Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17725

February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants.
Office of the Solicitor General for plaintiff-appellee.
Arthur Tordesillas for defendants-appellants.
BARRERA, J.:
From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to pay
to plaintiff Republic of the Philippines the sum of P4,802.37 with 6% interest thereon from the date of
the filing of the complaint until fully paid, plus costs, defendant Mambulao Lumber Company
interposed the present appeal.1
The facts of the case are briefly stated in the decision of the trial court, to wit: .
The facts of this case are not contested and may be briefly summarized as follows: (a) under
the first cause of action, for forest charges covering the period from September 10, 1952 to
May 24, 1953, defendants admitted that they have a liability of P587.37, which liability is
covered by a bond executed by defendant General Insurance & Surety Corporation for
Mambulao Lumber Company, jointly and severally in character, on July 29, 1953, in favor of
herein plaintiff; (b) under the second cause of action, both defendants admitted a joint and
several liability in favor of plaintiff in the sum of P296.70, also covered by a bond dated
November 27, 1953; and (c) under the third cause of action, both defendants admitted a joint
and several liability in favor of plaintiff for P3,928.30, also covered by a bond dated July 20,
1954. These three liabilities aggregate to P4,802.37. If the liability of defendants in favor of
plaintiff in the amount already mentioned is admitted, then what is the defense interposed by
the defendants? The defense presented by the defendants is quite unusual in more ways
than one. It appears from Exh. 3 that from July 31, 1948 to December 29, 1956, defendant
Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for
'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948,
said defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'.
These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115
which provides that there shall be collected, in addition to the regular forest charges provided
under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code,
the amount of P0.50 on each cubic meter of timber... cut out and removed from any public
forest for commercial purposes. The amount collected shall be expended by the director of
forestry, with the approval of the secretary of agriculture and commerce, for reforestation and
afforestation of watersheds, denuded areas ... and other public forest lands, which upon
investigation, are found needing reforestation or afforestation .... The total amount of the
reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the

contention of the defendant Mambulao Lumber Company that since the Republic of the
Philippines has not made use of those reforestation charges collected from it for reforesting
the denuded area of the land covered by its license, the Republic of the Philippines should
refund said amount, or, if it cannot be refunded, at least it should be compensated with what
Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges.
In line with this thought, defendant Mambulao Lumber Company wrote the director of
forestry, on February 21, 1957 letter Exh. 1, in paragraph 4 of which said defendant
requested "that our account with your bureau be credited with all the reforestation charges
that you have imposed on us from July 1, 1947 to June 14, 1956, amounting to around
P2,988.62 ...". This letter of defendant Mambulao Lumber Company was answered by the
director of forestry on March 12, 1957, marked Exh. 2, in which the director of forestry
quoted an opinion of the secretary of justice, to the effect that he has no discretion to extend
the time for paying the reforestation charges and also explained why not all denuded areas
are being reforested.
The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendantappellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off or
applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant to
appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the
reforestation of the area covered by its license, the same is refundable to it or may be applied in
compensation of said sum of P4,802.37 due from it as forest charges.
1wph1.t

We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides:
SECTION 1. There shall be collected, in addition to the regular forest charges provided for
under Section two hundred and sixty-four of Commonwealth Act Numbered Four Hundred
Sixty-six, known as the National Internal Revenue Code, the amount of fifty centavos on
each cubic meter of timber for the first and second groups and forty centavos for the third
and fourth groups cut out and removed from any public forest for commercial purposes. The
amount collected shall be expended by the Director of Forestry, with the approval of the
Secretary of Agriculture and Natural Resources (commerce), for reforestation and
afforestation of watersheds, denuded areas and cogon and open lands within forest
reserves, communal forest, national parks, timber lands, sand dunes, and other public forest
lands, which upon investigation, are found needing reforestation or afforestation, or needing
to be under forest cover for the growing of economic trees for timber, tanning, oils, gums,
and other minor forest products or medicinal plants, or for watersheds protection, or for
prevention of erosion and floods and preparation of necessary plans and estimate of costs
and for reconnaisance survey of public forest lands and for such other expenses as may be
deemed necessary for the proper carrying out of the purposes of this Act.
All revenues collected by virtue of, and pursuant to, the provisions of the preceding
paragraph and from the sale of barks, medical plants and other products derived from
plantations as herein provided shall constitute a fund to be known as Reforestation Fund, to
be expended exclusively in carrying out the purposes provided for under this Act. All
provincial or city treasurers and their deputies shall act as agents of the Director of Forestry
for the collection of the revenues or incomes derived from the provisions of this Act.
(Emphasis supplied.)

Under this provision, it seems quite clear that the amount collected as reforestation charges from a
timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund, and
that the same shall be expended by the Director of Forestry, with the approval of the Secretary of
Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded
areas which, upon investigation, are found to be needing reforestation or afforestation. Note that
there is nothing in the law which requires that the amount collected as reforestation charges should
be used exclusively for the reforestation of the area covered by the license of a licensee or
concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the
licensee's area may or may not be reforested at all, depending on whether the investigation thereof
by the Director of Forestry shows that said area needs reforestation. The conclusion seems to be
that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a
part of the Reforestation Fund, payable by him irrespective of whether the area covered by his
license is reforested or not. Said fund, as the law expressly provides, shall be expended in carrying
out the purposes provided for thereunder, namely, the reforestation or afforestation, among others, of
denuded areas needing reforestation or afforestation.
Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code 2 is
applicable, such that the sum of P9,127.50 paid by it as reforestation charges may compensate its
indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we take of this
case, appellant and appellee are not mutually creditors and debtors of each other. Consequently, the
law on compensation is inapplicable. On this point, the trial court correctly observed: .
Under Article 1278, NCC, compensation should take place when two persons in their own
right are creditors and debtors of each other. With respect to the forest charges which the
defendant Mambulao Lumber Company has paid to the government, they are in the coffers
of the government as taxes collected, and the government does not owe anything, crystal
clear that the Republic of the Philippines and the Mambulao Lumber Company are not
creditors and debtors of each other, because compensation refers to mutual debts. ..
And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in
question, can be the subject of set-off or compensation.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state or municipality to one who
is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or transaction sued on. ... (80 C.J.S. 73-74. ) .
The general rule, based on grounds of public policy is well-settled that no set-off is
admissible against demands for taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes are not in the nature of contracts
between the party and party but grow out of a duty to, and are the positive acts of the
government, to the making and enforcing of which, the personal consent of individual
taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called
upon by the Collector, because he has a claim against the governmental body which is not
included in the tax levy, it is plain that some legitimate and necessary expenditure must be
curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide
the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown
into great confusion. (47 Am. Jur. 766-767.)

WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects, with
costs against the defendant-appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon and
De Leon, JJ., concur.
Footnotes
Originally appealed to the Court of Appeals, but later certified to us by said court, on the
ground that it involves questions of law only.
1

"ART. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other."
2

REPUBLIC
vs.
MAMBULAO LUMBER G.R. No. L-17725, February 28, 1962

FACTS:
Defendant-appellant company paid P9,127.50 to plaintiff-appellee as reforestation
charges from 1947 to 1956. It seeks to set off or applied to the payment of the sum
of P4,802.37 as forest charges due and owing from appellant to appellee. It is
appellant's contention that said sum of P9,127.50, not having been used in the
reforestation of the area covered by its license, the same is refundable to it or may
be applied in compensation of said sum of P4,802.37 due from it as forest charges.
Appellant maintains that the principle of a compensation in Article 1278 of the new
Civil Code is applicable, such that the sum of P9,127.50 paid by it as reforestation
charges may compensate its indebtedness to appellee in the sum of P4,802.37 as
forest charges.
ISSUE: Whether or not set off or compensation is admissible against demand for
taxes levied.
But in the view we take of this case, appellant and appellee are not mutually
creditors and debtors of each other. Consequently, the law on compensation is
inapplicable. On this point, the trial court correctly observed: . Under Article 1278,
NCC, compensation should take place when two persons in their own right are
creditors and debtors of each other. With respect to the forest charges which the
defendant Mambulao Lumber Company has paid to the government, they are in the
coffers of the government as taxes collected, and the government does not owe
anything, crystal clear that the Republic of the Philippines and the Mambulao
Lumber Company are not creditors and debtors of each other, because

compensation refers to mutual debts. .. The general rule, based on grounds of

public policy is well-settled that no set-off is admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and
party but grow out of a duty to, and are the positive acts of the government, to the
making and enforcing of which, the personal consent of individual taxpayers is not
required. ... If the taxpayer can properly refuse to pay his tax when called upon by
the Collector, because he has a claim against the governmental body which is not
included in the tax levy, it is plain that some legitimate and necessary expenditure
must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must
await and abide the result of a lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion. (47 Am. Jur. 766-767.)

FIRST DIVISION

[G.R. No. 144486. April 13, 2005]

RADIO
COMMUNICATIONS
OF
THE
PHILIPPINES,
INC.
(RCPI), petitioner, vs. PROVINCIAL ASSESOR OF SOUTH
COTABATO, PROVINCIAL TREASURER OF SOUTH COTABATO,
MUNICIPAL ASSESSOR OF TUPI, SOUTH COTABATO, and
MUNICIPAL
TREASURER
OF
TUPI,
SOUTH
COTABATO, respondents.
DECISION
CARPIO, J.:

The Case
This is a petition for review[1] to set aside the Decision[2] dated 29 March 2000 of the
Court of Appeals (appellate court) in CA-G.R. SP No. 47446. The appellate court
modified the ruling of the Central Board of Assessment Appeals (CBAA) and exempted
petitioner Radio Communications of the Philippines, Inc. (RCPI) from paying real
property tax assessed on its machinery and radio equipment mounted on its relay
station tower as accessories. However, the appellate court held RCPI liable for real
property tax on its radio station building, machinery shed, and relay station tower.
The Facts

In 1957, Republic Act No. 2036 (RA 2036) [3] granted RCPI a fifty-year franchise.
Section 14 of RA 2036, as amended by Republic Act No. 4054 (RA 4054) in 1964,
reads:

Sec. 14. In consideration of the franchise and rights hereby granted and any provision
of law to the contrary notwithstanding, the grantee shall pay the same taxes as are
now or may hereafter be required by law from other individuals, copartnerships,
private, public or quasi-public associations, corporations or joint stock companies, on
real estate, buildings and other personal property except radio equipment, machinery
and spare parts needed in connection with the business of the grantee, which shall be
exempt from customs duties, tariffs and other taxes, as well as those properties
declared exempt in this section. In consideration of the franchise, a tax equal to one
and one-half per centum of all gross receipts from the business transacted under this
franchise by the grantee shall be paid to the Treasurer of the Philippines each year,
within ten days after the audit and approval of the accounts as prescribed in this
Act. Said tax shall be in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any authority whatsoever,
municipal, provincial or national, from which taxes the grantee is hereby
expressly exempted. (Emphasis supplied)
On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI
real property taxes from 1981 to 1985. [4] The municipal treasurer demanded that RCPI
payP166,810 as real property tax on its radio station building in Barangay Kablon, as
well as on its machinery shed, radio relay station tower and its accessories, and
generating sets, based on the following tax declarations: [5]
1. Tax Declaration No. 7639

Radio station building

2. Tax Declaration No. 7640

Machinery shed

3. Tax Declaration No. 7641

Radio relay station tower and

accessories (100 feet high)

Two (2) units machinery [lister generating

set]

4. Tax Declaration No. 7642

RCPI protested the assessment before the Local Board of Assessment Appeals
(LBAA).[6] RCPI claimed that all its assessed properties are personal properties and thus
exempt from the real property tax. Assuming that the assessed properties are real
property, they are still exempt from real property taxes. Section 3 of Presidential Decree
No. 464 (PD 464) states that to be taxable, the machinery should be attached to the real
estate and essential for manufacturing, commercial, mining, industrial, or agricultural
purposes. RCPI claimed that the assessed properties are not used for manufacturing,
commercial, mining, industrial, or agricultural purposes. Besides, the assessed
properties are attached to a building on a lot not owned by RCPI.

RCPI also pointed out that its franchise exempts RCPI from paying any and all
taxes of any kind, nature or description in exchange for its payment of tax equal to one
and one-half per cent on all gross receipts from the business conducted under its
franchise. RCPI further claimed that any deviation from its franchise would violate the
non-impairment of contract clause of the Constitution. Finally, RCPI stated that the
value of the properties assessed has depreciated since their acquisition in the 1960s.
The Provincial Assessor of South Cotabato (provincial assessor) opposed RCPIs
claims on all points. The provincial assessor insisted that the assessed properties are
subject to the real property tax.
The Ruling of the Local Board of Assessment Appeals
In its Decision[7] dated 19 May 1995, the LBAA of Koronadal, South Cotabato
affirmed the notices of assessment as valid and consistent with the law. The properties
covered by Tax Declaration Nos. 7639, 7640, 7641 and 7642 are real properties for
purposes of real property taxation under PD 464. The in lieu of all taxes clause in RCPIs
franchise does not exempt its properties from the real property tax. Finally, despite its
protests, RCPI did not submit evidence as to the date of acquisition, acquisition cost,
and condition of the assessed properties to support its claim of depreciation. The LBAA,
in the absence of contrary evidence, relied on the validity of the Notice of Assessment
and on the presumption that official duty has been regularly performed. The dispositive
portion of the LBAAs decision reads:

WHEREFORE, the appellant is hereby ordered to pay the real property taxes,
inclusive of all penalties, surcharges and interest accruing as of the date of actual
payment, on the properties covered by Tax Declaration Nos. 7639, 7640, 7641, and
7642, as computed.
SO ORDERED.[8]
RCPI appealed to the CBAA.[9] RCPI maintained that the in lieu of all taxes clause in
its franchise forecloses the imposition of taxes other than the franchise tax. RCPI also
reiterated its arguments before the LBAA. Respondent assessors repeated their
opposition to RCPIs appeal.
The Ruling of the Central Board of Assessment Appeals
In its Decision[10] dated 7 November 1996, the CBAA dismissed RCPIs appeal. The
CBAA held that RCPIs liability for the franchise tax does not exempt RCPI from the real
property tax. Under RCPIs franchise, only personal properties such as radio equipment,
machinery and spare parts are exempt from customs duties, tariffs and other taxes. The
CBAA ruled that RCPI was liable for the real property tax on the assessed properties.
RCPI could also not invoke the non-impairment of contract clause since no legal right of
RCPI was violated. The dispositive portion of the CBAAs decision reads:

WHEREFORE, the Decision rendered by the Local Board of Assessment Appeals of

the Province of South Cotabato, dated 19 May 1995, is hereby AFFIRMED and the
instant appeal is hereby DISMISSED.
SO ORDERED.[11]
The Ruling of the Court of Appeals
RCPI filed its petition for review of the CBAA ruling before the appellate court. In its
Decision[12] dated 29 March 2000, the appellate court modified the CBAA ruling. The
appellate court ruled that Section 14 of RA 2036, as amended by RA 4054, clearly
exempts RCPI from tax on radio equipment, machinery, and spare parts needed in
connection with its business. Therefore, RCPI is not liable for real property tax on the
generating sets, and on its radio relay station tower and its accessories consisting of
two units of UHF communication equipment, power distribution unit boar, and battery
charger, which are actually varying types of radio equipment. The appellate court
explained thus:

The tower upon which these different types of radio equipment are mounted or
attached is, however, subject to real property tax since a tower is not strictly a radio
equipment as it only serves as a support for antennas or other communication
equipment mounted thereon for the transmission and reception of radio signals
(Colliers Encyclopedia, Vol. 22, p. 127). Nor could it be classified as machinery,
which is a combination of mechanical devices (26 Words and Phrases, p. 7), for
without attachments to it, a tower is merely a structure designed primarily with a view
to elevation (Websters New International Dictionary of the English Language, 2 nd Ed.,
Unabridged).
As RCPIs tax exemption covers only its radio equipment, machinery, and spare parts
essential to its business, it is liable for realty tax on its radio station building. The
machinery shed is likewise taxable as the same is a kind of real property falling within
the classification of buildings or permanent structures intended to shelter human
beings or domestic animals, or to receive, retain, or confine the goods in which a
person deals, or to house the tools or machinery he uses, or the persons he employs in
his business (5 Words and Phrases, p. 877).[13]
The dispositive portion of the appellate courts decision reads:

WHEREFORE, the decision of the Central Board of Assessment Appeals is hereby

MODIFIED. Petitioner is declared exempt from paying the real property taxes
assessed upon its machinery and radio equipment mounted as accessories to its relay
tower. The decision assessing taxes upon petitioners radio station building, machinery
shed, and relay station tower is, however, AFFIRMED. [14]

RCPI filed a partial motion for reconsideration, claiming that its exemption from real
property tax applies to the radio relay station tower, the radio station building, and the
machinery shed.[15] The appellate court denied the motion. [16]
The Issues
RCPI filed its petition for review before this Court. RCPI presented the following
issues for resolution:
1. The appellate court erred when it excluded RCPIs tower, relay station building and
machinery shed from tax exemption; and
2. The appellate court erred when it did not resolve the issue of nullity of the tax
declarations and assessments due to non-inclusion of depreciation allowance.[17]

The Ruling of the Court

Exemption from Real Property Tax
Respondents assert that RCPI not only changed its arguments, RCPI also made
incorrect arguments. RCPI earlier maintained that its radio relay station tower, radio
station building, and machinery shed are personal properties and are thus not subject to
the real property tax. RCPI now argues that its radio relay station tower, radio station
building, and machinery shed are tax-exempt because of the in lieu of all taxes clause in
its franchise, which exempts RCPI from the real estate tax.
RCPI contends that the in lieu of all taxes clause in its amended franchise exempts
it from paying all taxes other than franchise tax. It is thus no longer necessary to
determine whether the tower, relay station building, and machinery shed are radio
equipment for purposes of exemption from the real estate tax.
RCPI also states that legislative enactments during the pendency of this petition
caused it to lose and then regain its tax-exempt status. RCPI enumerated thus:

First, Congress passed the Local Government Code that withdrew all the tax
exemptions existing at the time of its passageincluding that of RCPIs.
Second, Congress enacted the franchise of telecommunications companies, such as
Islacom, Bell, Island Country, IslaTel, TeleTech, Major Telecoms, and Smart, with the
in lieu of all taxes proviso.
Third, Congress passed RA 7925 entitled An Act to Promote and Govern the
Development of Philippine Telecommunications and the Delivery of Public
Telecommunications Services which, through Section 23, mandated the equality of
treatment of service providers in the telecommunications industry.[18]
We are not persuaded.

As found by the appellate court, RCPIs radio relay station tower, radio station
building, and machinery shed are real properties and are thus subject to the real
property tax. Section 14 of RA 2036, as amended by RA 4054, states that [i]n
consideration of the franchise and rights hereby granted and any provision of law to the
contrary notwithstanding, the grantee shall pay the same taxes as are now or may
hereafter be required by law from other individuals, copartnerships, private, public or
quasi-public associations, corporations or joint stock companies, on real estate,
buildings and other personal property x x x. [19] The clear language of Section 14
states that RCPI shall pay the real estate tax.
The in lieu of all taxes clause in Section 14 of RA 2036, as amended by RA 4054,
cannot exempt RCPI from the real estate tax because the same Section 14 expressly
states thatRCPI shall pay the same taxes x x x on real estate, buildings x x x. The in
lieu of all taxes clause in the third sentence of Section 14 cannot negate the first
sentence of the same Section 14, which imposes the real estate tax on RCPI. The Court
must give effect to both provisions of the same Section 14. This means that the real
estate tax is an exception to the in lieu of all taxes clause.
Subsequent legislations have radically amended the in lieu of all taxes clause in
franchises of public utilities. As RCPI correctly observes, the Local Government Code of
1991 withdrew all the tax exemptions existing at the time of its passage including
that of RCPIs with respect to local taxes like the real property tax. Also, Republic Act
No. 7716 (RA 7716) abolished the franchise tax on telecommunications companies
effective 1 January 1996. To replace the franchise tax, RA 7716 imposed a 10 percent
value-added-tax on telecommunications companies under Section 102 [20] of the National
Internal Revenue Code. The present state of the law on the in lieu of all taxes clause in
franchises of telecommunications companies was summarized as follows:

The existing legislative policy is clearly against the revival of the in lieu of all taxes
clause in franchises of telecommunications companies. After the VAT on
telecommunications companies took effect on January 1, 1996, Congress never again
included the in lieu of all taxes clause in any telecommunications franchise it
subsequently approved. Also, from September 2000 to July 2001, all the fourteen
telecommunications franchises approved by Congress uniformly and expressly state
that the franchisee shall be subject to all taxes under the National Internal Revenue
Code, except the specific tax. The following is substantially the uniform tax provision
in these fourteen franchises:
Tax Provisions. The grantee, its successors or assigns, shall be subject to the payment
of all taxes, duties, fees, or charges and other impositions under the National Internal
Revenue Code of 1997, as amended, and other applicable laws: Provided, That
nothing herein shall be construed as repealing any specific tax exemptions, incentives
or privileges granted under any relevant law: Provided, further, That all rights,
privileges, benefits and exemptions accorded to existing and future
telecommunications entities shall likewise be extended to the grantee.

Thus, after the imposition of the VAT on telecommunications companies, Congress

refused to grant any tax exemption to telecommunications companies that sought new
franchises from Congress, except the exemption from specific tax. More importantly,
the uniform tax provision in these new franchises expressly states that the franchisee
shall pay not only all taxes, except specific tax, under the National Internal Revenue
Code, but also all taxes under other applicable laws. One of the other applicable
laws is the Local Government Code of 1991, which empowers local governments to
impose a franchise tax on telecommunications companies. This, to reiterate, is the
existing legislative policy.[21]
RCPI cannot also invoke the equality of treatment clause under Section 23 of Republic
Act No. 7925.[22] The franchises of Smart,[23] Islacom,[24] TeleTech,[25] Bell,[26] Major
Telecoms,[27] Island Country,[28] and IslaTel,[29] all expressly declare that the franchisee
shall pay the real estate tax, using words similar to Section 14 of RA 2036, as
amended. The provisions of these subsequent telecommunication franchises imposing
the real estate tax on franchisees only confirm that RCPI is subject to the real estate
tax. Otherwise, RCPI will stick out like a sore thumb, being the only telecommunications
company exempt from the real estate tax, in mockery of the spirit of equality of
treatment that RCPI is invoking, not to mention the violation of the constitutional rule on
uniformity of taxation.
It is an elementary rule in taxation that exemptions are strictly construed against the
taxpayer and liberally in favor of the taxing authority. It is the taxpayers duty to justify the
exemption by words too plain to be mistaken and too categorical to be misinterpreted. [30]
Exclusion of Depreciation Allowance
RCPI contends that the tax declarations and assessments covering its radio relay
station tower, radio station building, and machinery shed are void because the
assessors did not consider depreciation allowance in their assessments.
We have examined the records of this case and found that RCPI raised before the
LBAA and the CBAA the nullity of the assessments due to the non-inclusion of
depreciation allowance. Therefore, RCPI did not raise this issue for the first time.
However, even if we consider this issue, under the Real Property Tax Code depreciation
allowance applies only to machinery and not to real property.[31]
WHEREFORE, we DENY the petition. We AFFIRM the Decision of the Court of
Appeals in CA-G.R. SP No. 47446 dated 29 March 2000.
SO ORDERED.
Davide,
JJ., concur.

Jr.,

C.J.,

(Chairman),

Quisumbing,

Ynares-Santiago, and Azcuna,

RCPI v. Provincial Assesor of South Cotabato, et. al.

Chester Cabalza recommends his visitors to please read the original & full text of
the case cited. Xie xie!

G.R. No. 144486. April 13, 2005

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), Petitioner,

vs.
PROVINCIAL ASSESOR OF SOUTH COTABATO, PROVINCIAL TREASURER OF SOUTH
COTABATO, MUNICIPAL ASSESSOR OF TUPI, SOUTH COTABATO, and MUNICIPAL
TREASURER OF TUPI, SOUTH COTABATO, Respondents.

Facts:

R.A. No. 2036 of 1957, as amended by R.A. No. 4054, granted RCPI a 50-year
franchise. Thus, Sec. 14 of the amended law, in gist, provides that the grantee shall
pay the same taxes as may be required by law. Said tax shall be in lieu of any and
all taxes of any kind, nature or description levied, established or collected by any
authority whatsoever, municipal, provincial or national, from which taxes the
grantee is hereby expressly exempted.

On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI real
property taxes from 1981 to 1985. The municipal treasurer demanded that RCPI pay
P166,810 as real property tax on its radio station building in Barangay Kablon, as

well as on its machinery shed, radio relay station tower and its accessories, and
generating sets, based on the following tax declarations.

RCPI protested the assessment before the Local Board of Assessment Appeals
(LBAA') and claimed that all its assessed properties are personal properties and thus
exempt from the real property tax. It also pointed out that its franchise exempts
RCPI from 'paying any and all taxes of any kind, nature or description in exchange
for its payment of tax equal to one and one-half per cent on all gross receipts from
the business conducted under its franchise. It further claimed that any deviation
from its franchise would violate the non-impairment of contract clause of the
Constitution. Finally, RCPI stated that the value of the properties assessed has
depreciated since their acquisition in the 1960s.

The Provincial Assessor of South Cotabato opposed RCPI's claims on all points.
The Local Board of Assessment Appeals ruled that appellant is ordered to pay the
real property taxes, inclusive of all penalties, surcharges and interest accruing as of
the date of actual payment, on the properties covered; in which the Central Board of
Assessment Appeals affirmed.

The Appelate Court ruled that decision of the Central Board of Assessment Appeals
is hereby MODIFIED. Petitioner is declared exempt from paying the real property
taxes assessed upon its machinery and radio equipment mounted as accessories to
its relay tower. The decision assessing taxes upon petitioner's radio station building,
machinery shed, and relay station tower is, however, affirmed.

Issues:

1. Whether the appellate court erred when it excluded RCPI's tower, relay station
building, and machinery shed from tax exemption; and

2. Whether the appellate court erred when it did not resolve the issue of nullity of
the tax declarations and assessments due to non-inclusion of depreciation
allowance.

Held:

Exemption from Real Property Tax

First, Congress passed the Local Government Code that withdrew all the tax
exemptions existing at the time of its passage including that of RCPI's. Second,
Congress enacted the franchise of telecommunications companies, such as Islacom,
Bell, Island Country, IslaTel, TeleTech, Major Telecoms, and Smart, with the 'in lieu of
all taxes' proviso. Third, Congress passed RA 7925 entitled 'An Act to Promote and
Govern the Development of Philippine Telecommunications and the Delivery of
Public Telecommunications Services' which, through Section 23, mandated the
equality of treatment of service providers in the telecommunications industry.

The existing legislative policy is clearly against the revival of the 'in lieu of all taxes'
clause in franchises of telecommunications companies. After the VAT on
telecommunications companies took effect on January 1, 1996, Congress never
again included the 'in lieu of all taxes' clause in any telecommunications franchise it
subsequently approved. RCPI cannot also invoke the equality of treatment clause
under Section 23 of Republic Act No. 7925. The franchises of the petitioners all
expressly declare that the franchisee shall pay the real estate tax, using words
similar to Section 14 of RA 2036, as amended.

It is an elementary rule in taxation that exemptions are strictly construed against

the taxpayer and liberally in favor of the taxing authority. It is the taxpayer's duty to
justify the exemption by words too plain to be mistaken and too categorical to be
misinterpreted.

Exclusion of Depreciation Allowance

RCPI contends that the tax declarations and assessments covering its radio relay
station tower, radio station building, and machinery shed are void because the
assessors did not consider depreciation allowance in their assessments. The Court
have examined the records of this case and found that RCPI raised before the LBAA
and the CBAA the nullity of the assessments due to the non-inclusion of
depreciation allowance. Therefore, RCPI did not raise this issue for the first time.
However, even if the court considers this issue, under the Real Property Tax Code
depreciation allowance applies only to machinery and not to real property.

The petition is denied and affirmed the decision of the Court of Appeals.