the State or the Republic. Article 420 of the Civil Code
provides:
WHEREFORE, we GRANT the petition. We SET ASIDE the
assailed Resolutions of the Court of Appeals of 5 October
2001 and 27 September 2002 in CA-G.R. SP No. 66878.
We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority EXEMPT from the real
estate tax imposed by the City of Parañaque. We
declare VOID all the real estate tax assessments, including
the final notices of real estate tax delinquencies, issued by
the City of Parañaque on the Airport Lands and Buildings of
the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has
leased to private parties. We also declare VOID the
assailed auction sale, and all its effects, of the Airport Lands
and Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.

Art. 420. The following things are property of public

dominion:

(1) Those intended for public use, such as roads, canals,

rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for

public use, and are intended for some public service or for
the development of the national wealth. (Emphasis
supplied)

The term "ports x x x constructed by the State" includes

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

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions

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

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