NATIONAL POWER CORPORATION vs.
PROVINCE OF RULING:
QUEZON and MUNICIPALITY OF PAGBILAO
FACTS:
The NPC is a government-owned and controlled corporation
mandated by law to undertake, among others, the production
of electricity from nuclear, geothermal, and other sources, and
the transmission of electric power on a nationwide basis. To
pursue this mandate, the NPC entered into an Energy
Conversion Agreement (ECA) with Mirant on November 9,
1991. The ECA provided for a build-operate-transfer ( BOT)
arrangement between Mirant and the NPC. Mirant will build
and finance a coal-fired thermal power plant on the lots owned
by the NPC in Pagbilao, Quezon for the purpose of converting
fuel into electricity, and thereafter, operate and maintain the
power plant for a period of 25 years. The NPC, in turn, will
supply the necessary fuel to be converted by Mirant into
electric power, take the power generated, and use it to supply
the electric power needs of the country. At the end of the 25-
year term, Mirant will transfer the power plant to the NPC
without compensation. According to the NPC, the power plant
is currently operational and is one of the largest sources of
electric power in the country.
Among the obligations undertaken by the NPC under the ECA
was the payment of all taxes that the government may impose
on Mirant.
In a letter dated March 2, 2000, the Municipality of Pagbilao
assessed Mirant’s real property taxes on the power plant and
its machineries for the period of 1997 to 2000. The
Municipality of Pagbilao furnished the NPC a copy of the
assessment letter.
To protect its interests, the NPC filed a petition before the
Local Board of Assessment Appeals (LBAA) which was later on
dismissed. It appealed the denial of its petition with the
Central Board of Assessment Appeals ( CBAA) which affirmed
the ruling of LBAA. It elevated its petition before CTA en banc
which resolved to dismiss the NPC’s petition
NPC:
 The NPC assails the CTA en banc ruling that the NPC
was not the proper party to protest the real property
tax assessment, as it did not have the requisite "legal
interest." The NPC claims that it has legal interest
because of its beneficial ownership of the power plant
and its machineries; what Mirant holds is merely a
naked title.
 The NPC’s assertion of beneficial ownership of the
power plant also supports its claim for tax exemptions
under Section 234(c) of the LGC. The NPC alleges
that it has the right to control and supervise the
entire output and operation of the power plant. This
arrangement, to the NPC, proves that it is the entity
actually, directly, and exclusively using the subject
machineries.
ISSUE:
Was NPC the proper party to protest?
Was Mirant exempt from paying the real property tax?
1. The liability for taxes generally rests on the owner of the
real property at the time the tax accrues. This is a necessary
consequence that proceeds from the fact of
ownership. However, personal liability for realty taxes may also
expressly rest on the entity with the beneficial use of the real
property, such as the tax on property owned by the
government but leased to private persons or entities, or when
the tax assessment is made on the basis of the actual use of
the property. In either case, the unpaid realty tax attaches to
the property but is directly chargeable against the taxable
person who has actual and beneficial use and possession of
the property regardless of whether or not that person is the
owner.
In the present case, the NPC, contrary to its claims, is neither
the owner nor the possessor/user of the subject machineries.
Legal interest should be an interest that is actual and material,
direct and immediate, not simply contingent or expectant.
In the present case, the NPC’s ownership of the plant will
happen only after the lapse of the 25-year period; until such
time arrives, the NPC's claim of ownership is merely
contingent, i.e., dependent on whether the plant and its
machineries exist at that time. Prior to this event, the NPC’s
real interest is only in the continued operation of the plant for
the generation of electricity. This interest has not been shown
to be adversely affected by the realty taxes imposed and is an
interest that NPC can protect, not by claiming an exemption
that is not due to Mirant, but by paying the taxes it (NPC) has
assumed for Mirant under the ECA.
The tax liability is the liability arising from law that the local
government unit can rightfully and successfully enforce, not
the contractual liability that is enforceable between the parties
to a contract. By law, the tax liability rests on Mirant based on
its ownership, use, and possession of the plant and its
machineries.
NPC is neither the owner, nor the possessor or user of the
property taxed. No interest on its part thus justifies any tax
liability on its part other than its voluntary contractual
undertaking. Under this legal situation, only Mirant as the
contractual obligor, not the local government unit, can enforce
the tax liability that the NPC contractually assumed; the NPC
does not have the "legal interest" that the law and
jurisprudence require to give it personality to protest the tax
imposed by law on Mirant.
The stipulation is entirely between the NPC and Mirant, and
does not bind third persons who are not privy to the contract
between these parties. We say this pursuant to the principle of
relativity of contracts under Article 1311 of the Civil Code
which postulates that contracts take effect only between the
parties, their assigns and heirs. Quite obviously, there is no
privity between the respondent local government units and the
NPC, even though both are public corporations. The tax due
will not come from one pocket and go to another pocket of the
same governmental entity
2. The government-owned or controlled corporation claiming
exemption must be the entity actually, directly, and exclusively
using the real properties and the use must be devoted to the
generation and transmission of electric power. Neither the NPC
nor Mirant satisfies both requirements. Although the plant’s
machineries are devoted to the generation of electric power,
by the NPC’s own admission and as previously pointed out,
Mirant – a private corporation – uses and operates them. That
Mirant operates the machineries solely in compliance with the
will of the NPC only underscores the fact that NPC does not
actually, directly, and exclusively use them. The machineries
must be actually, directly, and exclusively used by the
government-owned or controlled corporation for the exemption
under Section 234(c) to apply.
Nor will NPC find solace in its claim that it utilizes all the power
plant’s generated electricity in supplying the power needs of its
customers. Based on the clear wording of the law, it is the
machineries that are exempted from the payment of real
property tax, not the water or electricity that these
machineries generate and distribute.
Even the NPC’s claim of beneficial ownership is unavailing. The
test of exemption is the use, not the ownership of the
machineries devoted to generation and transmission of electric
power. The nature of the NPC’s ownership of these
machineries only finds materiality in resolving the NPC’s claim
of legal interest in protesting the tax assessment on Mirant.
NATIONAL POWER CORPORATION VS. CBAA
[GR.No.171470 Jan.30, 2009]
FACTS:
On January 11, 1993, First Private Power Corporation ( FPPC)
entered into a BOT agreement with NAPOCOR for the
construction of Power Plant in La Union.  The Agreement
provided for the creation of the Bauang Private Power
Corporation (BPPC) that will own, manage and operatethe
power plant/station, and assume and perform FPPC’s
obligations under the BOT agreement.  For a fee, BPPC will
convert NAPOCOR’s supplied diesel fuel into electricity and
deliver the product to NAPOCOR. NAPOCOR assumed
responsibility for the payment of all real estate taxes and
assessments, rates, and other charges in respect of the Site
and the buildings and improvements thereon. Municipal
Assessor’s Office initially declared BPPC’s machineries and
equipment as tax-exempt. The Vice Mayor of the municipality
questioned before the Regional Director of the Bureau of Local
Government Finance (BLG) the exemption. Department of
Finance ruled that BPPC’s machineries and equipments are
subject to real property tax and directed the Assessors’ Office
to take appropriate action which was followed. The Notice of
Assessment and Tax Bill to BPPC showed the total sum
of P288,582,848.00 for the 1995-1998 period. NAPOCOR
intervened by filing a petition with the LBAA asking that
retroactive to 1995, the machineries covered by the tax
declarations be exempt from real property tax under Section
234(c) of the LGC. Section 234. Exemptions from Real Property
Tax. – The following are exempted from the payment of real
property tax:
 x x x x(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts and
government-owned or –controlled corporations engaged in the
supply and distribution of water and/or generation and
transmission of electric power;
 The LBAA denied the protest. It ruled that the exemption
provided applies only when a government-owned or controlled
corporation like NAPOCOR unlike in this case where NAPOCOR
does not own and does not even actually and directly use the
machineries but BPPC, a non-government entity. Upon appeal,
the same decision was affirmed by the CBAA as well as the
CTA. The latter ruled that NAPOCOR is not the registered
owner of the machineries and equipment.  These are
registered in BPPC’s name as further confirmed by BOT
Agreement. CTA declared that until the transfer date of the
power station, NAPOCOR does not own any of the machineries
and equipment, and therefore has no legal right, title, or
interest over these properties, hence this recourse.
ISSUE:
Can the exempt GOCC pass its tax-exempt status to its BOT
partner?
SUPREME COURT:
We find that NAPOCOR failed to sufficiently show that the CTA
committed any reversible error in its ruling. NAPOCOR’s basis
for its claimed exemption – Section 234(c) of the LGC – is clear
and not at all ambiguous in its terms. Exempt from real
property taxation are: (a) all machineries and equipment ; (b)
[that are] actually, directly, and exclusively used by ; (c) [local
water districts and] government-owned or –controlled
corporations engaged in the  [supply and distribution of water
and/or] generation and transmission of electric power. The
present case is not the first occasion where NAPOCOR claimed
real property tax exemption for a contract partner under BOT
agreement. SC has earlier decided that the mere undertaking
of petitioner NPC that it shall be responsible for the payment of
all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be
extended. Under this standard, the claimant must show
beyond doubt, with clear and convincing evidence, the factual
basis for the claim.  Thus, the real issue in a tax exemption
case such as the present case is whether NAPOCOR was able
to convincingly show the factual basis for its claimed
exception.
 The records show that NAPOCOR, no less, admits BPPC’s
ownership of the machineries and equipment in the power
plant.  Likewise, the provisions of the BOT agreement cited
above clearly show BPPC’s ownership.  Thus, ownership is not
a disputed issue.   Rather than ownership, NAPOCOR’s use of
the machineries and equipment is the critical issue, since its
claim under Sec. 234(c) of the LGC is premised on actual,
direct and exclusive use.  To support this claim, NAPOCOR
characterizes the BOT Agreement as a mere financing
agreement where BPPC is the financier, while it (NAPOCOR) is
the actual user of the properties.
 As in the fact of ownership, NAPOCOR’s assertion is belied by
the documented arrangements between the contracting
parties, viewed particularly from the prism of the BOT law.
Under this concept, it is the project proponent who constructs
the project at its own cost and subsequently operates and
manages it. The proponent secures the return on its
investments from those using the project’s facilities through
appropriate tolls, fees, rentals, and charges not exceeding
those proposed in its bid or as negotiated.  At the end of the
fixed term agreed upon, the project proponent transfers the
ownership of the facility to the government agency.  Thus, the
government is able to put up projects and provide immediate
services without the burden of the heavy expenditures that a
project start up requires. Under this concept, it is the project
proponent who constructs the project at its own cost and
subsequently operates and manages it. The proponent secures
the return on its investments from those using the
project’s facilities through appropriate tolls, fees, rentals, and
charges not exceeding those proposed in its bid or as
negotiated.  At the end of the fixed term agreed upon, the
project proponent transfers the ownership of the facility to the
government agency.  Thus, the government is able to put up
projects and provide immediate services without the burden of
the heavy expenditures that a project start up requires.
That some kind of “financing” arrangement is contemplated –
in the sense that the private sector proponent shall initially
shoulder the heavy cost of constructing the project’s buildings
and structures and of purchasing the needed machineries and
equipment – is undeniable.  The arrangement, however, goes
beyond the simple provision of funds, since the private sector
proponent not only constructs and buys the necessary assets
to put up the project, but operates and manages it as well
during an agreed period that would allow it to recover its basic
costs and earn profits.  In other words, the private sector
proponent goes into business for itself, assuming risks and
incurring costs for its account. That some kind of “financing”
arrangement is contemplated – in the sense that the private
sector proponent shall initially shoulder the heavy cost of
constructing the project’s buildings and structures and of
purchasing the needed machineries and equipment – is
undeniable.  The arrangement, however, goes beyond the
simple provision of funds, since the private sector proponent
not only constructs and buys the necessary assets to put up
the project, but operates and manages it as well during an
agreed period that would allow it to recover its basic costs and
earn profits.  In other words, the private sector proponent
goes into business for itself, assuming risks and incurring costs
for its account.
LUNG CENTER OF THE PHILIPPINES vs.QUEZON CITY
and CONSTANTINO P. ROSAS, in his capacity as City
Assessor of Quezon City
[G.R. No. 144104             June 29, 2004]
FACTS:
The petitioner Lung Center of the Philippines is a non-stock
and non-profit entity established on January 16, 1981.  It is
the registered owner of a parcel of land located at Quezon
Avenue corner Elliptical Road, Central District, Quezon City.
The lot has an area of 121,463 square meters. Erected in the
middle of the aforesaid lot is a hospital known as the Lung
Center of the Philippines. A big space at the ground floor is
being leased to private parties, for canteen and small store
spaces, and to medical or professional practitioners who use
the same as their private clinics for their patients whom they
charge for their professional services. Almost one-half of the
entire area on the left side of the building along Quezon
Avenue is vacant and idle, while a big portion on the right side,
at the corner of Quezon Avenue and Elliptical Road, is being
leased for commercial purposes to a private enterprise known
as the Elliptical Orchids and Garden Center.
On June 7, 1993, both the land and the hospital building of the
petitioner were assessed for real property taxes in the amount
of P4,554,860 by the City Assessor of Quezon City. On August
25, 1993, the petitioner filed a Claim for Exemption from real
property taxes with the City Assessor, predicated on its claim
that it is a charitable institution. The petitioner’s request was
denied, and a petition was, thereafter, filed before the Local
Board of Assessment Appeals of Quezon City for the reversal of
the resolution of the City Assessor. The petitioner alleged that
under Section 28, paragraph 3 of the 1987 Constitution, the
property is exempt from real property taxes. It averred that a
minimum of 60% of its hospital beds are exclusively used for
charity patients and that the major thrust of its hospital
operation is to serve charity patients. The petitioner contends
that it is a charitable institution and, as such, is exempt from
real property taxes. The QC-LBAA rendered judgment
dismissing the petition and holding the petitioner liable for real
property taxes.
The QC-LBAA’s decision was, likewise, affirmed on appeal by
the Central Board of Assessment Appeals of Quezon City which
ruled that the petitioner was not a charitable institution and
that its real properties were not actually, directly and
exclusively used for charitable purposes; hence, it was not
entitled to real property tax exemption under the constitution
and the law. The petitioner sought relief from the Court of
Appeals, which rendered judgment affirming the decision of
the CBAA.
ISSUE:
Does Lung center of the Philippines exempt from reality tax on
the ground that its land, building and improvements, subject of
assessment are actually, directly and exclusively devoted for
charitable purposes?
RULING:
Even as we find that the petitioner is a charitable institution,
we hold, anent the second issue, that those portions of its real
property that are leased to private entities are not exempt
from real property taxes as these are not actually, directly and
exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting
exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power. Taxation is
the rule and exemption is the exception. The effect of an
exemption is equivalent to an appropriation. Hence, a claim for
exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160
in order to be entitled to the exemption, the petitioner is
burdened to prove, by clear and unequivocal proof, that (a) it
is a charitable institution; and (b) its real properties
areACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. "Exclusive" is defined as possessed and
enjoyed to the exclusion of others; debarred from participation
or enjoyment; and "exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively." 40 If real property
is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to
taxation. The words "dominant use" or "principal use" cannot
be substituted for the words "used exclusively" without doing
violence to the Constitutions and the law. 42Solely is
synonymous with exclusively.
What is meant by actual, direct and exclusive use of the imposed by the City. MIAA then paid some of the real estate
property for charitable purposes is the direct and immediate tax already due.
and actual application of the property itself to the purposes for
which the charitable institution is organized. It is not the use of On 28 June 2001, MIAA received Final Notices of Real Estate
the income from the real property that is determinative of Tax Delinquency from the City of Parañaque for the taxable
whether the property is used for tax-exempt purposes. years 1992 to 2001. MIAA's real estate tax delinquency is
broken down as follows:
The petitioner failed to discharge its burden to prove that the TAX DECLARATION TAXABLE YEAR TAX DUE
entirety of its real property is actually, directly and exclusively E-016-01370 1992-2001 19,558,160.00
used for charitable purposes. While portions of the hospital are
used for the treatment of patients and the dispensation of E-016-01374 1992-2001 111,689,424.90
medical services to them, whether paying or non-paying, other E-016-01375 1992-2001 20,276,058.00
portions thereof are being leased to private individuals for their E-016-01376 1992-2001 58,144,028.00
clinics and a canteen. Further, a portion of the land is being
E-016-01377 1992-2001 18,134,614.65
leased to a private individual for her business enterprise under
the business name "Elliptical Orchids and Garden Center." E-016-01378 1992-2001 111,107,950.40
Indeed, the petitioner’s evidence shows that it E-016-01379 1992-2001 4,322,340.00
collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 E-016-01380 1992-2001 7,776,436.00
for 1992 from the said lessees.
*E-016-013-85 1998-2001 6,444,810.00
Accordingly, we hold that the portions of the land leased to *E-016-01387 1998-2001 34,876,800.00
private entities as well as those parts of the hospital leased to *E-016-01396 1998-2001 75,240.00
private individuals are not exempt from such taxes. On the
GRAND TOTAL P392,435,861.95
other hand, the portions of the land occupied by the hospital
and portions of the hospital used for its patients, whether 1992-1997 RPT was paid on Dec. 24, 1997 as per
paying or non-paying, are exempt from real property taxes. O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
MANILA INTERNATIONAL AIRPORT
AUTHORITY, petitioner,  On 17 July 2001, the City of Parañaque, through its City
vs. Treasurer, issued notices of levy and warrants of levy on the
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY Airport Lands and Buildings. The Mayor of the City of
MAYOR OF PARAÑAQUE, SANGGUNIANG Parañaque threatened to sell at public auction the Airport
PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF Lands and Buildings should MIAA fail to pay the real estate tax
PARAÑAQUE, and CITY TREASURER OF delinquency. MIAA thus sought a clarification of OGCC Opinion
PARAÑAQUE, respondents. No. 061.
[G.R. No. 155650             July 20, 2006]
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying
FACTS: OGCC Opinion No. 061. The OGCC pointed out that Section
206 of the Local Government Code requires persons exempt
Petitioner Manila International Airport Authority (MIAA) from real estate tax to show proof of exemption. The OGCC
operates the Ninoy Aquino International Airport (NAIA) opined that Section 21 of the MIAA Charter is the proof that
Complex in Parañaque City under Executive Order No. 903, MIAA is exempt from real estate tax.
otherwise known as the Revised Charter of the Manila
International Airport Authority ("MIAA Charter"). Executive On 1 October 2001, MIAA filed with the Court of Appeals an
Order No. 903 was issued on 21 July 1983 by then President original petition for prohibition and injunction, with prayer for
Ferdinand E. Marcos. Subsequently, Executive Order Nos. preliminary injunction or temporary restraining order. The
9091 and 2982 amended the MIAA Charter. petition sought to restrain the City of Parañaque from imposing
real estate tax on, levying against, and auctioning for public
As operator of the international airport, MIAA administers the sale the Airport Lands and Buildings. The petition was
land, improvements and equipment within the NAIA Complex. docketed as CA-G.R. SP No. 66878.
The MIAA Charter transferred to MIAA approximately 600
hectares of land,3 including the runways and buildings ("Airport On 5 October 2001, the Court of Appeals dismissed the
Lands and Buildings") then under the Bureau of Air petition because MIAA filed it beyond the 60-day reglementary
Transportation.4 The MIAA Charter further provides that no period. The Court of Appeals also denied on 27 September
portion of the land transferred to MIAA shall be disposed of 2002 MIAA's motion for reconsideration and supplemental
through sale or any other mode unless specifically approved by motion for reconsideration. Hence, MIAA filed on 5 December
the President of the Philippines.5 2002 the present petition for review.7

On 21 March 1997, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 061. The OGCC opined
that the Local Government Code of 1991 withdrew the
exemption from real estate tax granted to MIAA under Section
21 of the MIAA Charter. Thus, MIAA negotiated with
respondent City of Parañaque to pay the real estate tax
A day before the public auction, or on 6 February 2003, at
5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining
Order. The motion sought to restrain respondents — the City
of Parañaque, City Mayor of Parañaque, Sangguniang
Panglungsod ng Parañaque, City Treasurer of Parañaque, and
the City Assessor of Parañaque ("respondents") — from
auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining
order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction
the Airport Lands and Buildings. Respondents received the
TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours
after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution
confirming nunc pro tunc the TRO.
MIAA admits that the MIAA Charter has placed the title to the
Airport Lands and Buildings in the name of MIAA. However,
MIAA points out that it cannot claim ownership over these
properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter
mandates MIAA to devote the Airport Lands and Buildings for
the benefit of the general public. Since the Airport Lands and
Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The
Airport Lands and Buildings are thus inalienable and are not
subject to real estate tax by local governments.
Respondents invoke Section 193 of the Local Government
Code, which expressly withdrew the tax exemption
privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government
Code. Respondents also argue that a basic rule of statutory
construction is that the express mention of one person, thing,
or act excludes all others. An international airport is not among
the exceptions mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that MIAA cannot
claim that the Airport Lands and Buildings are exempt from
real estate tax.
Respondents also cite the ruling of this Court in Mactan
International Airport v. Marcos8 where we held that the
Local Government Code has withdrawn the exemption from
real estate tax granted to international airports. Respondents
further argue that since MIAA has already paid some of the
real estate tax assessments, it is now estopped from claiming
that the Airport Lands and Buildings are exempt from real
estate tax.
ISSUE:
Whether the Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws?
RULING:
MIAA's Airport Lands and Buildings are exempt from real
estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the
real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled
Corporation
Respondents argue that MIAA, being a government-owned or
controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter" in
Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of
the 1974 Real Property Tax Code enumerating the entities
exempt from real estate tax.
There is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA
is not a government-owned or controlled corporation. Section
2(13) of the Introductory Provisions of the Administrative Code
of 1987 defines a government-owned or controlled corporation
as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled
corporation refers to any agency organized as a
stock or non-stock corporation, vested with
functions relating to public needs whether
governmental or proprietary in nature, and owned by
the Government directly or through its
instrumentalities either wholly, or, where applicable
as in the case of stock corporations, to the extent of
at least fifty-one (51) percent of its capital stock: x x
x. (Emphasis supplied)
A government-owned or controlled corporation must be
"organized as a stock or non-stock corporation." MIAA is
not organized as a stock or non-stock corporation. MIAA is not
a stock corporation because it has no capital stock divided
into shares. MIAA has no stockholders or voting shares.
Section 3 of the Corporation Code10 defines a stock corporation
as one whose "capital stock is divided into shares and x x
x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no
members. Section 87 of the Corporation Code defines a non-
stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers."
A non-stock corporation must have members. Even if we
assume that the Government is considered as the sole member
of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their
income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating
income to the National Treasury. 11 This prevents MIAA from
qualifying as a non-stock corporation.
Since MIAA is neither a stock nor a non-stock corporation,
MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality,
the only difference is that MIAA is vested with corporate
powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality"
as follows:
SEC. 2. General Terms Defined. –– x x x x
 (10) Instrumentality refers to any agency of the
National Government, not integrated within the
department framework, vested with special functions
or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate
powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock
or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain,12 police authority13 and the levying
of fees and charges. 14 At the same time, MIAA exercises "all
the powers of a corporation under the Corporation Law, insofar
as these powers are not inconsistent with the provisions of this
Executive Order."
A government instrumentality like MIAA falls under Section
133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers
of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the
following:
xxxx
(o) Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities and local government units.
(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power
to tax. While the 1987 Constitution now includes taxation as
one of the powers of local governments, local governments
may only exercise such power "subject to such guidelines and
limitations as the Congress may provide."18
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never
presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is
construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v.
Macaraig, Jr.:
The reason for the rule does not apply in the case of
exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect
of an exemption is merely to reduce the amount of
money that has to be handled by government in the
course of its operations. For these reasons, provisions
granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such
agencies.19
There is, moreover, no point in national and local governments
taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government
pocket to another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public
services to inhabitants of local governments. The only
exception is when the legislature clearly intended to
tax government instrumentalities for the delivery of
essential public services for sound and compelling
policy considerations. There must be express language in
the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power
exists is resolved against local governments.
2. Airport Lands and Buildings of MIAA are Owned by
the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property
of public dominion and therefore owned by the State or
the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or
of private ownership.
ARTICLE 420. The following things are property
of public dominion:
(1) Those intended for public use, such as
roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being
for public use, and are intended for some public
service or for the development of the national wealth.
(Emphasis supplied)
ARTICLE 421. All other property of the State, which is
not of the character stated in the preceding article, is
patrimonial property.
ARTICLE 422. Property of public dominion, when no
longer intended for public use or for public service,
shall form part of the patrimonial property of the
State.
No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges constructed
by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands
and Buildings constitute a "port" constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use
because they are used by the public for international and
domestic travel and transportation. The fact that the
MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and
Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the
road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through
the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay
upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not determine the
character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public
dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms
and conditions as the rest of the public. The charging of fees,
the limitation on the kind of vehicles that can use the road, the
speed restrictions and other conditions for the use of the road
do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of
the income that maintains the operations of MIAA. The
collection of such fees does not change the character of MIAA
as an airport for public use. Such fees are often termed user's
tax. This means taxing those among the public who actually
use a public facility instead of taxing all the public including
those who never use the particular public facility. A user's tax
is more equitable — a principle of taxation mandated in the
1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter
calls the "principal airport of the Philippines for both
international and domestic air traffic," 22 are properties of public
dominion because they are intended for public use. As
properties of public dominion, they indisputably belong
to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the
Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public
use and thus are properties of public dominion. As properties
of public dominion, the Airport Lands and Buildings are
outside the commerce of man.
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the subject of
an auction sale.25
Properties of public dominion, being for public use, are not
subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if
properties of public dominion are subject to encumbrances,
foreclosures and auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real
estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings,
the President must first withdraw from public use the
Airport Lands and Buildings. Sections 83 and 88 of the Public
Land Law or Commonwealth Act No. 141, which "remains to
this day the existing general law governing the classification
and disposition of lands of the public domain other than timber
and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the
Secretary of Agriculture and Natural Resources, the
President may designate by proclamation any tract or
tracts of land of the public domain as reservations for
the use of the Republic of the Philippines or of any of
its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this
purposes, or for quasi-public uses or purposes when
the public interest requires it, including reservations
for highways, rights of way for railroads, hydraulic
power sites, irrigation systems, communal pastures or
lequas communales, public parks, public quarries,
public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved
under the provisions of Section eighty-three
shall be non-alienable and shall not be subject
to occupation, entry, sale, lease, or other
disposition until again declared alienable under
the provisions of this Act or by proclamation of
the President. (Emphasis and underscoring
supplied)
Thus, unless the President issues a proclamation withdrawing
the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are
reserved for public use, their ownership remains with the State
or the Republic of the Philippines.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings
in trust for the Republic. Section 48, Chapter 12, Book I of the
Administrative Code allows instrumentalities like MIAA
to hold title to real properties owned by the Republic.
In MIAA's case, its status as a mere trustee of the Airport
Lands and Buildings is clearer because even its executive head
cannot sign the deed of conveyance on behalf of the Republic.
Only the President of the Republic can sign such deed of
conveyance.28
d. Transfer to MIAA was Meant to Implement a
Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title
to the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International
Airport Authority. — x x x x
The land where the Airport is presently located
as well as the surrounding land area of
approximately six hundred hectares, are
hereby transferred, conveyed and assigned to
the ownership and administration of the
Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government
agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of
this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion
thereof shall not be disposed through sale or
through any other mode unless specifically
approved by the President of the Philippines.
(Emphasis supplied)
 SECTION 22. Transfer of Existing Facilities and
Intangible Assets. — All existing public airport
facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the
Airport, and all assets, powers, rights, interests and
privileges belonging to the Bureau of Air
Transportation relating to airport works or air
operations, including all equipment which are
necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International
Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. — The
Manila International Airport including the Manila
Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings
to MIAA without the Republic receiving cash, promissory notes
or even stock since MIAA is not a stock corporation.
The transfer of the Airport Lands and Buildings from the
Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the Republic
to MIAA. The purpose was merely to reorganize a division
in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned
solely by the Republic. No party claims any ownership rights
over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands
and Buildings "shall not be disposed through sale or
through any other mode unless specifically approved
by the President of the Philippines." This only means that
the Republic retained the beneficial ownership of the Airport
Lands and Buildings because under Article 428 of the Civil
Code, only the "owner has the right to x x x dispose of a
thing." Since MIAA cannot dispose of the Airport Lands and
Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic
title to the Airport Lands and Buildings without the Republic
paying MIAA any consideration. Under Section 3 of the MIAA
Charter, the President is the only one who can authorize the
sale or disposition of the Airport Lands and Buildings. This only
confirms that the Airport Lands and Buildings belong to the
Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from
real estate tax any "[r]eal property owned by the Republic of
the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The
following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof has
been granted, for consideration or otherwise,
to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o)
of the same Code, which prohibits local governments from
imposing "[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x." The
real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The
Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be
exempt from real estate tax.
However, portions of the Airport Lands and Buildings that
MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA
leases to private corporations is subject to real estate tax. In
such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore
such land area is subject to real estate tax. In Lung Center of
the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land
leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt
from such taxes. On the other hand, the portions of
the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-
paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real
estate tax because Section 193 of the Local Government Code
of 1991 withdrew the tax exemption of "all persons,
whether natural or juridical" upon the effectivity of the
Code.
The minority states that MIAA is indisputably a juridical
person. The minority argues that since the Local Government
Code withdrew the tax exemption of all juridical persons,
then MIAA is not exempt from real estate tax.
The argument of the minority is fatally flawed. Section 193 of
the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise
provided in this Code." Now, Section 133(o) of the Local
Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any
kind of tax on national government instrumentalities.
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments
are devoid of power to tax the national government, its
agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its
agencies and instrumentalities, "[u]nless otherwise provided in
this Code" as stated in the saving clause of Section 133. The
saving clause refers to Section 234(a) on the exception to the
exemption from real estate tax of real property owned by the
Republic.
The minority, however, theorizes that unless exempted in
Section 193 itself, all juridical persons are subject to tax by
local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the three
classes of entities specifically enumerated as exempt in Section
193.
The minority's theory directly contradicts and completely
negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the national
government, which itself is a juridical person, subject to tax by
local governments since the national government is not
included in the enumeration of exempt entities in Section 193.
Under this theory, local governments can impose any kind of
local tax, and not only real estate tax, on the national
government.
Under the minority's theory, many national government
instrumentalities with juridical personalities will also be subject
to any kind of local tax, and not only real estate tax. Some of
the national government instrumentalities vested by law with
juridical personalities are: Bangko Sentral ng
Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development
33
Authority,  Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local
Government Code which expressly prohibits local governments
from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between
national government instrumentalities with or without juridical
personalities. Where the law does not distinguish, courts
should not distinguish. Thus, Section 133(o) applies to all
national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt
from local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o)
is the specific provision of law prohibiting local governments
from imposing any kind of tax on the national government, its
agencies and instrumentalities.
Under Section 234(a), real property owned by the Republic is
exempt from real estate tax. The exception to this exemption
is when the government gives the beneficial use of the real
property to a taxable entity.
The exception to the exemption in Section 234(a) is the only
instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to
real estate tax and not to any other tax. The justification for
the exception to the exemption is that the real property,
although owned by the Republic, is not devoted to public use
or public service but devoted to the private gain of a taxable
person.
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions
of the Administrative Code because it is not organized as a
stock or non-stock corporation. Neither is MIAA a government-
owned or controlled corporation under Section 16, Article XII
of the 1987 Constitution because MIAA is not required to meet
the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local
Government Code. The exception to the exemption in Section
234(a) does not apply to MIAA because MIAA is not a taxable
entity under the Local Government Code. Such exception
applies only if the beneficial use of real property owned by the
Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the
State or the Republic.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of
the Administrative Code, which governs the legal relation and
status of government units, agencies and offices within the
entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled
corporation. Under Section 133(o) of the Local Government
Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of
any kind" by local governments. The only exception is when
MIAA leases its real property to a "taxable person" as provided
in Section 234(a) of the Local Government Code, in which case
the specific real property leased becomes subject to real estate
tax. Thus, only portions of the Airport Lands and Buildings
leased to taxable persons like private parties are subject to real
estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are properties
of public dominion and thus owned by the State or the
Republic of the Philippines. Article 420 specifically mentions
"ports x x x constructed by the State," which includes public
airports and seaports, as properties of public dominion and
owned by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever that the
Airport Lands and Buildings are expressly exempt from real
estate tax under Section 234(a) of the Local Government
Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure
sale.
WHEREFORE, petition is granted.
SO ORDERED.
THE CITY GOVERNMENT OF QUEZON CITY, AND THE
CITY TREASURER OF QUEZON CITY, DR. VICTOR B.
ENRIGA v. BAYAN TELECOMMUNICATIONS
[G.R. No. 162015 : March 6, 2006]
RELEVANT PRINCIPLE:
An appeal to the LBAA, to be properly considered, requires
prior payment under protest
FACTS:
Respondent Bayantel is a legislative franchise holder under
Republic Act (Rep. Act) No. 3259 to establish and operate radio
stations for domestic telecommunications, radiophone,
broadcasting and telecasting.
Of relevance to this controversy is the tax provision of Rep. Act
No. 3259, embodied in Section 14 thereof, which reads:
SECTION 14. (a) The grantee shall be liable to pay the same
taxes on its real estate, buildings and personal property,
exclusive of the franchise, as other persons or corporations are
now or hereafter may be required by law to pay. (b) The
grantee shall further pay to the Treasurer of the Philippines
each year, within ten days after the audit and approval of the
accounts as prescribed in this Act, one and one-half per
centum of all gross receipts from the business transacted
under this franchise by the said grantee (Emphasis supplied).
On January 1, 1992, the "Local Government Code of 1991"
(LGC), took effect. Section 232 of the Code grants local
government units within the Metro Manila Area the power to
levy tax on real properties, thus:
SEC. 232. - Power to Levy Real Property Tax. - A province or
city or a municipality within the Metropolitan Manila Area may
levy an annual ad valorem tax on real property such as land,
building, machinery and other improvements not hereinafter
specifically exempted.
Complementing the aforequoted provision is the second
paragraph of Section 234 of the same Code which withdrew
any exemption from realty tax heretofore granted to or
enjoyed by all persons, natural or juridical, to wit:cra:nad
SEC. 234 - Exemptions from Real Property Tax. The following
are exempted from payment of the real property tax:
xxx xxx xxx
Except as provided herein, any exemption from payment of
real property tax previously granted to, or enjoyed by, all
persons, whether natural or juridical, including government-
owned-or-controlled corporations is hereby withdrawn upon
effectivity of this Code (Emphasis supplied).
On July 20, 1992, barely few months after the LGC took effect,
Congress enacted Rep. Act No. 7633, amending Bayantel's
original franchise. The amendatory law (Rep. Act No. 7633)
contained the following tax provision:
SEC. 11. 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 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 telephone or other
telecommunications businesses 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 .. xxx.
[Emphasis supplied]
It is undisputed that within the territorial boundary of Quezon
City, Bayantel owned several real properties on which it
maintained various telecommunications facilities.
In 1993, the government of Quezon City, pursuant to the
taxing power vested on local government units by Section 5,
Article X of the 1987 Constitution, infra, in relation to Section
232 of the LGC, supra, enacted City Ordinance No. SP-91, S-
93, otherwise known as the Quezon City Revenue Code
(QCRC), imposing, under Section 5 thereof, a real property
tax on all real properties in Quezon City, and,
reiterating in its Section 6, the withdrawal of
exemption from real property tax under Section 234 of
the LGC, supra. Furthermore, much like the LGC, the QCRC,
under its Section 230, withdrew tax exemption privileges in
general, as follows:
SEC. 230. Withdrawal of Tax Exemption Privileges. - Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether
natural or juridical, including government owned or controlled
corporations, except local water districts, cooperatives duly
registered under RA 6938, non-stock and non-profit hospitals
and educational institutions, business enterprises certified by
the Board of Investments (BOI) as pioneer or non-pioneer for
a period of six (6) and four (4) years, respectively, . are hereby
withdrawn effective upon approval of this Code (Emphasis
supplied).
Meanwhile, on March 16, 1995, Rep. Act No. 7925, otherwise
known as the "Public Telecommunications Policy Act of the
Philippines," envisaged to level the playing field among
telecommunications companies, took effect. Section 23 of the
Act provides:cra:nad
SEC. 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 franchises 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.
On January 7, 1999, Bayantel wrote the office of the City
Assessor seeking the exclusion of its real properties in the city
from the roll of taxable real properties. With its request having
been denied, Bayantel interposed an appeal with the Local
Board of Assessment Appeals (LBAA). And, evidently on its
firm belief of its exempt status, Bayantel did not pay the real
property taxes assessed against it by the Quezon City
government.
On account thereof, the Quezon City Treasurer sent out
notices of delinquency for the total amount of P43,878,208.18,
followed by the issuance of several warrants of levy against
Bayantel's properties preparatory to their sale at a public
auction set on July 30, 2002.
Threatened with the imminent loss of its properties, Bayantel
immediately withdrew its appeal with the LBAA and instead
filed with the RTC of Quezon City a petition for prohibition with
an urgent application for a temporary restraining order (TRO)
and/or writ of preliminary injunction.
On July 29, 2002, or in the eve of the public auction scheduled
the following day, the lower court issued a TRO, followed, after
due hearing, by a writ of preliminary injunction via its order of
August 20, 2002.
RTC: the real estate properties and buildings of Bayantel were
declared exempt from real estate taxation. MR of QC denied.
Hence, this appeal on pure questions of law.
ISSUES:
1. RELEVANT ISSUE: Whether or not Bayantel is
required to exhaust administrative remedies before
seeking judicial relief with the trial court.
2. SIDE ISSUE: Interpretation of Special Laws – Whether
or not Bayantel's real properties in Quezon City are
exempt from real property taxes under its legislative
franchise.
SC RULING:
1. NO.
Petitions for prohibition are governed by the following
provision of Rule 65 of the Rules of Court:cra:nad
SEC. 2. Petition for prohibition. - When the proceedings of any
tribunal, . are without or in excess of its or his jurisdiction, or
with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal or any other plain,
speedy, and adequate remedy in the ordinary course of
law, a person aggrieved thereby may file a verified petition in
the proper court, alleging the facts with certainty and praying
that judgment be rendered commanding the respondent to
desist from further proceedings in the action or matter
specified therein, or otherwise, granting such incidental reliefs
as law and justice may require.
FIRST: With the reality that Bayantel's real properties were
already levied upon on account of its nonpayment of real
estate taxes thereon, the Court agrees with Bayantel that an
appeal to the LBAA is not a speedy and adequate
remedy within the context of the aforequoted Section 2 of
Rule 65. This is not to mention of the auction sale of said
properties already scheduled on July 30, 2002.
SECOND: Moreover, one of the recognized exceptions to the
exhaustion- of-administrative remedies rule is when, as here,
only legal issues are to be resolved.
As the Court has said in Ty vs. Trampe:
xxx. Although as a rule, administrative remedies must first be
exhausted before resort to judicial action can prosper, there is
a well-settled exception in cases where the controversy does
not involve questions of fact but only of law. xxx.
THIRD: Lest it be overlooked, an appeal to the LBAA, to be
properly considered, required prior payment under
protest of the amount of P43,878,208.18, a figure which, in
the light of the then prevailing Asian financial crisis, may have
been difficult to raise up. Given this reality, an appeal to the
LBAA may not be considered as a plain, speedy and adequate
remedy. It is thus understandable why Bayantel opted to
withdraw its earlier appeal with the LBAA and, instead, filed its
petition for prohibition with urgent application for injunctive
relief. The remedy availed of by Bayantel under Section 2, Rule
65 of the Rules of Court must be upheld.
2. YES.
There seems to be no issue as to Bayantel's exemption from
real estate taxes by virtue of the term "exclusive of the
franchise" qualifying the phrase "same taxes on its real
estate, buildings and personal property," found in Section 14,
supra, of its franchise, Rep. Act No. 3259, as originally
granted.
The legislative intent expressed in the phrase "exclusive of this
franchise" cannot be construed other than distinguishing
between two (2) sets of properties, be they real or personal,
owned by the franchisee, namely:
(a) those actually, directly and exclusively used in its radio or
telecommunications business, and
(b) those properties which are not so used. It is worthy to note
that the properties subject of the present controversy are only
those which are admittedly falling under the first category.
To the mind of the Court, Section 14 of Rep. Act No. 3259
effectively works to grant or delegate to local governments of
Congress' inherent power to tax the franchisee's properties
belonging to the second group of properties indicated above,
that is, all properties which, "exclusive of this franchise," are
not actually and directly used in the pursuit of its franchise. As
may be recalled, the taxing power of local governments under
both the 1935 and the 1973 Constitutions solely depended
upon an enabling law. Absent such enabling law, local
government units were without authority to impose and collect
taxes on real properties within their respective territorial
jurisdictions.
While Section 14 of Rep. Act No. 3259 may be validly viewed
as an implied delegation of power to tax, the delegation under
that provision, as couched, is limited to impositions over
properties of the franchisee which are not actually,
directly and exclusively used in the pursuit of its
franchise. Necessarily, other properties of Bayantel directly
used in the pursuit of its business are beyond the pale of the
delegated taxing power of local governments. In a very real
sense, therefore, real properties of Bayantel, save those
exclusive of its franchise, are subject to realty taxes.
Ultimately, therefore, the inevitable result was that all realties
which are actually, directly and exclusively used in the
operation of its franchise are "exempted" from any property
tax.
Bayantel's franchise being national in character, the
"exemption" thus granted under Section 14 of Rep. Act No.
3259 applies to all its real or personal properties found
anywhere within the Philippine archipelago.
However, with the LGC's taking effect on January 1, 1992,
Bayantel's "exemption" from real estate taxes for properties of
whatever kind located within the Metro Manila area was, by
force of Section 234 of the Code, supra, expressly withdrawn.
But, not long thereafter, however, or on July 20, 1992,
Congress passed Rep. Act No. 7633 amending Bayantel's
original franchise. Worthy of note is that Section 11 of Rep. Act
No. 7633 is a virtual reenacment of the tax provision, i.e.,
Section 14, supra, of Bayantel's original franchise under Rep.
Act No. 3259. Stated otherwise, Section 14 of Rep. Act No.
3259 which was deemed impliedly repealed by Section 234 of
the LGC was expressly revived under Section 14 of Rep. Act
No. 7633. In concrete terms, the realty tax exemption
heretofore enjoyed by Bayantel under its original franchise, but
subsequently withdrawn by force of Section 234 of the LGC,
has been restored by Section 14 of Rep. Act No. 7633.
This thus raises the question of whether or not the City's
Revenue Code pursuant to which the city treasurer of Quezon
City levied real property taxes against Bayantel's real
properties located within the City effectively withdrew the tax
exemption enjoyed by Bayantel under its franchise, as
amended.

Bayantel answers the poser in the negative arguing that once

again it is only "liable to pay the same taxes, as any other
persons or corporations on all its real or personal properties,
exclusive of its franchise."

Bayantel's posture is well-taken.

Clearly then, while a new slant on the subject of local taxation

now prevails in the sense that the former doctrine of local
government units' delegated power to tax had been effectively
modified with Article X, Section 5 of the 1987 Constitution now
in place, the basic doctrine on local taxation remains
essentially the same. For as the Court stressed in Mactan, "the
power to tax is [still] primarily vested in the Congress."

For sure, in Philippine Long Distance Telephone Company, Inc.

(PLDT) vs. City of Davao, 13 this Court has upheld the power of
Congress to grant exemptions over the power of local
government units to impose taxes. There, the Court
wrote:cra:nad
Indeed, the grant of taxing powers to local government units
under the Constitution and the LGC does not affect the power
of Congress to grant exemptions to certain persons, pursuant
to a declared national policy. The legal effect of the
constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers,
doubts must be resolved in favor of municipal corporations.
(Emphasis supplied.)

As we see it, then, the more decisive question turns on

whether Congress actually did exempt Bayantel's properties at
all by virtue of Section 11 of Rep. Act No. 7633.

Admittedly, Rep. Act No. 7633 was enacted subsequent to the

LGC. Perfectly aware that the LGC has already withdrawn
Bayantel's former exemption from realty taxes, Congress opted
to pass Rep. Act No. 7633 using, under Section 11 thereof,
exactly the same defining phrase "exclusive of this franchise"
which was the basis for Bayantel's exemption from realty taxes
prior to the LGC. In plain language, Section 11 of Rep. Act No.
7633 states that "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 are now or hereafter may be required
by law to pay." The Court views this subsequent piece of
legislation as an express and real intention on the part of
Congress to once again remove from the LGC's delegated
taxing power, all of the franchisee's (Bayantel's) properties
that are actually, directly and exclusively used in the pursuit of
its franchise.