LOCAL TAXATION CASES
TAXING POWER OF CITIES (SEC. 151)
THIRD DIVISION
[G.R. No. 181845. August 4, 2009.]
THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity
as THE TREASURER OF MANILA and JOSEPH SANTIAGO,
in his capacity as the CHIEF OF THE LICENSE
DIVISION OF CITY OF MANILA, petitioners, vs. COCA-
COLA BOTTLERS PHILIPPINES, INC., respondent.
CHICO-NAZARIO, J p:
This case is a Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Civil
Procedure seeking to review and reverse the
Decision 1 dated 18 January 2008 and Resolution 2 dated
18 February 2008 of the Court of Tax Appeals en
banc (CTA en banc) in C.T.A. EB No. 307. In its assailed
Decision, the CTA en banc dismissed the Petition for
Review of herein petitioners City of Manila, Liberty M.
Toledo (Toledo), and Joseph Santiago (Santiago); and
affirmed the Resolutions dated 24 May 2007, 3 8 June
2007, 4 and 26 July 2007, 5 of the CTA First Division in
C.T.A. AC No. 31, which, in turn, dismissed the Petition for
Review of petitioners in said case for being filed out of time.
In its questioned Resolution, the CTA en banc denied the
Motion for Reconsideration of petitioners.
Petitioner City of Manila is a public corporation
empowered to collect and assess business taxes, revenue
fees, and permit fees, through its officers, petitioners Toledo
and Santiago, in their capacities as City Treasurer and
Chief of the Licensing Division, respectively. On the other
hand, respondent Coca-Cola Bottlers Philippines, Inc. is
a corporation engaged in the business of manufacturing
and selling beverages, and which maintains a sales
office in the City of Manila.
FACTS:
Prior to 25 February 2000, respondent had been paying
the City of Manila local business tax only under Section
14 of Tax Ordinance No. 7794, 6 being expressly exempted
from the business tax under Section 21 of the same tax
ordinance. Pertinent provisions of Tax Ordinance No. 7794
provide:
Section 14. Tax on Manufacturers, Assemblers and
Other Processors. — There is hereby imposed a
graduated tax on manufacturers, assemblers,
repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or
manufacturers of any article of commerce of whatever
kind or nature, in accordance with any of the following
schedule: xxx xxx xxx
over P6,500,000.00 up to P36,000.00 plus 50% of 1%
P25,000,000.00 in excess of P6,500,000.00
xxx xxx xxx
Section 21. Tax on Businesses Subject to the Excise,
Value-Added or Percentage Taxes under the NIRC. —
On any of the following businesses and
articles of commerce subject to excise, value-added or
percentage taxes under the National Internal Revenue
Code hereinafter referred to as NIRC, as amended, a
tax of FIFTY PERCENT (50%) of ONE PERCENT (1%)
per annum on the gross sales or receipts of the
preceding calendar year is hereby imposed:
(A) On persons who sell goods and services in the
course of trade or business; and those who import
goods whether for business or otherwise; as provided for
in Sections 100 to 103 of the NIRC as administered and
determined by the Bureau of Internal Revenue pursuant
to the pertinent provisions of the said Code. aDHCcE
xxx xxx xxx
(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines
xxx xxx xxx
(8) Coal and coke
(9) Fermented liquor, brewers' wholesale price,
excluding the ad valorem tax
xxx xxx xxx
PROVIDED, that all registered businesses in
the City of Manila that are already paying the
aforementioned tax shall be exempted from payment
thereof.
Petitioner City of Manila subsequently approved on
25 February 2000, Tax Ordinance No. 7988, 7 amending
certain sections of Tax Ordinance No. 7794, particularly: (1)
Section 14, by increasing the tax rates applicable to certain
establishments operating within the territorial
jurisdiction of the City of Manila; and (2) Section 21, by
deleting the proviso found therein, which stated "that all
registered businesses in the City of Manila that are already
paying the aforementioned tax shall be exempted from
payment thereof". Petitioner City of Manila approved only
after a year, on 22 February 2001, another tax ordinance, Tax
Ordinance No. 8011, amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later
declared by the Court null and void in Coca-
Cola Bottlers Philippines, Inc. v. City of Manila 8 (Coca-
Cola case) for the following reasons: (1) Tax Ordinance No.
7988 was enacted in contravention of the provisions of the
Local Government Code (LGC) of 1991 and its implementing
rules and regulations; and (2) Tax Ordinance No. 8011 could
not cure the defects of Tax Ordinance No. 7988, which did
not legally exist.
However, before the Court could declare Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 null and
void, petitioner City of Manila assessed respondent on the
basis of Section 21 of Tax Ordinance No. 7794, as amended
by the aforementioned tax ordinances, for deficiency local
business taxes, penalties, and interest, in the total amount of
P18,583,932.04, for the third and fourth quarters of the year
2000. Respondent filed a protest with petitioner Toledo on
the ground that the said assessment amounted to double
taxation, as respondent was taxed twice, i.e., under Sections
14 and 21 of Tax Ordinance No. 7794, as amended by Tax
Ordinances No. 7988 and No. 8011. Petitioner Toledo did not
respond to the protest of respondent.
 Consequently, respondent filed with the Regional
Trial Court (RTC) of Manila, Branch 47, an action for the
cancellation of the assessment against respondent for
business taxes, which was docketed as Civil Case No. 03-
107088.
On 14 July 2006, the RTC rendered a
Decision 9 dismissing Civil Case No. 03-107088. The RTC
ruled that the business taxes imposed upon the respondent
under Sections 14 and 21 of Tax Ordinance No. 7988, as
amended, were not of the same kind or character; therefore,
there was no double taxation.
The RTC, though, in an Order 10 dated 16
November 2006, granted the Motion for
Reconsideration of respondent, decreed the cancellation
and withdrawal of the assessment against the latter, and
barred petitioners from further imposing/assessing local
business taxes against respondent under Section 21 of Tax
Ordinance No. 7794, as amended by Tax Ordinance No.
7988 and Tax Ordinance No. 8011. The 16 November 2006
Decision of the RTC was in conformity with the ruling of this
Court in the Coca-Cola case, in which Tax Ordinance No.
7988 and Tax Ordinance No. 8011 were declared null and
void. The Motion for Reconsideration of petitioners was
denied by the RTC in an Order 11 dated 4 April 2007.
Petitioners received a copy of the 4 April 2007 Order of the
RTC, denying their Motion for Reconsideration of the 16
November 2006 Order of the same court, on 20 April 2007.
On 4 May 2007, petitioners filed with the CTA a
Motion for Extension of Time to File Petition for Review,
praying for a 15-day extension or until 20 May 2007 within
which to file their Petition. The Motion for
Extension of petitioners was docketed as C.T.A. AC No. 31,
raffled to the CTA First Division.
Again, on 18 May 2007, petitioners filed, through
registered mail, a Second Motion for Extension of Time to
File a Petition for Review, praying for another 10-day
extension, or until 30 May 2007, within which to file their
Petition. cHEATI
On 24 May 2007, however, the CTA First Division
already issued a Resolution dismissing C.T.A. AC No. 31 for
failure of petitioners to timely file their Petition for Review on
20 May 2007.
Unaware of the 24 May 2007 Resolution of the CTA
First Division, petitioners filed their Petition for Review
therewith on 30 May 2007 via registered mail. On 8 June
2007, the CTA First Division issued another Resolution,
reiterating the dismissal of the Petition for
Review of petitioners.
Petitioners moved for the reconsideration of the
foregoing Resolutions dated 24 May 2007 and 8 June 2007,
but their motion was denied by the CTA First Division in a
Resolution dated 26 July 2007. The CTA First Division
reasoned that the Petition for Review of petitioners was not
only filed out of time — it also failed to comply with the
provisions of Section 4, Rule 5; and Sections 2 and 3, Rule
6, of the Revised Rules of the CTA.
Petitioners thereafter filed a Petition for Review
before the CTA en banc, docketed as C.T.A. EB No. 307,
arguing that the CTA First Division erred in dismissing their
Petition for Review in C.T.A. AC No. 31 for being filed
out of time, without considering the merits of their Petition.
The CTA en banc rendered its Decision on 18
January 2008, dismissing the Petition for
Review of petitioners and affirming the Resolutions dated 24
May 2007, 8 June 2007, and 26 July 2007 of the CTA First
Division. The CTA en banc similarly denied the Motion for
Reconsideration of petitioners in a Resolution dated 18
February 2008.
Hence, the present Petition, where petitioners raise
the following issues:
I. WHETHER OR NOT PETITIONERS
SUBSTANTIALLY COMPLIED WITH THE
REGLEMENTARY PERIOD TO TIMELY APPEAL THE
CASE FOR REVIEW BEFORE THE [CTA DIVISION].
II. WHETHER OR NOT THE RULING OF THIS COURT
IN THE EARLIER [COCA-COLA CASE] IS DOCTRINAL
AND CONTROLLING IN THE INSTANT CASE.
III. WHETHER OR NOT
PETITIONER CITY OF MANILA CAN STILL ASSESS
TAXES UNDER [SECTIONS] 14 AND 21 OF [TAX
ORDINANCE NO. 7794, AS AMENDED].
IV. WHETHER OR NOT THE
ENFORCEMENT OF [SECTION] 21 OF THE [TAX
ORDINANCE NO. 7794, AS AMENDED]
CONSTITUTES DOUBLE TAXATION.
Petitioners assert that Section 1, Rule 7 12 of the
Revised Rules of the CTA refers to certain provisions of the
Rules of Court, such as Rule 42 of the latter, and makes
them applicable to the tax court. Petitioners then cannot be
faulted in relying on the provisions of Section 1, Rule
42 13 of the Rules of Court as regards the period for filing a
Petition for Review with the CTA in division. Section 1, Rule
42 of the Rules of Court provides for a 15-day period,
reckoned from receipt of the adverse decision of the trial
court, within which to file a Petition for Review with the
Court of Appeals. The same rule allows an additional 15-day
period within which to file such a Petition; and, only for the
most compelling reasons, another extension period not to
exceed 15 days. Petitioners received on 20 April 2007 a
copy of the 4 April 2007 Order of the RTC, denying their
Motion for Reconsideration of the 16 November 2006
Order of the same court. On 4 May 2007, believing that they
only had 15 days to file a Petition for Review with the CTA in
division, petitioners moved for a 15-day extension, or until 20
May 2007, within which to file said Petition. Prior to the
lapse of their first extension period, or on 18 May 2007,
petitioners again moved for a 10-day extension, or until 30
May 2007, within which to file their Petition for Review. Thus,
when petitioners filed their Petition for Review with the CTA
First Division on 30 May 2007, the same was filed well within
the reglementary period for doing so.
Petitioners argue in the alternative that even
assuming that Section 3 (a), Rule 8 14 of the Revised
Rules of the CTA governs the period for filing a Petition for
Review with the CTA in division, still, their Petition for Review
was filed within the reglementary period. Petitioners call
attention to the fact that prior to the lapse of the 30-day period
for filing a Petition for Review under Section 3 (a), Rule
8 of the Revised Rules of the CTA, they had already moved
for a 10-day extension, or until 30 May 2007, within which to
file their Petition. Petitioners claim that there was sufficient
justification in equity for the grant of the 10-day extension
they requested, as the primordial consideration should be the
substantive, and not the procedural, aspect of the case.
Moreover, Section 3 (a), Rule 8 of the Revised Rules of the
CTA, is silent as to whether the 30-day period for filing a
Petition for Review with the CTA in division may be extended
or not.
 Petitioners also contend that the Coca-Cola case is
not determinative of the issues in the present case because
the issue of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 is not the lis mota herein. The Coca-
Cola case is not doctrinal and cannot be considered as the
law of the case. HDaACI
Petitioners further insist that notwithstanding the
declaration of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011, Tax Ordinance No. 7794 remains a
valid piece of local legislation. The nullity of Tax Ordinance
No. 7988 and Tax Ordinance No. 8011 does not effectively
bar petitioners from imposing local business taxes upon
respondent under Sections 14 and 21 of Tax Ordinance No.
7794, as they were read prior to their being amended by the
foregoing null and void tax ordinances.
Petitioners finally maintain that imposing upon
respondent local business taxes under both Sections 14 and
21 of Tax Ordinance No. 7794 does not constitute direct
double taxation. Section 143 of the LGC gives municipal, as
well as city governments, the power to impose business
taxes, to wit:
SECTION 143. Tax on Business. — The municipality
may impose taxes on the following businesses:
(a) On manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or
manufacturers of any article of commerce of whatever
kind or nature, in accordance with the following
schedule:
xxx xxx xxx
(b) On wholesalers, distributors, or dealers in any
article of commerce of whatever kind or nature in
accordance with the following schedule:
xxx xxx xxx
(c) On exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or
retailers of essential commodities enumerated
hereunder at a rate not exceeding one-half (1/2) of the
rates prescribed under subsections (a), (b) and
(d) of this Section:
xxx xxx xxx
Provided, however, That barangays shall have the
exclusive power to levy taxes, as provided under Section
152 hereof, on gross sales or receipts of the preceding
calendar year ofFifty thousand pesos (P50,000.00) or
less, in the case of cities, and Thirty thousand pesos
(P30,000) or less, in the case of municipalities.
(e) On contractors and other independent contractors,
in accordance with the following schedule:
xxx xxx xxx
(f) On banks and other financial institutions, at a rate not
exceeding fifty percent (50%) of one percent (1%) on the
gross receipts of the preceding calendar year derived
from interest, commissions and discounts from lending
activities, income from financial leasing, dividends,
rentals on property and profit from exchange or
sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise
or article of commerce, at a rate not exceeding Fifty
pesos (P50.00) per peddler annually.
(h) On any business, not otherwise specified in the
preceding paragraphs, which the sanggunian concerned
may deem proper to tax: Provided, That on any business
subject to the excise, value-added or percentage tax
under the National Internal Revenue Code, as amended,
the rate of tax shall not exceed two percent
(2%) of gross sales or receipts ofthe preceding calendar
year.
Section 14 of Tax Ordinance No. 7794 imposes
local business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to
Section 143 (a) of the LGC. On the other hand, the local
business tax under Section 21 of Tax Ordinance No. 7794 is
imposed upon persons selling goods and services in the
course of trade or business, and those importing goods for
business or otherwise, who, pursuant to Section 143
(h) of the LGC, are subject to excise tax, value-added tax
(VAT), or percentage tax under the National Internal
Revenue Code (NIRC). Thus, there can be no double
taxation when respondent is being taxed under both Sections
14 and 21 of Tax Ordinance No. 7794, for under the first, it is
being taxed as a manufacturer; while under the second, it is
being taxed as a person selling goods in the course of trade
or business subject to excise, VAT, or percentage tax.
HELD:
The Court first addresses the issue raised by petitioners
concerning the period within which to file with the CTA a Petition
for Review from an adverse decision or ruling ofthe RTC.
The period to appeal the decision or ruling of the RTC to the
CTA via a Petition for Review is specifically governed by
Section 11 of Republic Act No. 9282, 15 and Section 3 (a),
Rule 8 of the Revised Rules of the CTA.
Section 11 of Republic Act No. 9282 provides: cTIESa
SEC. 11. Who May Appeal; Mode of Appeal;
Effect of Appeal. — Any party adversely affected by a
decision, ruling or inaction of the
Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry or the
Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial
Courts may file an Appeal with the CTA within thirty
(30) days after the receipt of such decision or ruling or
after the expiration of the period fixed by law for action
as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review
under a procedure analogous to that provided for
under Rule 42 of the 1997 Rules of Civil
Procedure with the CTA within thirty (30) days from
the receipt of the decision or ruling or in the
case of inaction as herein provided, from the
expiration of the period fixed by law to act thereon. . . . .
(Emphasis supplied.)
Section 3 (a), Rule 8 of the Revised Rules of the CTA states:
SEC. 3. Who may appeal; period to file petition. — (a) A
party adversely affected by a decision, ruling or the
inaction of the Commissioner of Internal Revenue on
disputed assessments or claims for refund of internal
revenue taxes, or by a decision or ruling of the
Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry, the
Secretary of Agriculture, or a Regional Trial Court in
the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty
days after receipt of a copy of such decision or ruling, or
expiration of the period fixed by law for the
Commissioner of Internal Revenue to act on the
disputed assessments. . . . . (Emphasis supplied.)
It is crystal clear from the afore-quoted provisions that to
appeal an adverse decision or ruling of the RTC to the CTA, the
taxpayer must file a Petition for Review with the CTA within
30 days from receipt of said adverse decision or ruling of the
RTC.
It is also true that the same provisions are silent as to whether
such 30-day period can be extended or not. However, Section
11 of Republic Act No. 9282 does state that the Petition for
Review shall be filed with the CTA following the procedure
analogous to Rule 42 of the Revised Rules of Civil
Procedure. Section 1, Rule 42 16 of the Revised Rules of Civil
Procedure provides that the Petition for Review of an adverse
judgment or final order of the RTC must be filed with the
Court of Appeals within: (1) the original 15-day period from
receipt of the judgment or final order to be appealed; (2) an
extended period of 15 days from the lapse of the original
period; and (3) only for the most compelling
reasons, another extended period not to exceed 15 days from
the lapse of the first extended period.
Following by analogy Section 1, Rule 42 of the Revised
Rules of Civil Procedure, the 30-day original period for filing a
Petition for Review with the CTA under Section 11 of Republic
Act No. 9282, as implemented by Section 3 (a), Rule 8 of the
Revised Rules of the CTA, may be extended for a period of 15
days. No further extension shall be allowed thereafter, except
only for the most compelling reasons, in which case the
extended period shall not exceed 15 days.
Even the CTA en banc, in its Decision dated 18 January
2008, recognizes that the 30-day period within which to file the
Petition for Review with the CTA may, indeed, be extended,
thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil
Procedure allow an additional period of fifteen (15) days for
the movant to file a Petition for Review, upon Motion, and
payment of the full amount of the docket fees. A further
extension of fifteen (15) days may be granted on compelling
reasons in accordance with the provision of Section 1, Rule
42 of the 1997 Rules of Civil Procedure . . . . 17
In this case, the CTA First Division did indeed err in finding
that petitioners failed to file their Petition for Review in C.T.A.
AC No. 31 within the reglementary period.
From 20 April 2007, the date petitioners received a
copy of the 4 April 2007 Order of the RTC, denying their Motion
for Reconsideration of the 16 November 2006 Order,
petitioners had 30 days, or until 20 May 2007, within which to
file their Petition for Review with the CTA. Hence, the Motion
for Extension filed by petitioners on 4 May 2007 — grounded
on their belief that the reglementary period for filing their
Petition for Review with the CTA was to expire on 5 May 2007,
thus, compelling them to seek an extension of 15 days, or
until 20 May 2007, to file said Petition — was unnecessary and
superfluous. Even without said Motion for Extension, petitioners
could file their Petition for Review until 20 May 2007, as it was
still within the 30-day reglementary period provided for under
Section 11 of Republic Act No. 9282; and implemented by
Section 3 (a), Rule 8 of the Revised Rules of the CTA.
The Motion for Extension filed by the petitioners on 18 May
2007, prior to the lapse of the 30-day reglementary period on
20 May 2007, in which they prayed for another extended
period of 10 days, or until 30 May 2007, to file their Petition for
Review was, in reality, only the first Motion for
Extension of petitioners. The CTA First Division should have
granted the same, as it was sanctioned by the
rules of procedure. In fact, petitioners were only praying for a
10-day extension, five days less than the 15-day extended
period allowed by the rules. Thus, when petitioners
filed via registered mail their Petition for Review in C.T.A. AC
No. 31 on 30 May 2007, they were able to comply with the
reglementary period for filing such a petition.
Nevertheless, there were other reasons for which the CTA
First Division dismissed the Petition for Review of petitioners in
C.T.A. AC No. 31; i.e., petitioners failed to conform to Section
4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the
CTA. The Court sustains the CTA First Division in this regard.
Section 4, Rule 5 of the Revised Rules of the CTA requires
that:
SEC. 4. Number of copies. — The parties
shall file eleven signed copies of every paper
for cases before the Court en banc and six
signed copies for cases before a
Division of the Court in addition to the
signed original copy, except as otherwise
directed by the Court. Papers to be filed in
more than one case shall include one
additional copy for each additional case.
(Emphasis supplied.)
Section 2, Rule 6 of the Revised Rules of the CTA further
necessitates that:
SEC. 2. Petition for review; contents. — The
petition for review shall contain allegations
showing the jurisdiction of the Court, a
concise statement of the complete facts and
a summary statement of the issues involved
in the case, as well as the reasons relied
upon for the review of the challenged
decision. The petition shall be verified and
must contain a certification against forum
shopping as provided in Section 3, Rule
46 of the Rules of Court. A clearly legible
duplicate original or certified true
copy of the decision appealed from shall
be attached to the petition. (Emphasis
supplied.)
The aforesaid provisions should be read in
conjunction with Section 1, Rule 7 of the Revised
Rules of the CTA, which provides:
SECTION 1. Applicability of the
Rules of Court on procedure in the
Court of Appeals, exception. — The
procedure in the Court en banc or in
Divisions in original or in appealed cases
shall be the same as those in petitions for
review and appeals before the
Court of Appeals pursuant to the applicable
provisions of Rules 42, 43, 44, and
46 of the Rules of Court, except as
otherwise provided for in these
Rules. (Emphasis supplied.)
 As found by the CTA First Division and affirmed by the
CTA en banc, the Petition for Review filed by
petitioners via registered mail on 30 May 2007 consisted
only of one copy and all the attachments thereto, including the
Decision dated 14 July 2006; and that the assailed Orders
dated 16 November 2006 and 4 April 2007 of the RTC in Civil
Case No. 03-107088 were mere machine copies. Evidently,
petitioners did not comply at all with the requirements set forth
under Section 4, Rule 5; or with Section 2, Rule 6 of the
Revised Rules of the CTA. Although the Revised Rules of the
CTA do not provide for the consequence of such non-
compliance, Section 3, Rule 42 of the Rules of Court may be
applied suppletorily, as allowed by Section 1, Rule 7 of the
Revised Rules of the CTA. Section 3, Rule 42 of the
Rules of Court reads:
SEC. 3. Effect of failure to comply with requirements. —
The failure of the petitioner to comply with any of the
foregoing requirements regarding the payment of the
docket and other lawful fees, the deposit for costs,
proof of service of the petition, and the contents of and
the documents which should accompany the petition
shall be sufficient ground for the dismissal thereof.
(Emphasis supplied.)
True, petitioners subsequently submitted certified
copies of the Decision dated 14 July 2006 and assailed
Orders dated 16 November 2006 and 4 April 2007 of the
RTC in Civil Case No. 03-107088, but a closer
examination of the stamp on said documents reveals that
they were prepared and certified only on 14 August 2007,
about two months and a half after the filing of the Petition for
Review by petitioners.
Petitioners never offered an explanation for their
non-compliance with Section 4 of Rule 5, and Section
2 of Rule 6 of the Revised Rules of the CTA. Hence,
although the Court had, in previous instances, relaxed the
application of rules of procedure, it cannot do so in this case
for lack of any justification.
Even assuming arguendo that the Petition for
Review of petitioners in C.T.A. AC No. 31 should have been
given due course by the CTA First Division, it is still dismissible
for lack of merit.
Contrary to the assertions of petitioners, the Coca-Cola case
is indeed applicable to the instant case. The pivotal issue raised
therein was whether Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 were null and void, which this Court
resolved in the affirmative. Tax Ordinance No. 7988 was
declared by the Secretary of the Department of Justice
(DOJ) as null and void and without legal effect due to the
failure of herein petitioner City of Manila to satisfy the
requirement under the law that said ordinance be
published for three consecutive days.
Petitioner City of Manila never appealed said declaration of the
DOJ Secretary; thus, it attained finality after the lapse of the
period for appeal of the same. The passage of Tax Ordinance
No. 8011, amending Tax Ordinance No. 7988, did not cure the
defects of the latter, which, in any way, did not legally exist.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988
and Tax Ordinance No. 8011 are null and void and without any
legal effect. Therefore, respondent cannot be taxed and
assessed under the amendatory laws — Tax Ordinance No.
7988 and Tax Ordinance No. 8011.
Petitioners insist that even with the
declaration of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011, respondent could still be made liable for
local business taxes under both Sections 14 and 21 of Tax
Ordinance No. 7944 as they were originally read, without the
amendment by the null and void tax ordinances.
Emphasis must be given to the fact that prior to the
passage of Tax Ordinance No. 7988 and Tax Ordinance No.
8011 by petitioner City of Manila, petitioners subjected and
assessed respondent only for the local business tax under
Section 14 of Tax Ordinance No. 7794, but never under
Section 21 of the same. This was due to the clear and
unambiguous proviso in Section 21 of Tax Ordinance No.
7794, which stated that "all registered business in
the City of Manila that are already paying the
aforementioned tax shall be exempted from payment
thereof". The "aforementioned tax" referred to in
said proviso refers to local business tax. Stated differently,
Section 21 of Tax Ordinance No. 7794 exempts from the
payment of the local business tax imposed by said section,
businesses that are already paying such tax under other
sections of the same tax ordinance. The
said proviso, however, was deleted from Section 21 of Tax
Ordinance No. 7794 by Tax Ordinances No. 7988 and No.
8011. Following this deletion, petitioners began assessing
respondent for the local business tax under Section 21 of Tax
Ordinance No. 7794, as amended.
The Court easily infers from the foregoing
circumstances that petitioners themselves believed that prior
to Tax Ordinance No. 7988 and Tax Ordinance No. 8011,
respondent was exempt from the local business tax under
Section 21 of Tax Ordinance No. 7794. Hence, petitioners
had to wait for the deletion of the exempting proviso in
Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No.
7988 and Tax Ordinance No. 8011 before they assessed
respondent for the local business tax under said section. Yet,
with the pronouncement by this Court in the Coca-
Cola case that Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 were null and void and without legal
effect, then Section 21 of Tax Ordinance No. 7794, as it
has been previously worded, with its
exempting proviso, is back in effect. Accordingly,
respondent should not have been subjected to the local
business tax under Section 21 of Tax Ordinance No. 7794 for
the third and fourth quarters of 2000, given its exemption
therefrom since it was already paying the local business tax
under Section 14 of the same ordinance.
Petitioners obstinately ignore the
exempting proviso in Section 21 of Tax Ordinance No. 7794,
to their own detriment. Said exempting proviso was precisely
included in said section so as to avoid double taxation.
Double taxation means taxing the same property
twice when it should be taxed only once; that is, "taxing the
same person twice by the same jurisdiction for the same
thing". It is obnoxious when the taxpayer is taxed twice, when
it should be but once. Otherwise described as "direct
duplicate taxation", the two taxes must be imposed on the
same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the
same taxing period; and the taxes must be of the same
kind or character. 18
Using the aforementioned test, the Court finds that
there is indeed double taxation if respondent is subjected to
the taxes under both Sections 14 and 21 of Tax Ordinance
No. 7794, since these are being imposed: (1) on the same
subject matter — the privilege of doing business in
the City of Manila; (2) for the same purpose — to make
persons conducting business within
 the City of Manila contribute to city revenues; (3) by the
same taxing authority — petitioner City of Manila; (4) within
the same taxing jurisdiction — within the territorial
jurisdiction of the City of Manila; (5) for the same taxing
periods — per calendar year; and (6) of the same kind or
character — a local business tax imposed on gross sales or
receipts of the business.
The distinction petitioners attempt to make between
the taxes under Sections 14 and 21 of Tax Ordinance No.
7794 is specious. The Court revisits Section 143 of the
LGC, the very source of the power of municipalities and
cities to impose a local business tax, and to which any local
business tax imposed by petitioner City of Manila must
conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any
other article of commerce, pursuant to Section 143 (a) of the
LGC, said municipality or city may no longer subject the
same manufacturers, etc. to a business tax under Section
143 (h) of the same Code. Section 143 (h) may be imposed
only on businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are "not otherwise
specified in preceding paragraphs". In the same way,
businesses such as respondent's, already subject to a local
business tax under Section 14 of Tax Ordinance No. 7794
[which is based on Section 143 (a) of the LGC], can no longer
be made liable for local business tax under Section 21 of the
same Tax Ordinance [which is based on Section 143
(h) of the LGC]. TSCIEa
WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is hereby DENIED. No
costs.
SO ORDERED.
||| (City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R.
No. 181845, [August 4, 2009], 612 PHIL 609-633)
SUPER GROCERS (SEE PDF)
SECOND DIVISION
[G.R. No. 154993. October 25, 2005.]
LUZ R. YAMANE, in her capacity as the CITY TREASURER
OF MAKATI
CITY, petitioner, vs. BA LEPANTO CONDOMINIUM
CORPORATION, respondent.
TINGA, J p:
Petitioner City Treasurer of Makati, Luz Yamane (City
Treasurer), presents for resolution of this Court two novel
questions: one procedural, the other substantive, yet both of
obvious significance. The first pertains to the proper mode of
judicial review undertaken from decisions of the regional trial
courts resolving the denial of tax protests made by local
government treasurers, pursuant to the Local Government Code.
The second is whether a local government unit can, under the
Local Government Code, impel a condominium corporation to pay
business taxes. 1
While we agree with the City Treasurer's position on the
first issue, there ultimately is sufficient justification for the Court to
overlook what is essentially a procedural error. We uphold
respondents on the second issue. Indeed, there are disturbing
aspects in both procedure and substance that attend the attempts
by the City of Makati to flex its taxing muscle. Considering that the
tax imposition now in question has utterly no basis in law, judicial
relief is imperative. There are fewer indisputable causes for the
exercise of judicial review over the exercise of the taxing power
than when the tax is based on whim, and not on law.
FACTS:
Respondent BA-Lepanto Condominium Corporation
(the "Corporation") is a duly organized condominium corporation
constituted in accordance with the Condominium Act, 2which
owns and holds title to the common and limited common areas of
the BA-Lepanto Condominium (the "Condominium"), situated in
Paseo de Roxas, Makati City. Its membership comprises the
various unit owners of the Condominium. The Corporation is
authorized, under Article V of its Amended By-Laws, to collect
regular assessments from its members for operating expenses,
capital expenditures on the common areas, and other special
assessments as provided for in the Master Deed with Declaration
of Restrictions of the Condominium.
On 15 December 1998, the Corporation received a
Notice of Assessment dated 14 December 1998 signed by the
City Treasurer. The Notice of Assessment stated that the
Corporation is "liable to pay the correct city business taxes, fees
and charges," computed as totaling P1,601,013.77 for the years
1995 to 1997. 3 The Notice of Assessment was silent as to the
statutory basis of the business taxes assessed. ACDIcS
Through counsel, the Corporation responded with a
written tax protest dated 12 February 1999, addressed to the City
Treasurer. It was evident in the protest that the Corporation was
perplexed on the statutory basis of the tax assessment.
With due respect, we submit that
the Assessment has no basis as the
Corporation is not liable for business taxes
and surcharges and interest thereon, under
the Makati [Revenue] Code or even under
the [Local Government] Code.
The Makati [Revenue] Code and
the [Local Government] Code do not contain
any provisions on which the Assessment
could be based. One might argue that Sec.
3A.02(m) of the Makati [Revenue] Code
imposes business tax on owners or
operators of any business not specified in the
said code. We submit, however, that this is
not applicable to the Corporation as the
Corporation is not an owner or operator of
any business in the contemplation of the
Makati [Revenue] Code and even the [Local
Government] Code. 4
Proceeding from the premise that its tax liability arose
from Section 3A.02(m) of the Makati Revenue Code, the
Corporation proceeded to argue that under both the Makati Code
and the Local Government Code, "business" is defined as "trade
or commercial activity regularly engaged in as a means of
livelihood or with a view to profit." It was submitted that the
Corporation, as a condominium corporation, was organized not
for profit, but to hold title over the common areas of the
Condominium, to manage the Condominium for the unit owners,
and to hold title to the parcels of land on which the Condominium
was located. Neither was the Corporation authorized, under its
articles of incorporation or by-laws to engage in profit-making
activities. The assessments it did collect from the unit owners
were for capital expenditures and operating expenses. 5
 The protest was rejected by the City Treasurer in a letter
dated 4 March 1999. She insisted that the collection of dues from
the unit owners was effected primarily "to sustain and maintain
the expenses of the common areas, with the end in view [sic] of
getting full appreciative living values [sic] for the individual
condominium occupants and to command better marketable [sic]
prices for those occupants" who would in the future sell their
respective units. 6 Thus, she concluded since the "chances of
getting higher prices for well-managed common areas of any
condominium are better and more effective that condominiums
with poor [sic] managed common areas," the corporation activity
"is a profit venture making [sic]". 7
From the denial of the protest, the Corporation filed
an Appeal with the Regional Trial Court (RTC) of Makati. 8 On 1
March 2000, the Makati RTC Branch 57 rendered
a Decision9 dismissing the appeal for lack of merit. Accepting the
premise laid by the City Treasurer, the RTC acknowledged, in
sadly risible language:
Herein appellant, to defray the
improvements and beautification of the
common areas, collect [sic] assessments
from its members. Its end view is to get
appreciate living rules for the unit owners
[sic], to give an impression to outsides [sic] of
the quality of service the condominium offers,
so as to allow present owners to command
better prices in the event of sale. 10
With this, the RTC concluded that the activities of the
Corporation fell squarely under the definition of "business"
under Section 13(b) of the Local Government Code, and
thus subject to local business taxation. 11
From this Decision of the RTC, the Corporation filed
a Petition for Review under Rule 42 of the Rules of Civil
Procedure with the Court of Appeals. Initially, the petition was
dismissed outright 12 on the ground that only decisions of the
RTC brought on appeal from a first level court could be elevated
for review under the mode of review prescribed under Rule
42. 13 However, the Corporation pointed out in its Motion for
Reconsideration that under Section 195 of the Local Government
Code, the remedy of the taxpayer on the denial of the protest filed
with the local treasurer is to appeal the denial with the court of
competent jurisdiction. 14 Persuaded by this contention, the
Court of Appeals reinstated the petition. 15
On 7 June 2002, the Court of Appeals Special Sixteenth
Division rendered the Decision 16 now assailed before this Court.
The appellate court reversed the RTC and declared that the
Corporation was not liable to pay business taxes to the City of
Makati. 17 In doing so, the Court of Appeals delved into
jurisprudential definitions of profit, 18 and concluded that the
Corporation was not engaged in profit. For one, it was held that
the very statutory concept of a condominium corporation showed
that it was not a juridical entity intended to make profit, as its sole
purpose was to hold title to the common areas in the condominium
and to maintain the condominium. 19
The Court of Appeals likewise cited provisions from the
Corporation's Amended Articles of Incorporation and Amended
By-Laws that, to its estimation, established that the Corporation
was not engaged in business and the assessment collected from
unit owners limited to those necessary to defray the expenses in
the maintenance of the common areas and management the
condominium. 20
Upon denial of her Motion for Reconsideration, 21 the
City Treasurer elevated the present Petition for Review under
Rule 45. It is argued that the Corporation is engaged in business,
for the dues collected from the different unit owners is utilized
towards the beautification and maintenance of the Condominium,
resulting in "full appreciative living values" for the condominium
units which would command better market prices should they be
sold in the future. The City Treasurer likewise avers that the
rationale for business taxes is not on the income received or profit
earned by the business, but the privilege to engage in business.
The fact that the Corporation is empowered "to acquire, own,
hold, enjoy, lease, operate and maintain, and to convey sell,
transfer or otherwise dispose of real or personal property"
allegedly qualifies "as incident to the fact of [the Corporation's] act
of engaging in business. 22
The City Treasurer also claims that the Corporation had
filed the wrong mode of appeal before the Court of Appeals when
the latter filed its Petition for Review under Rule 42. It is reasoned
that the decision of the Makati RTC was rendered in the exercise
of original jurisdiction, it being the first court which took
cognizance of the case. Accordingly, with the Corporation having
pursued an erroneous mode of appeal, the RTC Decision is
deemed to have become final and executory.
First, we dispose of the procedural issue, which
essentially boils down to whether the RTC, in deciding an appeal
taken from a denial of a protest by a local treasurer under Section
195 of the Local Government Code, exercises "original
jurisdiction" or "appellate jurisdiction." The question assumes a
measure of importance to this petition, for the adoption of the
position of the City Treasurer that the mode of review of the
decision taken by the RTC is governed by Rule 41 of the Rules of
Civil Procedure means that the decision of the RTC would have
long become final and executory by reason of the failure of the
Corporation to file a notice of appeal. 23
There are discernible conflicting views on the issue. The
first, as expressed by the Court of Appeals, holds that the RTC,
in reviewing denials of protests by local treasurers, exercises
appellate jurisdiction. This position is anchored on the language
of Section 195 of the Local Government Code which states that
the remedy of the taxpayer whose protest is denied by the local
treasurer is "to appeal with the court of competent
jurisdiction." 24 Apparently though, the Local Government
Code does not elaborate on how such "appeal" should be
undertaken. HAIaEc
The other view, as maintained by the City Treasurer, is
that the jurisdiction exercised by the RTC is original in character.
This is the first time that the position has been presented to the
court for adjudication. Still, this argument does find jurisprudential
mooring in our ruling in Garcia v. De Jesus, 25 where the Court
proffered the following distinction between original jurisdiction and
appellate jurisdiction: "Original jurisdiction is the power of the
Court to take judicial cognizance of a case instituted for judicial
action for the first time under conditions provided by law.
Appellate jurisdiction is the authority of a Court higher in rank to
re-examine the final order or judgment of a lower Court which tried
the case now elevated for judicial review." 26
The quoted definitions were taken from the
commentaries of the esteemed Justice Florenz Regalado. With
the definitions as beacon, the review taken by the RTC over the
denial of the protest by the local treasurer would fall within
that court's original jurisdiction. In short, the review is the initial
judicial cognizance of the matter. Moreover, labeling the said
review as an exercise of appellate jurisdiction is inappropriate,
since the denial of the protest is not the judgment or order of a
lower court, but of a local government official.
The stringent concept of original jurisdiction may
seemingly be neutered by Rule 43 of the 1997 Rules of Civil
Procedure, Section 1 of which lists a slew of administrative
agencies and quasi-judicial tribunals or their officers whose
decisions may be reviewed by the Court of Appeals in the
exercise of its appellate jurisdiction. However, the basic law of
jurisdiction, Batas Pambansa Blg. 129 (B.P. 129), 27 ineluctably
confers appellate jurisdiction on the Court of Appeals over final
rulings of quasi-judicial agencies, instrumentalities, boards or
commission, by explicitly using the phrase "appellate
jurisdiction." 28 The power to create or characterize jurisdiction of
courts belongs to the legislature. While the traditional notion of
appellate jurisdiction connotes judicial review over lower court
decisions, it has to yield to statutory redefinitions that clearly
expand its breadth to encompass even review of decisions of
officers in the executive branches of government.
Yet significantly, the Local Government Code, or any
other statute for that matter, does not expressly confer appellate
jurisdiction on the part of regional trial courts from the denial of a
tax protest by a local treasurer. On the other hand, Section 22
of B.P. 129 expressly delineates the appellate jurisdiction of the
Regional Trial Courts, confining as it does said appellate
jurisdiction to cases decided by Metropolitan, Municipal, and
Municipal Circuit Trial Courts. Unlike in the case of the Court of
Appeals, B.P. 129 does not confer appellate jurisdiction on
Regional Trial Courts over rulings made by non-judicial entities.
From these premises, it is evident that the stance of the
City Treasurer is correct as a matter of law, and that the proper
remedy of the Corporation from the RTC judgment is an ordinary
appeal under Rule 41 to the Court of Appeals. However, we make
this pronouncement subject to two important qualifications. First,
in this particular case there are nonetheless significant reasons
for the Court to overlook the procedural error and ultimately
uphold the adjudication of the jurisdiction exercised by the Court
of Appeals in this case. Second, the doctrinal weight of the
pronouncement is confined to cases and controversies that
emerged prior to the enactment of Republic Act No. 9282, the law
which expanded the jurisdiction of the Court of Tax Appeals
(CTA).
Republic Act No. 9282 definitively proves in its
Section 7(a)(3) that the CTA exercises exclusive appellate
jurisdiction to review on appeal decisions, orders or
resolutions of the Regional Trial Courts in local tax cases
original decided or resolved by them in the exercise of their
originally or appellate jurisdiction. Moreover, the provision also
states that the review is triggered "by filing a petition for review
under a procedure analogous to that provided for under Rule 42
of the 1997 Rules of Civil Procedure." 29
Republic Act No. 9282, however, would not apply to this
case simply because it arose prior to the effectivity of that law. To
declare otherwise would be to institute a jurisdictional rule derived
not from express statutory grant, but from implication. The
jurisdiction of a court to take cognizance of a case should be
clearly conferred and should not be deemed to exist on mere
implications, 30 and this settled rule would be needlessly
emasculated should we declare that the Corporation's position is
correct in law.
Be that as it may, characteristic of all procedural rules is
adherence to the precept that they should not be enforced blindly,
especially if mechanical application would defeat the higher ends
that animates our civil procedure — the just, speedy and
inexpensive disposition of every action and
proceeding. 31 Indeed, we have repeatedly upheld — and utilized
ourselves — the discretion of courts to nonetheless take
cognizance of petitions raised on an erroneous mode of appeal
and instead treat these petitions in the manner as they should
have appropriately been filed. 32 The Court of Appeals could very
well have treated the Corporation's petition for review as an
ordinary appeal. cADSCT
Moreover, we recognize that the Corporation's error in
elevating the RTC decision for review via Rule 42 actually worked
to the benefit of the City Treasurer. There is wider latitude on the
part of the Court of Appeals to refuse cognizance over a petition
for review under Rule 42 than it would have over an ordinary
appeal under Rule 41. Under Section 13, Rule 41, the stated
grounds for the dismissal of an ordinary appeal prior to the
transmission of the case records are when the appeal was taken
out of time or when the docket fees were not paid. 33 On the other
hand, Section 6, Rule 42 provides that in order that the Court of
Appeals may allow due course to the petition for review, it must
first make a prima facie finding that the lower court has committed
an error that would warrant the reversal or modification of the
decision under review. 34 There is no similar requirement of
a prima facie determination of error in the case of ordinary appeal,
which is perfected upon the filing of the notice of appeal in due
time. 35
Evidently, by employing the Rule 42 mode of review, the
Corporation faced a greater risk of having its petition rejected by
the Court of Appeals as compared to having filed an ordinary
appeal under Rule 41. This was not an error that worked to the
prejudice of the City Treasurer.
ISSUE:
Whether the City of Makati may collect business taxes on
condominium corporations.
HELD: NO.
We begin with an overview of the power of a local
government unit to impose business taxes.
The power of local government units to impose taxes
within its territorial jurisdiction derives from the Constitution itself,
which recognizes the power of these units "to create its own
sources of revenue and to levy taxes, fees, and charges subject
to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy." 36 These
guidelines and limitations as provided by Congress are in main
contained in the Local Government Code of 1991 (the "Code"),
which provides for comprehensive instances when and how local
government units may impose taxes. The significant limitations
are enumerated primarily in Section 133 of the Code, which
include among others, a prohibition on the imposition of
income taxes except when levied on banks and other
financial institutions. 37 None of the other general limitations
under Section 133 find application to the case at bar. IaHCAD
The most well-known mode of local government taxation
is perhaps the real property tax, which is governed by Title II,
Book II of the Code, and which bears no application in this case.
A different set of provisions, found under Title I of Book II, governs
other taxes imposable by local government units, including
business taxes. Under Section 151 of the Code, cities such as
Makati are authorized to levy the same taxes fees and charges as
provinces and municipalities. It is in Article II, Title II, Book II of
the Code, governing municipal taxes, where the provisions on
business taxation relevant to this petition may be found. 38
Section 143 of the Code specifically enumerates several
types of business on which municipalities and cities may impose
taxes. These include manufacturers, wholesalers, distributors,
dealers of any article of commerce of whatever nature; those
engaged in the export or commerce of essential commodities;
contractors and other independent contractors; banks and
financial institutions; and peddlers engaged in the sale of any
merchandise or article of commerce. Moreover, the
local sanggunian is also authorized to impose taxes on any other
businesses not otherwise specified under Section 143 which
the sanggunian concerned may deem proper to tax.
The coverage of business taxation particular to the City
of Makati is provided by the Makati Revenue Code ("Revenue
Code"), enacted through Municipal Ordinance No. 92-072. The
Revenue Code remains in effect as of this writing. Article A,
Chapter III of the Revenue Code governs business taxes in
Makati, and it is quite specific as to the particular businesses
which are covered by business taxes. To give a sample of the
specified businesses under the Revenue Code which are not
enumerated under the Local Government Code, we cite Section
3A.02(f) of the Code, which levies a gross receipt tax:
(f) On contractors and other independent contractors
defined in Sec. 3A.01(q) of Chapter III of this Code, and
on owners or operators of business establishments
rendering or offering services such as: advertising
agencies; animal hospitals; assaying laboratories; belt
and buckle shops; blacksmith shops; bookbinders;
booking officers for film exchange; booking offices for
transportation on commission basis; breeding of game
cocks and other sporting animals belonging to others;
business management services; collecting agencies;
escort services; feasibility studies; consultancy services;
garages; garbage disposal contractors; gold and
silversmith shops; inspection services for incoming and
outgoing cargoes; interior decorating services; janitorial
services; job placement or recruitment agencies;
landscaping contractors; lathe machine shops;
management consultants not subject to professional tax;
medical and dental laboratories; mercantile agencies;
messsengerial services; operators of shoe shine stands;
painting shops; perma press establishments; rent-a-
plant services; polo players; school for and/or horse-
back riding academy; real estate appraisers; real estate
brokerages; photostatic, white/blue printing, Xerox,
typing, and mimeographing services; rental of bicycles
and/or tricycles, furniture, shoes, watches, household
appliances, boats, typewriters, etc.; roasting of pigs,
fowls, etc.; shipping agencies; shipyard for repairing
ships for others; shops for shearing animals; silkscreen
or T-shirt printing shops; stables; travel agencies;
vaciador shops; veterinary clinics; video rentals and/or
coverage services; dancing schools/speed
reading/EDP; nursery, vocational and other schools not
regulated by the Department of Education, Culture and
Sports, (DECS), day care centers; etc. 39
Other provisions of the Revenue Code likewise subject
hotel and restaurant owners and operators 40 , real estate
dealers, and lessors of real estate 41 to business taxes.
Should the comprehensive listing not prove
encompassing enough, there is also a catch-all provision similar
to that under the Local Government Code. This is found in Section
3A.02(m) of the Revenue Code, which provides:
(m) On owners or operators of any business
not specified above shall pay the tax at the rate of two
percent (2%) for 1993, two and one-half percent (2
1/2%) for 1994 and 1995, and three percent (3%) for
1996 and the years thereafter of the gross receipts
during the preceding year. 42
The initial inquiry is what provision of the Makati
Revenue Code does the City Treasurer rely on to make the
Corporation liable for business taxes. Even at this point, there
already stands a problem with the City Treasurer's cause of
action.
Our careful examination of the record reveals a highly
disconcerting fact. At no point has the City Treasurer been candid
enough to inform the Corporation, the RTC, the Court of Appeals,
or this Court for that matter, as to what exactly is the precise
statutory basis under the Makati Revenue Code for the levying of
the business tax on petitioner. We have examined all of the
pleadings submitted by the City Treasurer in all the antecedent
judicial proceedings, as well as in this present petition, and also
the communications by the City Treasurer to the Corporation
which form part of the record. Nowhere therein is there any
citation made by the City Treasurer of any provision of the
Revenue Code which would serve as the legal authority for the
collection of business taxes from condominiums in
Makati. HSDaTC
Ostensibly, the notice of assessment, which stands as
the first instance the taxpayer is officially made aware of the
pending tax liability, should be sufficiently informative to apprise
the taxpayer the legal basis of the tax. Section 195 of the Local
Government Code does not go as far as to expressly require that
the notice of assessment specifically cite the provision of the
ordinance involved but it does require that it state the nature of
the tax, fee or charge, the amount of deficiency, surcharges,
interests and penalties. In this case, the notice of assessment
sent to the Corporation did state that the assessment was for
business taxes, as well as the amount of the assessment. There
may have been prima facie compliance with the requirement
under Section 195. However in this case, the Revenue Code
provides multiple provisions on business taxes, and at varying
rates. Hence, we could appreciate the Corporation's confusion,
as expressed in its protest, as to the exact legal basis for the
tax. 43 Reference to the local tax ordinance is vital, for the power
of local government units to impose local taxes is exercised
through the appropriate ordinance enacted by the sanggunian,
and not by the Local Government Code alone. 44 What
determines tax liability is the tax ordinance, the Local Government
Code being the enabling law for the local legislative body.
Moreover, a careful examination of the Revenue Code
shows that while Section 3A.02(m) seems designed as a catch-
all provision, Section 3A.02(f), which provides for a different tax
rate from that of the former provision, may be construed to be of
similar import. While Section 3A.02(f) is quite exhaustive in
enumerating the class of businesses taxed under the provision,
the listing, while it does not include condominium-related
enterprises, ends with the abbreviation "etc.", or "et cetera".
We do note our discomfort with the unlimited breadth
and the dangerous uncertainty which are the twin hallmarks of the
words "et cetera." Certainly, we cannot be disposed to uphold any
tax imposition that derives its authority from enigmatic and
uncertain words such as "et cetera." Yet we cannot even say with
definiteness whether the tax imposed on the Corporation in this
case is based on "et cetera," or on Section 3A.02(m), or on any
other provision of the Revenue Code. Assuming that the
assessment made on the Corporation is on a provision other than
Section 3A.02(m), the main legal issue takes on a different
complexion. For example, if it is based on "et cetera" under
Section 3A.02(f), we would have to examine whether the
Corporation faces analogous comparison with the other
businesses listed under that provision.
Certainly, the City Treasurer has not been helpful in that
regard, as she has been silent all through out as to the exact basis
for the tax imposition which she wishes that this Court uphold.
Indeed, there is only one thing that prevents this Court from ruling
that there has been a due process violation on account of the City
Treasurer's failure to disclose on paper the statutory basis of the
tax — that the Corporation itself does not allege injury arising from
such failure on the part of the City Treasurer.
 We do not know why the Corporation chose not to put
this issue into litigation, though we can ultimately presume that no
injury was sustained because the City Treasurer failed to cite the
specific statutory basis of the tax. What is essential though is that
the local treasurer be required to explain to the taxpayer with
sufficient particularity the basis of the tax, so as to leave no doubt
in the mind of the taxpayer as to the specific tax involved.
In this case, the Corporation seems confident enough in
litigating despite the failure of the City Treasurer to admit on what
exact provision of the Revenue Code the tax liability ensued. This
is perhaps because the Corporation has anchored its central
argument on the position that the Local Government Code itself
does not sanction the imposition of business taxes against it. This
position was sustained by the Court of Appeals, and now merits
our analysis.
As stated earlier, local tax on businesses is authorized
under Section 143 of the Local Government Code. The word
"business" itself is defined under Section 131(d) of the Code as
"trade or commercial activity regularly engaged in as a means of
livelihood or with a view to profit." 45 This definition of "business"
takes on importance, since Section 143 allows local government
units to impose local taxes on businesses other than those
specified under the provision. Moreover, even those business
activities specifically named in Section 143 are themselves
susceptible to broad interpretation. For example, Section 143(b)
authorizes the imposition of business taxes on wholesalers,
distributors, or dealers in any article of commerce of whatever
kind or nature. IAcDET
It is thus imperative that in order that the Corporation
may be subjected to business taxes, its activities must fall within
the definition of business as provided in the Local Government
Code. And to hold that they do is to ignore the very statutory
nature of a condominium corporation.
The creation of the condominium corporation is
sanctioned by Republic Act No. 4726, otherwise known as the
Condominium Act. Under the law, a condominium is an interest in
real property consisting of a separate interest in a unit in a
residential, industrial or commercial building and an undivided
interest in common, directly or indirectly, in the land on which it is
located and in other common areas of the building. 46 To enable
the orderly administration over these common areas which are
jointly owned by the various unit owners, the Condominium
Act permits the creation of a condominium corporation, which is
specially formed for the purpose of holding title to the common
area, in which the holders of separate interests shall automatically
be members or shareholders, to the exclusion of others, in
proportion to the appurtenant interest of their respective
units. 47 The necessity of a condominium corporation has not
gained widespread acceptance 48 , and even is merely
permissible under the Condominium Act. 49 Nonetheless, the
condominium corporation has been resorted to by many
condominium projects, such as the Corporation in this case.
In line with the authority of the condominium corporation
to manage the condominium project, it may be authorized, in the
deed of restrictions, "to make reasonable assessments to meet
authorized expenditures, each condominium unit to be assessed
separately for its share of such expenses in proportion (unless
otherwise provided) to its owner's fractional interest in any
common areas." 50 It is the collection of these assessments from
unit owners that form the basis of the City Treasurer's claim that
the Corporation is doing business.
The Condominium Act imposes several limitations on
the condominium corporation that prove crucial to the disposition
of this case. Under Section 10 of the law, the corporate purposes
of a condominium corporation are limited to the holding of the
common areas, either in ownership or any other interest in real
property recognized by law; to the management of the project;
and to such other purposes as may be necessary, incidental or
convenient to the accomplishment of such purpose. 51 Further,
the same provision prohibits the articles of incorporation or by-
laws of the condominium corporation from containing any
provisions which are contrary to the provisions of the
Condominium Act, the enabling or master deed, or the declaration
of restrictions of the condominium project. 52
We can elicit from the Condominium Act that a
condominium corporation is precluded by statute from engaging
in corporate activities other than the holding of the common areas,
the administration of the condominium project, and other acts
necessary, incidental or convenient to the accomplishment of
such purposes. Neither the maintenance of livelihood, nor the
procurement of profit, fall within the scope of permissible
corporate purposes of a condominium corporation under the
Condominium Act.
The Court has examined the particular Articles of
Incorporation and By-Laws of the Corporation, and these
documents unmistakably hew to the limitations contained in the
Condominium Act. Per the Articles of Incorporation, the
Corporation's corporate purposes are limited to: (a) owning and
holding title to the common and limited common areas in the
Condominium Project; (b) adopting such necessary measures for
the protection and safeguard of the unit owners and their property,
including the power to contract for security services and for
insurance coverage on the entire project; (c) making and adopting
needful rules and regulations concerning the use, enjoyment and
occupancy of the units and common areas, including the power
to fix penalties and assessments for violation of such rules; (d) to
provide for the maintenance, repair, sanitation, and cleanliness of
the common and limited common areas; (e) to provide and
contract for public utilities and other services to the common
areas; (f) to contract for the services of persons or firms to assist
in the management and operation of the Condominium Project;
(g) to discharge any lien or encumbrances upon the
Condominium Project; (h) to enforce the terms contained in the
Master Deed with Declaration of Restrictions of the Project; (i) to
levy and collect those assessments as provided in the Master
Deed, in order to defray the costs, expenses and losses of the
condominium; (j) to acquire, own, hold, enjoy, lease operate and
maintain, and to convey, sell transfer, mortgage or otherwise
dispose of real or personal property in connection with the
purposes and activities of the corporation; and (k) to exercise and
perform such other powers reasonably necessary, incidental or
convenient to accomplish the foregoing purposes. 53
Obviously, none of these stated corporate purposes are
geared towards maintaining a livelihood or the obtention of profit.
Even though the Corporation is empowered to levy assessments
or dues from the unit owners, these amounts collected are not
intended for the incurrence of profit by the Corporation or its
members, but to shoulder the multitude of necessary expenses
that arise from the maintenance of the Condominium Project. Just
as much is confirmed by Section 1, Article V of the Amended By-
Laws, which enumerate the particular expenses to be defrayed by
the regular assessments collected from the unit owners. These
would include the salaries of the employees of the Corporation,
and the cost of maintenance and ordinary repairs of the common
areas. 54
The City Treasurer nonetheless contends that the
collection of these assessments and dues are "with the end view
of getting full appreciative living values" for the condominium
units, and as a result, profit is obtained once these units are sold
at higher prices. The Court cites with approval the two
counterpoints raised by the Court of Appeals in rejecting this
contention. First, if any profit is obtained by the sale of the units,
it accrues not to the corporation but to the unit owner. Second, if
the unit owner does obtain profit from the sale of the corporation,
the owner is already required to pay capital gains tax on the
appreciated value of the condominium unit. 55
Moreover, the logic on this point of the City Treasurer is
baffling. By this rationale, every Makati City car owner may be
considered as being engaged in business, since the repairs or
improvements on the car may be deemed oriented towards
appreciating the value of the car upon resale. There is an evident
distinction between persons who spend on repairs and
improvements on their personal and real property for the purpose
of increasing its resale value, and those who defray such
expenses for the purpose of preserving the property. The vast
majority of persons fall under the second category, and it would
be highly specious to subject these persons to local business
taxes. The profit motive in such cases is hardly the driving factor
behind such improvements, if it were contemplated at all. Any
profit that would be derived under such circumstances would
merely be incidental, if not accidental.
Besides, we shudder at the thought of upholding tax
liability on the basis of the standard of "full appreciative living
values", a phrase that defies statutory explication,
commonsensical meaning, the English language, or even
definition from Google. The exercise of the power of taxation
constitutes a deprivation of property under the due process
clause, 56 and the taxpayer's right to due process is violated
when arbitrary or oppressive methods are used in assessing and
collecting taxes. 57 The fact that the Corporation did not fall within
the enumerated classes of taxable businesses under either
the Local Government Code or the Makati Revenue Code already
forewarns that a clear demonstration is essential on the part of
the City Treasurer on why the Corporation should be taxed
anyway. "Full appreciative living values" is nothing but blather in
search of meaning, and to impose a tax hinged on that standard
is both arbitrary and oppressive.
The City Treasurer also contends that the fact that the
Corporation is engaged in business is evinced by the Articles of
Incorporation, which specifically empowers the Corporation "to
acquire, own, hold, enjoy, lease, operate and maintain, and to
convey, sell, transfer mortgage or otherwise dispose of real or
personal property." 58 What the City Treasurer fails to add is that
every corporation organized under the Corporation Code 59 is so
specifically empowered. Section 36(7) of the Corporation
Code states that every corporation incorporated under the Code
has the power and capacity "to purchase, receive, take or grant,
hold, convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property . . . as the transaction of the
lawful business of the corporation may reasonably and
necessarily require . . ." 60 Without this power, corporations, as
juridical persons, would be deprived of the capacity to engage in
most meaningful legal relations.
Again, whatever capacity the Corporation may have
pursuant to its power to exercise acts of ownership over personal
and real property is limited by its stated corporate purposes, which
are by themselves further limited by the Condominium Act. A
condominium corporation, while enjoying such powers of
ownership, is prohibited by law from transacting its properties for
the purpose of gainful profit. HSDIaC
Accordingly, and with a significant degree of comfort, we
hold that condominium corporations are generally exempt from
local business taxation under the Local Government Code,
irrespective of any local ordinance that seeks to declare
otherwise.
Still, we can note a possible exception to the rule. It is
not unthinkable that the unit owners of a condominium would band
together to engage in activities for profit under the shelter of the
condominium corporation. 61 Such activity would be prohibited
under the Condominium Act, but if the fact is established, we see
no reason why the condominium corporation may be made liable
by the local government unit for business taxes. Even though
such activities would be considered as ultra vires, since they are
engaged in beyond the legal capacity of the condominium
corporation 62 , the principle of estoppel would preclude the
corporation or its officers and members from invoking the void
nature of its undertakings for profit as a means of acquitting itself
of tax liability.
Still, the City Treasurer has not posited the claim that the
Corporation is engaged in business activities beyond the statutory
purposes of a condominium corporation. The assessment
appears to be based solely on the Corporation's collection of
assessments from unit owners, such assessments being utilized
to defray the necessary expenses for the Condominium Project
and the common areas. There is no contemplation of business,
no orientation towards profit in this case. Hence, the assailed tax
assessment has no basis under the Local Government Code or
the Makati Revenue Code, and the insistence of the city in its
collection of the void tax constitutes an attempt at deprivation of
property without due process of law.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
||| (Yamane v. BA Lepanto Condominium Corp., G.R. No.
154993, [October 25, 2005], 510 PHIL 750-779)
FIRST PLANTERS (SEE PDF)- PILAA
FIRST DIVISION
[G.R. No. 154092. July 14, 2005.]
MOBIL PHILIPPINES, INC., petitioner, vs.
THE CITY TREASURER OF MAKATI and the CHIEF OF THE
LICENSE DIVISION OF THE CITY OF MAKATI, respondents.
QUISUMBING, J p:
This petition for review on certiorari seeks the
reversal of the Decision 1 dated November 22, 2001 of the
Regional Trial Court of Pasig City, Branch 268, in Civil Case No.
67599, subsequently affirmed in an Order 2 dated May 15, 2002.
Petitioner is a domestic corporation engaged in the
manufacturing, importing, exporting and
wholesaling of petroleum products, while respondents are the
local government officials of the City of Makati charged with the
implementation of the Revenue Code of the City of Makati, as
well as the collection and assessment of business taxes, license
fees and permit fees within said city. 3
Prior to September 1998, petitioner's principal office was at the
National Development Company Building, in 116 Tordesillas St.,
Salcedo Village, Makati City. On August 20, 1998, petitioner filed
an application with the City Treasurer of Makati for the
retirement of its business within the City of Makati as it moved its
principal place of business to Pasig City. 4
In its application, petitioner declared its gross sales/receipts as Considering therefore that the business tax accrues only
follows: on the first day of January as provided in Sec. 3A.07 and
becomes payable within the first 20 days thereof
Gross Sales Receipts for Calendar Year or of each subsequent quarter, the payments made
1997 P453,799,493.29 by Mobil in the year 1998 are therefore payments for the
business tax for 1997 which accrued in January of 1998
Gross Sales Receipts for Calendar Year
1998 267,952,766.67 5 and became payable within the first 20 days of January
or of each subsequent quarter. Thus, upon retirement in
January to August August 1998, the taxes for said year which should
accrue in January 1999 [become] immediately payable
Upon evaluation of petitioner's application, then OIC of the before the application for retirement can be approved
License Division, Ms. Jesusa E. Cuneta, issued to petitioner, a (Ibid, (g), Sec. 3A.08). The assessment of the
billing slip 6 assessing the following taxes against petitioner: Chief of the License Division of Makati is therefore with
legal basis and does not constitute double taxation.
For the 4th Quarter of 1998 (based on 1997 gross sales)
WHEREFORE, premises considered, the instant petition
As Manufacturer P14,439.54 for refund is hereby DENIED and the case is dismissed
As Wholesaler 550,778.58 for lack of merit. SO ORDERED. 12

Garbage Fee 1,250.00 Petitioner filed a Motion for Reconsideration 13 which was denied
in an Order dated May 15, 2002, hence this appeal.
Sub-Total P566,468.12
Before us, petitioner alleges now that,
For the Gross Sales made in 1998
THE TRIAL COURT ERRED IN HOLDING THAT
As Manufacture P40,008.33 PETITIONER'S BUSINESS TAX PAYMENTS MADE IN
1998 ARE ACTUALLY PAYMENTS FOR BUSINESS
As Wholesaler 1,291,630.51 TAXES IN 1997. THIS CONCLUSION IS
CONTROVERTED BY MAKATI CITY'S REVENUE
Sub-Total 1,331,638.84
CODE, AND, IN FACT, CONSTITUTES DOUBLE
————— TAXATION. 14

TOTAL ASSESSED BUSINESS ISSUE: Are the business taxes paid by petitioner in 1998,
TAXES P1,898,106.96 7 business taxes for 1997 or 1998?

On September 11, 1998, petitioner paid the assessed
amount of P1,898,106.96 under protest.
The City Treasurer issued therefor Official Receipt No.
9065025C 8 and approved the petitioner's application for
retirement of business from Makati to Pasig City.
On July 21, 1999, petitioner filed a claim for P1,331,638.84
refund. 9 On August 11, 1999, petitioner received a
letter 10 denying the claim for refund on the ground that petitioner
was merely transferring and not retiring its business, and that the
gross sales realized while petitioner still maintained office
in Makati from January 1 to August 31, 1998 should be taxed in
the City of Makati. 11
Petitioner subsequently filed a petition with the Regional Trial
Court of Pasig City, Branch 268, seeking the refund of business
taxes erroneously collected by the City of Makati.
In its Decision, the trial court ruled as follows:
In summary, the pertinent law provides that a person or
entity doing business in the Municipality shall be subject
to business tax. The tax shall be fixed by the quarter.
The initial tax for the quarter in which a business starts
to operate shall be two and one-half percent (2
1/2%) of one percent (1%) of its capital investment.
Thereafter, the tax shall be computed based on the
gross sales or receipts of the preceding quarter. In the
succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on
the gross sales or receipts for the preceding calendar
year. That tax shall accrue on the first
day of January of each year and payment shall be made
within the first 20 days of January or of each subsequent
quarter as the case may be.
According to petitioner, the 1997 gross sales/revenue is merely
the basis for the amount of business taxes due for the
privilege of carrying on a business in the year when the tax was
paid.
For their part, respondents argue that since local taxes, which
include business taxes, are paid either within the first twenty
days of January of each year or of each subsequent quarter, as
the case may be, what the taxpayer actually pays during the
recorded calendar year is actually its business tax for the
preceding year.
Prefatorily, it is necessary to distinguish between a business
tax vis-à-vis an income tax.
Business taxes imposed in the exercise of police power for
regulatory purposes are paid for the privilege of carrying on a
business in the year the tax was paid. It is paid at the
beginning of the year as a fee to allow the business to operate for
the rest of the year. It is deemed a prerequisite to the
conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising
from property, professions, trades or offices, or as a tax on a
person's income, emoluments, profits and the like. It is tax on
income, whether net or gross realized in one taxable year. 15 It is
due on or before the 15th day of the 4th month following the
close of the taxpayer's taxable year and is generally regarded as
an excise tax, levied upon the right of a person or entity to receive
income or profits.
The trial court erred when it said that the payments made by
petitioner in 1998 are payments for business tax incurred in 1997
which only accrued in January 1998. Likewise, it erred when it
ruled that petitioner was still liable for business taxes based on its
gross income/revenue for January to August 1998.
Section 3A.04 of the Makati City Revenue Code states: respondent erroneously treated the assessment and
collection of business tax as if it were income tax, by rendering an
Sec. 3A.04. Computation of tax for newly-started additional assessment of P1,331,638.84 for the revenue
business. — In the case of newly-started business under generated for the year 1998.
Sec. 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l),
and (m) above, the tax shall be fixed by the quarter. The
initial tax of the quarter in which the business starts to
operate shall be two and one half percent (2 1/2 WHEREFORE, the assailed Decision is hereby REVERSED and
%) of one percent (1%) of the capital investment. respondents City Treasurer and Chief of the License
Division of Makati City are ordered to REFUND to petitioner
In the succeeding quarter or quarters, in cases where business taxes paid in the amount of P1,331,638.84. Costs
the business opens before the last quarter of the year, against respondents.
the tax shall be based on the gross sales or receipt for
the preceding quarter at one-half (1/2) of the rates fixed SO ORDERED.
therefor by the pertinent schedule in Section 3A.02, (a),
||| (MOBIL PHILIPPINES, INC. v. CITY TREASURER OF
(b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and
MAKATI, ET AL., G.R. No. 154092, [July 14, 2005], 501 PHIL
(m). EHASaD
666-674)
In the succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on
the gross sales or receipts for the preceding calendar REAL PROPERTY TAXES
year, or any fraction thereof as provided in the same
pertinent schedules. 16

Under the Makati Revenue Code, it appears that the business EN BANC
tax, like income tax, is computed based on the previous year's
figures. This is the reason for the confusion. A newly-started
business is already liable for business taxes (i.e. license fees) at [G.R. No. L-17870. September 29, 1962.]
the start of the quarter when it commences operations. In
computing the amount of tax due for the first
quarter of operations, the business' capital investment is used as MINDANAO BUS COMPANY, petitioner, vs. THE CIT
the basis. For the subsequent quarters of the first year, the tax is Y ASSESSOR & TREASURER and the BOARD OF
based on the gross sales/receipts for the previous quarter. In the TAX APPEALS OF CAGAYAN DE
following year(s), the business is then taxed based on the gross ORO CITY, respondents.
sales or receipts of the previous year. The business taxes paid in
the year 1998 is for the privilege of engaging in business for the
same year, and not for having engaged in business for 1997. Binamira, Barria & Irabagon for petitioner.

Upon its transfer, petitioner was apparently subjected to Sec. Vicente E. Sabellina for respondents.
3A.11 par. (g) which states:
xxx xxx xxx SYLLABUS
(g) Retirement of business.

xxx xxx xxx 1. PROPERTY; IMMOVABLE PROPERTY BY DESTINATION;

For purposes thereof, termination shall mean that
business operation are stopped completely.
xxx xxx xxx
(2) If it is found that the retirement or termination of the
business is legitimate, [a]nd the tax due therefrom be
less than the tax due for the current year based on the
gross sales or receipts, the difference in the
amount of the tax shall be paid before the business is
considered officially retired or terminated. 17
Based on this foregoing provision, on the year an establishment
retires or terminates its business within the municipality, it would
be required to pay the difference in the amount if the tax collected,
based on the previous year's gross sales or receipts, is less than
the actual tax due based on the current year's gross sales or
receipts.
TWO REQUISITES BEFORE MOVABLES MAY BE DEEMED TO
HAVE BEEN IMMOBILIZED; TOOLS AND EQUIPMENTS
MERELY INCIDENTAL TO BUSINESS NOT SUBJECT TO REAL
ESTATE TAX. — Movable equipments, to be immobilized in
contemplation of Article 415 of the Civil Code,must be the
essential and principal elements of an industry or works which are
carried on in a building or on a piece of land. Thus, where the
business is one of transportation, which is carried on without a
repair or service shop, and its rolling equipment is repaired or
serviced in a shop belonging to another, the tools and equipments
in its repair shop which appear movable are merely incidentals
and may not be considered immovables, and, hence, not subject
to assessment as real estate for purposes of the real estate tax.
DECISION

For the year 1998, petitioner paid a total of P2,262,122.48 to

the City Treasurer of Makati 18 as business taxes for the year LABRADOR, J p:
1998. The amount of tax as computed based on petitioner's gross
sales for 1998 is only P1,331,638.84. Since the amount paid is This is a petition for the review of the decision of the Court of Tax
more than the amount computed based on petitioner's actual Appeals in C.T.A. Case No. 710 holding that the
gross sales for 1998, petitioner upon its retirement is not liable for
petitioner Mindanao Bus Company is liable to the payment of the
additional taxes to the City of Makati. Thus, we find that the
realty tax on its maintenance and repair equipment hereunder
referred to.
Respondent City Assessor of Cagayan de Oro City assessed at
P4,400 petitioner's above-mentioned equipment. Petitioner
appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board of
Tax Appeals of the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for the review
of the assessment.
In the Court of Tax Appeals the parties submitted the following
stipulation of facts:
"Petitioner and respondents, thru their
respective counsels agreed to the following
stipulation of facts:
"1. That petitioner is a public utility solely
engaged in transporting passengers and
cargoes by motor trucks, over its authorized
lines in the Island of Mindanao, collecting
rates approved by the Public Service
Commission;
"2. That petitioner has its main office and
shop at Cagayan de Oro City. It maintains
Branch Offices and/or stations at Iligan City,
Lanao; Pagadian, Zamboanga del Sur;
Davao City and Kibawe, Bukidnon Province;
"3. That the machineries sought to be
assessed by the respondent as real
properties are the following:
"(a) Hobart Electric Welder
Machine, appearing in the
attached photograph,
marked Annex 'A';
"(b) Storm Boring machine,
appearing in the attached
photograph, marked
Annex 'B';
"(c) Lathe machine with motor,
appearing in the attached
photograph, marked
Annex 'C';
"(d) Black and Decker Grinder,
appearing in the attached
photograph, marked
Annex 'D';
"(e) PEMCO Hydraulic Press,
appearing in the attached
photograph, marked
Annex 'E';
"(f) Battery charger (Tungar charge
machine) appearing in the
attached photograph,
marked Annex 'F'; and
"(g) D-Engine Waukesha-M-Fuel,
appearing in the attached
photograph, marked
Annex 'G'.
"4. That these machineries are sitting on
cement or wooden platforms as may be seen
in the attached photographs which form part
of this agreed stipulation of facts;
"5. That petitioner is the owner of the land
where it maintains and operates a garage for
its TPU motor trucks; a repair shop;
blacksmith and carpentry shops, and with
these machineries which are placed therein,
its TPU trucks are made; body constructed;
and same are repaired in a condition to be
serviceable in the TPU land transportation
business it operates;
"6. That these machineries have never been
or were never used as industrial equipments
to produce finished products for sale, nor to
repair machineries, parts and the like offered
to the general public indiscriminately for
business or commercial purposes for which
petitioner has never engaged in, to date."
The Court of Tax Appeals having sustained the
respondent city assessor's ruling, and having denied a motion for
reconsideration, petitioner brought the case to this Court
assigning the following errors:
"1. The Honorable Court of Tax Appeals
erred in upholding respondents' contention
that the questioned assessments are valid;
and that said tools, equipments or
machineries are immovable taxable real
properties.
"2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto, the
movable equipments are taxable realties, by
reason of their being intended or destined for
use in an industry.
"3. The Court of Tax Appeals erred in
denying petitioner's contention that the
respondent City Assessor's power to assess
and levy real estate taxes on machineries is
further restricted by section 31, paragraph (c)
of Republic Act No. 521; and
"4. The Tax Court erred in denying
petitioner's motion for reconsideration."
Respondents contend that said equipments, the movable, are
immobilized by destination, in accordance with paragraph 5 of
Article 415 of the New Civil Code which provides:
"ART. 415. The following are immovable
properties:
xxx xxx xxx
"(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which may
be carried on in a building or on a piece of
land, and which tend directly to meet the
needs of the said industry or works."
(Emphasis ours.)
Note that the stipulation expressly states that the equipment are
placed on wooden or cement platforms. They can be moved
around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court
said:
 "Article 344 (Now Art. 415), paragraph (5) of
the Civil Code,gives the character of real
property to 'machinery, liquid containers,
instruments or implements intended by the
owner of any building or land for use in
connection with any industry or trade being
carried on therein and which are expressly
adapted to meet the requirements of such
trade or industry.'
"If the installation of the machinery and
equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other
of less capacity existing therein, for its sugar
industry, converted them into real property by
reason of their purpose, it cannot be said that
their incorporation therewith was not
permanent in character because,
as essential and principal elements of a
sugar central, without them the sugar central
would be unable to function or carry on the
industrial purpose for which it was
established. Inasmuch as the central is
permanent in character, the necessary
machinery and equipment installed for
carrying on the sugar industry for which it has
been established must necessarily be
permanent." (Emphasis ours.)
So that movable equipments to be immobilized in
contemplation of the law must first be "essential and
principal elements" of an industry or works without which
such industry or works would be "unable to function or carry
on the industrial purpose for which it was established." We
may here distinguish, therefore, those movables which
become immobilized by destination because they
are essential and principal elements in the industry from
those which may not be so considered immobilized because
they are merely incidental, not essential and principal. Thus,
cash registers, typewriters, etc., usually found and used in
hotels, restaurants, theaters, etc. are merely incidentals and
are not and should not be considered immobilized by
destination, for these businesses can continue or carry on
their functions without these equipments. Airline companies
use forklifts, jeep-wagons, pressure pumps, IMB machines,
etc. which are incidentals, not essentials, and thus retain
their movable nature. On the other hand, machineries of
breweries used in the manufacture of liquor and soft drinks,
though movable in nature, are immobilized because they
are essential to said industries; but the delivery trucks and
adding machines which they usually own and use and are
found within their industrial compounds are merely
incidentals and retain their movable nature.
Similarly, the tools and equipments in question in this instant case
are, by their nature, not essential and principal elements of
petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals — acquired as
movables and used only for expediency to facilitate and/or
improve its service. Even without such tools and equipments, its
business may be carried on, as petitioner has carried on, without
such equipments, before the war. The transportation business
could be carried on without the repair or service shop if its rolling
equipment is repaired or serviced in another shop belonging to
another.
The law that governs the determination of the question at issue is
as follows:
"ART. 415. The following are immovable
property:
xxx xxx xxx
"(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which may
be carried on in a building or on a piece of
land, and which tend directly to meet the
needs of the said industry or works;" (Civil
Code of the Phil.)
Aside from the element of essentiality the above-quoted provision
also requires that the industry or works be carried on in a
building or on a piece of land. Thus in the case of Berkenkotter vs.
Cu Unjieng, supra, the "machinery, liquid containers, and
instruments or implements" are found in a building constructed on
the land. A sawmill would also be installed in a building on land
more or less permanently, and the sawing is conducted in the land
or building.
But in the case at bar the equipments in question are destined
only to repair or service the transportation business, which is not
carried on in a building or permanently on a piece of land, as
demanded by the law. Said equipments may not, therefore, be
deemed real property.
Resuming what we have set forth above, we hold that the
equipments in question are not absolutely essential to the
petitioner's transportation business, and petitioner's business is
not carried on in a building, tenement or on a specified land, so
said equipment may not be considered real estate within the
meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is
hereby set aside and the equipment in question declared not
subject to assessment as real estate for the purposes of the real
estate tax. Without costs. So ordered.
||| (Mindanao Bus Co. v. City Assessor & Treasurer, G.R. No. L-
17870, [September 29, 1962], 116 PHIL 501-506)
FIRST DIVISION
[G.R. No. 181756. June 15, 2015.]
MACTAN-CEBU INTERNATIONAL
AIRPORT AUTHORITY
(MCIAA), petitioner, vs. CITY OF LAPU-
LAPU and ELENA T.
PACALDO, respondents.
DECISION
LEONARDO-DE CASTRO, J p:
This is a clear opportunity for this Court to clarify the
effects of our two previous decisions, issued a decade apart,
on the power of local government units to collect real property
taxes from airport authorities located within their area, and
the nature or the juridical personality of said airport
authorities.
 Before us is a Petition for Review
on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the October 8,
2007 Decision 1 of the Court of Appeals (Cebu City) in CA-
G.R. SP No. 01360 and the February 12,
2008 Resolution 2 denying petitioner's motion for
reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport
Authority (MCIAA) was created by Congress on July 31, 1990
under Republic Act No. 6958 3 to "undertake the
economical, efficient and effective control, management and
supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City . . . and
such other airports as may be established in the Province of
Cebu." It is represented in this case by the Office of the
Solicitor General.
Respondent City of Lapu-Lapu is a local
government unit and political subdivision, created and
existing under its own charter with capacity to sue and be
sued. Respondent Elena T. Pacaldo was impleaded in her
capacity as the City Treasurer of respondent City. aScITE
Upon its creation, petitioner enjoyed exemption
from realty taxes under the following provision of Republic
Act No. 6958:
Section 14. Tax Exemptions. —
The Authority shall be exempt from realty
taxes imposed by the National
Government or any of its political
subdivisions, agencies and
instrumentalities: Provided, That no tax
exemption herein granted shall extend to
any subsidiary which may be organized by
the Authority.
On September 11, 1996, however, this Court
rendered a decision in Mactan-Cebu International Airport
Authority v. Marcos 4 (the 1996 MCIAA case) declaring that
upon the effectivity of Republic Act No. 7160 (The Local
Government Code of 1991),petitioner was no longer exempt
from real estate taxes. The Court held:
Since the last paragraph of
Section 234 unequivocally withdrew, upon
the effectivity of the LGC,exemptions from
payment of real property taxes granted to
natural or juridical persons, including
government-owned or controlled
corporations, except as provided in the
said section, and the petitioner is,
undoubtedly, a government-owned
corporation, it necessarily follows that its
exemption from such tax granted it in
Section 14 of its Charter, R.A. No. 6958,
has been withdrawn. . . . .
On January 7, 1997, respondent City issued to
petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport in the amount of
P162,058,959.52. Petitioner complained that there were
discrepancies in said Statement of Real Estate Tax as
follows:
(a) [T]he statement included lots
and buildings not found in the inventory of
petitioner's real properties;
(b) [S]ome of the lots were
covered by two separate tax declarations
which resulted in double assessment;
(c) [There were] double entries
pertaining to the same lots; and
(d) [T]he statement included lots
utilized exclusively for governmental
purposes. 5
Respondent City amended its billing and sent a new
Statement of Real Estate Tax to petitioner in the amount of
P151,376,134.66. Petitioner averred that this amount
covered real estate taxes on the lots utilized solely and
exclusively for public or governmental purposes such as the
airfield, runway and taxiway, and the lots on which they are
situated. 6
Petitioner paid respondent City the amount of four
million pesos (P4,000,000.00) monthly, which was later
increased to six million pesos (P6,000,000.00) monthly. As
of December 2003, petitioner had paid respondent City a
total of P275,728,313.36. 7
Upon request of petitioner's General Manager, the
Secretary of the Department of Justice (DOJ) issued Opinion
No. 50, Series of 1998, 8 and we quote the pertinent portions
of said Opinion below:
You further state that among the
real properties deemed transferred to
MCIAA are the airfield, runway, taxiway
and the lots on which the runway and
taxiway are situated, the tax declarations
of which were transferred in the name of
the MCIAA. In 1997, the City of Lapu-Lapu
imposed real estate taxes on these
properties invoking the provisions of the
Local Government Code.
It is your view that these
properties are not subject to real property
tax because they are exclusively used for
airport purposes. You said that the runway
and taxiway are not only used by the
commercial airlines but also by the
Philippine Air Force and other government
agencies. As such and in conjunction with
the above interpretation of Section 15
of R.A. No. 6958, you believe that these
properties are considered owned by the
Republic of the Philippines. Hence, this
request for opinion.
The query is resolved in the
affirmative. The properties used for
airport purposes (i.e., airfield, runway,
taxiway and the lots on which the
runway and taxiway are situated) are
owned by the Republic of the
Philippines.
xxx xxx xxx
Under the Law on Public
Corporations, the legislature has complete
control over the property which a municipal
corporation has acquired in its public or
governmental capacity and which is
devoted to public or governmental use.
The municipality in dealing with said
property is subject to such restrictions and
 limitations as the legislature may impose.
On the other hand, property which a
municipal corporation acquired in its
private or proprietary capacity, is held by it
in the same character as a private
individual. Hence, the legislature in dealing
with such property, is subject to the
constitutional restrictions concerning
property (Martin, Public Corporations
[1997], p. 30; see also Province of
Zamboanga del [Norte] v. City of
Zamboanga [131 Phil. 446]). The same
may be said of properties transferred to the
MCIAA and used for airport purposes,
such as those involved herein. Since such
properties are of public dominion, they are
deemed held by the MCIAA in trust for the
Government and can be alienated only as
may be provided by law. HEITAD
Based on the foregoing, it is
our considered opinion that the
properties used for airport purposes,
such as the airfield, runway and taxiway
and the lots on which the runway and
taxiway are located, are owned by the
State or by the Republic of the
Philippines and are merely held in trust
by the MCIAA, notwithstanding that
certificates of titles thereto may have
been issued in the name of the
MCIAA. (Emphases added.)
Based on the above DOJ Opinion, the Department
of Finance issued a 2nd Indorsement to the City Treasurer of
Lapu-Lapu dated August 3, 1998, 9 which reads:
The distinction as to which
among the MCIAA properties are still
considered "owned by the State or by the
Republic of the Philippines," such as the
resolution in the above-cited DOJ Opinion
No. 50, for purposes of real property tax
exemption is hereby deemed tenable
considering that the subject "airfield,
runway, taxiway and the lots on which the
runway and taxiway are situated" appears
to be the subject of real property tax
assessment and collection of the city
government of Lapu-Lapu, hence, the
same are definitely located within the
jurisdiction of Lapu-Lapu City. cTDaEH
Moreover, then Undersecretary
Antonio P. Belicena of the Department
of Finance, in his 1st Indorsement
dated May 18, 1998, advanced that "this
Department (DOF) interposes no
objection to the request of Mactan Cebu
International Airport Authority for
exemption from payment of real
property tax on the property used for
airport purposes" mentioned above.
The City Assessor, therefore,
is hereby instructed to transfer the
assessment of the subject airfield,
runway, taxiway and the lots on which
the runway and taxiway are situated,
from the "Taxable Roll" to the "Exempt
Roll" of real properties.
The City Treasurer thereat
should be informed on the action taken for
his immediate appropriate action.
(Emphases added.) aDSIHc
Respondent City Treasurer Elena T. Pacaldo sent
petitioner a Statement of Real Property Tax Balances up to
the year 2002 reflecting the amount of P246,395,477.20.
Petitioner claimed that the statement again included the lots
utilized solely and exclusively for public purpose such as the
airfield, runway, and taxiway and the lots on which these are
built. Respondent Pacaldo then issued Notices of Levy on 18
sets of real properties of petitioner. 10
Petitioner filed a petition for prohibition 11 with the
Regional Trial Court (RTC) of Lapu-Lapu City with prayer for
the issuance of a temporary restraining order (TRO) and/or a
writ of preliminary injunction, docketed as SCA No. 6056-L.
Branch 53 of RTC Lapu-Lapu City then issued a 72-hour
TRO. The petition for prohibition sought to enjoin respondent
City from issuing a warrant of levy against petitioner's
properties and from selling them at public auction for
delinquency in realty tax obligations. The petition likewise
prayed for a declaration that the airport terminal building, the
airfield, runway, taxiway and the lots on which they are
situated are exempted from real estate taxes after due
hearing. Petitioner based its claim of exemption on DOJ
Opinion No. 50.
The RTC issued an Order denying the motion for
extension of the TRO. Thus, on December 10, 2003,
respondent City auctioned 27 of petitioner's properties. As
there was no interested bidder who participated in the auction
sale, respondent City forfeited and purchased said
properties. The corresponding Certificates of Sale of
Delinquent Property were issued to respondent City. 12
Petitioner claimed before the RTC that it had
discovered that respondent City did not pass any ordinance
authorizing the collection of real property tax, a tax for the
special education fund (SEF), and a penalty interest for its
nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not
impose and collect real property tax, an additional tax for the
SEF, and penalty interest from petitioner. 13
The RTC issued an Order 14 on December 28,
2004 granting petitioner's application for a writ of preliminary
injunction. The pertinent portions of the Order are quoted
below:
The supervening legal issue has
rendered it imperative that the matter of
the consolidation of the ownership of the
auctioned properties be placed on hold.
Furthermore, it is the view of the Court that
great prejudice and damage will be
suffered by petitioner if it were to lose its
dominion over these properties now when
the most important legal issue has still to
be resolved by the Court. Besides, the
respondents and the intervenor have not
sufficiently shown cause why petitioner's
application should not be granted.
WHEREFORE, the foregoing
considered, petitioner's application for a
writ of preliminary injunction is granted.
Consequently, upon the approval of a
bond in the amount of one million pesos
(P1,000,000.00), let a writ of preliminary
injunction issue enjoining the respondents,
 the intervenor, their agents or persons
acting in [their] behalf, to desist from
consolidating and exercising ownership
over the properties of the petitioner.
However, upon motion of respondents, the RTC
lifted the writ of preliminary injunction in an Order 15 dated
December 5, 2005. The RTC reasoned as follows:
The respondent City, in the
course of the hearing of its motion,
presented to this Court a certified copy of
its Ordinance No. 44 (Omnibus Tax
Ordinance of the City of Lapu-Lapu),
Section 25 whereof authorized the
collection of a rate of one and one-half (1
1/2) [per centum] from owners, executors
or administrators of any real estate lying
within the jurisdiction of the City of Lapu-
Lapu, based on the assessed value as
shown in the latest revision.
Though this ordinance was
enacted prior to the effectivity of Republic
Act No. 7160 (Local Government Code of
1991), to the mind of the Court this
ordinance is still a valid and effective
ordinance in view of Sec. 529 of RA 7160 .
. . [and the] Implementing Rules and
Regulations of RA 7160 . . . .
xxx xxx xxx
The tax collected under
Ordinance No. 44 is within the rates
prescribed by RA 7160, though the 25%
penalty collected is higher than the 2%
interest allowed under Sec. 255 of the said
law which provides:
In case of
failure to pay the basic
real property tax or any
other tax levied under
this Title upon the
expiration of the periods
as provided in Section
250, or when due, as the
case may be, shall
subject the taxpayer to
the payment of interest
at the rate of two
percent (2%) per month
on the unpaid amount or
a fraction thereof, until
the delinquent tax shall
have been fully paid:
Provided, however,
That in no case shall the
total interest on the
unpaid tax or portion
thereof exceed thirty-six
(36) months.
This difference does not however
detract from the essential enforceability
and effectivity of Ordinance No. 44
pursuant to Section 529 of RA 7160 and
Article 278 of the Implementing Rules and
Regulations. The outcome of this disparity
is simply that respondent City can only
collect an interest of 2% per month on the
unpaid tax. Consequently, respondent City
[has] to recompute the petitioner's tax
liability.
It is also the Court's perception
that respondent City can still collect the
additional 1% tax on real property without
an ordinance to this effect. It may be
recalled that Republic Act No. 5447 has
created the Special Education Fund which
is constituted from the proceeds of the
additional tax on real property imposed by
the law. Respondent City has collected this
tax as mandated by this law without any
ordinance for the purpose, as there is no
need for it. Even when RA 5447 was
amended by PD 464 (Real Property Tax
Code), respondent City had continued to
collect the tax, as it used to.
It is true that RA 7160 has
repealed RA 5447, but what has been
repealed are only Section 3, a(3) and b(2)
which concern the allocation of the
additional tax, considering that under RA
7160, the proceeds of the additional 1%
tax on real property accrue exclusively to
the Special Education Fund.
Nevertheless, RA 5447 has not been
totally repealed; there is only a partial
repeal.
It may be observed that there is
no requirement in RA 7160 that an
ordinance be enacted to enable the
collection of the additional 1% tax. This is
so since RA 5447 is still in force and effect,
and the declared policy of the government
in enacting the law, which is to contribute
to the financial support of the goals of
education as provided in the Constitution,
necessitates the continued and
uninterrupted collection of the tax.
Considering that this is a tax of far-
reaching importance, to require the
passage of an ordinance in order that the
tax may be collected would be to place the
collection of the tax at the option of the
local legislature. This would run counter to
the declared policy of the government
when the SEF was created and the tax
imposed.
As regards the allegation of
respondents that this Court has no
jurisdiction to entertain the instant petition,
the Court deems it proper, at this stage of
the proceedings, not to treat this issue, as
it involves facts which are yet to be
established.
. . . [T]he Court's issuance of a
writ of preliminary injunction may appear to
be a futile gesture in the light of Section
263 of RA 7160. . . . .
xxx xxx xxx
It would seem from the foregoing
provisions, that once the taxpayer fails to
redeem within the one-year period,
ownership fully vests on the local
 government unit concerned. Thus, when in
the present case petitioner failed to
redeem the parcels of land acquired by
respondent City, the ownership thereof
became fully vested on respondent City
without the latter having to perform any
other acts to perfect its ownership.
Corollary thereto, ownership on the part of
respondent City has become a fait
accompli.
WHEREFORE, in the light of the
foregoing considerations, respondents'
motion for reconsideration is granted, and
the order of this Court dated December 28,
2004 is hereby reconsidered.
Consequently, the writ of preliminary
injunction issued by this Court is hereby
lifted.
Aggrieved, petitioner filed a petition
for certiorari 16 with the Court of Appeals (Cebu City), with
urgent prayer for the issuance of a TRO and/or writ of
preliminary injunction, docketed as CA-G.R. SP No. 01360.
The Court of Appeals (Cebu City) issued a TRO 17 on
January 5, 2006 and shortly thereafter, issued a writ of
preliminary injunction 18 on February 17, 2006. cSaATC
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated the
questioned Decision on October 8, 2007, holding that
petitioner is a government-owned or controlled corporation
and its properties are subject to realty tax. The dispositive
portion of the questioned Decision reads:
WHEREFORE, in view of the
foregoing, judgment is hereby rendered by
us as follows:
a. We DECLARE the airport
terminal building, the
airfield, runway, taxiway
and the lots on which they
are situated NOT
EXEMPT from the real
estate tax imposed by the
respondent City of Lapu-
Lapu;
b. We DECLARE the imposition
and collection of the real
estate tax, the additional
levy for the Special
Education Fund and the
penalty interest
as VALID and LEGAL.
However, pursuant to
Section 255 of the Local
Government Code,
respondent city can only
collect an interest of 2%
per month on the unpaid
tax which total interest
shall, in no case, exceed
thirty-six (36) months;
c. We DECLARE the sale in public
auction of the aforesaid
properties and the
eventual forfeiture and
purchase of the subject
property by the
respondent City of Lapu-
Lapu
as NULL and VOID. How
ever, petitioner MCIAA's
property is encumbered
only by a limited lien
possessed by the
respondent City of Lapu-
Lapu in accord with
Section 257 of the Local
Government Code. 19
Petitioner filed a Motion for Partial
Reconsideration 20 of the questioned Decision covering only
the portion of said decision declaring that petitioner is a
GOCC and, therefore, not exempt from the realty tax and
special education fund imposed by respondent City.
Petitioner cited Manila International Airport Authority v. Court
of Appeals 21(the 2006 MIAA case) involving the City of
Parañaque and the Manila International Airport Authority.
Petitioner claimed that it had been described by this Court as
a government instrumentality, and that it followed "as a
logical consequence that petitioner is exempt from the taxing
powers of respondent City of Lapu-Lapu." 22 Petitioner
alleged that the 1996 MCIAA case had been overturned by
the Court in the 2006 MIAA case. Petitioner thus prayed that
it be declared exempt from paying the realty tax, special
education fund, and interest being collected by respondent
City.
On February 12, 2008, the Court of Appeals denied
petitioner's motion for partial reconsideration in the
questioned Resolution.
The Court of Appeals followed and applied the
precedent established in the 1996 MCIAA case and refused
to apply the 2006 MIAA case. The Court of Appeals wrote in
the questioned Decision: "We find that our position is in line
with the coherent and cohesive interpretation of the relevant
provisions of the Local Government Code on local taxation
enunciated in the [1996 MCIAA] case which to our mind is
more elegant and rational and provides intellectual clarity
than the one provided by the Supreme Court in the
[2006] MIAA case." 23
In the questioned Decision, the Court of Appeals
held that petitioner's airport terminal building, airfield,
runway, taxiway, and the lots on which they are situated are
not exempt from real estate tax reasoning as
follows: ETHIDa
Under the Local Government
Code (LGC for brevity), enacted pursuant
to the constitutional mandate of local
autonomy, all natural and juridical
persons, including government-owned or
controlled corporations (GOCCs),
instrumentalities and agencies, are no
longer exempt from local taxes even if
previously granted an exemption. The only
exemptions from local taxes are those
specifically provided under the Code itself,
or those enacted through subsequent
legislation.
Thus, the LGC,enacted pursuant
to Section 3, Article X of the Constitution,
provides for the exercise by local
government units of their power to tax, the
scope thereof or its limitations, and the
exemptions from local taxation.
 Section 133 of
the LGC prescribes the common
limitations on the taxing powers of local
government units. . . . .
xxx xxx xxx
The above-stated provision,
however, qualified the exemption of the
National Government, its agencies and
instrumentalities from local taxation with
the phrase "unless otherwise provided
herein."
Section 232 of the LGC provides
for the power of the local government units
(LGUs for brevity) to levy real property tax.
....
xxx xxx xxx
Section 234 of the LGC provides
for the exemptions from payment of real
property taxes and withdraws previous
exemptions granted to natural and juridical
persons, including government-owned and
controlled corporations, except as
provided therein. . . . .
xxx xxx xxx
Section 193 of the LGC is the
general provision on withdrawal of tax
exemption privileges. . . . . 24 (Citations
omitted.)
The Court of Appeals went on to state that contrary
to the ruling of the Supreme Court in the 2006 MIAA case, it
finds and rules that:
a) Section 133 of the LGC is not
an absolute prohibition on the power of the
LGUs to tax the National Government, its
agencies and instrumentalities as the
same is qualified by Sections 193, 232 and
234 which "otherwise provided"; and
b) Petitioner MCIAA is a encompassing the two classes of persons
GOCC. 25 (Emphasis ours.)
The Court of Appeals ratiocinated in the following
manner:
Pursuant to the explicit provision
of Section 193 of the LGC, exemptions
previously enjoyed by persons, whether
natural or juridical, like the petitioner
MCIAA, are deemed withdrawn upon the
effectivity of the Code. Further, the last
paragraph of Section 234 of the Code also
unequivocally withdrew, upon the Code's
effectivity, exemptions from payment of
real property taxes previously granted to
natural or juridical persons, including
government-owned or controlled
corporations, except as provided in the
said section. Petitioner MCIAA,
undoubtedly a juridical person, it follows
that its exemption from such tax granted
under Section 14 of R.A. 6958 has been
withdrawn.
xxx xxx xxx
From the [1996 MCIAA] ruling, it
is acknowledged that, under Section 133
of the LGC,instrumentalities were
generally exempt from all forms of local
government taxation, unless otherwise
provided in the Code. On the other hand,
Section 232 "otherwise provided" insofar
as it allowed local government units to levy
an ad valorem real property tax,
irrespective of who owned the property. At
the same time, the imposition of real
property taxes under Section 232 is, in
turn, qualified by the phrase "not
hereinafter specifically exempted." The
exemptions from real property taxes are
enumerated in Section 234 of the Code
which specifically states that only real
properties owned by the Republic of the
Philippines or any of its political
subdivisions are exempted from the
payment of the tax. Clearly,
instrumentalities or GOCCs do not fall
within the exceptions under Section 234 of
the LGC.
Thus, as ruled in the
[1996 MCIAA] case, the prohibition on
taxing the national government, its
agencies and instrumentalities under
Section 133 is qualified by Sections 232
and 234, and accordingly, the only relevant
exemption now applicable to these bodies
is what is now provided under Section
234(a) of the Code. It may be noted that
the express withdrawal of previously
granted exemptions to persons from the
payment of real property tax by
the LGC does not even make any
distinction as to whether the exempt
person is a governmental entity or not. As
Sections 193 and 234 of the Code both
state, the withdrawal applies to "all
persons, including GOCCs," thus
recognized under our laws, natural
persons and juridical persons.
xxx xxx xxx
The question of whether or not
petitioner MCIAA is an instrumentality or a
GOCC has already been lengthily but
soundly, cogently and lucidly answered in
the [1996 MCIAA] case . . . .
xxx xxx xxx
Based on the foregoing, the claim
of the majority of the Supreme Court in the
[2006 MIAA] case that MIAA (and also
petitioner MCIAA) is not a government-
owned or controlled corporation but an
instrumentality based on Section 2(10) of
the Administrative Code of 1987 appears
to be unsound. In the [2006 MIAA] case,
the majority justifies MIAA's purported
exemption on Section 133(o) of the Local
Government Code which places "agencies
and instrumentalities: as generally exempt
from the taxation powers of the LGUs. It
further went on to hold that "By express
 mandate of the Local Government Code,
local governments cannot impose any kind
of tax on national government
instrumentalities like the MIAA." . . .
. 26 (Citations omitted.)
The Court of Appeals further cited Justice Tinga's
dissent in the 2006 MIAA case as well as provisions from
petitioner MCIAA's charter to show that petitioner is a
GOCC. 27The Court of Appeals wrote:
These cited provisions establish
the fitness of the petitioner MCIAA to be
the subject of legal relations. Under its
charter, it has the power to acquire,
possess and incur obligations. It also has
the power to contract in its own name and
to acquire title to movable or immovable
property. More importantly, it may likewise
exercise powers of a corporation under the
Corporation Code. Moreover, based on its
own allegation, it even recognized itself as
a GOCC when it alleged in its petition for
prohibition filed before the lower court that
it "is a body corporate organized and
existing under Republic Act No. 6958 . . .
."
We also find to be not meritorious
the assertion of petitioner MCIAA that the
respondent city can no longer challenge
the tax-exempt character of the properties
since it is estopped from doing so when
respondent City of Lapu-Lapu, through its
former mayor, Ernest H. Weigel, Jr., had
long ago conceded that petitioner's
properties are exempt from real property
tax.
It is not denied by the respondent
city that it considered, through its former
mayor, Ernest H. Weigel, Jr., petitioner's
subject properties, specifically the runway
and taxiway, as exempt from taxes.
However, as astutely pointed out by the
respondent city it "can never be in
estoppel, particularly in matters involving
taxes. It is a well-known rule that
erroneous application and enforcement of
the law by public officers do not preclude
subsequent correct application of the
statute, and that the Government is never
estopped by mistake or error on the part of
its agents." 28 (Citations
omitted.) cSEDTC
The Court of Appeals established the following:
a) [R]espondent City was able to
prove and establish that it has a valid and
existing ordinance for the imposition of
realty tax against petitioner MCIAA;
b) [T]he imposition and collection
of additional levy of 1% Special Education
Fund (SEF) is authorized by law, Republic
Act No. 5447; and
c) [T]he collection of penalty
interest for delinquent taxes is not only
authorized by law but is likewise
[sanctioned] by respondent City's
ordinance. 29
The Court of Appeals likewise held that respondent
City has a valid and existing local tax ordinance, Ordinance
No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City,
which provided for the imposition of real property tax. The
relevant provision reads:
Chapter 5 — Tax on Real
Property Ownership
Section 25. RATE OF TAX. — A
rate of one and one-half (1 1/2) percentum
shall be collected from owners, executors
or administrators of any real estate lying
within the territorial jurisdiction of the City
of Lapu-Lapu, based on the assessed
value as shown in the latest revision. 30
The Court of Appeals found that even if Ordinance
No. 44 was enacted prior to the effectivity of the LGC,it
remained in force and effect, citing Section 529 of
the LGC and Article 278 of the LGC's Implementing Rules
and Regulations. 31
As regards the Special Education Fund, the Court
of Appeals held that respondent City can still collect the
additional 1% tax on real property even without an ordinance
to this effect, as this is authorized by Republic Act No. 5447,
as amended by Presidential Decree No. 464 (the Real
Property Tax Code), which does not require an enabling tax
ordinance. The Court of Appeals affirmed the RTC's ruling
that Republic Act No. 5447 was still in force and effect
notwithstanding the passing of the LGC,as the latter only
partially repealed the former law. What Section 534 of
the LGC repealed was Section 3 a (3) and b (2) of Republic
Act No. 5447, and not the entire law that created the Special
Education Fund. 32 The repealed provisions referred to
allocation of taxes on Virginia type cigarettes and duties on
imported leaf tobacco and the percentage remittances to the
taxing authority concerned. The Court of Appeals, citing The
Commission on Audit of the Province of Cebu v. Province of
Cebu, 33 held that "[t]he failure to add a specific repealing
clause particularly mentioning the statute to be repealed
indicates that the intent was not to repeal any existing law on
the matter, unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and the old
laws." 34 The Court of Appeals quoted the RTC's discussion
on this issue, which we reproduce below:
It may be observed that there is
no requirement in RA 7160 that an
ordinance be enacted to enable the
collection of the additional 1% tax. This is
so since R.A. 5447 is still in force and
effect, and the declared policy of the
government in enacting the law, which is to
contribute to the financial support of the
goals of education as provided in the
Constitution, necessitates the continued
and uninterrupted collection of the tax.
Considering that this is a tax of far-
reaching importance, to require the
passage of an ordinance in order that the
tax may be collected would be to place the
collection of the tax at the option of the
local legislature. This would run counter to
the declared policy of the government
when the SEF was created and the tax
imposed. 35
 Regarding the penalty interest, the Court of Appeals
found that Section 30 of Ordinance No. 44 of respondent City
provided for a penalty surcharge of 25% of the tax due for a
given year. Said provision reads: AIDSTE
Section 30. PENALTY FOR
FAILURE TO PAY TAX. — Failure to pay
the tax provided for under this Chapter
within the time fixed in Section 27, shall
subject the taxpayer to a surcharge of
twenty-five percent (25%), without
interest. 36
The Court of Appeals however declared that after the
effectivity of the Local Government Code, the respondent
City could only collect penalty surcharge up to the extent of
72%, covering a period of three years or 36 months, for the
entire delinquent property. 37 This was lower than the 25%
per annum surcharge imposed by Ordinance No. 44. 38 The
Court of Appeals affirmed the findings of the RTC in the
decision quoted below:
The tax collected under
Ordinance No. 44 is within the rates
prescribed by RA 7160, though the 25%
penalty collected is higher than the 2%
allowed under Sec. 255 of the said law
which provides:
xxx xxx xxx
This difference does not however
detract from the essential enforceability
and effectivity of Ordinance No. 44
pursuant to Section 529 of RA No.
7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of
this disparity is simply that respondent City
can only collect an interest of 2% per
month on the unpaid tax. Consequently,
respondent city will have to [recompute]
the petitioner's tax liability. 39
It is worthy to note that the Court of Appeals
nevertheless held that even if it is clear that respondent
City has the power to impose real property taxes over
petitioner, "it is also evident and categorical that,
under Republic Act No. 6958, the properties of petitioner
MCIAA may not be conveyed or transferred to any
person or entity except to the national
government." 40 The relevant provisions of the said law are
quoted below:
Section 4. Functions, Powers
and Duties. — The Authority shall have
the following functions, powers and duties:
xxx xxx xxx
(e) To acquire, purchase, own,
administer, lease, mortgage, sell or
otherwise dispose of any land, building,
airport facility, or property of whatever kind
and nature, whether movable or
immovable, or any interest
therein: Provided, That any asset located
in the Mactan International Airport
important to national security shall not be
subject to alienation or mortgage by the
Authority nor to transfer to any entity other
than the National Government[.]
Section 13. Borrowing
Power. — The Authority may, in
accordance with Section 21, Article XII of
the Constitution and other existing laws,
rules and regulations on local or foreign
borrowing, raise funds, either from local or
international sources, by way of loans,
credit or securities, and other borrowing
instruments with the power to create
pledges, mortgages and other voluntary
liens or encumbrances on any of its assets
or properties, subject to the prior approval
of the President of the Philippines.
All loans contracted by the
Authority under this section, together with
all interests and other sums payable in
respect thereof, shall constitute a charge
upon all the revenues and assets of the
Authority and shall rank equally with one
another, but shall have priority over any
other claim or charge on the revenue and
assets of the Authority:Provided, That this
provision shall not be construed as a
prohibition or restriction on the power of
the Authority to create pledges, mortgages
and other voluntary liens or encumbrances
on any asset or property of the Authority.
The payment of the loans or other
indebtedness of the Authority may be
guaranteed by the National Government
subject to the approval of the President of
the Philippines.
The Court of Appeals concluded that "it is clear that
petitioner MCIAA is denied by its charter the absolute right to
dispose of its property to any person or entity except to the
national government and it is not empowered to obtain loans
or encumber its property without the approval of the
President." 41 The questioned Decision contained the
following conclusion:
With the advent of RA 7160, the
Local Government Code, the power to tax
is no longer vested exclusively on
Congress. LGUs, through its local
legislative bodies, are now given direct
authority to levy taxes, fees and other
charges pursuant to Article X, Section 5 of
the 1987 Constitution. And one of the most
significant provisions of the LGC is the
removal of the blanket inclusion of
instrumentalities and agencies of the
national government from the coverage of
local taxation. The express withdrawal by
the Code of previously granted
exemptions from realty taxes applied to
instrumentalities and government-owned
or controlled corporations (GOCCs) such
as the petitioner Mactan-Cebu
International Airport Authority. Thus,
petitioner MCIAA became a taxable
person in view of the withdrawal of the
realty tax exemption that it previously
enjoyed under Section 14 of RA No.
6958 of its charter. As expressed and
categorically held in the Mactan case, the
removal and withdrawal of tax exemptions
previously enjoyed by persons, natural or
juridical, are consistent with the State
 policy to ensure autonomy to local exhaustively discussed in the decision
governments and the objective of the sought to be reconsidered, and that no
Local Government Code that they enjoy new matters were raised which would
genuine and meaningful local autonomy to warrant the modification, much less
enable them to attain their fullest reversal, thereof. 43 (Emphasis added,
development as self-reliant communities citations omitted.) SDAaTC
and make them effective partners in the
PETITIONER'S THEORY
attainment of national goals.
However, in the case at bench, Petitioner is before us now claiming that this Court,
petitioner MCIAA's charter expressly bars in the 2006 MIAA case, had expressly declared that
the alienation or mortgage of its property to petitioner, while vested with corporate powers, is not
any person or entity except to the national considered a government-owned or controlled corporation,
government. Therefore, while petitioner but is a government instrumentality like the Manila
MCIAA is a taxable person for purposes of International Airport Authority (MIAA), Philippine Ports
real property taxation, respondent City of Authority (PPA), University of the Philippines, and Bangko
Lapu-Lapu is prohibited from seizing, Sentral ng Pilipinas (BSP). Petitioner alleges that as a
selling and owning these properties by and government instrumentality, all its airport lands and buildings
through a public auction in order to satisfy are exempt from real estate taxes imposed by respondent
City. 44
petitioner MCIAA's tax
liability. 42 (Citations omitted.) Petitioner alleges that Republic Act No.
In the questioned Resolution that affirmed its 6958 placed "a limitation on petitioner's administration of its
questioned Decision, the Court of Appeals denied petitioner's assets and properties" as it provides under Section 4 (e) that
motion for reconsideration based on the following grounds: "any asset in the international airport important to national
security cannot be alienated or mortgaged by petitioner or
First, the MCIAA case remains transferred to any entity other than the National
the controlling law on the matter as the Government." 45
same is the established precedent; not
the MIAA case but the MCIAA case Thus, petitioner claims that the Court of Appeals
since the former, as keenly pointed out (Cebu City) gravely erred in disregarding the following:
by the respondent City of Lapu-Lapu, I
has not yet attained finality as there is
still yet a pending motion for PETITIONER IS A GOVERNMENT
reconsideration filed with the Supreme INSTRUMENTALITY AS EXPRESSLY
Court in the aforesaid case. DECLARED BY THE HONORABLE
COURT IN THE MIAA CASE. AS SUCH,
Second, and more importantly, IT IS EXEMPT FROM PAYING REAL
the ruling of the Supreme Court in ESTATE TAXES IMPOSED BY
the MIAA case cannot be similarly RESPONDENT CITY OF LAPU-LAPU.
invoked in the case at bench. The said
case cannot be considered as the "law II
of the case." The "law of the case" THE PROPERTIES OF PETITIONER
doctrine has been defined as that principle CONSISTING OF THE AIRPORT
under which determinations of questions TERMINAL BUILDING, AIRFIELD,
of law will generally be held to govern a RUNWAY, TAXIWAY, INCLUDING THE
case throughout all its subsequent stages LOTS ON WHICH THEY ARE SITUATED,
where such determination has already ARE EXEMPT FROM REAL PROPERTY
been made on a prior appeal to a court of TAXES.
last resort. It is merely a rule of procedure
and does not go to the power of the court, III
and will not be adhered to where its
RESPONDENT CITY OF LAPU-LAPU
application will result in an unjust decision.
CANNOT IMPOSE REAL PROPERTY
It relates entirely to questions of law, and
TAX WITHOUT ANY APPROPRIATE
is confined in its operation to subsequent
ORDINANCE.
proceedings in the same case. According
to said doctrine, whatever has been IV
irrevocably established constitutes the law
of the case only as to the same parties in RESPONDENT CITY OF LAPU-LAPU
the same case and not to different parties CANNOT IMPOSE AN ADDITIONAL 1%
in an entirely different case. Besides, TAX FOR THE SPECIAL EDUCATION
pending resolution of the aforesaid motion FUND IN THE ABSENCE OF ANY
for reconsideration in the MIAA case, the CORRESPONDING ORDINANCE.
latter case has not irrevocably established V
anything.
RESPONDENT CITY OF LAPU-LAPU
Thus, after a thorough and CANNOT IMPOSE ANY
judicious review of the allegations in INTEREST SANS ANY ORDINANCE
petitioner's motion for reconsideration, this MANDATING ITS IMPOSITION. 46
Court resolves to deny the same as the
matters raised therein had already been
 Petitioner claims the following similarities with
MIAA:
1. MCIAA belongs to the same class and performs
identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international
and domestic airport in Parañaque City for
public use, while MCIAA was organized to
operate the international and domestic
airport in Mactan for public use.
4. Both are attached agencies of the Department of
Transportation and Communications. 47
Petitioner compares its charter (Republic Act No.
6958) with that of MIAA (Executive Order No. 903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila
International Airport Authority. — There is
hereby established a body corporate to be
known as the Manila International Airport
Authority which shall be attached to the
Ministry of Transportation and
Communications. The principal office of
the Authority shall be located at the New
Manila International Airport. The Authority
may establish such offices, branches,
agencies or subsidiaries as it may deem
proper and necessary; . . . .
Section 2 of Republic Act No. 6958 reads:
Section 2. Creation of the
Mactan-Cebu International Airport
Authority. — There is hereby established
a body corporate to be known as the
Mactan-Cebu International Airport
Authority which shall be attached to the
Department of Transportation and
Communications. The principal office of
the Authority shall be located at the
Mactan International Airport, Province of
Cebu.
The Authority may have such
branches, agencies or subsidiaries as it
may deem proper and necessary.
As to MIAA's purposes and objectives, Section 4
of Executive Order No. 903 reads:
Sec. 4. Purposes and
Objectives. — The Authority shall have the
following purposes and objectives: AaCTcI
(a) To help encourage and
promote international and domestic air
traffic in the Philippines as a means of
making the Philippines a center of
international trade and tourism and
accelerating the development of the
means of transportation and
communications in the country;
(b) To formulate and adopt for
application in the Airport internationally
acceptable standards of airport
accommodation and service; and
(c) To upgrade and provide safe,
efficient, and reliable airport facilities for
international and domestic air travel.
Petitioner claims that the above purposes and
objectives are analogous to those enumerated in its charter,
specifically Section 3 of Republic Act No. 6958, which reads:
Section 3. Primary Purposes
and Objectives. — The Authority shall
principally undertake the economical,
efficient and effective control,
management and supervision of the
Mactan International Airport in the
Province of Cebu and the Lahug Airport in
Cebu City, hereinafter collectively referred
to as the airports, and such other airports
as may be established in the Province of
Cebu. In addition, it shall have the
following objectives:
(a) To encourage, promote and
develop international and domestic air
traffic in the central Visayas and Mindanao
regions as a means of making the regions
centers of international trade and tourism,
and accelerating the development of the
means of transportation and
communications in the country; and
(b) To upgrade the services and
facilities of the airports and to formulate
internationally acceptable standards of
airport accommodation and service.
The powers, functions and duties of MIAA under
Section 5 of Executive Order No. 903 are:
Sec. 5. Functions, Powers and
Duties. — The Authority shall have the
following functions, powers and duties:
(a) To formulate, in coordination with the
Bureau of Air Transportation and
other appropriate government
agencies, a comprehensive and
integrated policy and program for
the Airport and to implement, review
and update such policy and
program periodically;
(b) To control, supervise, construct,
maintain, operate and provide such
facilities or services as shall be
necessary for the efficient
functioning of the Airport;
(c) To promulgate rules and regulations
governing the planning,
development, maintenance,
operation and improvement of the
Airport, and to control and/or
supervise as may be necessary the
construction of any structure or the
rendition of any services within the
Airport;
(d) To sue and be sued in its corporate
name; acEHCD
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or
repeal the same from time to time;
(h) To execute or enter into contracts of any
kind or nature;
(i) To acquire, purchase, own, administer,
lease, mortgage, sell or otherwise
dispose of any land, building,
airport facility, or property of
whatever kind and nature, whether
movable or immovable, or any
interest therein;
(j) To exercise the power of eminent domain
in the pursuit of its purposes and
objectives;
(k) To levy, and collect dues, charges, fees
or assessments for the use of the
Airport premises, works,
appliances, facilities or concessions
or for any service provided by the
Authority, subject to the approval of
the Minister of Transportation and
Communications in consultation
with the Minister of Finance, and
subject further to the provisions
of Batas Pambansa Blg. 325 where
applicable;
(l) To invest its idle funds, as it may deem
proper, in government securities
and other evidences of
indebtedness of the government;
(m) To provide services, whether on its own
or otherwise, within the Airport and
the approaches thereof, which shall
include but shall not be limited to,
the following:
(1) Aircraft movement and
allocation of parking areas
of aircraft on the ground;
(2) Loading or unloading of
aircrafts;
(3) Passenger handling and other
services directed towards
the care, convenience and
security of passengers,
visitors and other airport
users; and
(4) Sorting, weighing, measuring,
warehousing or handling
of baggage and goods.
(n) To perform such other acts and transact
such other business, directly or
indirectly necessary, incidental or
conducive to the attainment of the
purposes and objectives of the
Authority, including the adoption of
necessary measures to remedy
congestion in the Airport; and
(o) To exercise all the powers of a
corporation under the Corporation
Law, insofar as these powers are
not inconsistent with the provisions
of this Executive Order.
Petitioner claims that MCIAA has related functions,
powers and duties under Section 4 of Republic Act No. 6958,
as shown in the provision quoted below:
Section 4. Functions, Powers
and Duties. — The Authority shall have
the following functions, powers and
duties:
(a) To formulate a
comprehensive and integrated
development policy and program for the
airports and to implement, review and
update such policy and program
periodically;
(b) To control, supervise,
construct, maintain, operate and provide
such facilities or services as shall be
necessary for the efficient functioning of
the airports;
(c) To promulgate rules and
regulations governing the planning,
development, maintenance, operation and
improvement of the airports, and to control
and supervise the construction of any
structure or the rendition of any service
within the airports;
(d) To exercise all the powers of
a corporation under the Corporation Code
of the Philippines, insofar as those powers
are not inconsistent with the provisions of
this Act;
(e) To acquire, purchase, own,
administer, lease, mortgage, sell or
otherwise dispose of any land, building,
airport facility, or property of whatever kind
and nature, whether movable or
immovable, or any interest
therein: Provided, That any asset located
in the Mactan International Airport
important to national security shall not be
subject to alienation or mortgage by the
Authority nor to transfer to any entity other
than the National Government;
(f) To exercise the power of
eminent domain in the pursuit of its
purposes and objectives;
(g) To levy and collect dues,
charges, fees or assessments for the use
of airport premises, works, appliances,
facilities or concessions, or for any service
provided by the Authority;
(h) To retain and appropriate
dues, fees and charges collected by the
Authority relative to the use of airport
premises for such measures as may be
necessary to make the Authority more
effective and efficient in the discharge of its
assigned tasks;
(i) To invest its idle funds, as it
may deem proper, in government
securities and other evidences of
indebtedness; and
(j) To provide services, whether
on its own or otherwise, within the airports
 and the approaches thereof as may be
necessary or in connection with the
maintenance and operation of the airports
and their facilities.
Petitioner claims that like MIAA, it has police
authority within its premises, as shown in their respective
charters quoted below:
EO 903, Sec. 6. Police
Authority. — The Authority shall have the
power to exercise such police authority as
may be necessary within its premises to
carry out its functions and attain its
purposes and objectives, without prejudice
to the exercise of functions within the same
premises by the Ministry of National
Defense through the Aviation Security
Command (AVSECOM) as provided
in LOI 961: Provided, That the Authority
may request the assistance of law
enforcement agencies, including request
for deputization as may be required. . . . .
R.A. No. 6958, Section 5. Police
Authority. — The Authority shall have the
power to exercise such police authority as
may be necessary within its premises or
areas of operation to carry out its functions
and attain its purposes and
objectives: Provided, That the Authority
may request the assistance of law
enforcement agencies, including request
for deputization as may be required. . . . .
Petitioner pointed out other similarities in the two
charters, such as:
1. Both MCIAA and MIAA are covered by the Civil
Service Law, rules and regulations (Section 15, Executive
Order No. 903; Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax
exemptions (Section 21, Executive Order No. 903; Section
14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to
the President an annual report generally dealing with their
activities and operations (Section 14, Executive Order No.
903; Section 11, Republic Act No. 6958); and
4. Both have borrowing power subject to the
approval of the President (Section 16, Executive Order No.
903; Section 13, Republic Act No. 6958). 48
Petitioner suggests that it is because of its similarity
with MIAA that this Court, in the 2006 MIAA case, placed it in
the same class as MIAA and considered it as a government
instrumentality.
Petitioner submits that since it is also a government
instrumentality like MIAA, the following conclusion arrived by
the Court in the 2006 MIAA case is also applicable to
petitioner: SDHTEC
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 . . . constructed by the
State," which includes public airports and
seaports, as properties of public dominion
and owned by the Republic. As
properties of public dominion owned by
the Republic, there is no doubt
whatsoever that the Airport Lands and
Buildings are expressly exempt from
real estate tax under Section 234 (a) of
the Local Government Code. This Court
has also repeatedly ruled that
properties of public dominion are not
subject to execution or foreclosure
sale. 49 (Emphases added.)
Petitioner insists that its properties consisting of the
airport terminal building, airfield, runway, taxiway and the lots
on which they are situated are not subject to real property tax
because they are actually, solely and exclusively used for
public purposes. 50 They are indispensable to the operation
of the Mactan International Airport and by their very nature,
these properties are exempt from tax. Said properties belong
to the State and are merely held by petitioner in trust. As
earlier mentioned, petitioner claims that these properties are
important to national security and cannot be alienated,
mortgaged, or transferred to any entity except the National
Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying
real property taxes as it is a
government instrumentality;
b) Declaring respondent City of Lapu-Lapu
as bereft of any authority to levy and
collect the basic real property tax,
the additional tax for the SEF and
the penalty interest for its failure to
pass the corresponding tax
ordinances; and
c) Declaring, in the alternative, the airport
lands and buildings of petitioner as
exempt from real property taxes as
they are used solely and exclusively
for public purpose. 51
 In its Consolidated Reply filed through the OSG, is a GOCC or not. Thus, respondents declare that the other
petitioner claims that the 2006 MIAA ruling has overturned portions of the questioned decision had already attained
the 1996 MCIAA ruling. Petitioner cites Justice Dante O. finality and ought not to be placed in issue in this petition
Tinga's dissent in the MIAA ruling, as follows: HSAcaE forcertiorari. Thus, respondents discussed the other issues
raised by petitioner with reservation as to this objection.
[The] ineluctable conclusion is that the
majority rejects the rationale and ruling Respondents summarized the issues and the
in Mactan. The majority provides for a grounds relied upon as follows:
wildly different interpretation of Section
STATEMENT OF THE ISSUES
133, 193 and 234 of the Local Government
Code than that employed by the Court WHETHER OR NOT PETITIONER IS A
in Mactan. Moreover, the parties GOVERNMENT INSTRUMENTALITY
in Mactan and in this case are similarly EXEMPT FROM PAYING REAL
situated, as can be obviously deducted PROPERTY TAXES
from the fact that both petitioners are
airport authorities operating under similarly WHETHER OR NOT RESPONDENT
worded charters. And the fact that the CITY CAN [IMPOSE] REALTY TAX,
majority cites doctrines contrapuntal to the SPECIAL EDUCATION FUND AND
Local Government Code as PENALTY INTEREST
in Basco and Maceda evinces an intent to WHETHER OR NOT THE AIRPORT
go against the Court's jurisprudential trend TERMINAL BUILDING, AIRFIELD,
adopting the philosophy of expanded local RUNWAY, TAXIWAY INCLUDING THE
government rule under the Local LOTS ON WHICH THEY ARE SITUATED
Government Code. ARE EXEMPT FROM REALTY TAXES
. . . The majority is obviously GROUNDS RELIED UPON
inconsistent with Mactan and there is no
way these two rulings can stand together. 1. PETITIONER IS A GOCC HENCE NOT
Following basic principles in statutory EXEMPT FROM REALTY TAXES
construction, Mactan will be deemed as 2. TERMINAL BUILDING, RUNWAY,
giving way to this new ruling. TAXIWAY ARE NOT EXEMPT
xxx xxx xxx FROM REALTY TAXES

There is no way the majority can
be justified unless Mactan is overturned.
The MCIAA and the MIAA are similarly
situated. They are both, as will be
demonstrated, GOCCs, commonly
engaged in the business of operating an
airport. They are the owners of airport
properties they respectively maintain and
hold title over these properties in their
name. These entities are both owned by
the State, and denied by their respective
charters the absolute right to dispose of
their properties without prior approval
elsewhere. Both of them are not
empowered to obtain loans or encumber
their properties without prior approval the
prior approval of the
President. 52 (Citations omitted.)
Petitioner likewise claims that the enactment of
Ordinance No. 070-2007 is an admission on respondent
City's part that it must have a tax measure to be able to
impose a tax or special assessment. Petitioner avers that
assuming that it is a non-exempt entity or that its airport lands
and buildings are not exempt, it was only upon the effectivity
of Ordinance No. 070-2007 on January 1, 2008 that
respondent City could properly impose the basic real
property tax, the additional tax for the SEF, and the interest
in case of nonpayment. 53
Petitioner filed its Memorandum 54 on June 17,
2009.
RESPONDENTS' THEORY
In their Comment, 55 respondents point out that
petitioner partially moved for a reconsideration of the
questioned Decision only as to the issue of whether petitioner
3. ESTOPPEL DOES NOT LIE AGAINST
GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND
INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY
IRREPARABLE INJURY
WARRANTING INJUNCTIVE
RELIEF
7. MCIAA HAS NOT COMPLIED WITH
PROVISION OF THE LGC 56
Respondents claim that "the mere mention of
MCIAA in the MIAA v. [Court of Appeals]case does not make
it the controlling case on the matter." 57 Respondents further
claim that the 1996 MCIAA case where this Court held that
petitioner is a GOCC is the controlling jurisprudence.
Respondents point out that petitioner and MIAA are two very
different entities. Respondents argue that petitioner is a
GOCC contrary to its assertions, based on its Charter and
on DOJ Opinion No. 50.
Respondents contend that if petitioner is not a
GOCC but an instrumentality of the government, still the
following statement in the 1996 MCIAA case applies:
Besides, nothing can prevent Congress
from decreeing that even instrumentalities
or agencies of the Government performing
governmental functions may be subject to
tax. Where it is done precisely to fulfill a
constitutional mandate and national policy,
no one can doubt its wisdom. 58
Respondents argue that MCIAA properties such as
the terminal building, taxiway and runway are not exempt
from real property taxation. As discussed in the
1996 MCIAAcase, Section 234 of the LGC omitted GOCCs
such as MCIAA from entities enjoying tax exemptions. Said
decision also provides that the transfer of ownership of the
land to petitioner was absolute and petitioner cannot evade
payment of taxes. 59
Even if the following issues were not raised by
petitioner in its motion for reconsideration of the questioned
Decision, and thus the ruling pertaining to these issues in the
questioned decision had become final, respondents still
discussed its side over its objections as to the propriety of
bringing these up before this Court.
1. Estoppel does not lie against the
government. AScHCD
2. Respondent City can collect realty taxes and
interest.
a. Based on the Local Government
Code (Sections 232, 233, 255)
and its IRR (Sections 241, 247).
b. The City of Lapu-Lapu passed in 1980
Ordinance No. 44, or the
Omnibus Tax Ordinance,
wherein the imposition of real
property tax was made. This
Ordinance was in force and effect
by virtue of Article 278 of the IRR
of Republic Act No. 7160. 60
c. Ordinance No. 070-2007, known as the
Revised Lapu-Lapu City
Revenue Code, imposed real
property taxes, special education
fund and further provided for the
payment of interest and
surcharges. Thus, the issue is
passé and is moot and academic.
3. Respondent City can collect Special Education
Fund.
a. The LGC does not require the
enactment of an ordinance for the
collection of the SEF.
b. Congress did not entirely repeal the
SEF law, hence, its levy,
imposition and collection need
not be covered by ordinance.
Besides, the City has enacted the
Revenue Code containing
provisions for the levy and
collection of the SEF. 61
Furthermore, respondents aver that:
1. Collection of taxes is beyond the ambit of
injunction.
a. Respondents contend that the petition
only questions the denial of the
writ of preliminary injunction by
the RTC and the Court of
Appeals. Petitioner failed to show
irreparable injury.
b. Comparing the alleged damage that
may be caused petitioner and the
direct affront and challenge
against the power to tax, which is
an attribute of sovereignty, it is
but appropriate that injunctive
relief should be denied.
2. Petitioner did not comply with LGC provisions on
payment under protest.
a. Petitioner should have protested the tax
imposition as provided in Article
285 of the IRR of Republic Act
No. 7160. Section 252
of Republic Act No.
7160 62requires that the
taxpayer's protest can only be
entertained if the tax is first paid
under protest. 63
Respondents submitted their Memorandum 64 on
June 30, 2009, wherein they allege that the
1996 MCIAA case is still good law, as shown by the following
cases wherein it was quoted:
1. National Power Corporation v. Local Board of
Assessment Appeals of Batangas [545
Phil. 92 (2007)]; HESIcT
2. Mactan-Cebu International Airport Authority v.
Urgello [549 Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting
Corporation [588 Phil. 785 (2008)]; and
4. The City of Iloilo v. Smart Communications,
Inc.[599 Phil. 492 (2009)].
Respondents assert that the constant reference to
the 1996 MCIAA case "could hardly mean that the doctrine
has breathed its last" and that the 1996 MCIAA case stands
as precedent and is controlling on petitioner MCIAA. 65
Respondents allege that the issue for consideration
is whether it is proper for petitioner to raise the issue of
whether it is not liable to pay real property taxes, special
education fund (SEF), interests and/or
surcharges. 66 Respondents argue that the Court of Appeals
was correct in declaring petitioner liable for realty
taxes, etc., on the terminal building, taxiway, and runway.
Respondent City relies on the following grounds:
1. The case of MCIAA v. Marcos, et al., is
controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234
of the Local Government Code of
1991 authorizes the collection of real
property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of
the Public Dominion and are not exempt
from realty taxes, special education fund
and interest;
5. Respondent City can collect realty tax,
interest/surcharge, and Special Education
Fund from MCIAA; [and]
6. Estoppel does not lie against the government. 67
THIS COURT'S RULING
The petition has merit. The petitioner is an
instrumentality of the government; thus, its properties
actually, solely and exclusively used for public purposes,
consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated, are not
subject to real property tax and respondent City is not justified finding that MIAA's lands and buildings were exempt from
in collecting taxes from petitioner over said properties. real estate tax imposed by local governments:
DISCUSSION First, MIAA is not a government-
owned or controlled corporation but an
The Court of Appeals (Cebu City) erred in declaring instrumentality of the National
that the 1996 MCIAA case still controls and that petitioner is Government and thus exempt from local
a GOCC. The 2006 MIAA case governs. taxation. Second, the real properties of
The Court of Appeals' reliance on the MIAA are owned by the Republic of the
1996 MCIAA case is misplaced and its staunch refusal to Philippines and thus exempt from real
apply the 2006 MIAA case is patently erroneous. The Court estate tax. AcICHD
of Appeals, finding for respondents, refused to apply the 1. MIAA is Not a Government-
ruling in the 2006 MIAA case on the premise that the same Owned or Controlled Corporation
had not yet reached finality, and that as far as MCIAA is
concerned, the 1996 MCIAA case is still good law. 68 xxx xxx xxx
While it is true, as respondents allege, that the There is no dispute that a
1996 MCIAA case was cited in a long line of cases, 69 still, government-owned or controlled
in 2006, the Court en banc decided a case that in corporation is not exempt from real estate
effect reversedthe 1996 Mactan ruling. The tax. However, MIAA is not a government-
2006 MIAA case had, since the promulgation of the owned or controlled corporation. Section
questioned Decision and Resolution, reached finality and had 2(13) of the Introductory Provisions of the
in fact been either affirmed or cited in numerous cases by the Administrative Code of 1987 defines a
Court. 70 The decision became final and executory on government-owned or controlled
November 3, 2006. 71 Furthermore, the 2006 MIAA case corporation as follows:
was decided by the Court en banc while the
1996 MCIAA case was decided by a Division. Hence, the SEC.
1996 MCIAA case should be read in light of the subsequent 2. General Terms
and unequivocal ruling in the 2006 MIAA case. Defined. — . . .

To recall, in the 2006 MIAA case, we held that (13) Governm

MIAA's airport lands and buildings are exempt from real ent-owned or controlled
estate tax imposed by local governments; that it is not a corporation refers to any
GOCC but an instrumentality of the national government, agency organized as a
with its real properties being owned by the Republic of the stock or non-stock
Philippines, and these are exempt from real estate tax. corporation, vested with
Specifically referring to petitioner, we stated as follows: functions relating to
public needs whether
Many government governmental or
instrumentalities are vested with proprietary in nature,
corporate powers but they do not and owned by the
become stock or non-stock Government directly or
corporations, which is a necessary through its
condition before an agency or instrumentalities either
instrumentality is deemed a wholly, or, where
government-owned or controlled applicable as in the
corporation. Examples are the Mactan case of stock
International Airport Authority, the corporations, to the
Philippine Ports Authority, the University of extent of at least fifty-
the Philippines and Bangko Sentral ng one (51) percent of its
Pilipinas. All these government capital stock: . . . .
instrumentalities exercise corporate
powers but they are not organized as stock A government-owned or controlled
or non-stock corporations as required by corporation must be "organized as a stock
Section 2(13) of the Introductory or non-stock corporation." MIAA is not
Provisions of the Administrative Code. organized as a stock or non-stock
These government instrumentalities are corporation. MIAA is not a stock
sometimes loosely called government corporation because it has no capital stock
corporate entities. However, they are not divided into shares. MIAA has no
government-owned or controlled stockholders or voting shares. . . .
corporations in the strict sense as xxx xxx xxx
understood under the Administrative
Code, which is the governing law defining Clearly, under its Charter, MIAA
the legal relationship and status of does not have capital stock that is divided
government entities. 72 (Emphases ours.) into shares.

In the 2006 MIAA case, the issue before the Court
was "whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws." 73 We
quote the extensive discussion of the Court that led to its
Section 3 of the Corporation
Code defines a stock corporation as one
whose "capital stock is divided into shares
and . . . authorized to distribute to the
holders of such shares dividends . . . ."
MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders
or voting shares. Hence, MIAA is not a
stock corporation.
MIAA is also not a non-stock
corporation because it has no members.
Section 87 of the Corporation
Code defines a non-stock corporation as
"one where no part of its income is
distributable as dividends to its members,
trustees or officers." A non-stock
corporation must have members. Even if
we assume that the Government is
considered as the sole member of MIAA,
this will not make MIAA a non-stock
corporation. Non-stock corporations
cannot distribute any part of their income
to their members. Section 11 of the MIAA
Charter mandates MIAA to remit 20% of its
annual gross operating income to the
National Treasury. This prevents MIAA
from qualifying as a non-stock
corporation. caITAC
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. — . . .
(10) Instrumen
tality 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. . . . .
When the law vests in a
government instrumentality corporate
powers, the instrumentality does not
become a corporation. Unless the
government instrumentality is
organized as a stock or non-stock
corporation, it remains a government
instrumentality exercising not only
governmental but also corporate
powers. Thus, MIAA exercises the
governmental powers of eminent
domain, police authority and the
levying of fees and charges. At the
same time, MIAA exercises "all the
powers of a corporation under the
Corporation Law, insofar as these
powers are not inconsistent with the
provisions of this Executive Order."
Likewise, when the law makes a
government instrumentality operationally
autonomous, the instrumentality remains
part of the National Government
machinery although not integrated with the
department framework. The MIAA Charter
expressly states that transforming MIAA
into a "separate and autonomous body"
will make its operation more "financially
viable."
Many government
instrumentalities are vested with
corporate powers but they do not
become stock or non-stock
corporations, which is a necessary
condition before an agency or
instrumentality is deemed a
government-owned or controlled
corporation. Examples are the Mactan
International Airport Authority,the
Philippine Ports Authority, the University of
the Philippines and Bangko Sentral ng
Pilipinas. All these government
instrumentalities exercise corporate
powers but they are not organized as
stock or non-stock corporations as
required by Section 2(13) of the
Introductory Provisions of the
Administrative Code. These
government instrumentalities are
sometimes loosely called government
corporate entities. However, they are
not government-owned or controlled
corporations in the strict sense as
understood under the Administrative
Code, which is the governing law
defining the legal relationship and
status of government
entities. 74 (Emphases ours, citations
omitted.)
The Court in the 2006 MIAA case went on to
discuss the limitation on the taxing power of the local
governments as against the national government or its
instrumentality:
 A government instrumentality like
MIAA falls under Section 133(o) of
the Local Government Code, which states:
SEC.
133. Common
Limitations on the
Taxing Powers of Local
Government Units. —
Unless otherwise
provided herein, the
exercise of the taxing
powers of provinces,
cities, municipalities,
and barangays shall not
extend to the levy of the
following:
xxx xxx xxx
(o) Taxes, fees
or charges of any kind
on the National
Government, its
agencies and
instrumentalities and
local government units. .
...
Section 133(o) recognizes the
basic principle that local governments
cannot tax the national government, which
historically merely delegated to local
governments the power to tax. While
the 1987 Constitution now includes
taxation as one of the powers of local
governments, local governments may only
exercise such power "subject to such
guidelines and limitations as the Congress
may provide."
When local governments
invoke the power to tax on national
government instrumentalities, such
power is construed strictly against
local governments. The rule is that a tax
is never presumed and there must be clear
language in the law imposing the tax. Any
doubt whether a person, article or activity
is taxable is resolved against taxation. This
rule applies with greater force when local
governments seek to tax national
government instrumentalities.
Another rule is that a tax
exemption is strictly construed against the
taxpayer claiming the exemption.
However, when Congress grants an
exemption to a national government
instrumentality from local taxation, such
exemption is construed liberally in favor of
the national government instrumentality. . .
..
xxx xxx xxx
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. . . .
. 75 (Emphases ours, citations omitted.)
The Court emphasized that the airport lands and
buildings of MIAA are owned by the Republic and belong to
the public domain. The Court said:
The Airport Lands and Buildings
of MIAA are property of public dominion
and therefore owned by the State or the
Republic of the Philippines. . . . .
xxx xxx xxx
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. . . . .
xxx xxx xxx
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. TAIaHE
The Airport Lands and
Buildings of MIAA . . . are properties of
public dominion because they are
intended for public use. As properties
of public dominion, they indisputably
belong to the State or the Republic of
the Philippines. 76 (Emphases supplied,
citations omitted.)
The Court also held in the 2006 MIAA case that
airport lands and buildings are outside the commerce of man.
As properties of public dominion,
the Airport Lands and Buildings are
outside the commerce of man. The Court
has ruled repeatedly that properties of
public dominion are outside the commerce
of man. As early as 1915, this Court
already ruled in Municipality of Cavite v.
Rojas that properties devoted to public use
are outside the commerce of man, thus:
xxx xxx xxx
The Civil Code, Article 1271,
prescribes that everything which is not
outside the commerce of man may be the
object of a contract, . . . .
xxx xxx xxx
The Court has also ruled that
property of public dominion, being outside
the commerce of man, cannot be the
subject of an auction sale.
Properties of public dominion,
being for public use, are not subject to
levy, encumbrance or disposition
through public or private sale. Any
encumbrance, levy on execution or
auction sale of any property of public
dominion is void for being contrary to
public policy. Essential public services
will stop if properties of public
dominion are subject to encumbrances,
foreclosures and auction sale. This will
happen if the City of Parañaque can
foreclose and compel the auction sale of
the 600-hectare runway of the MIAA for
non-payment of real estate tax.
Before MIAA can encumber the
Airport Lands and Buildings, the President
must first withdraw from public use the
Airport Lands and Buildings. . . . .
xxx xxx xxx
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;
xxx xxx xxx
There is no question, therefore,
that unless the Airport Lands and Buildings
are withdrawn by law or presidential
proclamation from public use, they are
properties of public dominion, owned by
the Republic and outside the commerce of
man. 77
Thus, the Court held that MIAA is "merely holding
title to the Airport Lands and Buildings in trust for the
Republic. [Under] Section 48, Chapter 12, Book I of the
Administrative Code [which] allows instrumentalities like
MIAA to hold title to real properties owned by the
Republic." 78
The Court in the 2006 MIAA case cited Section 234
(a) of the Local Government Code and held that said
provision exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." 79 The Court
emphasized, however, that "portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt
from real estate tax." The Court further held:
This exemption should be read in
relation with Section 133(o) of the same
Code, which prohibits local governments
from imposing "[t]axes, fees or charges of
any kind on the National Government, its
agencies and instrumentalities . . . ." 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. . . . . 80
Significantly, the Court reiterated the above ruling
and applied the same reasoning in Manila International
Airport Authority v. City of Pasay, 81 thus:
The only difference between the 2006
MIAA case and this case is that the 2006
MIAA case involved airport lands and
buildings located in Parañaque City
while this case involved airport lands
and buildings located in Pasay
City. The 2006 MIAA case and this case
raised the same threshold issue: whether
the local government can impose real
property tax on the airport lands,
consisting mostly of the runways, as well
as the airport buildings, of MIAA. . . . .
xxx xxx xxx
The definition
of "instrumentality" under Section 2(10) of
the Introductory Provisions of the
Administrative Code of 1987 uses the
phrase "includes . . . government-owned or
controlled corporations" which means that
a government "instrumentality" may or
may not be a "government-owned or
controlled corporation." Obviously, the
term government "instrumentality"
is broader than the term "government-
owned or controlled corporation." . . . .
xxx xxx xxx
The fact that two terms have
separate definitions means that while a
government "instrumentality" may include
a "government-owned or controlled
corporation," there may be a government
"instrumentality" that will not qualify as a
"government-owned or controlled
corporation."
A close scrutiny of the definition
of "government-owned or controlled
corporation" in Section 2(13) will show that
MIAA would not fall under such
definition. MIAA is a government
"instrumentality" that does not qualify
as a "government-owned or controlled
corporation." . . . .
xxx xxx xxx
Thus, MIAA is not a government-
owned or controlled corporation but a
government instrumentality which is
exempt from any kind of tax from the local
governments. Indeed, the exercise of the
taxing power of local government units is
subject to the limitations enumerated in
Section 133 of the Local Government
Code. Under Section 133(o) of the Local
Government Code, local government units
have no power to tax instrumentalities of
the national government like the MIAA.
Hence, MIAA is not liable to pay real
property tax for the NAIA Pasay
properties. ICHDca
Furthermore, the airport lands
and buildings of MIAA are properties of
public dominion intended for public use,
and as such are exempt from real property
tax under Section 234 (a) of the Local
Government Code. However, under the
same provision, if MIAA leases its real
property to a taxable person, the specific
property leased becomes subject to real
property tax. In this case, only those
portions of the NAIA Pasay properties
which are leased to taxable persons like
private parties are subject to real property
tax by the City of Pasay. (Emphases
added, citations omitted.)
The Court not only mentioned petitioner MCIAA as
similarly situated as MIAA. It also mentioned several other
government instrumentalities, among which was the
Philippine Fisheries Development Authority. Thus, applying
the 2006 MIAA ruling, the Court, in Philippine Fisheries
Development Authority v. Court of Appeals, 82 held:
On the basis of the parameters
set in the MIAA case, the Authority should
be classified as an instrumentality of the
national government. As such, it is
generally exempt from payment of real
property tax, except those portions which
have been leased to private entities.
In the MIAA case, petitioner
Philippine Fisheries Development
Authority was cited as among the
instrumentalities of the national
government. . . . .
xxx xxx xxx
Indeed, the Authority is not a
GOCC but an instrumentality of the
government. The Authority has a capital
stock but it is not divided into shares of
stocks. Also, it has no stockholders or
voting shares. Hence, it is not a stock
corporation. Neither [is it] a non-stock
corporation because it has no members.
The Authority is actually a
national government instrumentality which
is defined as an agency of the national
government, not integrated within the
department framework, vested with
special functions or jurisdiction by law,
endowed with some if not all corporate
powers, administering special funds, and
enjoying operational autonomy, usually
through a charter. When the law vests in a
government instrumentality corporate
powers, the instrumentality does not
become a corporation. Unless the
government instrumentality is organized
as a stock or non-stock corporation, it
remains a government instrumentality
exercising not only governmental but also
corporate powers.
Thus, the Authority which is
tasked with the special public function to
carry out the government's policy "to
promote the development of the country's
fishing industry and improve the efficiency
in handling, preserving, marketing, and
distribution of fish and other aquatic
products," exercises the governmental
powers of eminent domain, and the power
to levy fees and charges. At the same time,
the Authority exercises "the general
corporate powers conferred by laws upon
private and government-owned or
controlled corporations."
xxx xxx xxx
In light of the foregoing, the
Authority should be classified as an
instrumentality of the national government
which is liable to pay taxes only with
respect to the portions of the property, the
beneficial use of which were vested in
private entities. When local governments
invoke the power to tax on national
government instrumentalities, such power
is construed strictly against local
governments. The rule is that a tax is never
presumed and there must be clear
language in the law imposing the tax. Any
doubt whether a person, article or activity
is taxable is resolved against taxation. This
rule applies with greater force when local
governments seek to tax national
government instrumentalities.
Thus, the real property tax
assessments issued by the City of Iloilo
should be upheld only with respect to the
portions leased to private persons. In case
the Authority fails to pay the real property
taxes due thereon, said portions cannot be
sold at public auction to satisfy the tax
delinquency. . . . .
xxx xxx xxx
In sum, the Court finds that the Authority is an
instrumentality of the national government, hence, it is liable
to pay real property taxes assessed by the City of Iloilo on
the IFPC only with respect to those portions which are leased
to private entities. Notwithstanding said tax delinquency on
the leased portions of the IFPC, the latter or any part thereof,
being a property of public domain, cannot be sold at public
auction. This means that the City of Iloilo has to satisfy the
tax delinquency through means other than the sale at public
auction of the IFPC. (Citations omitted.)
Another government instrumentality specifically
mentioned in the 2006 MIAA case was the Philippine Ports
Authority (PPA). Hence, in Curata v. Philippine Ports
Authority, 83the Court held that the PPA is similarly situated
as MIAA, and ruled in this wise:
This Court's disquisition in Manila
International Airport Authority v. Court of
Appeals — ruling that MIAA is not a
government-owned and/or controlled
corporation (GOCC), but an
instrumentality of the National
Government and thus exempt from local
taxation, and that its real properties are
owned by the Republic of the Philippines
— is instructive. . . . . These findings are
squarely applicable to PPA, as it is
similarly situated as MIAA. First, PPA is
likewise not a GOCC for not having shares
of stocks or members. Second, the docks,
piers and buildings it administers are
likewise owned by the Republic and, thus,
outside the commerce of man. Third, PPA
is a mere trustee of these properties.
Hence, like MIAA, PPA is clearly a
government instrumentality, an agency of
the government vested with corporate
powers to perform efficiently its
governmental functions.
Therefore, an undeniable
conclusion is that the funds of PPA partake
of government funds, and such may not be
garnished absent an allocation by its
Board or by statutory grant. If the PPA
funds cannot be garnished and its
properties, being government properties,
cannot be levied via a writ of execution
pursuant to a final judgment, then the trial
court likewise cannot grant discretionary
execution pending appeal, as it would run
afoul of the established jurisprudence that
government properties are exempt from
execution. What cannot be done directly
cannot be done indirectly. (Citations
omitted.)
In Government Service Insurance System v. City
Treasurer and City Assessor of the City of Manila 84 the
Court found that the GSIS was also a government
instrumentality and not a GOCC, applying the
2006 MIAA case even though the GSIS was not among
those specifically mentioned by the Court as similarly
situated as MIAA. The Court said:
GSIS an instrumentality of the National
Government
Apart from the foregoing
consideration, the Court's fairly recent
ruling in Manila International Airport
Authority v. Court of Appeals, a case
likewise involving real estate tax
assessments by a Metro Manila city on the
real properties administered by MIAA,
argues for the non-tax liability of GSIS for
real estate taxes. . . . .
xxx xxx xxx
While perhaps not of
governing sway in all fours inasmuch
as what were involved in Manila
International Airport Authority,
e.g., airfields and runways, are
properties of the public dominion and,
hence, outside the commerce of man,
the rationale underpinning the
disposition in that case is squarely
applicable to GSIS, both MIAA and GSIS
being similarly situated. First, while
created under CA 186 as a non-stock
corporation, a status that has remained
unchanged even when it operated
under PD 1146 and RA 8291, GSIS is not,
in the context of the aforequoted Sec. 193
of the LGC,a GOCC following the teaching
of Manila International Airport
Authority, for, like MIAA, GSIS's capital is
not divided into unit shares. Also, GSIS
has no members to speak of. And by
members, the reference is to those who,
under Sec. 87 of the Corporation Code,
make up the non-stock corporation, and
not to the compulsory members of the
system who are government employees.
Its management is entrusted to a Board of
Trustees whose members are appointed
by the President.
Second, the subject properties
under GSIS's name are likewise owned by
the Republic. The GSIS is but a mere
trustee of the subject properties which
have either been ceded to it by the
Government or acquired for the
enhancement of the system. This
particular property arrangement is clearly
shown by the fact that the disposal or
conveyance of said subject properties are
either done by or through the authority of
the President of the Philippines. . . . .
(Emphasis added, citations
omitted.) TCAScE
All the more do we find that petitioner MCIAA, with
its many similarities to the MIAA, should be classified as a
government instrumentality, as its properties are being used
for public purposes, and should be exempt from real estate
taxes. This is not to derogate in any way the delegated
authority of local government units to collect realty taxes, but
to uphold the fundamental doctrines of uniformity in taxation
and equal protection of the laws, by applying all the
jurisprudence that have exempted from said taxes similar
authorities, agencies, and instrumentalities, whether covered
by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with
corporate powers but it is not a stock or non-stock
corporation, which is a necessary condition before an agency
or instrumentality is deemed a government-owned or
controlled corporation. Like MIAA, petitioner MCIAA has
capital under its charter but it is not divided into shares of
stock. It also has no stockholders or voting shares. Republic
Act No. 6958 provides:
Section 9. Capital. — The
[Mactan-Cebu International Airport]
Authority shall have an authorized capital
stock equal to and consisting of:
(a) The value of fixed assets
(including airport facilities, runways and
equipment) and such other properties,
movable and immovable, currently
administered by or belonging to the
airports as valued on the date of the
effectivity of this Act;
(b) The value of such real estate
owned and/or administered by the airports;
and
(c) Government contribution in
such amount as may be deemed an
appropriate initial balance. Such initial
amount, as approved by the President of
the Philippines, which shall be more or less
equivalent to six (6) months working
capital requirement of the Authority, is
hereby authorized to be appropriated in
the General Appropriations Act of the year
following its enactment into law.
Thereafter, the government
contribution to the capital of the Authority
shall be provided for in the General
Appropriations Act.
Like in MIAA, the airport lands and buildings of
MCIAA are properties of public dominion because they are
intended for public use. As properties of public dominion,
they indisputably belong to the State or the Republic of the
Philippines, and are outside the commerce of man. This,
unless petitioner leases its real property to a taxable person,
the specific property leased becomes subject to real property
tax; in which case, only those portions of petitioner's
properties which are leased to taxable persons like private
parties are subject to real property tax by the City of Lapu-
Lapu.
We hereby adopt and apply to petitioner MCIAA the
findings and conclusions of the Court in the 2006 MIAA case,
and we quote:
To summarize, MIAA is not a
government-owned or controlled
corporation under Section 2(13) of the
Introductory Provisions of the
Administrative Code because it is not
organized as a stock or non-stock
corporation. Neither is MIAA a
government-owned or controlled
corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not
required to meet the test of economic
viability. MIAA is a government
instrumentality vested with corporate
powers and performing essential public
services pursuant to Section 2(10) of the
Introductory Provisions of the
Administrative Code. As a government
instrumentality, MIAA is not subject to any
kind of tax by local governments under
Section 133(o) of the Local Government
Code. The exception to the exemption in
Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under
the Local Government Code. Such
exception applies only if the beneficial use
of real property owned by the Republic is
given to a taxable entity.
Finally, the Airport Lands and
Buildings of MIAA are properties devoted
to public use and thus are properties of
public dominion. Properties of public
dominion are owned by the State or the
Republic. . . . .
xxx xxx xxx
The term "ports . . . 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
theLocal 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 . . . constructed by the
State," which includes public airports and
seaports, as properties of public dominion
and owned by the Republic. As properties
of public dominion owned by the Republic,
there is no doubt whatsoever that the
Airport Lands and Buildings are expressly
exempt from real estate tax under Section
234(a) of the Local Government
Code. This Court has also repeatedly
ruled that properties of public dominion
are not subject to execution or
foreclosure sale. 85 (Emphases
added.) ASEcHI
WHEREFORE, we hereby GRANT the petition.
We REVERSE and SET
ASIDE the Decision dated October 8, 2007 and
the Resolution dated February 12, 2008 of the Court of
Appeals (Cebu City) in CA-G.R. SP No.
01360. Accordingly, we DECLARE:
1. Petitioner's properties that are actually, solely
and exclusively used for public purpose,
consisting of the airport terminal building,
airfield, runway, taxiway and the lots on
which they are situated, EXEMPT from
real property tax imposed by the City of
Lapu-Lapu.
2. VOID all the real property tax assessments,
including the additional tax for the special
education fund and the penalty interest, as
well as the final notices of real property tax
delinquencies, issued by the City of Lapu-
Lapu on petitioner's properties, except the
assessment covering the portions that
petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27
of petitioner's properties and the eventual
forfeiture and purchase of the said
properties by respondent City of Lapu-
Lapu. We likewise declare VOID the
corresponding Certificates of Sale of
Delinquent Property issued to respondent
City of Lapu-Lapu.
SO ORDERED.
||| (Mactan-Cebu International Airport Authority (MCIAA) v. City
of Lapu-Lapu and Pacaldo, G.R. No. 181756, [June 15, 2015])
EN BANC
[G.R. No. 199752. February 17, 2015.]
LUCENA D. DEMAALA, petitioner, vs. COMMISSION ON
AUDIT, represented by its Chairperson Commissioner MA.
GRACIA M. PULIDO TAN, respondent.
DECISION
LEONEN, J p: We have reviewed and evaluated Audit
Observation Memorandum (AOM) No. 03-
Through this Petition for Certiorari, Lucena D. Demaala 005 dated August 7, 2003 and noted the
(Demaala) prays that the September 22, 2008 Decision (Decision following deficiencies:
No. 2008-087) 1 and the November 16, 2011 Resolution
(Decision No. 2011-083) 2 of the Commission on Audit be FACTS
Reference AMOUNT
reversed and set aside. AND/OR
Persons REASONS
No. Date PAYOR CHARGED
The Commission on Audit's Decision No. 2008-087 3 denied LIABLE FOR
Demaala's appeal and affirmed with modification Local Decision CHARGE
No. 2006-056 4 dated April 19, 2006 of the Commission on
Audit's Legal and Adjudication Office (LAO). LAO Local Decision Lucena D. The additional
1,125,416.56
No. 2006-056, in turn, affirmed Notice of Charge (NC) No. 2004- Demaala levy for
04-101. 5 NC No. 2004-04-101 was dated August 30, 2004 and Municipal SEF should
-
issued by Rodolfo C. Sy (Regional Cluster Director Sy), Regional Mayor be one per
Cluster Director of the Legal Adjudication Sector, Commission on Please see for allowing cent (1%)
-
Audit Regional Office No. IV, Quezon City. attached the instead of
reduced rate 0.5% as
The Commission on Audit's Decision No. 2011-083 denied the schedule
of provided in
Motion for Reconsideration filed by Demaala. 6 RA
additional real
5447 dated
I property September
The Sangguniang Panlalawigan of Palawan enacted Provincial taxes 25, 1968
Ordinance No. 332-A, Series of 1995, entitled "An Ordinance Municipal
Approving and Adopting the Code Governing the Revision of Treasurer
Assessments, Classification and Valuation of Real Properties in - for collecting
the Province of Palawan" (Ordinance). 7 Chapter 5, Section 48 of understated
the Ordinance provides for an additional levy on real property tax taxes
for the special education fund at the rate of one-half percent or 1,125,416.56 All payors
0.5% as follows: ==========

Section 48. Additional Levy on Real

Property Tax for Special Education Fund.
— There is hereby levied an annual tax at the
rate of one-half percent (1/2%) of the
assessed value property tax. The proceeds
thereof shall exclusively accrue to the
Special Education Fund (SEF). 8
In conformity with Section 48 of the Ordinance, the Municipality of
Narra, Palawan, with Demaala as mayor, collected from owners
of real properties located within its territory an annual tax as
special education fund at the rate of 0.5% of the assessed value
of the property subject to tax. This collection was effected through
the municipal treasurer. 9
On post-audit, Audit Team Leader Juanito A. Nostratis issued
Audit Observation Memorandum (AOM) No. 03-005 dated August
7, 2003 in which he noted supposed deficiencies in the special
education fund collected by the Municipality of Narra. 10 He
questioned the levy of the special education fund at the rate of
only 0.5% rather than at 1%, the rate stated in Section
235 11 of Republic Act No. 7160, otherwise known as the Local
Government Code of 1991 (Local Government Code). 12
Charge not appealed within six (6) months
as prescribed under Sections 49, 50 and 51
of PD No. 1445 shall become final and
executory. STECDc
RODOLFY C. SY (sgd.)
Regional Cluster Director 14
The Municipality of Narra, through Demaala, filed the Motion for
Reconsideration 15 dated December 2, 2004. It stressed that
the collection of the special education fund at the rate of 0.5%
was merely in accordance with the Ordinance. On March 9,
2005, Regional Cluster Director Sy issued an Indorsement
denying this Motion for Reconsideration. 16
Following this, the Municipality of Narra, through Demaala, filed
an appeal 17 with the Commission on Audit's Legal and
Adjudication Office. In Local Decision No. 2006-056 18 dated
April 19, 2006, this appeal was denied.
The Municipality of Narra, through Demaala, then filed a Petition
for Review 19 with the Commission on Audit.

After evaluating AOM No. 03-005, Regional Cluster Director Sy
issued NC No. 2004-04-101 dated August 30, 2004 13 in the
amount of P1,125,416.56. He held Demaala, the municipal
treasurer of Narra, and all special education fund payors liable for
the deficiency in special education fund collections.
This Notice of Charge reads:
NC No. 2004-04-101
Date: August 30, 2004
In Decision No. 2008-087 20 dated September 22, 2008, the
Commission on Audit ruled against Demaala and affirmed LAO
Local Decision No. 2006-056 with the modification that former
Palawan Vice Governor Joel T. Reyes and the other members of
the Sangguniang Panlalawigan of Palawan who enacted the
Ordinance 21 were held jointly and severally liable with
Demaala, the municipal treasurer of Narra, and the special
education fund payors. 22
The dispositive portion of this Decision reads:

NOTICE OF CHARGE WHEREFORE, premises considered, the

instant appeal is hereby DENIED for lack of
The Municipal Mayor merit. Accordingly, LAO Local Decision No.
Narra, Palawan 2006-056 is AFFIRMED with modification,
to include Former Vice-Governor and
Attention: Municipal Accountant
 Presiding Officer Joel T. Reyes, Chairman
Pro-Tempore Rosalino R. Acosta, Majority
Floor Leader Ernesto A. Llacuna, Asst.
Majority Floor Leader Antonio C. Alvarez,
Asst. Minority Floor Leader Haide B.
Barroma, Hon. Leoncio N. Ola, Hon. Ramon
A. Zabala, Hon. Belen B. Abordo, Hon.
Valentin A. Baaco, Hon. Claro Ordinario,
Hon. Derrick R. Pablico, Hon. Laine C.
Abogado and Hon. Joel B. Bitongon among
the persons liable in the Notice of Charge.
They shall be jointly and severally liable with
Mayor Lucena D. Demaala, together with
the Municipal Treasurer and all the payors
of the under-collected real property tax in
the total amount of P1,125,416.56.
The Audit Team Leader is directed to issue
a Supplemental Notice of Charge to include
the members of the Sangguniang
Panlalawigan as among the persons
liable. 23
Thereafter, Demaala, who was no logger the mayor of the
Municipality of Narra, filed a Motion for
Reconsideration. 24 Former Vice Governor Joel T. Reyes and
the other members of the Sangguniang Panlalawigan of
Palawan who were held liable under Decision No. 2008-087 filed
a separate Motion for Reconsideration. 25 The Commission on
Audit's Decision No. 2011-083 26 dated November 16, 2011
affirmed its September 22, 2008 Decision.
Demaala then filed with this court the present Petition
for Certiorari. 27
Respondent Commission on Audit, through the Office of the
Solicitor General, filed its Comment 28 on April 20, 2012.
Petitioner Demaala filed her Reply 29 on September 6, 2012.
Thereafter, the parties filed their respective Memoranda. 30
II
For resolution in this case are the following issues:
First, whether respondent committed grave abuse of discretion
amounting to lack or excess of jurisdiction in holding that there
was a deficiency in the Municipality of Narra's collection of the
additional levy for the special education fund. Subsumed in this
issue is the matter of whether a municipality within the
Metropolitan Manila Area, a city, or a province may have an
additional levy on real property for the special education fund at
the rate of less than 1%.
Second, assuming that respondent correctly held that there was
a deficiency, whether respondent committed grave abuse of
discretion amounting to lack or excess or jurisdiction in holding
petitioner personally liable for the deficiency.
We find for petitioner.
Setting the rate of the additional levy for the special education
fund at less than 1% is within the taxing power of local
government units. It is consistent with the guiding constitutional
principle of local autonomy.
III
The power to tax is an attribute of sovereignty. It is inherent in
the state. Provinces, cities, municipalities, and barangays are
mere territorial and political subdivisions of the state. They act
only as part of the sovereign. Thus, they do not have the
inherent power to tax. 31 Their power to tax must be prescribed
by law. TaCEHA
Consistent with the view that the power to tax does not inhere in
local government units, this court has held that a reserved
temperament must be adhered to in construing the extent of a
local government unit's power to tax. As explained in Icard v.
City Council of Baguio: 32
It is settled that a municipal corporation
unlike a sovereign state is clothed with no
inherent power of taxation. The charter or
statute must plainly show an intent to confer
that power or the municipality, cannot
assume it. And the power when granted is
to be construed in strictissimi juris. Any
doubt or ambiguity arising out of the term
used in granting that power must be
resolved against the municipality.
Inferences, implications, deductions — all
these — have no place in the interpretation
of the taxing power of a municipal
corporation. 33 (Emphasis supplied)
Article X, Section 5 of the 1987 Constitution is the basis of the
taxing power of local government units:
Section 5. Each local government unit shall
have the power to create its own sources of
revenues and to levy taxes, fees and
charges subject to such guidelines and
limitations as the Congress may provide,
consistent with the basic policy of local
autonomy. Such taxes, fees, and charges
shall accrue exclusively to the local
governments. (Emphasis supplied)
The taxing power granted by constitutional fiat to local
government units exists in the wider context to "ensure the
autonomy of local governments." 34 As Article II, Section 25 of
the 1987 Constitution unequivocally provides:
Section 25. The State shall ensure the
autonomy of local governments.
Article II, Section 25 is complemented by Article X, Section 2:
Section 2. The territorial and political
subdivisions shall enjoy local autonomy.
The 1935 Constitution was entirely silent on local autonomy,
albeit making a distinction between executive departments,
bureaus, and offices on the one hand, and local governments on
the other. It provided that the President had control over the
former but merely "exercise[d] general supervision" 35 over the
latter. Article VII, Section 10 (1) of the 1935 Constitution provided:
SEC. 10. (1) The President shall have control
of all the executive departments, bureaus, or
offices, exercise general supervision over all
local governments as may be provided by
law, and take care that the laws be faithfully
executed. ICcaST
Similarly, the 1935 Constitution was silent on the taxing power of
local government units.
The 1973 Constitution provided for local autonomy. Article II,
Section 10 of the 1973 Constitution read:
SEC. 10. The State shall guarantee and
promote the autonomy of local government
units, especially the [barangays], to ensure
their fullest development as self-reliant
communities.
Any trend in the 1973 Constitution towards greater autonomy for
local government units "was aborted in 1972 when Ferdinand
Marcos placed the entire country under martial law [thereby]
stunt[ing] the development of local governments by centralizing
the government in Manila." 36 While local autonomy was
provided for in the 1973 Constitution, its existence was confined
to principle and theory. Practice neutered all of Article XI of
the 1973 Constitution (on local government), including Section 5
which provided for the taxing power of local government units.
Article XI, Section 5 reads:
SEC. 5. Each local government unit shall
have the power to create its own
sources of revenue and to levy
taxes, subject to such limitations as
may be provided by law.
Article X, Section 5 of the 1987 Constitution is more emphatic in
empowering local government units in the matter of taxation
compared with Article XI, Section 5 of the 1973 Constitution. In
addition to stating that local government units have the power to
tax (subject to Congressional guidelines and limitations), Article
X, Section 5 of the 1987 Constitution adds the phrase "consistent
with the basic policy of local autonomy." Further, it is definite with
the use of funds generated by local government units through the
exercise of their taxing powers, providing that "[s]uch taxes, fees,
and charges shall accrue exclusively to the local
governments." 37
Apart from administrative autonomy, an equally vital facet of local
governance under the 1987 Constitution is fiscal autonomy.
In Pimentel v. Aguirre: 38
Under existing law, local government units,
in addition to having administrative
autonomy in the exercise of their functions,
enjoy fiscal autonomy as well. Fiscal
autonomy means that local governments
have the power to create their own sources
of revenue in addition to their equitable share
in the national taxes released by the national
government, as well as the power to allocate
their resources in accordance with their own
priorities. It extends to the preparation of their
budgets, and local officials in turn have to
work within the constraints thereof. They are
not formulated at the national level and
imposed on local governments, whether they
are relevant to local needs and resources or
not. Hence, the necessity of a balancing of
viewpoints and the harmonization of
proposals from both local and national
officials, who in any case are partners in the
attainment of national goals. 39
IV
The taxing powers of local government units must be read in
relation to their power to effect their basic autonomy.
Consistent with the 1987 Constitution's declared preference, the
taxing powers of local government units must be resolved in favor
of their local fiscal autonomy. In City Government of San Pablo v.
Reyes: 40
The power to tax is primarily vested in
Congress. However, in our jurisdiction, it may
be exercised by local legislative bodies, no
longer merely by virtue of a valid delegation
as before, but pursuant to direct authority
conferred by Section 5, Article X of the
Constitution. Thus Article X, Section 5 of the
Constitution reads:
Sec. 5 — Each Local Government
unit shall have the power to create
its own sources of revenue and to
levy taxes, fees and charges
subject to such guidelines and
limitations as the Congress may
provide, consistent with the basic
policy of local autonomy. Such
taxes, fees and charges shall
accrue exclusively to the Local
Governments.
The important legal effect of Section 5 is
that henceforth, in interpreting statutory
provision on municipal fiscal powers, doubts
will have to be resolved in favor of municipal
corporations. 41 (Emphasis supplied)
Similarly, in San Juan v. Civil Service Commission, 42 this court
stated:
We have to obey the clear mandate on local
autonomy. Where a law is capable of two
interpretations, one in favor of centralized
power in Malacañang and the other
beneficial to local autonomy, the scales must
be weighed in favor of autonomy. 43
The Local Government Code was enacted pursuant to the
specific mandate of Article X, Section 3 of the 1987
Constitution 44 and its requirements of decentralization. Its
provisions, including those on local taxation, must be read in light
of the jurisprudentially settled preference for local autonomy.
V
The limits on the level of additional levy for the special education
fund under Section 235 of the Local Government Code should
be read as granting fiscal flexibility to local government
units. ACcTDS
Book II of the Local Government Code governs local taxation
and fiscal matters. Title II of Book II governs real property
taxation.
Section 235 of the Local Government Code allows provinces and
cities, as well as municipalities in Metro Manila, to collect, on top
of the basic annual real property tax, an additional levy which shall
exclusively accrue to the special education fund:
Section 235. Additional Levy on Real
Property for the Special Education Fund. —
A province or city, or a municipality within the
Metropolitan Manila Area, may levy and
collect an annual tax of one percent (1%) on
the assessed value of real property which
shall be in addition to the basic real property
tax. The proceeds thereof shall exclusively
accrue to the Special Education Fund (SEF).
(Emphasis supplied)
The special education fund is not an original creation of the Local
Government Code. It was initially devised by Republic Act No.
5447. 45 The rate of 1% is also not a detail that is original to the
Local Government Code. As discussed in Commission on Audit
v. Province of Cebu: 46
The Special Education Fund was created by
virtue of R.A. No. 5447, which is [a]n act
creating a special education fund to be
 constituted from the proceeds of an
additional real property tax and a certain
portion of the taxes on Virginia-type
cigarettes and duties on imported leaf
tobacco, defining the activities to be
financed, creating school boards for the
purpose, and appropriating funds therefrom,
which took effect on January 1, 1969.
Pursuant thereto, P.D. No. 464, also known
as the Real Property Tax Code of the
Philippines, imposed an annual tax of 1% on
real property which shall accrue to the
SEF. 47 (Citations omitted)
The operative phrase in Section 235's grant to municipalities in
Metro Manila, cities, and provinces of the power to impose an
additional levy for the special education fund is prefixed with
"may," thus, "may levy and collect an annual tax of one percent
(1%)."
In Buklod nang Magbubukid sa Lupaing Ramos, Inc. v. E.M.
Ramos and Sons, Inc. 48 the meaning of "may" was discussed
as follows:
Where the provision reads "may," this word
shows that it is not mandatory but
discretionary. It is an auxiliary verb indicating
liberty, opportunity, permission and
possibility. The use of the word "may" in a
statute denotes that it is directory in nature
and generally permissive only. 49 SEcTHA
Respondent concedes that Section 235's grant to municipalities
in Metro Manila, to cities, and to provinces of the power to impose
an additional levy for the special education fund makes its
collection optional. It is not mandatory that the levy be imposed
and collected. The controversy which the Commission on Audit
created is not whether these local government units have
discretion to collect but whether they have discretion on
the rate at which they are to collect.
It is respondent's position that the option granted to a local
government unit is limited to the matter of whether it shall actually
collect, and that the rate at which it shall collect (should it choose
to do so) is fixed by Section 235. In contrast, it is petitioner's
contention that the option given to a local government unit
extends not only to the matter of whether to collect but also to the
rate at which collection is to be made.
We sustain the position of petitioner.
Section 235's permissive language is unqualified. Moreover,
there is no limiting qualifier to the articulated rate of 1% which
unequivocally indicates that any and all special education fund
collections must be at such rate.
At most, there is a seeming ambiguity in Section 235. Consistent
with what has earlier been discussed however, any such
ambiguity must be read in favor of local fiscal autonomy. As
in San Juan v. Civil Service Commission, 50 the scales must
weigh in favor of the local government unit.
Fiscal autonomy entails "the power to create . . . own sources of
revenue." 51 In turn, this power necessarily entails enabling local
government units with the capacity to create revenue sources in
accordance with the realities and contingencies present in their
specific contexts. The power to create must mean the local
government units' power to createwhat is most appropriate and
optimal for them; otherwise, they would be mere automatons that
are turned on and off to perform prearranged operations.
Devolving power but denying its necessary incidents and
accessories is tantamount to not devolving power at all. A local
government unit with a more affluent constituency may thus
realize that it can levy taxes at rates greater than those which local
government units with more austere constituencies can collect.
For the latter, collecting taxes at prohibitive rates may be
counterproductive. High tax rates can be a disincentive for doing
business, rendering it unattractive to commerce and thereby
stunting, rather than facilitating, their development. In this sense,
insisting on uniformity would be a disservice to certain local
government units and would ultimately undermine the aims of
local autonomy and decentralization.
VI
Of course, fiscal autonomy entails "working within the
constraints." 52 To echo the language of Article X, Section 5 of
the 1987 Constitution, this is to say that the taxing power of local
government units is "subject to such guidelines and limitations as
the Congress may provide." 53 It is the 1% as a constraint on
which the respondent Commission on Audit is insisting.
There are, in this case, three (3) considerations that illumine our
task of interpretation: (1) the text of Section 235, which, to
reiterate, is cast in permissive language; (2) the seminal purpose
of fiscal autonomy; and (3) the jurisprudentially established
preference for weighing the scales in favor of autonomy of local
government units. We find it to be in keeping with harmonizing
these considerations to conclude that Section 235's specified rate
of 1% is a maximum rate rather than an immutable edict.
Accordingly, it was well within the power of the Sangguniang
Panlalawigan of Palawan to enact an ordinance providing for
additional levy on real property tax for the special education fund
at the rate of 0.5% rather than at 1%.
VII
It was an error amounting to grave abuse of discretion for
respondent to hold petitioner personally liable for the supposed
deficiency.
Having established the propriety of imposing an additional levy for
the special education fund at the rate of 0.5%, it follows that there
was nothing erroneous in the Municipality of Narra's having acted
pursuant to Section 48 of the Ordinance. It could thus not be
faulted for collecting from owners of real properties located within
its territory an annual tax as special education fund at the rate of
0.5% of the assessed value subject to tax of the property.
Likewise, it follows that it was an error for respondent to hold
petitioner personally liable for the supposed deficiency in
collections.
Even if a contrary ruling were to be had on the propriety of
collecting at a rate less than 1%, it would still not follow that
petitioner is personally liable for deficiencies.
In its Memorandum, respondent cited the 1996 case of Salalima
v. Guingona 54 as a precedent for finding local officials liable for
violations that have to do with the special education fund.
Moreover, in Decision No. 2008-087, respondent asserted that
there was "no cogent reason to exclude [petitioner] from liability
since her participation as one of the local officials who
implemented the collection of the reduced levy rate. . . led to the
loss on reduction [sic] of government income." 55 It added that,
"[c]orollary thereto, the government can also go against the
officials who are responsible for the passage of [the
Ordinance]," 56 i.e., the members of the Sangguniang
Panlalawigan of the Province of Palawan.
Respondent's reliance on Salalima and on petitioner's having
been incidentally the mayor of Narra, Palawan when supposedly
deficient collections were undertaken is misguided.
Per respondent's own summation of Salalima, in that case, this
court:
held that the governor, vice-governor and
members of the Sangguniang Panlalawigan
are collectively responsible with other
provincial officials in the administration of
fiscal and financial transactions of the
province pursuant to Sections 304 and 305
of RA 7160 for denying the other
beneficiaries of their share of the
SEF. These local officials cannot claim
ignorance of the law as to the sharing
scheme of the real property tax and the SEF
as the same is clearly provided in RA
7160. 57 (Emphasis supplied)
Salalima involved several administrative Complaints filed before
the Office of the President against the elective officials of the
Province of Albay. One of these — OP Case No. 5470 — was a
Complaint for malversation, and "consistent [and] habitual
violation of pars. (c) and (d) of Section 60 of [the Local
Government Code]" 58 which was filed by Tiwi, Albay Mayor
Naomi Corral against Albay Governor Romeo Salalima, Vice-
Governor Danilo Azaña, and other Sangguniang Panlalawigan
members.
This Complaint was precipitated by the refusal of the provincial
officials of Albay to make available to the Municipality of Tiwi,
Albay its share in the collections of the special education fund.
This was contrary to Section 272 of the Local Government
Code 59 which requires equal sharing between provincial and
municipal school boards. Specifically, it was found that the
Sangguniang Panlalawigan passed Ordinance No. 09-92, which
declared as forfeited in favor of the Province of Albay (and to the
exclusion of the municipalities in Albay) all payments made by the
National Power Corporation to the former pursuant to a
memorandum of agreement through which the National Power
Corporation settled its real property tax obligations.
As regards the personal liability of the respondents in that case,
the Office of the President was quoted to have anchored on the
following disquisition its imposition of the penalty of
suspension on the respondent provincial officials: AaDSTH
It cannot be denied that the Sangguniang
Panlalawigan has control over the Province's
'purse' as it may approve or not resolutions
or ordinances generating revenue or
imposing taxes as well as appropriating and
authorizing the disbursement of funds to
meet operational requirements or for the
prosecution of projects.
Being entrusted with such responsibility, the
provincial governor, vice-governor and the
members of the Sangguniang Panlalawigan,
must always be guided by the so-called
'fundamental' principles enunciated
under the Local Government Code[.] . . .
All the respondents could not claim
ignorance of the law especially with respect
to the provisions of P.D. No. 464 that lay
down the sharing scheme among local
government units concerned and the
national government, for both the basic real
property tax and additional tax pertaining to
the Special Education Fund. Nor can they
claim that the Province could validly forfeit
the P40,724,471.74 paid by NPC
considering that the Province is only entitled
to a portion thereof and that the balance was
merely being held in trust for the other
beneficiaries.
As a public officer, respondent Azaña (and
the other respondents as well) has a duty to
protect the interests not only of the Province
but also of the municipalities of Tiwi and
Daraga and even the national government.
When the passage of an illegal or unlawful
ordinance by the Sangguniang Panlalawigan
is imminent, the presiding officer has a duty
to act accordingly, but actively opposing the
same by temporarily relinquishing his chair
and participating in the deliberations. If his
colleagues insist on its passage, he should
make known his opposition thereto by
placing the same on record. No evidence of
any sort was shown in this regard by
respondent Azaña.
Clearly, all the respondents have, whether by
act or omission, denied the other
beneficiaries of their rightful shares in the tax
delinquency payments made by the NPC and
caused the illegal forfeiture, appropriation
and disbursement of funds not belonging to
the Province, through the passage and
approval of Ordinance No. 09-92 and
Resolution Nos. 178-92 and 204-92.
The foregoing factual setting shows a
wanton disregard of law on the part of the
respondents tantamount to abuse of
authority. Moreover, the illegal
disbursements made can qualify as
technical malversation. 60
It is evident that the circumstances in Salalima are not analogous
to the circumstances pertinent to petitioner.
While Salalima involved the mishandling of proceeds which was
"tantamount to abuse of authority" and which "can qualify as
technical malversation," this case involves the collection of the
additional levy for the special education fund at a rate which, at
the time of the collection, was pursuant to an ordinance that was
yet to be invalidated.
Likewise, Salalima involved the liability of the provincial officials
who were themselves the authors of an invalid ordinance. In this
case, the Municipality of Narra — as subordinate to the Province
of Palawan — merely enforced a provincial ordinance.
Respondent, in its own Memorandum, acknowledged that it was
not even petitioner but the municipal treasurer who actually
effected the collection at a supposedly erroneous rate. 61
Also, Salalima entailed the imposition of the administrative
penalty of suspension. In this case, respondent is not concerned
with the imposition of administrative penalties but insists that
petitioner must herself (jointly and severally with the other
persons named) pay for the deficiency in collections.
We find it improper to hold petitioner personally liable for the
uncollected amount on account of the sheer happenstance that
she was the mayor of Narra, Palawan, when the Ordinance was
enforced.
 VIII
The actions of the officials of the Municipality of Narra are
consistent with the rule that ordinances are presumed valid. In
finding liability, respondent suggests that officers of the
Municipality should not comply with an ordinance duly passed by
the Sangguniang Panlalawigan.
It is true that petitioner, as the local chief executive, was charged
with fidelity to our laws. However, it would be grossly unfair to
sustain respondent's position. It implacably dwells on supposed
non-compliance with Section 235 but turns a blind eye on the
context which precipitated the collection made by the Municipality
of Narra at the reduced rate of 0.5%.
The mayor's actions were done pursuant to an ordinance which,
at the time of the collection, was yet to be invalidated.
It is basic that laws and local ordinances are "presumed to be valid
unless and until the courts declare the contrary in clear and
unequivocal terms." 62 Thus, the concerned officials of the
Municipality of Narra, Palawan must be deemed to have
conducted themselves in good faith and with regularity when they
acted pursuant to Chapter 5, Section 48 of Provincial Ordinance
No. 332-A, Series of 1995, and collected the additional levy for
the special education fund at the rate of 0.5%. Accordingly, it was
improper for respondent to attribute personal liability to petitioner
and to require her to personally answer to the deficiency in special
education fund collections. IEAHca
WHEREFORE, the Petition is GRANTED. Decision No. 2008-087
dated September 22, 2008 and Decision No. 2011-083 dated
November 16, 2011 of respondent Commission on Audit
are ANNULLED and SET ASIDE.
SO ORDERED.

||| (Demaala v. Commission on Audit, G.R. No. 199752,

[February 17, 2015])

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