CITY

OF
REPRESENTED
. No. 185023
BY THE CITY TREASURER and
THE CITY ASSESSOR,
Petitioner,Present:,
- versus -

PASIG,
G.R

the government and is thus exempt

from the payment of real property
tax, thus:

REPUBLIC OF THE PHILIPPINES,

REPRESENTED BY THE
PRESIDENTIAL COMMISSION ON
GOOD
GOVERNMENT,
Promulgated:
Respondent.
August 24, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------------x
DECISION
xxxx
Even as the Republic of the Philippines is now
the owner of the properties in view of the
voluntary surrender of MPLDC by its former
registered owner, Campos, to the State, such
transfer does not prevent a third party with a
better right from claiming such properties in the
proper forum. In the meantime, the Republic of
the Philippines is the presumptive owner of the
properties for taxation purposes.
Section 234(a) of Republic Act No. 7160 states
that properties owned by the Republic of the
Philippines are exempt from real property tax
except when the beneficial use thereof
has been granted, for consideration or
otherwise, to a taxable person. Thus, the
portions of the properties not leased to taxable
entities are exempt from real estate tax while
the portions of the properties leased to taxable
entities are subject to real estate tax. The law
imposes the liability to pay real estate tax on
the Republic of the Philippines for the portions
of the properties leased to taxable entities. It is,
of course, assumed that the Republic of the
Philippines passes on the real estate tax as part
of the rent to the lessees.
In Philippine Fisheries Development Authority v.
Central Board of Assessment Appeals,12 the
Court held:
In the 2007 case of Philippine Fisheries
Development Authority v. Court of
Appeals, the Court resolved the issue of
whether the PFDA is a governmentowned or controlled corporation or an
instrumentality
of
the
national
government. In that case, the City of
Iloilo assessed real property taxes
on the Iloilo Fishing Port Complex
(IFPC), which was managed and
operated by PFDA. The Court held
that PFDA is an instrumentality of

The Court rules that the

Authority is not a GOCC but
an instrumentality of the
national government which is
generally
exempt
from
payment of real property tax.
However,
said
exemption
does not apply to the portions
of
the
IFPC
which
the
Authority leased to private
entities. With respect to
these
properties,
the
Authority is liable to pay
property tax. Nonetheless, the
IFPC, being a property of public
dominion cannot be sold at public
auction to satisfy the tax
delinquency.

This ruling was affirmed by the Court in a

subsequent
PFDA
case
involving
the Navotas Fishing Port Complex, which is also
managed and operated by the PFDA. In
consonance with the previous ruling, the Court
held in the subsequent PFDA case that the
PFDA is a government instrumentality not
subject to real property tax except those
portions
of
the NavotasFishing
Port
Complex that were leased to taxable or
private persons and entities for their
beneficial use.
Similarly, we hold that as a government
instrumentality, the PFDA is exempt from
real
property
tax
imposed
on
the Lucena Fishing Port Complex, except
those portions which are leased to private
persons or entities.13 (Emphasis supplied)
In Government Service Insurance System v. City
Treasurer of the City of Manila,14 the Court held:
x x x The tax exemption the property
of
the
Republic
or
its
instrumentalities
carries
ceases
only if, as stated in Sec. 234(a) of
the LGC of 1991, beneficial use
thereof has been granted, for a
consideration or otherwise, to a
taxable
person. GSIS,
as
a
government instrumentality, is not a
taxable juridical person under Sec.
133(o) of the LGC. GSIS, however, lost
in a sense that status with respect
to the Katigbak property when it
contracted its beneficial use to
MHC, doubtless a taxable person.
Thus,
the
real
estate
tax
assessment
of Php54,826,599.37
covering 1992 to 2002 over the
subject Katigbak property is valid
insofar as said tax delinquency is

concerned as assessed over said

property.15 (Emphasis supplied)

non-paying, are exempt from real

property taxes.19 (Emphasis supplied)

In Manila International Airport Authority v. Court

of Appeals,16 the Court held:

Article 420 of the Civil Code classifies as

properties of public dominion those that are
intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads and
those that are intended for some public service
or for the development of the national wealth.
Properties of public dominion are not only
exempt from real estate tax, they are exempt
from sale at public auction. In Heirs of
Mario Malabanan v. Republic,20 the Court held
that, It is clear that property of public
dominion, which generally includes property
belonging to the State, cannot be x x x subject
of the commerce of man.21

x x x 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.17 (Emphasis supplied)
In Lung Center of the Philippines v. Quezon
City,18 the Court held:
x x x While portions of the hospital are
used for the treatment of patients and
the dispensation of medical services to
them, whether paying or non-paying,
other portions thereof are being leased
to private individuals for their clinics and
a canteen. Further, a portion of the land
is being leased to a private individual for
her business enterprise under the
business name Elliptical Orchids and
Garden Center. Indeed, the petitioners
evidence
shows
that
it
collected P1,136,483.45 as rentals in
1991 and P1,679,999.28 for 1992 from
the said lessees.
Accordingly, we hold that the portions
of the land leased to private entities
as well as those parts of the
hospital
leased
to
private
individuals are not exempt from
such taxes. On the other hand, the
portions of the land occupied by the
hospital and portions of the hospital
used for its patients, whether paying or

In Philippine Fisheries Development Authority v.

Court of Appeals,22 the Court held:
x x x [T]he
real
property
tax
assessments issued by the City of Iloilo
should be upheld only with respect to
the
portions
leased
to
private
persons. In case the Authority fails to
pay the real property taxes due
thereon, said portions cannot be
sold at public auction to satisfy the
tax delinquency. In Chavez v. Public
Estates
Authority it
was
held
that reclaimed lands are lands of the
public dominion and cannot, without
Congressional fiat, be subject of a
sale, public or private x x x.
In the same vein, the port built by
the State in the Iloilo fishing
complex is a property of the public
dominion and cannot therefore be
sold at public auction. Article 420 of
the Civil Code, provides:
Article 420. The following things are
property of public dominion:
1.

Those
intended
for
public use, such as roads,
canals, rivers, torrents,
ports
and
bridges
constructed by the State,
banks, shores, roadsteads,
and others of similar
character;
2.
Those which belong to
the State, without being
for public use, and are
intended for some public
service
or
for
the
development
of
the
national wealth.
The Iloilo fishing port which was
constructed by the State for public

use and/or public service falls within

the
term
port
in
the aforecited provision. Being a
property of public dominion the
same
cannot
be
subject
to
execution or foreclosure sale. In like
manner, the reclaimed land on which the
IFPC is built cannot be the object of a
private
or
public
sale
without
Congressional authorization.23 (Emphasis
supplied)
In Manila International Airport Authority,24 the
Court held:
x x x [T]he Airport Lands and Buildings of
MIAA are properties devoted to public
use and thus are properties of public
dominion. Properties of public dominion
are owned by the State or the Republic.
Article 420 of the Civil Code provides:
Art. 420. The following things
property of public dominion:

are

(1) Those intended for public use, such

as roads, canals, rivers, torrents, ports
and bridges constructed by the State,
banks, shores, roadsteads, and others of
similar character;
(2) Those which belong to the State,
without being for public use, and are
intended for some public service or for
the development of the national wealth.
The term ports x x x constructed by the
Sate 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 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.

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.25 (Emphasis supplied)
In the present case, the parcels of land are not
properties of public dominion because they are
not intended for public use, such as roads,
canals, rivers, torrents, ports and bridges
constructed
by
the
State,
banks,
shores, roadsteads. Neither are they intended
for some public service or for the development
of the national wealth. MPLDC leases portions
of the properties to different business
establishments. Thus, the portions of the
properties leased to taxable entities are not
only subject to real estate tax, they can also be
sold at public auction to satisfy the tax
delinquency.
In sum, only those portions of the properties
leased to taxable entities are subject to real
estate tax for the period of such leases. Pasig
City must, therefore, issue to respondent new
real property tax assessments covering the
portions of the properties leased to taxable
entities. If the Republic of the Philippines fails to
pay the real property tax on the portions of the
properties leased to taxable entities, then such
portions may be sold at public auction to satisfy
the tax delinquency.

G.R. No. 195909

2012

September 26,

COMMISSIONER
OF
REVENUE, PETITIONER,
vs.
ST.
LUKE'S
MEDICAL
INC., RESPONDENT.

INTERNAL
CENTER,

x-----------------------x
G.R. No. 195960

xxxx
Under Article 420 of the Civil Code, the
Airport Lands and Buildings of MIAA,
being devoted to public use, are
properties of public dominion and thus
owned by the State or the Republic of
the Philippines. Article 420 specifically
mentions ports x x x constructed by the
State, which includes public airports
and seaports, as properties of public
dominion and owned by the Republic. As
properties of public dominion owned by
the Republic, there is no doubt
whatsoever that the Airport Lands and

ST.
LUKE'S
MEDICAL
INC., PETITIONER,
vs.
COMMISSIONER
OF
REVENUE, RESPONDENT.

CENTER,
INTERNAL

DECISION
The Court partly grants the petition of the BIR
but on a different ground. We hold that Section
27(B) of the NIRC does not remove the income
tax
exemption
of
proprietary
non-profit
hospitals under Section 30(E) and (G). Section

27(B) on one hand, and Section 30(E) and (G)

on the other hand, can be construed together
without the removal of such tax exemption. The
effect of the introduction of Section 27(B) is to
subject the taxable income of two specific
institutions, namely, proprietary non-profit
educational institutions 36 and proprietary nonprofit hospitals, among the institutions covered
by Section 30, to the 10% preferential rate
under Section 27(B) instead of the ordinary 30%
corporate rate under the last paragraph of
Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10%
preferential tax rate on the income of (1)
proprietary non-profit educational institutions
and (2) proprietary non-profit hospitals. The
only qualifications for hospitals are that they
must
be
proprietary
and
non-profit.
"Proprietary" means private, following the
definition
of
a
"proprietary
educational
institution" as "any private school maintained
and administered by private individuals or
groups" with a government permit. "Non-profit"
means no net income or asset accrues to or
benefits any member or specific person, with all
the net income or asset devoted to the
institution's purposes and all its activities
conducted not for profit.
"Non-profit" does not necessarily mean
"charitable." In Collector of Internal Revenue v.
Club Filipino Inc. de Cebu, 37 this Court
considered as non-profit a sports club organized
for recreation and entertainment of its
stockholders and members. The club was
primarily funded by membership fees and dues.
If it had profits, they were used for overhead
expenses and improving its golf course. 38 The
club was non-profit because of its purpose and
there was no evidence that it was engaged in a
profit-making enterprise. 39
The sports club in Club Filipino Inc. de Cebu may
be non-profit, but it was not charitable. The
Court defined "charity" in Lung Center of the
Philippines v. Quezon City 40 as "a gift, to be
applied consistently with existing laws, for the
benefit of an indefinite number of persons,
either by bringing their minds and hearts under
the influence of education or religion, by
assisting them to establish themselves in life or
[by] otherwise lessening the burden of
government." 41 A non-profit club for the benefit
of its members fails this test. An organization
may be considered as non-profit if it does not
distribute any part of its income to stockholders
or members. However, despite its being a tax
exempt institution, any income such institution
earns from activities conducted for profit is
taxable, as expressly provided in the last
paragraph of Section 30.
To be a charitable institution, however, an
organization must meet the substantive test of

charity in Lung Center. The issue in Lung Center

concerns exemption from real property tax and
not income tax. However, it provides for the
test of charity in our jurisdiction. Charity is
essentially a gift to an indefinite number of
persons
which
lessens
the
burden
of
government.
In
other
words,
charitable
institutions provide for free goods and services
to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of
efficiency, the government forgoes taxes which
should have been spent to address public
needs, because certain private entities already
assume a part of the burden. This is the
rationale for the tax exemption of charitable
institutions. The loss of taxes by the
government is compensated by its relief from
doing public works which would have been
funded by appropriations from the Treasury. 42
Charitable institutions, however, are not ipso
facto entitled to a tax exemption. The
requirements for a tax exemption are specified
by the law granting it. The power of Congress to
tax implies the power to exempt from tax.
Congress can create tax exemptions, subject to
the constitutional provision that "[n]o law
granting any tax exemption shall be passed
without the concurrence of a majority of all the
Members of Congress." 43 The requirements for
a tax exemption are strictly construed against
the taxpayer 44 because an exemption restricts
the collection of taxes necessary for the
existence of the government.
The Court in Lung Center declared that the Lung
Center of the Philippines is a charitable
institution for the purpose of exemption from
real property taxes. This ruling uses the same
premise as Hospital de San Juan 45and Jesus
Sacred Heart College 46 which says that
receiving income from paying patients does not
destroy the charitable nature of a hospital.
As a general principle, a charitable institution
does not lose its character as such and its
exemption from taxes simply because it derives
income from paying patients, whether outpatient, or confined in the hospital, or receives
subsidies from the government, so long as the
money received is devoted or used altogether
to the charitable object which it is intended to
achieve; and no money inures to the private
benefit of the persons managing or operating
the institution. 47
For real property taxes, the incidental
generation of income is permissible because the
test of exemption is the use of the property. The
Constitution
provides
that
"[c]haritable
institutions, churches and personages or
convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings, and
improvements,
actually,
directly,
and
exclusively used for religious, charitable, or

educational purposes shall be exempt from

taxation." 48The test of exemption is not strictly
a requirement on the intrinsic nature or
character of the institution. The test requires
that the institution use the property in a certain
way, i.e. for a charitable purpose. Thus, the
Court held that the Lung Center of the
Philippines did not lose its charitable character
when it used a portion of its lot for commercial
purposes. The effect of failing to meet the use
requirement is simply to remove from the tax
exemption that portion of the property not
devoted to charity.
The Constitution exempts charitable institutions
only from real property taxes. In the NIRC,
Congress decided to extend the exemption to
income taxes. However, the way Congress
crafted Section 30(E) of the NIRC is materially
different from Section 28(3), Article VI of the
Constitution. Section 30(E) of the NIRC defines
the corporation or association that is exempt
from income tax. On the other hand, Section
28(3), Article VI of the Constitution does not
define a charitable institution, but requires that
the
institution
"actually,
directly
and
exclusively" use the property for a charitable
purpose.
Section 30(E) of the NIRC provides that a
charitable institution must be:
(1)
A
non-stock
association;

corporation

or

(2) Organized exclusively for charitable

purposes;
(3) Operated exclusively for charitable
purposes; and
(4) No part of its net income or asset
shall belong to or inure to the benefit of
any member, organizer, officer or any
specific person.
Thus, both the organization and operations of
the charitable institution must be devoted
"exclusively" for charitable purposes. The
organization of the institution refers to its
corporate form, as shown by its articles of
incorporation, by-laws and other constitutive
documents. Section 30(E) of the NIRC
specifically requires that the corporation or
association be non-stock, which is defined by
the Corporation Code as "one where no part of
its income is distributable as dividends to its
members, trustees, or officers" 49 and that any
profit "obtain[ed] as an incident to its
operations shall, whenever necessary or proper,
be used for the furtherance of the purpose or
purposes for which the corporation was
organized." 50 However, under Lung Center, any
profit by a charitable institution must not only

be plowed back "whenever necessary or

proper," but must be "devoted or used
altogether to the charitable object which it is
intended to achieve." 51
The operations of the charitable institution
generally refer to its regular activities. Section
30(E) of the NIRC requires that these operations
be exclusive to charity. There is also a specific
requirement that "no part of [the] net income or
asset shall belong to or inure to the benefit of
any member, organizer, officer or any specific
person." The use of lands, buildings and
improvements of the institution is but a part of
its operations.
There is no dispute that St. Luke's is organized
as a non-stock and non-profit charitable
institution. However, this does not automatically
exempt St. Luke's from paying taxes. This only
refers to the organization of St. Luke's. Even if
St. Luke's meets the test of charity, a charitable
institution is not ipso facto tax exempt. To be
exempt from real property taxes, Section 28(3),
Article VI of the Constitution requires that a
charitable institution use the property "actually,
directly
and
exclusively"
for
charitable
purposes. To be exempt from income taxes,
Section 30(E) of the NIRC requires that a
charitable institution must be "organized and
operated exclusively" for charitable purposes.
Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the
institution be "operated exclusively" for social
welfare.
However, the last paragraph of Section 30 of
the NIRC qualifies the words "organized and
operated exclusively" by providing that:
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from
any of their properties, real or personal, or from
any of their activities conducted for profit
regardless of the disposition made of such
income, shall be subject to tax imposed under
this Code. (Emphasis supplied)
In short, the last paragraph of Section 30
provides that if a tax exempt charitable
institution conducts "any" activity for profit,
such activity is not tax exempt even as its notfor-profit activities remain tax exempt. This
paragraph qualifies the requirements in Section
30(E) that the "[n]on-stock corporation or
association [must be] organized and operated
exclusively for x x x charitable x x x purposes x
x x." It likewise qualifies the requirement in
Section 30(G) that the civic organization must
be "operated exclusively" for the promotion of
social welfare.

Thus, even if the charitable institution must be

"organized and operated exclusively" for
charitable purposes, it is nevertheless allowed
to engage in "activities conducted for profit"
without losing its tax exempt status for its notfor-profit activities. The only consequence is
that the "income of whatever kind and
character" of a charitable institution "from any
of its activities conducted for profit, regardless
of the disposition made of such income, shall be
subject to tax." Prior to the introduction of
Section 27(B), the tax rate on such income from
for-profit activities was the ordinary corporate
rate under Section 27(A). With the introduction
of Section 27(B), the tax rate is now 10%.
In 1998, St. Luke's had total revenues
of P1,730,367,965 from services to paying
patients. It cannot be disputed that a hospital
which receives approximately P1.73 billion from
paying patients is not an institution "operated
exclusively" for charitable purposes. Clearly,
revenues from paying patients are income
received
from
"activities
conducted
for
profit." 52 Indeed, St. Luke's admits that it
derived profits from its paying patients. St.
Luke's declared P1,730,367,965 as "Revenues
from Services to Patients" in contrast to its "Free
Services" expenditure ofP218,187,498. In its
Comment in G.R. No. 195909, St. Luke's showed
the following "calculation" to support its claim
that 65.20% of its "income after expenses was
allocated to free or charitable services" in
1998. 53

INCOME
OPERATIONS

FROM P334,642,615.
00

Free Services

218,187,498.
00

INCOME
FROM P116,455,117.
OPERATIONS, Net of 00
FREE SERVICES

OTHER INCOME

EXCESS
REVENUES
EXPENSES

100%

65.20
%
34.80
%

17,482,304.00

OF P133,937,42
OVER 1.00

In Lung Center, this Court declared:

REVENUES
SERVICES
PATIENTS

FROM P1,730,367,96
TO 5.00

OPERATING
EXPENSES
Professional care of P1,016,608,39
patients
4.00
Administrative

Household
Property

287,319,334.0
0
and 91,797,622.00

P1,395,725,35
0.00

"[e]xclusive" is defined as possessed and

enjoyed to the exclusion of others; debarred
from
participation
or
enjoyment;
and
"exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively." x x
x The words "dominant use" or "principal use"
cannot be substituted for the words "used
exclusively" without doing violence to the
Constitution and the law. Solely is synonymous
with exclusively. 54
The Court cannot expand the meaning of the
words "operated exclusively" without violating
the NIRC. Services to paying patients are
activities conducted for profit. They cannot be
considered any other way. There is a "purpose
to make profit over and above the cost" of
services. 55 The P1.73 billion total revenues from
paying patients is not even incidental to St.
Luke's charity expenditure of P218,187,498 for
non-paying patients.
St. Luke's claims that its charity expenditure
of P218,187,498 is 65.20% of its operating
income in 1998. However, if a part of the
remaining 34.80% of the operating income is
reinvested in property, equipment or facilities
used for services to paying and non-paying
patients, then it cannot be said that the income

is "devoted or used altogether to the charitable

object which it is intended to achieve." 56 The
income is plowed back to the corporation not
entirely for charitable purposes, but for profit as
well. In any case, the last paragraph of Section
30 of the NIRC expressly qualifies that income
from activities for profit is taxable "regardless of
the disposition made of such income."
Jesus Sacred Heart College declared that there
is no official legislative record explaining the
phrase "any activity conducted for profit."
However, it quoted a deposition of Senator
Mariano Jesus Cuenco, who was a member of
the Committee of Conference for the Senate,
which introduced the phrase "or from any
activity conducted for profit."
P. Cuando ha hablado de la Universidad de
Santo Toms que tiene un hospital, no cree Vd.
que es una actividad esencial dicho hospital
para el funcionamiento del colegio de medicina
de dicha universidad?
xxxx
R. Si el hospital se limita a recibir enformos
pobres, mi contestacin seria afirmativa; pero
considerando que el hospital tiene cuartos de
pago, y a los mismos generalmente van
enfermos de buena posicin social econmica,
lo que se paga por estos enfermos debe estar
sujeto a 'income tax', y es una de las razones
que hemos tenido para insertar las palabras o
frase 'or from any activity conducted for
profit.' 57
The question was whether having a hospital is
essential to an educational institution like the
College of Medicine of the University of Santo
Tomas. Senator Cuenco answered that if the
hospital has paid rooms generally occupied by
people of good economic standing, then it
should be subject to income tax. He said that
this was one of the reasons Congress inserted
the phrase "or any activity conducted for
profit."
The question in Jesus Sacred Heart College
involves an educational institution. 58 However,
it is applicable to charitable institutions because
Senator Cuenco's response shows an intent to
focus on the activities of charitable institutions.
Activities for profit should not escape the reach
of taxation. Being a non-stock and non-profit
corporation does not, by this reason alone,
completely exempt an institution from tax. An
institution cannot use its corporate form to
prevent its profitable activities from being
taxed.
The Court finds that St. Luke's is a corporation
that is not "operated exclusively" for charitable
or social welfare purposes insofar as its

revenues from paying patients are concerned.

This ruling is based not only on a strict
interpretation of a provision granting tax
exemption, but also on the clear and plain text
of Section 30(E) and (G). Section 30(E) and (G)
of the NIRC requires that an institution be
"operated exclusively" for charitable or social
welfare purposes to be completely exempt from
income tax. An institution under Section 30(E)
or (G) does not lose its tax exemption if it earns
income from its for-profit activities. Such income
from for-profit activities, under the last
paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate
rate but now at the preferential 10% rate
pursuant to Section 27(B).
A tax exemption is effectively a social subsidy
granted by the State because an exempt
institution is spared from sharing in the
expenses of government and yet benefits from
them. Tax exemptions for charitable institutions
should therefore be limited to institutions
beneficial to the public and those which
improve social welfare. A profit-making entity
should not be allowed to exploit this subsidy to
the detriment of the government and other
taxpayers.1wphi1
St. Luke's fails to meet the requirements under
Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income.
However, it remains a proprietary non-profit
hospital under Section 27(B) of the NIRC as long
as it does not distribute any of its profits to its
members and such profits are reinvested
pursuant to its corporate purposes. St. Luke's,
as a proprietary non-profit hospital, is entitled
to the preferential tax rate of 10% on its net
income from its for-profit activities.
St. Luke's is therefore liable for deficiency
income tax in 1998 under Section 27(B) of the
NIRC. However, St. Luke's has good reasons to
rely on the letter dated 6 June 1990 by the BIR,
which opined that St. Luke's is "a corporation
for purely charitable and social welfare
purposes"59 and thus exempt from income
tax. 60 In
Michael
J.
Lhuillier,
Inc.
v.
Commissioner of Internal Revenue, 61 the Court
said that "good faith and honest belief that one
is not subject to tax on the basis of previous
interpretation of government agencies tasked to
implement the
tax law,
are
sufficient
justification to delete the imposition of
surcharges and interest." 62

FIRST DIVISION

MOBIL PHILIPPINES, INC.,

Petitioner,

- versus -

THE CITY TREASURER OF MAKATI

and the CHIEF OF THE LICENSE
DIVISION OF THE CITY OF MAKATI,
Respondents.

Prefatorily, it is necessary to distinguish

between a business tax vis--vis an income tax.
Business taxes imposed in the exercise
of
police
power for regulatory purposes are paid
G.R. No. 154092
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
Present:
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
persons 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 taxpayers 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:
July 14, 2005

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

DECISION

Simply stated, the issue is: Are the

business taxes paid by petitioner in 1998,
business taxes for 1997 or 1998?
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.

Sec.3A.04. Computation of
tax for newly-started business. In
the
case
of
newly-started
business under 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 %) of one percent (1%) of
the capital investment.
In the succeeding quarter
or quarters, in cases where the
business opens before the last
quarter of the year, the tax shall
be based on the gross sales or
receipt for the preceding quarter
at one-half ( ) of the rates fixed
therefor
by
the
pertinent
schedule in Section 3A.02, (a),
(b), (c), (d), (e), (f), (g), (h), (i), (j),
(k), (l), and (m).
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, or any fraction
thereof as provided in the same
pertinent schedules.[16]

Under the Makati Revenue Code, it

appears that the business tax, like income tax,
is computed based on the previous years
figures. This is the reason for the confusion. A
newly-started business is already liable for
business taxes (i.e. license fees) at 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 the basis. For the
subsequent quarters of the first year, the tax is
based on the gross sales/receipts for the
previous quarter. In the following year(s), the
business is then taxed based on the gross 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.
Upon its transfer, petitioner was
apparently subjected to Sec. 3A.11 par. (g)
which states:
. . .
(g) Retirement
business.

of

. . .
For
purposes
thereof,
termination shall mean that
business operation are stopped
completely.
. . .
(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 years
gross sales or receipts, is less than the actual
tax due based on the current years gross sales
or receipts.

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 1998.
The amount of tax as computed based on
petitioners
gross
sales
for
1998
is
only P1,331,638.84. Since the amount paid is
more than the amount computed based on
petitioners actual gross sales for 1998,
petitioner upon its retirement is not liable for
additional taxes to the City of Makati. Thus, we
find that the respondent erroneously treated the
assessment and collection of business tax as if
it were income tax, by rendering an additional
assessment of P1,331,638.84 for the revenue
generated for the year 1998.
.

G.R. No. 183137

April 10, 2013

PELIZLOY
REALTY
CORPORATION,
represented herein by its President,
GREGORY
K.
LOY, Petitioner,
vs.
THE PROVINCE OF BENGUET, Respondent.
DECISION
The power to tax "is an attribute of
sovereignty,"7 and as such, inheres in the State.
Such, however, is not true for provinces, cities,
municipalities and barangays as they are not
the sovereign;8 rather, they are mere "territorial
and political subdivisions of the Republic of the
Philippines".9
The rule governing the taxing power of
provinces, cities, muncipalities and barangays is
summarized in Icard v. City Council of Baguio:10
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.11 [Underscoring supplied]
Therefore, the power of a province to tax is
limited to the extent that such power is
delegated to it either by the Constitution or by
statute. Section 5, Article X of the 1987
Constitution is clear on this point:

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. [Underscoring supplied]
Per Section 5, Article X of the 1987 Constitution,
"the power to tax is no longer vested
exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes,
fees and other charges."12 Nevertheless, such
authority is "subject to such guidelines and
limitations as the Congress may provide".13
In conformity with Section 3, Article X of the
1987 Constitution,14 Congress enacted Republic
Act No. 7160, otherwise known as the Local
Government Code of 1991. Book II of the LGC
governs local taxation and fiscal matters.
Relevant provisions of Book II of the LGC
establish the parameters of the taxing powers
of LGUS found below.
First, Section 130 provides for the following
fundamental principles governing the taxing
powers of LGUs:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees,
impositions shall:

charges

and

other

a. be equitable and based as far

as practicable on the taxpayer's
ability to pay;
b. be levied and collected only for
public purposes;
c. not be unjust, excessive,
oppressive, or confiscatory;
d. not be contrary to law, public
policy, national economic policy,
or in the restraint of trade.
3. The collection of local taxes, fees,
charges and other impositions shall in no
case be let to any private person.
4. The revenue collected pursuant to the
provisions of the LGC shall inure solely to
the benefit of, and be subject to the
disposition by, the LGU levying the tax,
fee, charge or other imposition unless

otherwise specifically provided by the

LGC.
5. Each LGU shall, as far as practicable,
evolve a progressive system of taxation.
Second, Section 133 provides for the common
limitations on the taxing powers of LGUs.
Specifically, Section 133 (i) prohibits the levy by
LGUs of percentage or value-added tax (VAT) on
sales, barters or exchanges or similar
transactions on goods or services except as
otherwise provided by the LGC.
As it is Pelizloys contention that Section 59,
Article X of the Tax Ordinance levies a
prohibited percentage tax, it is crucial to
understand first the concept of a percentage
tax.
In Commissioner of Internal Revenue v. Citytrust
Investment Phils. Inc.,15 the Supreme Court
defined percentage tax as a "tax measured by a
certain percentage of the gross selling price or
gross value in money of goods sold, bartered or
imported; or of the gross receipts or earnings
derived by any person engaged in the sale of
services." Also, Republic Act No. 8424,
otherwise known as the National Internal
Revenue Code (NIRC), in Section 125, Title
V,16 lists amusement taxes as among the (other)
percentage taxes which are levied regardless of
whether or not a taxpayer is already liable to
pay value-added tax (VAT).
Amusement taxes are fixed at a certain
percentage of the gross receipts incurred by
certain specified establishments.
Thus, applying the definition in CIR v. Citytrust
and drawing from the treatment of amusement
taxes by the NIRC, amusement taxes are
percentage taxes as correctly argued by
Pelizloy.
However, provinces are not barred from levying
amusement taxes even if amusement taxes are
a form of percentage taxes. Section 133 (i) of
the LGC prohibits the levy of percentage taxes
"except as otherwise provided" by the LGC.
Section 140 of the LGC provides:
SECTION 140. Amusement Tax - (a) The
province may levy an amusement tax to be
collected from the proprietors, lessees, or
operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of
amusement at a rate of not more than thirty

percent (30%) of the gross receipts from

admission fees.

of the same kind or class as those specifically

mentioned."17

(b) In the case of theaters of cinemas,

the tax shall first be deducted and
withheld by their proprietors, lessees, or
operators and paid to the provincial
treasurer before the gross receipts are
divided
between
said
proprietors,
lessees, or operators and the distributors
of the cinematographic films.

The purpose and rationale of the principle was

explained by the Court in National Power
Corporation v. Angas18as follows:

(c) The holding of operas, concerts,

dramas, recitals, painting and art
exhibitions,
flower
shows,
musical
programs,
literary
and
oratorical
presentations, except pop, rock, or
similar concerts shall be exempt from
the payment of the tax herein imposed.
(d) The Sangguniang Panlalawigan may
prescribe the time, manner, terms and
conditions for the payment of tax. In
case of fraud or failure to pay the tax,
the Sangguniang Panlalawigan may
impose such surcharges, interests and
penalties.
(e) The proceeds from the amusement
tax shall be shared equally by the
province and the municipality where
such amusement places are located.
[Underscoring supplied]
Evidently, Section 140 of the LGC carves a clear
exception to the general rule in Section 133 (i).
Section 140 expressly allows for the imposition
by provinces of amusement taxes on "the
proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia,
and other places of amusement."
However, resorts, swimming pools, bath houses,
hot springs, and tourist spots are not among
those places expressly mentioned by Section
140 of the LGC as being subject to amusement
taxes. Thus, the determination of whether
amusement taxes may be levied on admissions
to resorts, swimming pools, bath houses, hot
springs, and tourist spots hinges on whether the
phrase
other
places
of
amusement
encompasses resorts, swimming pools, bath
houses, hot springs, and tourist spots.
Under the principle of ejusdem generis, "where
a general word or phrase follows an
enumeration of particular and specific words of
the same class or where the latter follow the
former, the general word or phrase is to be
construed to include, or to be restricted to
persons, things or cases akin to, resembling, or

The purpose of the rule on ejusdem generis is to

give effect to both the particular and general
words, by treating the particular words as
indicating the class and the general words as
including all that is embraced in said class,
although not specifically named by the
particular words. This is justified on the ground
that if the lawmaking body intended the general
terms to be used in their unrestricted sense, it
would have not made an enumeration of
particular subjects but would have used only
general terms. [2 Sutherland, Statutory
Construction, 3rd ed., pp. 395-400].19
In Philippine Basketball Association v. Court of
Appeals,20 the
Supreme
Court
had
an
opportunity to interpret a starkly similar
provision or the counterpart provision of Section
140 of the LGC in the Local Tax Code then in
effect.
Petitioner
Philippine
Basketball
Association (PBA) contended that it was subject
to the imposition by LGUs of amusement taxes
(as opposed to amusement taxes imposed by
the national government).1wphi1 In support of
its contentions, it cited Section 13 of
Presidential Decree No. 231, otherwise known
as the Local Tax Code of 1973, (which is
analogous to Section 140 of the LGC) providing
the following:
Section 13. Amusement tax on admission. - The
province shall impose a tax on admission to be
collected from the proprietors, lessees, or
operators of theaters, cinematographs, concert
halls, circuses and other places of amusement
xxx.
Applying the principle of ejusdem generis, the
Supreme Court rejected PBA's assertions and
noted that:
In determining the meaning of the phrase 'other
places of amusement', one must refer to the
prior enumeration of theaters, cinematographs,
concert halls and circuses with artistic
expression as their common characteristic.
Professional basketball games do not fall under
the
same
category
as
theaters,
cinematographs, concert halls and circuses as
the latter basically belong to artistic forms of
entertainment while the former caters to sports
and gaming.21 [Underscoring supplied]

However, even as the phrase other places of

amusement was already clarified in Philippine
Basketball Association, Section 140 of the LGC
adds to the enumeration of 'places of
amusement' which may properly be subject to
amusement tax. Section 140 specifically
mentions 'boxing stadia' in addition to
"theaters, cinematographs, concert halls and
circuses" which were already mentioned in PD
No. 231. Also, 'artistic expression' as a
characteristic does not pertain to 'boxing
stadia'.
In the present case, the Court need not embark
on a laborious effort at statutory construction.
Section 131 (c) of the LGC already provides a
clear definition of amusement places:
Section 131. Definition of Terms. - When used in
this Title, the term:
xxx
(c) "Amusement Places" include theaters,
cinemas, concert halls, circuses and other
places of amusement where one seeks
admission to entertain oneself by seeing or
viewing
the
show
or
performances
[Underscoring supplied]
Indeed, theaters, cinemas, concert halls,
circuses, and boxing stadia are bound by a
common typifying characteristic in that they are
all venues primarily for the staging of
spectacles or the holding of public shows,
exhibitions, performances, and other events
meant to be viewed by an audience.
Accordingly, other places of amusement must
be interpreted in light of the typifying
characteristic of being venues "where one seeks
admission to entertain oneself by seeing or
viewing the show or performances" or being
venues primarily used to stage spectacles or
hold public shows, exhibitions, performances,
and other events meant to be viewed by an
audience.
As defined in The New Oxford American
Dictionary,22 show means "a spectacle or
display of something, typically an impressive
one";23 while performance means "an act of
staging or presenting a play, a concert, or other
form of entertainment."24 As such, the ordinary
definitions
of
the
words
show
and
performance
denote
not
only
visual
engagement (i.e., the seeing or viewing of
things) but also active doing (e.g., displaying,
staging or presenting) such that actions are
manifested to, and (correspondingly) perceived
by an audience.

Considering these, it is clear that resorts,

swimming pools, bath houses, hot springs and
tourist spots cannot be considered venues
primarily "where one seeks admission to
entertain oneself by seeing or viewing the show
or performances". While it is true that they may
be venues where people are visually engaged,
they are not primarily venues for their
proprietors or operators to actively display,
stage or present shows and/or performances.
Thus, resorts, swimming pools, bath houses, hot
springs and tourist spots do not belong to the
same category or class as theaters, cinemas,
concert halls, circuses, and boxing stadia. It
follows that they cannot be considered as
among the other places of amusement
contemplated by Section 140 of the LGC and
which may properly be subject to amusement
taxes.
At this juncture, it is helpful to recall this Courts
pronouncements in Icard:
The power to tax when granted to a province 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
province.
Inferences,
implications,
deductions all these have no place in the
interpretation of the taxing power of a
province.25
In this case, the definition of' amusement
places' in Section 131 (c) of the LGC is a clear
basis for determining what constitutes the
'other places of amusement' which may
properly be subject to amusement tax
impositions by provinces. There is no reason for
going beyond such basis. To do otherwise would
be
to
countenance
an
arbitrary
interpretation/application of a tax law and to
inflict an injustice on unassuming taxpayers.
The previous pronouncements notwithstanding,
it will be noted that it is only the second
paragraph of Section 59, Article X of the Tax
Ordinance which imposes amusement taxes on
"resorts, swimming pools, bath houses, hot
springs, and tourist spots". The first paragraph
of Section 59, Article X of the Tax Ordinance
refers to "theaters, cinemas, concert halls,
circuses, cockpits, dancing halls, dancing
schools, night or day clubs, and other places of
amusement".1wphi1 In any case, the issues
raised by Pelizloy are pertinent only with
respect to the second paragraph of Section 59,
Article X of the Tax Ordinance. Thus, there is no
reason to invalidate the first paragraph of
Section 59, Article X of the Tax Ordinance. Any
declaration as to the Province of Benguet's lack

of authority to levy amusement taxes must be

limited to admission fees to resorts, swimming
pools, bath houses, hot springs and tourist
spots.
Moreover, the second paragraph of Section 59,
Article X of the Tax Ordinance is not limited to
resorts, swimming pools, bath houses, hot
springs, and tourist spots but also covers
admission fees for boxing. As Section 140 of the
LGC allows for the imposition of amusement
taxes on gross receipts from admission fees to
boxing stadia, Section 59, Article X of the Tax
Ordinance must be sustained with respect to
admission fees from boxing stadia.
WHEREFORE, the petition for review on
certiorari is GRANTED. The second paragraph of
Section 59, Article X of the Benguet Provincial
Revenue Code of 2005, in so far as it imposes
amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs and
tourist spots, is declared null and void.
Respondent Province of Benguet is permanently
enjoined from enforcing the second paragraph
of Section 59, Article X of the Benguet Provincial
Revenue Code of 2005 with respect to resorts,
swimming pools, bath houses, hot springs and
tourist spots.
SO ORDERED.

G.R. No. 188500

July 24, 2013

PROVINCE OF CAGAYAN, represented by

HON. ALVARO T. ANTONIO, Governor, and
ROBERT ADAP, Environmental and Natural
Resources
Officer, Petitioners,
vs.
JOSEPH LASAM LARA, Respondent.
RESOLUTION
In order for an entity to legally undertake a
quarrying business, he must first comply with
all the requirements imposed not only by the
national government, but also by the local
government unit where his business is situated.
Particularly,
Section
138(2)
of
RA
716026 requires that such entity must first
secure a governors permit prior to the start of
his quarrying operations, viz:
SECTION 138. Tax on Sand, Gravel and Other
Quarry Resources.

x x x.
The permit to extract sand, gravel and other
quarry resources shall be issued exclusively by
the provincial governor, pursuant to the
ordinance of the sangguniang panlalawigan.
(Emphasis and underscoring supplied)
xxxx
In connection thereto, the Sangguniang
Panlalawigan
of
Cagayan
promulgated
Provincial Ordinance No. 2005-07, Article H,
Section 2H.04 of which provides:
SECTION 2H.04. Permit for Gravel and Sand
Extraction and Quarrying. No person shall
extract ordinary stones, gravel, earth, boulders
and quarry resources from public lands or from
the beds of seas, rivers, streams, creeks or
other public waters unless a permit has been
issued by the Governor (or his deputy as
provided herein) x x x. (Emphasis and
underscoring supplied)
A plain reading of the afore-cited provisions
clearly shows that a governors permit is a prerequisite before one can engage in a quarrying
business in Cagayan. Records, however, reveal
that Lara admittedly failed to secure the same;
hence, he has no right to conduct his quarrying
operations
within
the
Permit
Area.
Consequently, he is not entitled to any
injunction.
In view of the foregoing, the Court need not
delve into the issue respecting the necessity of
securing a mayors permit, especially since it is
the main issue in another case, Civil Case No.
7049, which remains pending before the court a
quo.
WHEREFORE,
the
petition
is
GRANTED.
Accordingly, the June 30, 2009 Decision of the
Regional Trial Court of Tuguegarao City,
Cagayan, Branch 5 in Civil Case No. 7077 is
hereby REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. 190818

June 5, 2013

METRO MANILA SHOPPING MECCA CORP.,

SHOEMART, INC., SM PRIME HOLDINGS,
INC., STAR APPLIANCES CENTER, SUPER
VALUE, INC., ACE HARDWARE PHILIPPINES,
INC.,
HEALTH
AND
BEAUTY,
INC.,
JOLLIMART PHILS. CORP., and SURPLUS

MARKETING
CORPORATION, Petitioners,
vs.
MS. LIBERTY M. TOLEDO, in her official
capacity as the City Treasurer of Manila,
and THE CITY OF MANILA, Respondents.
DECISION
The Courts Ruling
The petition is bereft of merit.
A.
Respondents
Petition
Review with the CTA Division

for

Petitioners argue that the CTA Division erred in

extending the reglementary period within which
respondents may file their Petition for Review,
considering that Section 3, Rule 833 of the
Revised Rules of the CTA (RRCTA) is silent on
such matter. Further, even if it is assumed that
an extension is allowed, the CTA Division should
not have entertained respondents Petition for
Review for their failure to comply with the filing
requisites set forth in Section 4, Rule 5 34 and
Section 2, Rule 635 of the RRCTA.
Petitioners arguments fail to persuade.
Although the RRCTA does not explicitly sanction
extensions to file a petition for review with the
CTA, Section 1, Rule 736 thereof reads that in the
absence of any express provision in the RRCTA,
Rules 42, 43, 44 and 46 of the Rules of Court
may be applied in a suppletory manner. In
particular, Section 937 of Republic Act No. 9282
makes reference to the procedure under Rule 42
of the Rules of Court. In this light, Section 1 of
Rule 4238 states that the period for filing a
petition for review may be extended upon
motion of the concerned party. Thus, in City of
Manila v. Coca-Cola Bottlers Philippines,
Inc.,39 the Court held that the original period for
filing the petition for review may be extended
for a period of fifteen (15) days, which for the
most compelling reasons, may be extended for
another period not exceeding fifteen (15)
days.40 In other words, the reglementary period
provided under Section 3, Rule 8 of the RRCTA is
extendible and as such, CTA Divisions grant of
respondents motion for extension falls squarely
within the law.
Neither did respondents failure to comply with
Section 4, Rule 5 and Section 2, Rule 6 of the
RRCTA militate against giving due course to
their
Petition
for
Review.
Respondents
submission of only one copy of the said petition
and their failure to attach therewith a certified
true copy of the RTCs decision constitute mere

formal defects which may be relaxed in the

interest of substantial justice. It is well-settled
that dismissal of appeals based purely on
technical grounds is frowned upon as every
party litigant must be afforded the amplest
opportunity
for
the
proper
and
just
determination of his cause, free from the
unacceptable plea of technicalities. 41 In this
regard, the CTA Division did not overstep its
boundaries when it admitted respondents
Petition for Review despite the aforementioned
defects "in the broader interest of justice."
Having resolved the foregoing procedural
matter, the Court proceeds to the main issue in
this case.
B.
Petitioners
refund/credit

claim

for

tax

A perusal of Section 19642 of the LGC reveals

that in order to be entitled to a refund/credit of
local
taxes,
the
following
procedural
requirements must concur: first, the taxpayer
concerned must file a written claim for
refund/credit with the local treasurer; and
second, the case or proceeding for refund has
to be filed within two (2) years from the date of
the payment of the tax, fee, or charge or from
the date the taxpayer is entitled to a refund or
credit.
Records disclose that while the case or
proceeding for refund was filed by petitioners
within two (2) years from the time of
payment,43 they, however, failed to prove that
they have filed a written claim for refund with
the local treasurer considering that such fact
although subject of their Request for Admission
which respondents did not reply to had
already been controverted by the latter in their
Motion to Dismiss and Answer.
To elucidate, the scope of a request for
admission filed pursuant to Rule 26 of the Rules
of Court and a partys failure to comply with the
same are respectively detailed in Sections 1 and
2 thereof, to wit:
SEC. 1. Request for admission. At any time
after issues have been joined, a party may file
and serve upon any other party a written
request for the admission by the latter of the
genuineness of any material and relevant
document described in and exhibited with the
request or of the truth of any material and
relevant matter of fact set forth in the request.
Copies of the documents shall be delivered with
the request unless copies have already been
furnished.

SEC. 2. Implied admission. Each of the matters

of which an admission is requested shall be
deemed admitted unless, within a period
designated in the request, which shall not be
less than fifteen (15) days after service thereof,
or within such further time as the court may
allow on motion, the party to whom the request
is directed files and serves upon the party
requesting the admission a sworn statement
either denying specifically the matters of which
an admission is requested or setting forth in
detail the reasons why he cannot truthfully
either admit or deny those matters.
Objections to any request for admission shall be
submitted to the court by the party requested
within the period for and prior to the filing of his
sworn statement as contemplated in the
preceding paragraph and his compliance
therewith shall be deferred until such objections
are resolved, which resolution shall be made as
early
as
practicable.
(Emphasis
and
underscoring supplied)
Based on the foregoing, once a party serves a
request for admission regarding the truth of any
material and relevant matter of fact, the party
to whom such request is served is given a
period of fifteen (15) days within which to file a
sworn statement answering the same. Should
the latter fail to file and serve such answer,
each of the matters of which admission is
requested shall be deemed admitted.44
The exception to this rule is when the party to
whom such request for admission is served had
already controverted the matters subject of
such request in an earlier pleading. Otherwise
stated, if the matters in a request for admission
have already been admitted or denied in
previous pleadings by the requested party, the
latter cannot be compelled to admit or deny
them anew. In turn, the requesting party cannot
reasonably expect a response to the request
and thereafter, assume or even demand the
application of the implied admission rule in
Section 2, Rule 26.45 The rationale behind this
exception had been discussed in the case of CIR
v. Manila Mining Corporation,46 citing Concrete
Aggregates Corporation v. CA,47 where the Court
held as follows:
As Concrete Aggregates Corporation v. Court of
Appeals holds, admissions by an adverse party
as a mode of discovery contemplates of
interrogatories that would clarify and tend to
shed light on the truth or falsity of the
allegations in a pleading, and does not refer to
a mere reiteration of what has already been
alleged in the pleadings; otherwise, it
constitutes an utter redundancy and will be a

useless, pointless process

should not be subjected to.

which

petitioner

Petitioner controverted in its Answers the

matters set forth in respondents Petitions for
Review before the CTA the requests for
admission being mere reproductions of the
matters already stated in the petitions. Thus,
petitioner should not be required to make a
second denial of those matters it already denied
in
its
Answers.1wphi1(Emphasis
and
underscoring supplied; citations omitted)
Likewise, in the case of Limos v. Odones,48 the
Court explained:
A request for admission is not intended to
merely reproduce or reiterate the allegations of
the requesting partys pleading but should set
forth relevant evidentiary matters of fact
described in the request, whose purpose is to
establish said partys cause of action or
defense. Unless it serves that purpose, it is
pointless, useless and a mere redundancy.
(Emphasis and underscoring supplied)
Records show that petitioners filed their
Request for Admission with the RTC and also
served the same on respondents, requesting
that the fact that they filed a written claim for
refund with the City Treasurer of Manila be
admitted.49 Respondents, however, did not
and in fact, need not reply to the same
considering that they have already stated in
their Motion to Dismiss and Answer that
petitioners failed to file any written claim for tax
refund or credit.50 In this regard, respondents
are not deemed to have admitted the truth and
veracity of petitioners requested fact.
Indeed, it is hornbook principle that a claim for
a tax refund/credit is in the nature of a claim for
an exemption and the law is construed in
strictissimi juris against the one claiming it and
in favor of the taxing authority. 51Consequently,
as petitioners have failed to prove that they
have complied with the procedural requisites
stated under Section 196 of the LGC, their claim
for local tax refund/credit must be denied.
WHEREFORE, the petition is DENIED. The
September 8, 2009 Decision and January 4,
2010 Resolution of the Court of Tax Appeals En
Bane in CT A E.B. No. 480 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 173829

June 10, 2013

VALBUECO,
INC., Petitioner,
vs.
PROVINCE OF BATAAN, represented by its
Provincial
Governor
ANTONIO
ROMAN;1 EMMANUEL M. AQUINO,2 in his
official capacity as Registrar of the
Register of Deeds of Balanga, Bataan; and
PASTOR P. VICHUACO,3 in his official
capacity
as
Provincial
Treasurer
of
Balanga, Bataan, Respondents.
The petition lacks merit.
While it has been ruled that the notices and
publication, as well as the legal requirements
for a tax delinquency sale under Presidential
Decree No. 464 (otherwise known as the Real
Property Tax Code),20 are mandatory and that
failure to comply therewith can invalidate the
sale in view of the requirements of due process,
We have equally held that the claim of lack of
notice is a factual question.21 In a petition for
review, the Court can only pass upon questions
of law; it is not a trier of facts and will not
inquire into and review the evidence presented
by the contending parties during the trial and
relied upon by the lower courts to support their
findings.22 The issues raised in this petition
undeniably involve only questions of fact. On
this ground alone, it should be dismissed
outright.
Even if We dig deeper and scrutinize the entire
case records, the same conclusion would be
arrived at. Indeed, petitioner utterly failed to
present preponderant evidence to support its
allegations that the auction sale of the subject
properties due to tax delinquency was attended
by irregularities. The two witnesses it presented
are neither competent nor convincing to attest
with reasonable certainty that respondents
failed to observe the procedural requirements of
PD 464.23 The Court is thus, satisfied with the
factual findings of the trial court, as affirmed by
the CA, and sees no reason to disturb the same.
We cannot lend credence to the testimony of
Gaudencio P. Juan, petitioners Forestry and
Technical Consultant who claimed to have been
an employee since 1964,24 that no notice of tax
delinquency, demand for tax payment or
collection notice was received and that there
was no publication and posting of notice of sale
held. According to him, his duties and
responsibilities include: bringing out some
technical matters to the company (e.g., use of
grazing lands) and preparing plans for
implementation
by
the
company
(e.g.,
occupation of the area, the conversion of the
area for pasture purposes);25 land and boundary
disputes between petitioner and owners of

adjoining areas;26 planning some other plans for

the
implementation
in
the
area
like
reforestation and other forestry cases; 27 and
planning preparation of reports, uses of the land
for forestry and agricultural purposes.28These,
however, have nothing to do with the duty of
ensuring the prompt and timely settlement of
petitioners realty taxes or of making any
representation, for or in behalf of petitioner,
with respondents in connection thereto. In fact,
Juan categorically admitted that he is not the
custodian of petitioners corporate records:
Under Section 7338 of PD 464
x x x notices of the sale at public auction may
be sent to the delinquent taxpayer, either (i) at
the address as shown in the tax rolls or property
tax record cards of the municipality or city
where the property is located or (ii) at his
residence, if known to such treasurer or barrio
captain. Plainly, Section 73 gives the treasurer
the option of where to send the notice of sale.
In giving the treasurer the option, nowhere in
the wordings is there an indication of a
requirement that notice must actually be
received by the intended recipient. Compliance
by the treasurer is limited to strictly following
the provisions of the statute: he may send it at
the address of the delinquent taxpayer as
shown in the tax rolls or tax records or to the
residence if known by him or the barrio
captain.39
In this case, it is reasonable to deduce that
respondent Provincial Treasurer actually sent
the notices at the address uniformly indicated in
TCT No. 47377, 47378, 47379, 47380, 47381,
47382, 47385 and 47386, as well as in the tax
declarations, which is 7th Floor, Bank of P.I.
Bldg., Ayala Avenue, Makati, Rizal. The fault
herein lies with petitioner, not with respondent
Provincial Treasurer. It had a number of years to
amend its address and provide a more updated
and reliable one. By neglecting to do so, it
should be aware of the chances it was taking
should notices be sent to it. Respondent
Provincial Treasurer cannot be faulted for
presumably sending the notices to petitioners
address indicated in the land titles and tax
declarations of the subject properties.
The principle We enunciated in Valencia v.
Jimenez,40 Camo v. Riosa Boyco,41 and Requiron
v. Sinaban42 that there can be no presumption
of regularity of any administrative action which
results in depriving a taxpayer of his property
through a tax sale does not apply in the case at
bar. By and large, these cases cited by
petitioner involved facts that are way too
different from the one found in the instant case.

More importantly, in the present case,

respondent Province, through its witness,
Josephine Espino, unequivocally attested that
the procedural requisites mandated by PD 464
were
definitely
observed.
During
her
presentation, Espino stated that she is a Local
Treasury Operation Officer IV of the Provincial
Treasurers Office since March 2000 and that
she had previously served as Local Treasury
Operations Officer and Local Revenue Collection
Officer III of the Provincial Treasurers Office,
being in charge of collecting taxes. 43 Under
oath, she declared to have personal knowledge
of the fact that notice of tax delinquency was
sent by the Provincial Treasurers Office to
petitioner. She could not, however, show any
documentary proof mainly because the
exclusive folder of petitioners properties are
now missing despite exercise of all possible
means to locate them in other property
files.44 Considering the long time that elapsed
between the public sale held sometime in 1987
or 1988 and the presentation of her testimony
in 2002, it is also understandable that Espino
could no longer remember the minute details
surrounding the notices, publication, and
posting that respondent Provincial Treasurer
observed relative to the auction sale of the
subject properties.
The Court, therefore, affirms the RTCs opinion
that petitioner was not able to establish its
cause of action for its failure to submit
convincing evidence to establish a case and the
CAs position that it must rely on the strength of
its evidence and not on the weakness of
respondents claim. Indeed, in Sapu-an v. Court
of Appeals,45 We held:
The general rule in civil cases is that the party
having the burden of proof must establish his
case by a preponderance of evidence. By
"preponderance of evidence" is meant that the
evidence as a whole adduced by one side is
superior to that of the other.
In determining where the preponderance or
superior weight of evidence on the issues
involved lies, the court may consider all the
facts and circumstances of the case, the
witnesses
manner
of
testifying,
their
intelligence, their means and opportunity of
knowing the facts on which they are testifying,
the nature of such facts, the probability or
improbability of their testimony, their interest or
want of interest, and also their personal
credibility as far as the same may legitimately
appear at the trial. The court may also consider
the number of witnesses, although the
preponderance is not necessarily with the
greatest number.1wphi1

It is settled that matters of credibility are

addressed basically to the trial judge who is in a
better position than the appellate court to
appreciate the weight and evidentiary value of
the testimonies of witnesses who have
personally appeared before him.46
What petitioner has accomplished is only to
cast doubts by capitalizing on the absence of
documentary evidence on the part of
respondents. While such approach would
succeed if carried out by the accused in criminal
cases, plaintiffs in civil cases need to do much
more to overturn findings of fact and credibility
by the trial court, especially when the same had
been affirmed by the CA. It must be stressed
that overturning judgments in civil cases should
be based on preponderance of evidence, and
with the further qualification that, when the
scales shall stand upon an equipoise, the court
should
find
for
the
defendant.47 The
"equiponderance of evidence" rule states that
when the scale shall stand upon an equipoise
and there is nothing in the evidence which shall
incline it to one side or the other, the court will
find for the defendant.48 Under this principle,
the plaintiff must rely on the strength of his
evidence and not on the weakness of the
defendant's claim; even if the evidence of the
plaintiff may be stronger than that of the
defendant, there is no preponderance of
evidence on his side if such evidence is
insufficient in itself to establish his cause of
action.49
WHEREFORE, the petition is DENIED. The
assailed October 24, 2005 Decision and July 18,
2006 Resolution of the Court of Appeals in
CAG.R. CV No. 81191, which sustained the
August 19,2003 Decision of the Regional Trial
Court, Branch 1, Balanga City, Bataan
dismissing the case are hereby AFFIRMED.

G.R. No. 112497 August 4, 1994

HON. FRANKLIN M. DRILON, in his capacity
as
SECRETARY
OF
JUSTICE, petitioner,
vs.
MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE
L. ATIENZA, CITY TREASURER ANTHONY
ACEVEDO, SANGGUNIANG PANGLUNSOD
AND THE CITY OF MANILA, respondents.
We do not share that view. The lower court was
rather hasty in invalidating the provision.
Section 187 authorizes the Secretary of Justice
to review only the constitutionality or legality of
the tax ordinance and, if warranted, to revoke it

on either or both of these grounds. When he

alters or modifies or sets aside a tax ordinance,
he is not also permitted to substitute his own
judgment for the judgment of the local
government that enacted the measure.
Secretary Drilon did set aside the Manila
Revenue Code, but he did not replace it with his
own version of what the Code should be. He did
not pronounce the ordinance unwise or
unreasonable as a basis for its annulment. He
did not say that in his judgment it was a bad
law. What he found only was that it was illegal.
All he did in reviewing the said measure was
determine if the petitioners were performing
their functions in accordance with law, that is,
with the prescribed procedure for the
enactment of tax ordinances and the grant of
powers to the city government under the Local
Government Code. As we see it, that was an act
not of control but of mere supervision.
An officer in control lays down the rules in the
doing of an act. If they are not followed, he
may, in his discretion, order the act undone or
re-done by his subordinate or he may even
decide to do it himself. Supervision does not
cover such authority. The supervisor or
superintendent merely sees to it that the rules
are followed, but he himself does not lay down
such rules, nor does he have the discretion to
modify or replace them. If the rules are not
observed, he may order the work done or redone but only to conform to the prescribed
rules. He may not prescribe his own manner for
the doing of the act. He has no judgment on this
matter except to see to it that the rules are
followed. In the opinion of the Court, Secretary
Drilon did precisely this, and no more nor less
than this, and so performed an act not of
control but of mere supervision.
The case of Taule v. Santos 9 cited in the
decision has no application here because the
jurisdiction claimed by the Secretary of Local
Governments over election contests in the
Katipunan ng Mga Barangay was held to belong
to
the
Commission
on
Elections
by
constitutional provision. The conflict was over
jurisdiction, not supervision or control.
Significantly, a rule similar to Section 187
appeared in the Local Autonomy Act, which
provided in its Section 2 as follows:
A tax ordinance shall go into
effect on the fifteenth day after
its passage, unless the ordinance
shall provide otherwise: Provided,
however, That the Secretary of
Finance shall have authority to
suspend the effectivity of any

ordinance within one hundred

and twenty days after receipt by
him of a copy thereof, if, in his
opinion, the tax or fee therein
levied or imposed is unjust,
excessive,
oppressive,
or
confiscatory, or when it is
contrary to declared national
economy policy, and when the
said Secretary exercises this
authority the effectivity of such
ordinance shall be suspended,
either in part or as a whole, for a
period of thirty days within which
period the local legislative body
may either modify the tax
ordinance to meet the objections
thereto, or file an appeal with a
court of competent jurisdiction;
otherwise, the tax ordinance or
the part or parts thereof declared
suspended, shall be considered
as revoked. Thereafter, the local
legislative
body
may
not
reimpose the same tax or fee
until such time as the grounds for
the suspension thereof shall have
ceased to exist.
That section allowed the Secretary of Finance to
suspend the effectivity of a tax ordinance if, in
his opinion, the tax or fee levied was unjust,
excessive, oppressive
or
confiscatory.
Determination of these flaws would involve the
exercise
of judgment or discretion and
not
merely an examination of whether or not the
requirements or limitations of the law had been
observed; hence, it would smack of control
rather than mere supervision. That power was
never questioned before this Court but, at any
rate, the Secretary of Justice is not given the
same latitude under Section 187. All he is
permitted to do is ascertain the constitutionality
or legality of the tax measure, without the right
to declare that, in his opinion, it is unjust,
excessive, oppressive or confiscatory. He has no
discretion on this matter. In fact, Secretary
Drilon set aside the Manila Revenue Code only
on two grounds, to with, the inclusion therein of
certain ultra
vires provisions
and
noncompliance with the prescribed procedure in its
enactment. These grounds affected the legality,
not the wisdom or reasonableness, of the tax
measure.
The issue of non-compliance with the prescribed
procedure in the enactment of the Manila
Revenue Code is another matter.
In his resolution, Secretary Drilon declared that
there were no written notices of public hearings

on the proposed Manila Revenue Code that

were sent to interested parties as required by
Art. 276(b) of the Implementing Rules of the
Local Government Code nor were copies of the
proposed
ordinance
published
in
three
successive issues of a newspaper of general
circulation pursuant to Art. 276(a). No minutes
were submitted to show that the obligatory
public hearings had been held. Neither were
copies of the measure as approved posted in
prominent places in the city in accordance with
Sec. 511(a) of the Local Government Code.
Finally, the Manila Revenue Code was not
translated into Pilipino or Tagalog and
disseminated among the people for their
information and guidance, conformably to Sec.
59(b) of the Code.
Judge Palattao found otherwise. He declared
that all the procedural requirements had been
observed in the enactment of the Manila
Revenue Code and that the City of Manila had
not been able to prove such compliance before
the Secretary only because he had given it only
five days within which to gather and present to
him all the evidence (consisting of 25 exhibits)
later submitted to the trial court.
To get to the bottom of this question, the Court
acceded to the motion of the respondents and
called for the elevation to it of the said exhibits.
We have carefully examined every one of these
exhibits and agree with the trial court that the
procedural requirements have indeed been
observed. Notices of the public hearings were
sent to interested parties as evidenced by
Exhibits G-1 to 17. The minutes of the hearings
are found in Exhibits M, M-1, M-2, and M-3.
Exhibits B and C show that the proposed
ordinances were published in the Balita and the
Manila Standard on April 21 and 25, 1993,
respectively, and the approved ordinance was
published in the July 3, 4, 5, 1993 issues of the
Manila Standard and in the July 6, 1993 issue
of Balita, as shown by Exhibits Q, Q-1, Q-2, and
Q-3.
The only exceptions are the posting of the
ordinance as approved but this omission does
not affect its validity, considering that its
publication in three successive issues of a
newspaper of general circulation will satisfy due
process. It has also not been shown that the
text of the ordinance has been translated and
disseminated, but this requirement applies to
the approval of local development plans and
public investment programs of the local
government unit and not to tax ordinances.
We make no ruling on the substantive
provisions of the Manila Revenue Code as their

validity has not been raised in issue in the

present petition.
WHEREFORE, the judgment is hereby rendered
REVERSING the challenged decision of the
Regional Trial Court insofar as it declared
Section 187 of the Local Government Code
unconstitutional but AFFIRMING its finding that
the procedural requirements in the enactment
of the Manila Revenue Code have been
observed. No pronouncement as to costs.
SO ORDERED.

SPOUSES
MONTAO,

EDUARDO

and

LETICIA

Petitioners,

G.

Pr

YN
- versus -

ROSALINA
FRANCISCO,
THE
CITY
GOVERNMENT OF ILOILO, ROMEO V.
MANIKAN, City Treasurer of Iloilo City,
and ERLINDA C. ZARANDIN, Head of the
Treasurers Enforcement Group,
Respondents.

x--------------------------------------------------------------------------------------x
In Talusan
v.
Tayag,
the Court held that for
purposes of the collection of real
property taxes, the registered
owner
of
the
property
is
considered the taxpayer. Hence,
only the registered owner is
entitled to a notice of tax
delinquency
and
other
proceedings relative to the tax
sale.[32]
[31]

In this case, the Court of Appeals

correctly held that the GSIS, as the registered
owner of the subject property, was the taxpayer
that was entitled to the notice of tax
delinquency and that of the auction sale, as
well as other related notices. It found that the
GSIS was not deprived of its property without
due process and that notice was regularly
served. It pointed out that it had already
upheld the validity of the assessment of the real
property taxes upon GSIS and the auction sale

CH
VE
NA
PE

Pr

proceedings in GSIS v. City Assessor of Iloilo

City.[33]
It is important to note that both the
GSIS, as the registered owner of the subject
property, and herein petitioners Spouses
Montao separately questioned the validity of
the auction sale of the subject property covered
by TCT No. T-41681.
The Court of Appeals mentioned in its
Decision that there are two cases involving the
same issue, namely, this action for declaration
of nullity of sale and damages filed by the
Spouses Montao, and the petition for
annulment of judgment filed by the GSIS,
docketed
as
CA-G.R.
SP
No.
51149,
entitled GSIS v. City Assessor of Iloilo City, the
Register of Deeds of Iloilo City and Rosalina
Francisco (GSIS v. City Assessor of Iloilo City).
In GSIS v. City Assessor of Iloilo City, the
GSIS assailed the Order dated April 29, 1993 of
the RTC of Iloilo City, Branch 36 and the Order
dated November 8, 1994 of the RTC of Iloilo,
Branch 31 in regard to the petition of herein
respondent Rosalina Francisco for the entry
of new transfer certificates of title in her name,
which included TCT No. T-41681 covering the
subject parcel of land in this case. The GSIS
claimed that the assessment of real property
taxes on the parcels of land was void because it
was exempt from all forms of taxes under its
charter, Republic Act No. 8291. The GSIS also
claimed that it had no notice of the proceedings
in the assessment and levy of the taxes, as well
as the sale of the properties at public auction;
hence, its right to due process was violated.
In GSIS v. City Assessor of Iloilo
City, the Court of
Appeals
upheld
the findings of the lower courts
that notices were sent to GSIS and the
beneficial owners of the properties in question.
It gave no credence to the arguments of GSIS
and denied its petition.
GSIS appealed the decision of the Court
of Appeals before this Court via a petition for
review on certiorari. In a Decision dated June
27,
2006 in
G.R.
No.
147192,
[34]
this Court dismissed the GSIS petition for
review on certiorari of the Decision of the
Court of Appeals in CA-G.R. SP No. 51149
dated August 8, 2000. Hence, the finding of the
Court of Appeals in regard to the validity of the
auction sale proceedings of the subject
property has long been final.
WHEREFORE, the petition is DENIED
. The Decision dated April 24, 2003 and the
Resolution dated August 20, 2003 of the Court
of Appeals in CA-G.R. CV No. 71004
are hereby AFFIRMED.

SECOND DIVISION

The
CITY
OF
ILOILO, Mr. ROMEO
V. MANIKAN, in his capacity as the Treasurer o
Iloilo City,
Petitioners,

versus

SMART COMMUNICATIONS, INC. (SMART),

Respondent.
x -------------------------------------------------------------------------THE COURTS RULING
SMART relies on two provisions of law to
support its claim for tax exemption: Section 9 of
SMARTs franchise and Section 23 of the Public
Telecoms Act. After a review of pertinent laws
and jurisprudence particularly of SMART
Communications, Inc. v. City of Davao,[4] a case
which, except for the respondent, involves the
same set of facts and issues we find SMARTs
claim for exemption to be unfounded.
Consequently, we find the petition meritorious.
The basic principle in the construction of
laws granting tax exemptions has been very
stable. As early as 1916, in the case
of Government of the Philippine Islands v.
Monte de Piedad,[5] this Court has declared that
he who claims an exemption from his share of
the common burden of taxation must justify his
claim by showing that the Legislature intended
to exempt him by words too plain to be beyond
doubt or mistake. This doctrine was repeated in
the 1926 case of Asiatic Petroleum v. Llanes,
[6]
as well as in the case of Borja v.
Commissioner of Internal Revenue (CIR)
[7]
decided
in
1961.
Citing
American
jurisprudence, the Court stated in E. Rodriguez,
Inc. v. CIR:[8]
The right of taxation is inherent in
the State. It is a prerogative
essential to the perpetuity of the
government; and he who claims
an exemption from the common
burden, must justify his claim by
the clearest grant of organic or
statute law xxx When exemption
is claimed, it must be shown
indubitably to exist. At the outset,
every presumption is against it. A
well-founded doubt is fatal to the
claim; it is only when the terms of

the concession are too explicit to

admit
fairly
of
any
other
construction that the proposition
can be supported.
In
the
recent
case
of Digital
Telecommunications, Inc. v. City Government of
Batangas, et al.,[9] we adhered to the same
principle when we said:
A tax exemption cannot arise
from
vague
inference...Tax
exemptions must be clear and
unequivocal. A taxpayer claiming
a tax exemption must point to a
specific
provision
of
law
conferring on the taxpayer, in
clear and plain terms, exemption
from a common burden. Any
doubt whether a tax exemption
exists is resolved against the
taxpayer.
The burden therefore is on SMART to prove that,
based on its franchise and the Public Telecoms
Act, it is entitled to exemption from the local
franchise and business taxes being collected by
the petitioner.
Claim for Exemption under
SMARTs franchise
Section 9 of SMARTs franchise states:
Section 9. Tax provisions.
The grantee, its successors or
assigns shall be liable to pay the
same taxes on their real estate
buildings and personal property,
exclusive of' this franchise, as
other persons or corporations
which are now or hereafter may
be required by law to pay. In
addition thereto, the grantee,
its successors or assigns shall
pay a franchise tax equivalent
to three percent (3%) of all
gross receipts of the business
transacted
under
this
franchise by the grantee, its
successors or assigns and the
said percentage shall be in
lieu of all taxes on this
franchise
or
earnings
thereof: Provided,
That
the
grantee, its successors or assigns
shall continue to be liable for
income taxes payable under Title
II of the National Internal Revenue
Code pursuant to Section 2 of
Executive Order No. 72 unless the
latter enactment is amended or

repealed, in which case the

amendment or repeal shall be
applicable thereto.
The grantee shall file the
return with and pay the tax due
thereon to the Commissioner of
Internal Revenue or his duly
authorized
representative
in
accordance with the National
Internal Revenue Code and the
return shall be subject to audit by
the
Bureau
of
Internal
Revenue. [Emphasis supplied.]
The petitioner posits that SMARTs claim
for exemption under its franchise is not
equivocal enough to prevail over the specific
grant of power to local government units to
exact taxes from businesses operating within its
territorial jurisdiction under Section 137 in
relation to Section 151 of the LGC. More
importantly, it claimed that exemptions from
taxation have already been removed by Section
193 of the LGC:
Section
193.
Withdrawal
of
Tax
Exemption Privileges. Unless
otherwise
provided
in
this
Code, tax
exemptions
or
incentives granted to, or
presently
enjoyed
by
all
persons, whether natural or
juridical, including governmentowned or controlled corporations,
except local water districts,
cooperatives
duly
registered
under RA No. 6938, non-stock and
non-profit
hospitals
and
educational
institutions, are
hereby withdrawn upon the
effectivity
of
this
Code. [Emphasis supplied.]
The petitioner argues, too, that SMARTs claim
for exemption from taxes under Section 9 of its
franchise is not couched in plain and
unequivocal language such that it restored the
withdrawal of tax exemptions under Section 193
above. It claims that if Congress intended that
the tax exemption privileges withdrawn by
Section 193 of RA 7160 [LGC] were to be
restored in respondents [SMARTs] franchise, it
would have so expressly provided therein and
not merely [restored the exemption] by the
simple expedient of including the in lieu of all
taxes provision in said franchise.[10]
We have indeed ruled that by virtue of
Section 193 of the LGC, all tax exemption
privileges then enjoyed by all persons, save

those
expressly
mentioned,
have
been
withdrawn effective January 1, 1992 the date
of effectivity of the LGC.[11] The first clause of
Section 137 of the LGC states the same rule.
[12]
However, the withdrawal of exemptions,
whether under Section 193 or 137 of the LGC,
pertains only to those already existing when the
LGC was enacted. The intention of the
legislature was to remove all tax exemptions or
incentives granted prior to the LGC.[13] As
SMARTs franchise was made effective on March
27, 1992 after the effectivity of the LGC
Section 193 will therefore not apply in this
case.
But while Section 193 of the LGC will not
affect the claimed tax exemption under
SMARTs franchise, we fail to find a categorical
and encompassing grant of tax exemption to
SMART covering exemption from both national
and local taxes:
R.A. No 7294 does not expressly
provide what kind of taxes SMART
is exempted from. It is not clear
whether the in lieu of all taxes
provision in the franchise of
SMART would include exemption
from
local
or
national
taxation. What is clear is that
SMART shall pay franchise tax
equivalent to three percent
(3%) of all gross receipts of
the
business
transacted
under
its
franchise.
But
whether the franchise tax
exemption
would
include
exemption from exactions by
both
the
local
and
the
national government is not
unequivocal.
The uncertainty in the in lieu
of all taxes clause in R.A.
No. 7294 on whether SMART
is exempted from both local
and national franchise tax
must be construed strictly
against SMART which claims
the
exemption. [Emphasis
supplied.][14]
Justice Carpio, in his Separate Opinion in PLDT
v. City of Davao,[15] explains why:
The proviso in the first paragraph
of Section 9 of Smarts franchise
states that the grantee shall
continue to be liable for income
taxes payable under Title II of the
National Internal Revenue Code.
Also, the second paragraph of
Section 9 speaks of tax returns
filed and taxes paid to the
Commissioner
of
Internal
Revenue or his duly authorized

representative in accordance with

the National Internal Revenue
Code. Moreover, the same
paragraph declares that the tax
returns shall be subject to audit
by the Bureau of Internal
Revenue. Nothing is mentioned
in Section 9 about local taxes.
The clear intent is for the in lieu
of all taxes clause to apply only
to taxes under the National
Internal Revenue Code and not to
local taxes.
Nonetheless, even if Section 9 of
SMARTs franchise can be construed as covering
local taxes as well, reliance thereon would now
be unavailing. The in lieu of all taxes clause
basically exempts SMART from paying all other
kinds of taxes for as long as it pays the 3%
franchise tax; it is the franchise tax that shall be
in lieu of all taxes, and not any other form of
tax.[16] Franchise taxes on telecommunications
companies, however, have been abolished by
R.A. No. 7716 or the Expanded Value-Added Tax
Law (E-VAT Law), which was enacted by
Congress on January 1, 1996.[17] To replace the
franchise tax, the E-VAT Law imposed a
10%[18] value-added tax on telecommunications
companies under Section 108 of the National
Internal Revenue Code.[19] The in lieu of all
taxes clause in the legislative franchise of
SMART has thus become functus officio, made
inoperative for lack of a franchise tax.[20]
SMARTs claim for exemption from local
business and franchise taxes based on Section
9 of its franchise is therefore unfounded.
Claim for Exemption
Under Public Telecoms Act
SMART additionally invokes the equality
clause under Section 23
of the Public Telecoms Act:
SECTION 23. Equality of
Treatment
in
the
Telecommunications Industry.
Any advantage, favor,
privilege,
exemption,
or
immunity
granted
under
existing franchises, or may
hereafter
be
granted,
shall ipso facto become part
of
previously
granted
telecommunications franchise
and
shall
be
accorded
immediately
and
unconditionally
to
the
grantees of such franchises:
Provided, however, That the
foregoing shall neither apply to
nor
affect
provisions
of

telecommunications
franchises
concerning territory covered by
the franchise, the life span of the
franchise, or the type of service
authorized
by
the
franchise. [Emphasis supplied.]
As in the case of SMART v. City of Davao,
[21]
SMART posits that since the franchise of
telecommunications companies granted after
the enactment of its franchise contained
provisions exempting these companies from
both national and local taxes, these privileges
should extend to and benefit SMART, applying
the equality clause above. The petitioner, on
the other hand, believes that the claimed
exemption under Section 23 of the Public
Telecoms Act is similarly unfounded.
We agree with the petitioner.
Whether Section 23 of the cited law
extends tax exemptions granted by Congress to
new franchise holders to existing ones has been
answered in the negative in the case of PLDT v.
City of Davao.[22] The term exemption in
Section 23 of the Public Telecoms Act does not
mean tax exemption; rather, it refers to
exemption from certain regulatory or reporting
requirements imposed by government agencies
such as the National Telecommunications
Commission. The thrust of the Public Telecoms
Act is to promote the gradual deregulation of
entry, pricing, and operations of all public
telecommunications entities, and thus to level
the playing field in the telecommunications
industry. The language of Section 23 and the
proceedings of both Houses of Congress are
bereft of anything that would signify the grant
of tax exemptions to all telecommunications
entities.[23] Intent to grant tax exemption cannot
therefore be discerned from the law; the term
exemption is too general to include tax
exemption and runs counter to the requirement
that the grant of tax exemption should be
stated in clear and unequivocal language too
plain to be beyond doubt or mistake.
Surcharge and Interests
Since SMART cannot validly claim any tax
exemption based either on Section 9 of its
franchise or Section 23 of the Public Telecoms
Act, it follows that petitioner can impose and
collect the local franchise and business taxes
amounting to P764,545.29 it assessed against
SMART. Aside from these, SMART should also be
made to pay surcharge and interests on the
taxes due.
The settled rule is that good faith and
honest belief that one is not subject to tax on

the basis of previous interpretation of

government agencies tasked to implement the
tax laws are sufficient justification to delete the
imposition of surcharges and interest. [24] In
refuting liability for the local franchise and
business taxes, we do not believe SMART relied
in good faith in the findings and conclusion of
the Bureau of Local Government and Finance
(BLGF).
In a letter dated August 13, 1998, the
BLGF opined that SMART should be considered
exempt from the franchise tax that the local
government may impose under Section 137 of
the LGC.[25] SMART, relying on the letter-opinion
of the BLGF, invoked the same in the
administrative protest it filed against petitioner
on February 15, 2002, as well as in the petition
for prohibition that it filed before the RTC of
Iloilo on April 30, 2002. However, in the 2001
case of PLDT v. City of Davao,[26] we declared
that we do not find BLGFs interpretation of
local tax laws to be authoritative and
persuasive. The BLGFs function is merely to
provide consultative services and technical
assistance to the local governments and the
general public on local taxation, real property
assessment, and other related matters.
[27]
Unlike the Commissioner of Internal
Revenue who has been given the express power
to interpret the Tax Code and other national tax
laws,[28] no such power is given to the
BLGF. SMARTs
dependence
on
BLGFs
interpretation was thus misplaced.
WHEREFORE, we hereby GRANT the
petition and REVERSE the decision of the RTC
dated January 19, 2005 in Civil Case No. 0227144 and find SMART liable to pay the local
franchise and business taxes amounting
to P764,545.29,
assessed
against
it
by
petitioner, plus the surcharges and interest due
thereon.
SO ORDERED.

G.R. No. 127316. October 12, 2000]

LIGHT

RAIL
TRANSIT
AUTHORITY, petitioner, vs. CENTRAL
BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS
OF MANILA and the CITY ASSESSOR
OF MANILA, respondents.

The Petition has no merit.

Main

Issue:

May Real Property Taxes be Assessed and Collected?

The Real Property Tax Code,[6] the law in

force at the time of the assailed assessment in

1984, mandated that "there shall be levied,

assessed and collected in all provinces, cities
and municipalities an annual ad valorem tax on
real property such as lands, buildings,
machinery and other improvements affixed or
attached to real property not hereinafter
specifically exempted."[7]
Petitioner does not dispute that its subject
carriageways and stations may be considered
real property under Article 415 of the Civil
Code. However, it resolutely argues that the
same are improvements, not of its properties,
but of the government-owned national roads to
which they are immovably attached. They are
thus not taxable as improvements under the
Real Property Tax Code. In essence, it contends
that to impose a tax on the carriageways and
terminal stations would be to impose taxes on
public roads.
The argument does not persuade. We quote
with approval the solicitor general's astute
comment on this matter:
"There is no point in clarifying the concept of
industrial accession to determine the nature of
the property when what is fundamentally
important for purposes of tax classification is to
determine the character of the property subject
[to] tax. The character of tax as a property tax
must be determined by its incidents, and form
the natural and legal effect thereof. It is
irrelevant to associate the carriageways and/or
the
passenger
terminals
as
accessory
improvements when the view of taxability is
focused on the character of the property. The
latter situation is not a novel issue as it has
already been resolved by this Honorable Court
in the case of City of Manila vs. IAC (GR No.
71159, November 15, 1989) wherein it was
held:
'The New Civil Code divides the properties into
property for public and patrimonial property
(Art. 423), and further enumerates the property
for public use as provincial road, city streets,
municipal streets, squares, fountains, public
waters, public works for public service paid for
by said [provinces], cities or municipalities; all
other property is patrimonial without prejudice
to provisions of special laws. (Art. 424, Province
of Zamboanga v. City of Zamboanga, 22 SCRA
1334 [1968])
xxx
'...while the following are corporate or
proprietary property in character, viz: 'municipal
water works, slaughter houses, markets,
stables, bathing establishments, wharves,

ferries and fisheries.' Maintenance of parks, golf

courses, cemeteries and airports, among
others, are also recognized as municipal or city
activities of a proprietary character (Dept. of
Treasury v. City of Evansville; 60 NE 2nd 952)'
"The foregoing enumeration in law does not
specify or include carriageway or passenger
terminals as inclusive of properties strictly for
public use to exempt petitioner's properties
from taxes. Precisely, the properties of
petitioner are not exclusively considered as
public roads being improvements placed
upon the public road, and this separability
nature of the structure in itself physically
distinguishes it from a public road. Considering
further that carriageways or
passenger
terminals are elevated structures which are not
freely accessible to the public, viz-a-viz roads
which are public improvements openly utilized
by the public, the former are entirely different
from the latter.
"The character of petitioner's property, be it an
improvements as otherwise distinguished by
petitioner, needs no further classification when
the law already classified it as patrimonial
property that can be subject to tax. This is in
line with the old ruling that if the public works is
not for such free public service, it is not within
the purview of the first paragraph of Art. 424 if
the New Civil Code."[8]
Though the creation of the LRTA was
impelled by public service -- to provide mass
transportation to alleviate the traffic and
transportation situation in Metro Manila -- its
operation undeniably partakes of ordinary
business. Petitioner is clothed with corporate
status and corporate powers in the furtherance
of its proprietary objectives.[9] Indeed, it
operates much like any private corporation
engaged in the mass transport industry. Given
that it is engaged in a service-oriented
commercial endeavor, its carriageways and
terminal stations are patrimonial property
subject to tax, notwithstanding its claim of
being a government-owned or controlled
corporation.
True, petitioner's carriageways and terminal
stations are anchored, at certain points, on
public roads. However, it must be emphasized
that these structures do not form part of such
roads,
since
the
former
have
been
constructed over the latter in such a way that
the flow of vehicular traffic would not be
impeded. These carriageways and terminal
stations serve a function different from that of
the public roads. The former are part and parcel
of the light rail transit (LRT) system which,

unlike the latter, are not open to use by the

general public. The carriageways are accessible
only to the LRT trains, while the terminal
stations have been built for the convenience of
LRTA itself and its customers who pay the
required fare.
Basis of Assessment Is Actual Use of Real Property

Under the Real Property Tax Code, real

property is classified for assessment purposes
on the basis of actual use,[10] which is defined as
"the purpose for which the property is
principally or predominantly utilized by the
person in possession of the property."[11]
Petitioner argues that it merely operates
and maintains the LRT system, and that the
actual users of the carriageways and terminal
stations are the commuting public. It adds that
the public-use character of the LRT is not
negated by the fact that revenue is obtained
from the latter's operations.
We do not agree. Unlike public roads which
are open for use by everyone, the LRT is
accessible only to those who pay the required
fare. It is thus apparent that petitioner does not
exist solely for public service, and that the LRT
carriageways and terminal stations are not
exclusively for public use. Although petitioner is
a public utility, it is nonetheless profitearning. It actually uses those carriageways and
terminal stations in its public utility business
and earns money therefrom.

TAX AND DUTY EXEMPTIONS

Sec. 8. Equipment, Machineries, Spare Parts
and Other Accessories and Materials. - The
importation of equipment, machineries, spare
parts,
accessories
and
other
materials,
including supplies and services, used directly in
the operations of the Light Rails Transit System,
not obtainable locally on favorable terms, out of
any funds of the authority including, as stated
in Section 7 above, proceeds from foreign loans
credits or indebtedness, shall likewise be
exempted from all direct and indirect taxes,
customs duties, fees, imposts, tariff duties,
compensating taxes, wharfage fees and other
charges and restrictions, the provisions of
existing laws to the contrary notwithstanding."
Even granting that the national government
indeed owns the carriageways and terminal
stations, the exemption would not apply
because their beneficial use has been granted
to petitioner, a taxable entity.
Taxation is the rule and exemption is the
exception. Any claim for tax exemption is
strictly construed against the claimant.[13] LRTA
has not shown its eligibility for exemption;
hence, it is subject to the tax.
WHEREFORE,
the
Petition
is
hereby DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against the
petitioner.
SO ORDERED.

Petitioner Not Exempt from Payment of Real Property Taxes

In any event, there is another legal

justification for upholding the assailed CA
Decision. Under the Real Property Tax Code, real
property "owned by the Republic of the
Philippines or any of its political subdivisions
and any government-owned or controlled
corporation so exempt by its charter, provided,
however, that this exemption shall not apply to
real property of the abovenamed entities the
beneficial use of which has been granted, for
consideration or otherwise, to a taxable
person."[12]
Executive Order No. 603, the charter of
petitioner, does not provide for any real estate
tax exemption in its favor. Its exemption is
limited to direct and indirect taxes, duties or
fees in connection with the importation of
equipment not locally available, as the following
provision shows:
"ARTICLE 4

G.R. No.
ALLIED BANKING CORPORATION
AS TRUSTEE FOR THE TRUST
FUND OF COLLEGE ASSURANCE
PLAN PHILIPPINES, INC. (CAP),
Petitioner,

-versus-

THE QUEZON CITY GOVERNMENT,

THE QUEZON CITY TREASURER,
THE QUEZON CITY ASSESSOR AND
THE CITY MAYOR OF QUEZON CITY,
Respondents.

Present:

DAVID
PUNO,
PANGA
QUISU
YNARE
SANDO
CARPI
AUSTR
CORO
CARPI
CALLE
AZCUN
TINGA
CHICO
GARCI

Promulga
October

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

Although as a rule, administrative

remedies must first be exhausted before resort
to judicial action can prosper, there is a wellsettled exception in cases where the
controversy does not involve questions of fact
but only of law.[32]
Nevertheless, while cases raising purely
legal questions are excepted from the rule
requiring exhaustion of administrative remedies
before a party may resort to the courts,
petitioner, in the case at bar, does not raise just
pure questions of law. Its cause of action
requires the determination of the amount of
real property tax paid under protest and
the amount of attorneys fees. These issues
are essentially questions of fact which preclude
this Court from reviewing the same.[33]
Since the procedure for obtaining a
refund of real property taxes is provided under
Sections
252,[34] 226,[35] 229,[36] 230[37] and
231[38] of
the
Local
Government
Code,
petitioners action for prohibition in the RTC was
premature as it had a plain, speedy and
adequate remedy of appeal in the ordinary
course of law.[39] As such, the trial court
correctly dismissed its action on the ground that
it failed to exhaust the administrative remedies
stated above.[40]
Raising questions of fact is moreover
inappropriate in an appeal by certiorari under
Rule 45 of the Rules of Court where only
questions of law may be reviewed. [41] It is
axiomatic that the Supreme Court is not a trier
of facts[42] and the factual findings of the court a
quo are conclusive upon it, except: (1) where
the conclusion is a finding grounded entirely on
speculation, surmise and conjectures; (2) where
the inference made is manifestly mistaken; (3)
where there is grave abuse of discretion; and
(4) where the judgment is based on a
misapprehension of facts, and the findings of
fact of the trial court are premised on the
absence of evidence and are contradicted by
evidence on record.[43]
From a considered scrutiny of the records
of the case, this Court finds that petitioner has
shown no cause for this Court to apply any of
the foregoing exceptions.
Petitioner has not put squarely in issue
the constitutionality of the proviso in Section 3
of the ordinance. It merely alleges that the said
proviso can not be the basis for collecting real
estate
taxes
at
any
given
time,
the Sangguniang Panlungsod of Quezon City not
having intended to impose such taxes in the

first place. As such the repealing ordinance

should be given retroactive effect.
As a rule, the courts will not resolve the
constitutionality of a law, if the controversy can
be settled on other grounds.[44]
Where
questions
of
constitutional
significance are raised, the Court can exercise
its power of judicial review only if the following
requisites are complied: First, there must be
before the Court an actual case calling for the
exercise of judicial review. Second, the question
before
the
Court
must
be
ripe
for
adjudication. Third, the person challenging the
validity of the act must have standing to
challenge. Fourth,
the
question
of
constitutionality must have been raised at the
earliest opportunity, andlastly, the issue of
constitutionality must be the very lis mota of
the case.[45]
Considering that there are factual issues
still waiting to be threshed out at the level of
the administrative agency, there is no actual
case calling for the exercise of judicial review.
In
addition,
the
requisite
that
the
constitutionality of the assailed proviso in
question be the very lis mota of the case is
absent. Thus, this Court refrains from passing
on the constitutionality of the proviso in Section
3 of the 1995 Ordinance.
The factual issues which petitioner
interjected in its petition aside, the only crucial
legal query in this case is the validity of the
proviso fixing the appraised value of property at
the stated consideration at which the property
was last sold.
This Court holds that the proviso in
question is invalid as it adopts a method of
assessment or appraisal of real property
contrary to the Local Government Code, its
Implementing Rules and Regulations and the
Local Assessment Regulations No. 1-92[46] issued
by the Department of Finance.[47]
Under
these
immediately
stated
authorities, real properties shall be appraised at
the current and fair market value prevailing in
the
locality
where
the
property
is
situated[48] and
classified
for
assessment
purposes on the basis of its actual use.[49]
Fair market value is the price at which a
property may be sold by a seller who is not
compelled to sell and bought by a buyer who is
not
compelled
to
buy,[50]taking
into
consideration all uses to which the property is
adapted and might in reason be applied. The
criterion
established
by
the
statute
contemplates a hypothetical sale. Hence, the
buyers need not be actual and existing
purchasers.[51]

As this Court stressed in Reyes v.

Almanzor,[52] assessors, in fixing the value of
real property, have to consider all the
circumstances and elements of value, and must
exercise
prudent
discretion
in
reaching
conclusions.[53] In this regard, Local Assessment
Regulations
No.
1-92[54] establishes
the
guidelines to assist assessors in classifying,
appraising and assessing real property.
Local Assessment Regulations No. 1-92
suggests three approaches in estimating the
fair market value, namely: (1) the sales analysis
or market data approach; (2) the income
capitalization
approach;
and
(3)
the
replacement or reproduction cost approach.[55]
Under the sales analysis approach, the
price paid in actual market transactions is
considered by taking into account valid sales
data accumulated from among the various
sources stated in Sections 202, 203, 208, 209,
210, 211 and 213 of the Code.[56]
In the income capitalization approach, the
value of an income-producing property is no
more than the return derived from it. An
analysis of the income produced is necessary in
order to estimate the sum which might be
invested in the purchase of the property.
The reproduction cost approach, on the
other hand, is a factual approach used
exclusively
in
appraising
man-made
improvements such as buildings and other
structures, based on such data as materials and
labor costs to reproduce a new replica of the
improvement.
The assessor uses any or all of these
approaches in analyzing the data gathered to
arrive at the estimated fair market value to be
included in the ordinance containing the
schedule of fair market values.
Given these different approaches to guide
the assessor, it can readily be seen that the
Code did not intend to have a rigid rule for the
valuation of property, which is affected by a
multitude of circumstances which no rule could
foresee or provide for. Thus, what a thing has
cost is no singular and infallible criterion of its
market value.[57]
Accordingly, this Court holds that the
proviso directing that the real property tax be
based on the actual amount reflected in the
deed of conveyance or the prevailing BIR zonal
value is invalid not only because it mandates an
exclusive rule in determining the fair market
value but more so because it departs from the
established procedures stated in the Local
Assessment Regulations No. 1-92 and unduly
interferes with the duties statutorily placed
upon
the
local assessor[58] by completely
dispensing with his analysis and discretion
which the Code and the regulations require to

be exercised. An ordinance that contravenes

any statute is ultra vires and void.[59]
Further, it is noted that there is nothing in
the Charter of Quezon City[60] and the Quezon
City Revenue Code of 1993[61] that authorize
public respondents to appraise property at the
consideration stated in the deed of conveyance.
Using the consideration appearing in the
deed of conveyance to assess or appraise real
properties is not only illegal since the
appraisal, assessment, levy and collection of
real property tax shall not be let to any private
person,[62] but it will completely destroy the
fundamental principle in real property taxation
that real property shall be classified, valued and
assessed
on
the
basis
of
its actual
use regardless of where located, whoever owns
it, and whoever uses it.[63] Necessarily, allowing
the parties to a private sale to dictate the fair
market value of the property will dispense with
the distinctions of actual use stated in the Code
and in the regulations.
The invalidity of the assessment or
appraisal system adopted by the proviso is not
cured even if the proviso mandates the
comparison of the stated consideration as
against the prevailing BIR zonal value,
whichever is higher, because an integral part of
that system still permits valuing real property in
disregard of its actual use.
In the same vein, there is also nothing in
the Code or the regulations showing the
congressional intent to require an immediate
adjustment of taxes on the basis of the latest
market developments as, in fact, real property
assessments may be revised and/or increased
only
once
every
three
(3)
years. [64]
Consequently, the real property tax burden
should not be interpreted to include those
beyond what the Code or the regulations
expressly and clearly state.
Still another consequence of the proviso
is to provide a chilling effect on real property
owners or administrators to enter freely into
contracts reflecting the increasing value of real
properties in accordance with prevailing market
conditions. While the Local Government Code
provides that the assessment of real property
shall not be increased oftener than once every
three (3) years,[65] the questioned part of the
proviso subjects the real property to a tax
based on the actual amount appearing on the
deed of conveyance or the current approved
zonal valuation of the Bureau of Internal
Revenue prevailing at the time of sale, cession,
transfer and conveyance, whichever is higher.
As such, any subsequent sale during the threeyear period will result in a real property tax
higher than the tax assessed at the last prior
conveyance within the same period. To save on
taxes, real property owners or administrators

are forced to hold on to the property until after

the said three-year period has lapsed. Should
they nonetheless decide to sell within the said
three-year period, they are compelled to
dispose the property at a price not exceeding
that obtained from the last prior conveyance in
order to avoid a higher tax assessment. In
these two scenarios, real property owners are
effectively prevented from obtaining the best
price possible for their properties and unduly
hampers the equitable distribution of wealth.
While the state may legitimately decide
to structure its tax system to discourage rapid
turnover in ownership of real properties, such
state interest must be expressly stated in the
executing statute or it can at least be gleaned
from its provisions.
In the case at bar, there is nothing in the
Local Government Code, the implementing rules
and
regulations,
the
local
assessment
regulations, the Quezon City Charter, the
Quezon City Revenue Code of 1993 and the
Whereas clauses of the 1995 Ordinance from
which this Court can draw, at the very least, an
intimation of this state interest. As such, the
proviso
must
be
stricken
down
for

being contrary to
restraining trade.[66]

public

policy

and

for

In fine, public respondent Quezon City

Government exceeded its statutory authority
when it enacted the proviso in question. The
provision is thus null and void ab initio for
being ultra vires and for contravening the
provisions of the Local Government Code, its
implementing regulations and the Local
Assessment Regulations No. 1-92. As such, it
acquired no legal effect and conferred no rights
from its inception.
A word on the applicability of the doctrine
in this decision. It applies only in the
determination of real estate tax payable by
owners or administrators of real property.
In light of the foregoing disquisitions,
addressing the issue of retroactivity of the
repealing ordinance is rendered unnecessary.
WHEREFORE,
the
petition
is
hereby GRANTED. The assailed portion of the
provisions of Section 3 of Quezon City
Ordinance No. 357, Series of 1995 is hereby
declared invalid.