STA. LUCIA REALTY & DEVELOPMENT, INC., G.R. No.

166838
Petitioner, The lot covered by TCT No. 38457 was not segregated, but a commercial
Present: building owned by Sta. Lucia East Commercial Center, Inc., a separate corporation,
was built on it.[6]
- versus - VELASCO, JR .,*
Acting Chairperson, Upon Pasigs petition to correct the location stated in TCT Nos. 532250,
LEONARDO-DE CASTRO, 598424, and 599131, the Land Registration Court, on June 9, 1995, ordered the
CITY OF PASIG, BERSAMIN,** amendment of the TCTs to read that the lots with respect to TCT No. 39112 were
Respondent, DEL CASTILLO, and located in Barrio Tatlong Kawayan, Pasig City.[7]
PEREZ, JJ.
MUNICIPALITY OF CAINTA, PROVINCE OF Promulgated: On January 31, 1994, Cainta filed a petition[8] for the settlement of its land
RIZAL, boundary dispute with Pasig before the RTC, Branch 74 of Antipolo City (Antipolo
Intervenor. June 15, 2011 RTC). This case, docketed as Civil Case No. 94-3006, is still pending up to this date.

On November 28, 1995, Pasig filed a Complaint, [9] docketed as Civil Case
No. 65420, against Sta. Lucia for the collection of real estate taxes, including
penalties and interests, on the lots covered by TCT Nos. 532250, 598424, 599131,
92869, 92870 and 38457, including the improvements thereon (the subject
properties).

Sta. Lucia, in its Answer, alleged that it had been religiously paying its real
estate taxes to Cainta, just like what its predecessors-in-interest did, by virtue of the
x----------------------------------------------------x demands and assessments made and the Tax Declarations issued by Cainta on the
claim that the subject properties were within its territorial jurisdiction. Sta. Lucia
further argued that since 1913, the real estate taxes for the lots covered by the above
DECISION TCTs had been paid to Cainta.[10]

Cainta was allowed to file its own Answer-in-Intervention when it moved to

LEONARDO-DE CASTRO, J.:
For review is the June 30, 2004 Decision [1] and the January 27, 2005
Resolution[2] of the Court of Appeals in CA-G.R. CV No. 69603, which affirmed with
modification the August 10, 1998 Decision[3] and October 9, 1998 Order[4] of the
Regional Trial Court (RTC) of Pasig City, Branch 157, in Civil Case No. 65420.
Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is the
registered owner of several parcels of land with Transfer Certificates of Title (TCT)
Nos. 39112, 39110 and 38457, all of which indicated that the lots were located
in Barrio Tatlong Kawayan, Municipality of Pasig[5] (Pasig).
The parcel of land covered by TCT No. 39112 was consolidated with that
covered by TCT No. 518403, which was situated in Barrio Tatlong Kawayan,
Municipality of Cainta, Province of Rizal (Cainta). The two combined lots were
subsequently partitioned into three, for which TCT Nos. 532250, 598424, and
599131, now all bearing the Cainta address, were issued.
TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869
and 92870.
intervene on the ground that its interest would be greatly affected by the outcome of
the case.It averred that it had been collecting the real property taxes on the subject
properties even before Sta. Lucia acquired them. Cainta further asseverated that the
establishment of the boundary monuments would show that the subject properties
are within its metes and bounds.[11]
Sta. Lucia and Cainta thereafter moved for the suspension of the
proceedings, and claimed that the pending petition in the Antipolo RTC, for the
settlement of boundary dispute between Cainta and Pasig, presented a prejudicial
question to the resolution of the case.[12]
The RTC denied this in an Order dated December 4, 1996 for lack of
merit. Holding that the TCTs were conclusive evidence as to its ownership and
location,[13] the RTC, on August 10, 1998, rendered a Decision in favor of Pasig:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of [Pasig], ordering Sta. Lucia Realty and
Development, Inc. to pay [Pasig]:
 1) P273,349.14 representing unpaid real estate taxes
and penalties as of 1996, plus interest of 2% per
month until fully paid;
2) P50,000.00 as and by way of attorneys fees; and
3) The costs of suit.
Judgment is likewise rendered against the intervenor
Municipality of Cainta, Rizal, ordering it to refund to Sta. Lucia
Realty and Development, Inc. the realty tax payments improperly
collected and received by the former from the latter in the
aggregate amount of P358, 403.68.[14]
After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig, on
September 11, 1998, filed a Motion for Reconsideration of the RTCs August 10, 1998
Decision.
The RTC, on October 9, 1998, granted Pasigs motion in an Order[15] and modified its
earlier decision to include the realty taxes due on the improvements on the subject
lots:
WHEREFORE, premises considered, the plaintiffs
motion for reconsideration is hereby granted. Accordingly, the
Decision, dated August 10, 1998 is hereby modified in that the
defendant is hereby ordered to pay plaintiff the amount
of P5,627,757.07 representing the unpaid taxes and penalties on
the improvements on the subject parcels of land whereon real
estate taxes are adjudged as due for the year 1996. [16]
Accordingly, Sta. Lucia filed an Amended Notice of Appeal to include the
RTCs October 9, 1998 Order in its protest.
On October 16, 1998, Pasig filed a Motion for Execution Pending Appeal,
to which both Sta. Lucia and Cainta filed several oppositions, on the assertion that
there were no good reasons to warrant the execution pending appeal. [17]
On April 15, 1999, the RTC ordered the issuance of a Writ of Execution
against Sta. Lucia.
On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under Rule 65 of
the Rules of Court with the Court of Appeals to assail the RTCs order granting the
execution.Docketed as CA-G.R. SP No. 52874, the petition was raffled to the First
Division of the Court of Appeals, which on September 22, 2000, ruled in favor of Sta.
Lucia, to wit:
WHEREFORE, in view of the foregoing, the instant petition is
hereby GIVEN DUE COURSE and GRANTED by this Court. The
assailed Order dated April 15, 1999 in Civil Case No. 65420
granting the motion for execution pending appeal and ordering the
issuance of a writ of execution pending appeal is hereby SET
ASIDE and declared NULL and VOID.[18]
The Court of Appeals added that the boundary dispute case presented a
prejudicial question which must be decided before x x x Pasig can collect the realty
taxes due over the subject properties.[19]
Pasig sought to have this decision reversed in a Petition for Certiorari filed
before this Court on November 29, 2000, but this was denied on June 25, 2001 for
being filed out of time.[20]
Meanwhile, the appeal filed by Sta. Lucia and Cainta was raffled to the
(former) Seventh Division of the Court of Appeals and docketed as CA-G.R. CV No.
69603. On June 30, 2004, the Court of Appeals rendered its Decision, wherein it
agreed with the RTCs judgment:
WHEREFORE, the appealed Decision is hereby AFFIRMED with
the MODIFICATION that the award of P50,000.00 attorneys fees
is DELETED.[21]
In affirming the RTC, the Court of Appeals declared that there was no proper
legal basis to suspend the proceedings.[22] Elucidating on the legal meaning of a
prejudicial question, it held that there can be no prejudicial question when the cases
involved are both civil.[23] The Court of Appeals further held that the elements of litis
pendentia and forum shopping, as alleged by Cainta to be present, were not met.
Sta. Lucia and Cainta filed separate Motions for Reconsideration, which the
Court of Appeals denied in a Resolution dated January 27, 2005.
Undaunted, Sta. Lucia and Cainta filed separate Petitions for Certiorari with
this Court. Caintas petition, docketed as G.R. No. 166856 was denied on April 13,
2005 for Caintas failure to show any reversible error. Sta. Lucias own petition is
the one subject of this decision.[24]
In praying for the reversal of the June 30, 2004 judgment of the Court of
Appeals, Sta. Lucia assigned the following errors:
ASSIGNMENT OF ERRORS
I
THE HONORABLE COURT OF APPEALS ERRED IN
AFFIRMING [WITH MODIFICATION] THE DECISION OF THE
REGIONAL TRIAL COURT IN PASIG CITY
 II.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
SUSPENDING THE CASE IN VIEW OF THE PENDENCY OF
THE BOUNDARY DISPUTE WHICH WILL FINALLY DETERMINE
THE SITUS OF THE SUBJECT PROPERTIES
III.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE PAYMENT OF REALTY TAXES
THROUGH THE MUNICIPALITY OF CAINTA WAS VALID
PAYMENT OF REALTY TAXES
IV.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT IN THE MEANTIME THAT THE BOUNDARY
DISPUTE CASE IN ANTIPOLO CITY REGIONAL TRIAL COURT
IS BEING FINALLY RESOLVED, THE PETITIONER STA. LUCIA
SHOULD BE PAYING THE REALTY TAXES ON THE SUBJECT
PROPERTIES THROUGH THE INTERVENOR CAINTA TO
PRESERVE THE STATUS QUO.[25]
Pasig, countering each error, claims that the lower courts correctly decided
the case considering that the TCTs are clear on their faces that the subject properties
are situated in its territorial jurisdiction. Pasig contends that the principles of litis
pendentia, forum shopping, and res judicata are all inapplicable, due to the absence
of their requisite elements. Pasig maintains that the boundary dispute case before
the Antipolo RTC is independent of the complaint for collection of realty taxes which
was filed before the Pasig RTC. It avers that the doctrine of prejudicial question,
which has a definite meaning in law, cannot be invoked where the two cases involved
are both civil. Thus, Pasig argues, since there is no legal ground to preclude the
simultaneous hearing of both cases, the suspension of the proceedings in the Pasig
RTC is baseless.
Cainta also filed its own comment reiterating its legal authority over the
subject properties, which fall within its territorial jurisdiction. Cainta claims that while
it has been collecting the realty taxes over the subject properties since way back
1913, Pasig only covered the same for real property tax purposes in 1990, 1992, and
1993. Cainta also insists that there is a discrepancy between the locational entries
and the technical descriptions in the TCTs, which further supports the need to await
the settlement of the boundary dispute case it initiated.
The errors presented before this Court can be narrowed down into two basic
issues:
1) Whether the RTC and the CA were correct in deciding Pasigs
Complaint without waiting for the resolution of the boundary
dispute case between Pasig and Cainta; and
2) Whether Sta. Lucia should continue paying its real property
taxes to Cainta, as it alleged to have always done, or to Pasig,
as the location stated in Sta. Lucias TCTs.
We agree with the First Division of the Court of Appeals in CA-G.R. SP No.
52874 that the resolution of the boundary dispute between Pasig and Cainta would
determine which local government unit is entitled to collect realty taxes from Sta.
Lucia.[26]
The Local Government Unit entitled
To Collect Real Property Taxes
The Former Seventh Division of the Court of Appeals held that the
resolution of the complaint lodged before the Pasig RTC did not necessitate the
assessment of the parties evidence on the metes and bounds of their respective
territories. It cited our ruling in Odsigue v. Court of Appeals[27] wherein we said that
a certificate of title is conclusive evidence of both its ownership and location. [28] The
Court of Appeals even referred to specific provisions of the 1991 Local Government
Code and Act. No. 496 to support its ruling that Pasig had the right to collect the
realty taxes on the subject properties as the titles of the subject properties show on
their faces that they are situated in Pasig.[29]
Under Presidential Decree No. 464 or the Real Property Tax Code, the
authority to collect real property taxes is vested in the locality where the property is
situated:
Sec. 5. Appraisal of Real Property. All real property,
whether taxable or exempt, shall be appraised at the current and
fair market value prevailing in the locality where the property is
situated.
xxxx
Sec. 57. Collection of tax to be the responsibility of
treasurers. The collection of the real property tax and all penalties
accruing thereto, and the enforcement of the remedies provided
for in this Code or any applicable laws, shall be the responsibility
of the treasurer of the province, city or municipality where the
property is situated. (Emphases ours.)
This requisite was reiterated in Republic Act No. 7160, also known as the
1991 the Local Government Code, to wit:
Section 201. Appraisal of Real Property. All real
property, whether taxable or exempt, shall be appraised at the
 current and fair market value prevailing in the locality where the
property is situated. The Department of Finance shall
promulgate the necessary rules and regulations for the
classification, appraisal, and assessment of real property pursuant
to the provisions of this Code.
Section 233. Rates of Levy. A province or city or a
municipality within the Metropolitan Manila Area shall fix a uniform
rate of basic real property tax applicable to their respective
localities as follows: x x x. (Emphases ours.)
The only import of these provisions is that, while a local government unit is
authorized under several laws to collect real estate tax on properties falling under its
territorial jurisdiction, it is imperative to first show that these properties are
unquestionably within its geographical boundaries.
Accentuating on the importance of delineating territorial boundaries, this
Court, in Mariano, Jr. v. Commission on Elections[30] said:
The importance of drawing with precise strokes the
territorial boundaries of a local unit of government cannot be
overemphasized. The boundaries must be clear for they define
the limits of the territorial jurisdiction of a local government
unit. It can legitimately exercise powers of government only
within the limits of its territorial jurisdiction. Beyond these
limits, its acts are ultra vires. Needless to state, any uncertainty
in the boundaries of local government units will sow costly conflicts
in the exercise of governmental powers which ultimately will
prejudice the people's welfare. This is the evil sought to be avoided
by the Local Government Code in requiring that the land area of a
local government unit must be spelled out in metes and bounds,
with technical descriptions.[31] (Emphasis ours.)
The significance of accurately defining a local government units boundaries
was stressed in City of Pasig v. Commission on Elections,[32] which involved the
consolidated petitions filed by the parties herein, Pasig and Cainta, against two
decisions of the Commission on Elections (COMELEC) with respect to the plebiscites
scheduled by Pasig for the ratification of its creation of two new Barangays. Ruling
on the contradictory reliefs sought by Pasig and Cainta, this Court affirmed the
COMELEC decision to hold in abeyance the plebiscite to ratify the creation
of Barangay Karangalan; but set aside the COMELECs other decision, and nullified
the plebiscite that ratified the creation ofBarangay Napico in Pasig, until the boundary
dispute before the Antipolo RTC had been resolved. The aforementioned case held
as follows:
1. The Petition of the City of Pasig in G.R. No. 125646 is
DISMISSED for lack of merit; while
2. The Petition of the Municipality of Cainta in G.R. No. 128663
is GRANTED. The COMELEC Order in UND No. 97-002,
dated March 21, 1997, is SET ASIDE and the plebiscite held
on March 15, 1997 to ratify the creation of Barangay Napico
in the City of Pasig is declared null and void. Plebiscite on the
same is ordered held in abeyance until after the courts settle
with finality the boundary dispute between the City of Pasig
and the Municipality of Cainta, in Civil Case No. 94-3006.[33]
Clearly therefore, the local government unit entitled to collect real property
taxes from Sta. Lucia must undoubtedly show that the subject properties are situated
within its territorial jurisdiction; otherwise, it would be acting beyond the powers
vested to it by law.
Certificates of Title as
Conclusive Evidence of Location
While we fully agree that a certificate of title is conclusive as to its ownership
and location, this does not preclude the filing of an action for the very purpose of
attacking the statements therein. In De Pedro v. Romasan Development
Corporation,[34] we proclaimed that:
We agree with the petitioners that, generally, a certificate
of title shall be conclusive as to all matters contained therein and
conclusive evidence of the ownership of the land referred to
therein. However, it bears stressing that while certificates of title
are indefeasible, unassailable and binding against the whole
world, including the government itself, they do not create or vest
title. They merely confirm or record title already existing and
vested. They cannot be used to protect a usurper from the true
owner, nor can they be used as a shield for the commission of
fraud; neither do they permit one to enrich himself at the expense
of other.[35]
In Pioneer Insurance and Surety Corporation v. Heirs of Vicente
Coronado,[36] we set aside the lower courts ruling that the property subject of the
case was not situated in the location stated and described in the TCT, for lack of
adequate basis. Our decision was in line with the doctrine that the TCT is conclusive
evidence of ownership and location.However, we refused to simply uphold the
veracity of the disputed TCT, and instead, we remanded the case back to the trial
court for the determination of the exact location of the property seeing that it was the
issue in the complaint filed before it.[37]

In City Government of Tagaytay v. Guerrero,[38] this Court reprimanded the
City of Tagaytay for levying taxes on a property that was outside its territorial
jurisdiction, viz:
In this case, it is basic that before the City of Tagaytay
may levy a certain property for sale due to tax delinquency, the
subject property should be under its territorial jurisdiction. The city
officials are expected to know such basic principle of law. The
failure of the city officials of Tagaytay to verify if the property
is within its jurisdiction before levying taxes on the same
constitutes gross negligence.[39] (Emphasis ours.)
Although it is true that Pasig is the locality stated in the TCTs of the subject
properties, both Sta. Lucia and Cainta aver that the metes and bounds of the subject
properties, as they are described in the TCTs, reveal that they are within Caintas
boundaries.[40] This only means that there may be a conflict between the location as
stated and the location as technically described in the TCTs. Mere reliance therefore
on the face of the TCTs will not suffice as they can only be conclusive evidence of
the subject properties locations if both the stated and described locations point to the
same area.
The Antipolo RTC, wherein the boundary dispute case between Pasig and
Cainta is pending, would be able to best determine once and for all the precise metes
and bounds of both Pasigs and Caintas respective territorial jurisdictions. The
resolution of this dispute would necessarily ascertain the extent and reach of each
local governments authority, a prerequisite in the proper exercise of their powers,
one of which is the power of taxation. This was the conclusion reached by this Court
in City of Pasig v. Commission on Elections,[41] and by the First Division of the Court
of Appeals in CA-G.R. SP No. 52874. We do not see any reason why we cannot
adhere to the same logic and reasoning in this case.
The Prejudicial Question Debate
It would be unfair to hold Sta. Lucia liable again for real property taxes it
already paid simply because Pasig cannot wait for its boundary dispute with Cainta
to be decided.Pasig has consistently argued that the boundary dispute case is not
a prejudicial question that would entail the suspension of its collection case against
Sta. Lucia. This was also its argument in City of Pasig v. Commission on
Elections,[42] when it sought to nullify the COMELECs ruling to hold in abeyance (until
the settlement of the boundary dispute case), the plebiscite that will ratify its creation
of Barangay Karangalan. We agreed with the COMELEC therein that the boundary
dispute case presented a prejudicial question and explained our statement in this
wise:
To begin with, we agree with the position of the
COMELEC that Civil Case No. 94-3006 involving the boundary
dispute between the Municipality of Cainta and the City of Pasig
presents a prejudicial question which must first be decided
before plebiscites for the creation of the proposed barangays may
be held.
The City of Pasig argues that there is no prejudicial
question since the same contemplates a civil and criminal action
and does not come into play where both cases are civil, as in the
instant case. While this may be the general rule, this Court has
held in Vidad v. RTC of Negros Oriental, Br. 42, that, in the
interest of good order, we can very well suspend action on
one case pending the final outcome of another case closely
interrelated or linked to the first.
In the case at bar, while the City of Pasig vigorously
claims that the areas covered by the proposed Barangays
Karangalan and Napico are within its territory, it can not deny that
portions of the same area are included in the boundary dispute
case pending before the Regional Trial Court of Antipolo. Surely,
whether the areas in controversy shall be decided as within the
territorial jurisdiction of the Municipality of Cainta or the City of
Pasig has material bearing to the creation of the proposed
Barangays Karangalan and Napico. Indeed, a requisite for the
creation of a barangay is for its territorial jurisdiction to be properly
identified by metes and bounds or by more or less permanent
natural boundaries. Precisely because territorial jurisdiction is an
issue raised in the pending civil case, until and unless such issue
is resolved with finality, to define the territorial jurisdiction of the
proposed barangays would only be an exercise in futility. Not only
that, we would be paving the way for potentially ultra vires acts of
such barangays. x x x.[43] (Emphases ours.)
It is obvious from the foregoing, that the term prejudicial question, as
appearing in the cases involving the parties herein, had been used loosely. Its usage
had been more in reference to its ordinary meaning, than to its strict legal meaning
under the Rules of Court.[44] Nevertheless, even without the impact of the connotation
derived from the term, our own Rules of Court state that a trial court may control its
own proceedings according to its sound discretion:
POWERS AND DUTIES OF COURTS AND JUDICIAL
OFFICERS
Rule 135
SEC. 5. Inherent powers of courts. Every court shall have
power:
xxxx
 determine which local government unit is entitled to exercise its powers, including
(g) To amend and control its process and orders so as to make the collection of real property taxes, on the properties subject of the dispute. In the
them comformable to law and justice. meantime, Sta. Lucia Realty and Development, Inc. is directed to deposit the
succeeding real property taxes due on the lots and improvements covered by TCT
Nos. 532250, 598424, 599131, 92869, 92870 and 38457 in an escrow account with
Furthermore, we have acknowledged and affirmed this inherent power in the Land Bank of the Philippines.
our own decisions, to wit:
SO ORDERED.
The court in which an action is pending may, in the
exercise of a sound discretion, upon proper application for a stay
of that action, hold the action in abeyance to abide the outcome of
another pending in another court, especially where the parties and
the issues are the same, for there is power inherent in every court
to control the disposition of causes (sic) on its dockets with
economy of time and effort for itself, for counsel, and for litigants.
Where the rights of parties to the second action cannot be properly
determined until the questions raised in the first action are settled
the second action should be stayed.

The power to stay proceedings is incidental to the power

inherent in every court to control the disposition of the cases on its
dockets, considering its time and effort, that of counsel and the
litigants. But if proceedings must be stayed, it must be done in
order to avoid multiplicity of suits and prevent vexatious litigations,
conflicting judgments, confusion between litigants and courts. It
bears stressing that whether or not the RTC would suspend the
proceedings in the SECOND CASE is submitted to its sound
discretion.[45]

In light of the foregoing, we hold that the Pasig RTC should have held in
abeyance the proceedings in Civil Case No. 65420, in view of the fact that the
outcome of the boundary dispute case before the Antipolo RTC will undeniably affect
both Pasigs and Caintas rights. In fact, the only reason Pasig had to file a tax
collection case against Sta. Lucia was not that Sta. Lucia refused to pay, but that
Sta. Lucia had already paid, albeit to another local government unit. Evidently, had
the territorial boundaries of the contending local government units herein been
delineated with accuracy, then there would be no controversy at all.

In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit

the succeeding real property taxes due on the subject properties, in an escrow
account with the Land Bank of the Philippines.

WHEREFORE, the instant petition is GRANTED. The June 30, 2004

Decision and the January 27, 2005 Resolution of the Court of Appeals in CA-G.R.
CV No. 69603 are SET ASIDE. The City of Pasig and the Municipality of Cainta are
both directed to await the judgment in their boundary dispute case (Civil Case No.
94-3006), pending before Branch 74 of the Regional Trial Court in Antipolo City, to

G.R. No. 181756 June 15, 2015
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner,
vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a clear opportunity for this Court to clarify the effects of our two previous
decisions, issued a decade apart, on the power of local government units to collect
real property taxes from airport authorities located within their area, and the nature
or the juridical personality of said airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure seeking to reverse and set aside the October 8, 2007 Decision1 of
the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360 and the February 12,
2008 Resolution2 denying petitioner's motion for reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by
Congress on July 31, 1990 under Republic Act No. 69583 to "undertake the
economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu
City x x x and such other airports as may be established in the Province of Cebu." It
is represented in this case by the Office of the Solicitor General. Respondent City
of Lapu-Lapu is a local government unit and political subdivision, created and
existing under its own charter with capacity to sue and be sued. Respondent Elena
T. Pacaldo was impleaded in her capacity as the City Treasurer of respondent City.
Upon its creation, petitioner enjoyed exemption from realty taxes under the
following provision of Republic Act No. 6958:
Section 14. Tax Exemptions.– The Authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions, agencies
and instrumentalities: Provided, That no tax exemption herein granted shall extend
to any subsidiary which may be organized by the Authority.
On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu
International Airport Authority v. Marcos4 (the 1996 MCIAA case) declaring that
upon the effectivity of Republic Act No. 7160 (The Local Government Code of
1991), petitioner was no longer exempt from real estate taxes. The Court held:
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity
of the LGC, exemptions from payment of real property taxes granted to natural or
juridical persons, including government-owned or controlled corporations, except as
provided in the said section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption from such tax granted it
in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. x x x.
On January 7, 1997, respondent City issued to petitioner a Statement of Real
Estate Tax assessing the lots comprising the Mactan International Airport in the
amount of ₱162,058,959.52. Petitioner complained that there were discrepancies in
said Statement of Real Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory
of petitioner’s real properties;
(b) [S]ome of the lots were covered by two separate tax declarations
which resulted in double assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for governmental
purposes.5
Respondent City amended its billing and sent a new Statement of Real Estate Tax
to petitioner in the amount of ₱151,376,134.66. Petitioner averred that this amount
covered real estate taxes on the lots utilized solely and exclusively for public or
governmental purposes such as the airfield, runway and taxiway, and the lots on
which they are situated.6
Petitioner paid respondent City the amount of four million pesos (₱4,000,000.00)
monthly, which was later increased to six million pesos (₱6,000,000.00) monthly.
As of December 2003, petitioner had paid respondent City a total of
₱275,728,313.36.7
Upon request of petitioner’s General Manager, the Secretary of the Department of
Justice (DOJ) issued Opinion No. 50, Series of 1998,8 and we quote the pertinent
portions of said Opinion below:
You further state that among the real properties deemed transferred to MCIAA are
the airfield, runway, taxiway and the lots on which the runway and taxiway are
situated, the tax declarations of which were transferred in the name of the MCIAA.
In 1997, the City of Lapu-Lapu imposed real estate taxes on these properties
invoking the provisions of the Local Government Code.
It is your view that these properties are not subject to real property tax because
they are exclusively used for airport purposes. You said that the runway and
taxiway are not only used by the commercial airlines but also by the Philippine Air
Force and other government agencies. As such and in conjunction with the above
interpretation of Section 15 of R.A. No. 6958, you believe that these properties are
considered owned by the Republic of the Philippines. Hence, this request for
opinion.
The query is resolved in the affirmative. The properties used for airport purposes
(i.e. airfield, runway, taxiway and the lots on which the runway and taxiway are
situated) are owned by the Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the legislature has complete control over
the property which a municipal corporation has acquired in its public or
governmental capacity and which is devoted to public or governmental use. The
municipality in dealing with said property is subject to such restrictions and
limitations as the legislature may impose. On the other hand, property which a
municipal corporation acquired in its private or proprietary capacity, is held by it in
the same character as a private individual. Hence, the legislature in dealing with
such property, is subject to the constitutional restrictions concerning property
(Martin, Public Corporations [1997], p. 30; see also Province of Zamboanga del
[Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of properties
transferred to the MCIAA and used for airport purposes, such as those involved
herein. Since such properties are of public dominion, they are deemed held by the
MCIAA in trust for the Government and can be alienated only as may be provided
by law.
Based on the foregoing, it is our considered opinion that the properties used for
airport purposes, such as the airfield, runway and taxiway and the lots on which the
runway and taxiway are located, are owned by the State or by the Republic of the
Philippines and are merely held in trust by the MCIAA, notwithstanding that
certificates of titles thereto may have been issued in the name of the MCIAA.
(Emphases added.)
Based on the above DOJ Opinion, the Department of Finance issued a 2nd
Indorsement to the City Treasurer of Lapu-Lapu dated August 3, 1998,9 which
reads:
The distinction as to which among the MCIAA properties are still considered
"owned by the State or by the Republic of the Philippines," such as the resolution in
the above-cited DOJ Opinion No. 50, for purposes of real property tax exemption is
hereby deemed tenable considering that the subject "airfield, runway, taxiway and
the lots on which the runway and taxiway are situated" appears to be the subject of
real property tax assessment and collection of the city government of Lapu-Lapu,
hence, the same are definitely located within the jurisdiction of Lapu-Lapu City.
Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance,
in his 1st Indorsement dated May 18, 1998, advanced that "this Department (DOF)
interposes no objection to the request of Mactan Cebu International Airport
Authority for exemption from payment of real property tax on the property used for
airport purposes" mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the assessment of the
subject airfield, runway, taxiway and the lots on which the runway and taxiway are
situated, from the "Taxable Roll" to the "Exempt Roll" of real properties.
The City Treasurer thereat should be informed on the action taken for his
immediate appropriate action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real
Property Tax Balances up to the year 2002 reflecting the amount of
₱246,395,477.20. Petitioner claimed that the statement again included the lots
utilized solely and exclusively for public purpose such as the airfield, runway, and
taxiway and the lots on which these are built. Respondent Pacaldo then issued
Notices of Levy on 18 sets of real properties of petitioner. 10
Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of
Lapu-Lapu City with prayer for the issuance of a temporary restraining order (TRO)
and/or a writ of preliminary injunction, docketed as SCA No. 6056-L. Branch 53 of
RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for prohibition sought
to enjoin respondent City from issuing a warrant of levy against petitioner’s
properties and from selling them at public auction for delinquency in realty tax
obligations. The petition likewise prayed for a declaration that the airport terminal
building, the airfield, runway, taxiway and the lots on which they are situated are
exempted from real estate taxes after due hearing. Petitioner based its claim of
exemption on DOJ Opinion No. 50.
The RTC issued an Order denying the motion for extension of the TRO. Thus, on
December10, 2003, respondent City auctioned 27 of petitioner’s properties. As
there was no interested bidder who participated in the auction sale, respondent City
forfeited and purchased said properties. The corresponding Certificates of Sale of
Delinquent Property were issued to respondent City.12
Petitioner claimed before the RTC that it had discovered that respondent City did
not pass any ordinance authorizing the collection of real property tax, a tax for the
special education fund (SEF), and a penalty interest for its nonpayment. Petitioner
argued that without the corresponding tax ordinances, respondent City could not
impose and collect real property tax, an additional tax for the SEF, and penalty
interest from petitioner.13
The RTC issued an Order14 on December 28, 2004 granting petitioner’s application
for a writ of preliminary injunction. The pertinent portions of the Order are quoted
below:
The supervening legal issue has rendered it imperative that the matter of the
consolidation of the ownership of the auctioned properties be placed on hold.
Furthermore, it is the view of the Court that great prejudice and damage will be
suffered by petitioner if it were to lose its dominion over these properties now when
the most important legal issue has still to be resolved by the Court. Besides, the
respondents and the intervenor have not sufficiently shown cause why petitioner’s
application should not be granted.
WHEREFORE, the foregoing considered, petitioner’s application for a writ of
preliminary injunction is granted. Consequently, upon the approval of a bond in the
amount of one million pesos (₱1,000,000.00), let a writ of preliminary injunction
issue enjoining the respondents, the intervenor, their agents or persons acting in
[their] behalf, to desist from consolidating and exercising ownership over the
properties of the petitioner.
However, upon motion of respondents, the RTC lifted the writ of preliminary
injunction in an Order15 dated December 5, 2005. The RTC reasoned as follows:
The respondent City, in the courseof the hearing of its motion, presented to this
Court a certified copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City
of Lapu-Lapu), Section 25 whereof authorized the collection of a rate of one and
one-half (1 1/2) [per centum] from owners, executors or administrators of any real
estate lying within the jurisdiction of the City of Lapu-Lapu, based on the assessed
value as shown in the latest revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160
(Local Government Code of 1991), to the mind of the Court this ordinance is still a
valid and effective ordinance in view of Sec. 529 of RA 7160 x x x [and the]
Implementing Rules and Regulations of RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates prescribed by RA
7160, though the 25% penalty collected is higher than the 2% interest allowed
under Sec. 255 of the said law which provides:
In case of failure to pay the basic real property tax or any other tax levied under this
Title upon the expiration of the periods as provided in Section 250, or when due, as
the case may be, shall subject the taxpayer to the payment of interest at the rate of
two percent (2%) per month on the unpaid amount or a fraction thereof, until the
delinquent tax shall have been fully paid: Provided, however, That in no case shall
the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months.
This difference does not however detract from the essential enforceability and
effectivity of Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278
of the Implementing Rules and Regulations. The outcome of this disparity is simply
that respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent City [has] to recompute the petitioner’s tax liability.
It is also the Court’s perception that respondent City can still collect the additional
1% tax on real property without an ordinance to this effect. It may be recalled that
Republic Act No. 5447 has created the Special Education Fund which is constituted
from the proceeds of the additional tax on real property imposed by the law.
Respondent City has collected this tax as mandated by this law without any
ordinance for the purpose, as there is no need for it. Even when RA 5447 was
amended by PD 464 (Real Property Tax Code), respondent City had continued to
collect the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been repealed are only
Section 3, a(3) and b(2) which concern the allocation of the additional tax,
considering that under RA 7160, the proceeds of the additional 1% tax on real
property accrue exclusively to the Special Education Fund. Nevertheless, RA 5447
has not been totally repealed; there is only a partial repeal.
It may be observed that there is no requirement in RA 7160 that an ordinance be
enacted to enable the collection of the additional 1% tax. This is so since RA 5447
is still in force and effect, and the declared policy of the government in enacting the
law, which is to contribute to the financial support of the goals of education as
provided in the Constitution, necessitates the continued and uninterrupted
collection of the tax. Considering that this is a tax of far-reaching importance, to
require the passage of an ordinance in order that the tax may be collected would be
to place the collection of the tax at the option of the local legislature. This would run
counter to the declared policy of the government when the SEF was created and
the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to
entertain the instant petition, the Court deems it proper, at this stage of the
proceedings, not to treat this issue, as it involves facts which are yet to be
established.
x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a
futile gesture in the light of Section 263 of RA 7160. x x x.
xxxx
It would seem from the foregoing provisions, that once the taxpayer fails to redeem
within the one-year period, ownership fully vests on the local government unit
concerned. Thus, when in the present case petitioner failed to redeem the parcels
of land acquired by respondent City, the ownership thereof became fully vested on
respondent City without the latter having to perform any other acts to perfect its
ownership. Corollary thereto, ownership on the part of respondent City has become
a fait accompli.
WHEREFORE, in the light of the foregoing considerations, respondents’ motion for
reconsideration is granted, and the order of this Court dated December 28, 2004 is
hereby reconsidered. Consequently, the writ of preliminary injunction issued by this
Court is hereby lifted.
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu
City), with urgent prayer for the issuance of a TRO and/or writ of preliminary
injunction, docketed as CA-G.R. SP No. 01360. The Court of Appeals (Cebu City)
issued a TRO17 on January 5, 2006 and shortly thereafter, issued a writ of
preliminary injunction18 on February 17, 2006.
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated the questioned Decision on October
8, 2007, holding that petitioner is a government-owned or controlled corporation
and its properties are subject to realty tax. The dispositive portion of the questioned
Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as
follows:
a. We DECLARE the airport terminal building, the airfield, runway, taxiway
and the lots on which they are situated NOT EXEMPT from the real estate
tax imposed by the respondent City of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate tax, the
additional levy for the Special Education Fund and the penalty interest as
VALID and LEGAL. However, pursuant to Section 255 of the Local
Government Code, respondent city can only collect an interest of 2% per
month on the unpaid tax which total interest shall, in no case, exceed
thirty-six (36) months; c. We DECLARE the sale in public auction of the
aforesaid properties and the eventual forfeiture and purchase of the
subject property by the respondent City of Lapu-Lapu as NULL and VOID.
However, petitioner MCIAA’s property is encumbered only by a limited lien
possessed by the respondent City of Lapu-Lapu in accord with Section
257 of the Local Government Code.19Petitioner filed a Motion for Partial
Reconsideration20 of the questioned Decision covering only the portion of
said decision declaring that petitioner is a GOCC and, therefore, not
exempt from the realty tax and special education fund imposed by
respondent City. Petitioner cited Manila International Airport Authority v.
Court of Appeals21 (the 2006 MIAA case) involving the City of Parañaque
and the Manila International Airport Authority. Petitioner claimed that it had
been described by this Court as a government instrumentality, and that it
followed "as a logical consequence that petitioner is exempt from the
taxing powers of respondent City of Lapu-Lapu."22 Petitioner alleged that
the 1996 MCIAA case had been overturned by the Court in the 2006 MIAA
case. Petitioner thus prayed that it be declared exempt from paying the
realty tax, special education fund, and interest being collected by
respondent City.
On February 12, 2008, the Court of Appeals denied petitioner’s motion for partial
reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the precedent established in the 1996
MCIAA case and refused to apply the 2006 MIAA case. The Court of Appeals wrote
in the questioned Decision: "We find that our position is in line with the coherent
and cohesive interpretation of the relevant provisions of the Local Government
Code on local taxation enunciated in the [1996 MCIAA] case which to our mind is
more elegant and rational and provides intellectual clarity than the one provided by
the Supreme Court in the [2006] MIAA case."23
In the questioned Decision, the Court of Appeals held that petitioner’s airport
terminal building, airfield, runway, taxiway, and the lots on which they are situated
are not exempt from real estate tax reasoning as follows:
Under the Local Government Code (LGC for brevity), enacted pursuant to the
constitutional mandate of local autonomy, all natural and juridical persons, including
government-owned or controlled corporations (GOCCs), instrumentalities and
agencies, are no longer exempt from local taxes even if previously granted an
exemption. The only exemptions from local taxes are those specifically provided
under the Code itself, or those enacted through subsequent legislation.
Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution,
provides for the exercise by local government units of their power to tax, the scope
thereof or its limitations, and the exemptions from local taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of
local government units. x x x.
xxxx
The above-stated provision, however, qualified the exemption of the National
Government, its agencies and instrumentalities from local taxation with the phrase
"unless otherwise provided herein."
Section 232 of the LGC provides for the power of the local government units (LGUs
for brevity) to levy real property tax. x x x.
xxxx
Section 234 of the LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions granted to natural and juridical persons,
including government-owned and controlled corporations, except as provided
therein. x x x.
xxxx
Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. x x x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of the Supreme
Court in the 2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs
to tax the National Government, its agencies and instrumentalities as the same is
qualified by Sections 193, 232 and 234 which "otherwise provided"; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)
The Court of Appeals ratiocinated in the following manner:
Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously
enjoyed by persons, whether natural or juridical, like the petitioner MCIAA, are
deemed withdrawn upon the effectivity of the Code. Further, the last paragraph of
Section 234 of the Code also unequivocally withdrew, upon the Code’s effectivity,
exemptions from payment of real property taxes previously granted to natural or
juridical persons, including government-owned or controlled corporations, except as
provided in the said section. Petitioner MCIAA, undoubtedly a juridical person, it
follows that its exemption from such tax granted under Section 14 of R.A. 6958 has
been withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the
LGC, instrumentalities were generally exempt from all forms of local government
taxation, unless otherwise provided in the Code. On the other hand, Section 232
"otherwise provided" insofar as it allowed local government units to levy an ad
valorem real property tax, irrespective of who owned the property. At the same
time, the imposition of real property taxes under Section 232 is, in turn, qualified by
the phrase "not hereinafter specifically exempted." The exemptions from real
property taxes are enumerated in Section 234 of the Code which specifically states
that only real properties owned by the Republic of the Philippines or any of its
political subdivisions are exempted from the payment of the tax. Clearly,
instrumentalities or GOCCs do not fall within the exceptions under Section 234 of
the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national
government, its agencies and instrumentalities under Section 133 is qualified by
Sections 232 and 234, and accordingly, the only relevant exemption now applicable
to these bodies is what is now provided under Section 234(a) of the Code. It may
be noted that the express withdrawal of previously granted exemptions to persons
from the payment of real property tax by the LGC does not even make any
distinction as to whether the exempt person is a governmental entity or not. As
Sections 193 and 234 of the Code both state, the withdrawal applies to "all
persons, including GOCCs," thus encompassing the two classes of persons
recognized under our laws, natural persons and juridical persons.
xxxx
The question of whether or not petitioner MCIAA is an instrumentality or a GOCC
has already been lengthily but soundly, cogently and lucidly answered in the [1996
MCIAA] case x x x.
xxxx
Based on the foregoing, the claim of the majority of the Supreme Court in the [2006
MIAA] case that MIAA (and also petitioner MCIAA) is not a government-owned or
controlled corporation but an instrumentality based on Section 2(10) of the
Administrative Code of 1987 appears to be unsound. In the [2006 MIAA] case, the
majority justifies MIAA’s purported exemption on Section 133(o)of the Local
Government Code which places "agencies and instrumentalities: as generally
exempt from the taxation powers of the LGUs. It further went on to hold that "By
express mandate of the Local Government Code, local governments cannot
impose any kind of tax on national government instrumentalities like the MIAA." x x
x.26 (Citations omitted.)
The Court of Appeals further cited Justice Tinga’s dissent in the 2006 MIAA case
as well as provisions from petitioner MCIAA’s charter to show that petitioner is a
GOCC.27 The Court of Appeals wrote:
These cited provisions establish the fitness of the petitioner MCIAA to be the
subject of legal relations. Under its charter, it has the power to acquire, possess
and incur obligations. It also has the power to contract in its own name and to
acquire title to movable or immovable property. More importantly, it may likewise
exercise powers of a corporation under the Corporation Code. Moreover, based on
its own allegation, it even recognized itself as a GOCC when it alleged in its petition
for prohibition filed before the lower court that it "is a body corporate organized and
existing under Republic Act No. 6958 x x x."
We also find to be not meritorious the assertion of petitioner MCIAA that the
respondent city can no longer challenge the tax-exempt character of the properties
since it is estopped from doing so when respondent City of Lapu-Lapu, through its
former mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioner’s
properties are exempt from real property tax.
It is not denied by the respondent city that it considered, through its former mayor,
Ernest H. Weigel, Jr., petitioner’s subject properties, specifically the runway and
taxiway, as exempt from taxes. However, as astutely pointed out by the respondent
city it "can never be in estoppel, particularly in matters involving taxes. It is a well-
known rule that erroneous application and enforcement of the law by public officers
do not preclude subsequent correct application of the statute, and that the
Government is never estopped by mistake or error on the part of its
agents."28 (Citations omitted.)
The Court of Appeals established the following:
a) [R]espondent City was able to prove and establish that it has a valid
and existing ordinance for the imposition of realty tax against petitioner
MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special
Education Fund (SEF) is authorized by law, Republic Act No. 5447; and
c) [T]he collection of penalty interest for delinquent taxes is not only
authorized by law but is likewise [sanctioned] by respondent City’s
ordinance.29
The Court of Appeals likewise held that respondent City has a valid and existing
local tax ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-
Lapu City, which provided for the imposition of real property tax. The relevant
provision reads:
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2) percentum shall be
collected from owners, executors or administrators of any real estate lying within
the territorial jurisdiction of the City of Lapu-Lapu, based on the assessed value as
shown in the latest revision.30
The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the
effectivity of the LGC, it remained in force and effect, citing Section 529 of the LGC
and Article 278 of the LGC’s Implementing Rules and Regulations. 31
As regards the Special Education Fund, the Court of Appeals held that respondent
City can still collect the additional 1% tax on real property even without an
ordinance to this effect, as this is authorized by Republic Act No. 5447, as
amended by Presidential Decree No. 464 (the Real Property Tax Code), which
does not require an enabling tax ordinance. The Court of Appeals affirmed the
RTC’s ruling that Republic Act No. 5447 was still in force and effect notwithstanding
the passing of the LGC, as the latter only partially repealed the former law. What
Section 534 of the LGC repealed was Section 3 a(3) and b(2) of Republic Act No.
5447, and not the entire law that created the Special Education Fund.32 The
repealed provisions referred to allocation of taxes on Virginia type cigarettes and
duties on imported leaf tobacco and the percentage remittances to the taxing
authority concerned. The Court of Appeals, citing The Commission on Audit of the
Province of Cebu v. Province of Cebu,33 held that "[t]he failure to add a specific
repealing clause particularly mentioning the statute to be repealed indicates that
the intent was not to repeal any existing law on the matter, unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and the old
laws."34 The Court of Appeals quoted the RTC’s discussion on this issue, which we
reproduce below:
It may be observed that there is no requirement in RA 7160 that an ordinance be
enacted to enable the collection of the additional 1% tax. This is so since R.A. 5447
is still in force and effect, and the declared policy of the government in enacting the
law, which is to contribute to the financial support of the goals of education as
provided in the Constitution, necessitates the continued and uninterrupted
collection of the tax. Considering that this is a tax of far-reaching importance, to
require the passage of an ordinance in order that the tax may be collected would be
to place the collection of the tax at the option of the local legislature. This would run
counter to the declared policy of the government when the SEF was created and
the tax imposed.35 Regarding the penalty interest, the Court of Appeals found that
Section 30 of Ordinance No. 44 of respondent City provided for a penalty surcharge
of 25% of the tax due for a given year. Said provision reads:
Section 30. – PENALTY FOR FAILURE TO PAY TAX. – Failure to pay the tax
provided for under this Chapter within the time fixed in Section 27, shall subject the
taxpayer to a surcharge of twenty-five percent (25%), without interest.36
The Court of Appeals however declared that after the effectivity of the Local
Government Code, the respondent City could only collect penalty surcharge up to
the extent of 72%, covering a period of three years or 36 months, for the entire
delinquent property.37 This was lower than the 25% per annum surcharge imposed
by Ordinance No. 44.38The Court of Appeals affirmed
the findings of the RTC in the decision quoted below:
The tax collected under Ordinance No. 44 is within the rates prescribed by RA
7160, though the 25% penalty collected is higher than the 2% allowed under Sec.
255 of the said law which provides:
xxxx
This difference does not however detract from the essential enforceability and
effectivity of Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article
278 of the Implementing Rules and Regulations. The outcome of this disparity is
simply that respondent City can only collect an interest of 2% per month on the
unpaid tax. Consequently, respondent city will have to [recompute] the petitioner’s
tax liability.39
It is worthy to note that the Court of Appeals nevertheless held that even if it
is clear that respondent City has the power to impose real property taxes
over petitioner, "it is also evident and categorical that, under Republic Act
No. 6958, the properties of petitioner MCIAA may not be conveyed or
transferred to any person or entity except to the national government."40 The
relevant provisions of the said law are quoted below:
Section 4. Functions, Powers and Duties.– The Authority shall have the following
functions, powers and duties:
xxxx
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise
dispose of any land, building, airport facility, or property of whatever kind and
nature, whether movable or immovable, or any interest therein: Provided, That any
asset located in the Mactan International Airport important to national security shall
not be subject to alienation or mortgage by the Authority nor to transfer to any entity
other than the National Government[.]
Section 13. Borrowing Power.– The Authority may, in accordance with Section 21,
Article XII of the Constitution and other existing laws, rules and regulations on local
or foreign borrowing, raise funds, either from local or international sources, by way
of loans, credit or securities, and other borrowing instruments with the power to
create pledges, mortgages and other voluntary liens or encumbrances on any of its
assets or properties, subject to the prior approval of the President of the
Philippines.
All loans contracted by the Authority under this section, together with all interests
and other sums payable in respect thereof, shall constitute a charge upon all the
revenues and assets of the Authority and shall rank equally with one another, but
shall have priority over any other claim or charge on the revenue and assets of the
Authority: Provided, That this provision shall not be construed as a prohibition or
restriction on the power of the Authority to create pledges, mortgages and other
voluntary liens or encumbrances on any asset or property of the Authority. The
payment of the loans or other indebtedness of the Authority may be guaranteed by
the National Government subject to the approval of the President of the Philippines.
The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by
its charter the absolute right to dispose of its property to any person or entity except
to the national government and it is not empowered to obtain loans or encumber its
property without the approval of the President."41 The questioned Decision
contained the following conclusion:
With the advent of RA 7160, the Local Government Code, the power to tax is no
longer vested exclusively on Congress. LGUs, through its local legislative bodies,
are now given direct authority to levy taxes, fees and other charges pursuant to
Article X, Section 5 of the 1987 Constitution. And one of the most significant
provisions of the LGC is the removal of the blanket inclusion of instrumentalities
and agencies of the national government from the coverage of local taxation. The
express withdrawal by the Code of previously granted exemptions from realty taxes
applied to instrumentalities and government-owned or controlled corporations
(GOCCs) such as the petitioner Mactan-Cebu International Airport Authority. Thus,
petitioner MCIAA became a taxable person in view of the withdrawal of the realty
tax exemption that it previously enjoyed under Section 14 of RA No. 6958 of its
charter. As expressed and categorically held in the Mactan case, the removal and
withdrawal of tax exemptions previously enjoyed by persons, natural or juridical,
are consistent with the State policy to ensure autonomy to local governments and
the objective of the Local Government Code that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as
self-reliant communities and make them effective partners in the attainment of
national goals.
However, in the case at bench, petitioner MCIAA’s charter expressly bars the
alienation or mortgage of its property to any person or entity except to the national
government. Therefore, while petitioner MCIAA is a taxable person for purposes of
real property taxation, respondent City of Lapu-Lapu is prohibited from seizing,
selling and owning these properties by and through a public auction in order to
satisfy petitioner MCIAA’s tax liability.42 (Citations omitted.)
In the questioned Resolution that affirmed its questioned Decision, the Court of
Appeals denied petitioner’s motion for reconsideration based on the following
grounds:
First, the MCIAA case remains the controlling law on the matter as the same is the
established precedent; not the MIAA case but the MCIAA case since the former, as
keenly pointed out by the respondent City of Lapu-Lapu, has not yet attained finality
as there is still yet a pending motion for reconsideration filed with the Supreme
Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in the MIAA case
cannot be similarly invoked in the case at bench. The said case cannot be
considered as the "law of the case." The "law of the case" doctrine has been
defined as that principle under which determinations of questions of law will
generally be held to govern a case throughout all its subsequent stages where such
determination has already been made on a prior appeal to a court of last resort. It is
merely a rule of procedure and does not go to the power of the court, and will not
be adhered to where its application will result in an unjust decision. It relates
entirely to questions of law, and is confined in its operation to subsequent
proceedings in the same case. According to said doctrine, whatever has been
irrevocably established constitutes the law of the case only as to the same parties
in the same case and not to different parties in an entirely different case. Besides,
pending resolution of the aforesaid motion for reconsideration in the MIAA case, the
latter case has not irrevocably established anything.
Thus, after a thorough and judicious review of the allegations in petitioner’s motion
for reconsideration, this Court resolves to deny the same as the matters raised
therein had already been exhaustively discussed in the decision sought to be
reconsidered, and that no new matters were raised which would warrant the
modification, much less reversal, thereof.43 (Emphasis added, citations omitted.)
PETITIONER’S THEORY
Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had
expressly declared that petitioner, while vested with corporate powers, is not
considered a government-owned or controlled corporation, but is a government
instrumentality like the Manila International Airport Authority (MIAA), Philippine
Ports Authority (PPA), University of the Philippines, and Bangko Sentral ng
Pilipinas (BSP). Petitioner alleges that as a government instrumentality, all its
airport lands and buildings are exempt from real estate taxes imposed by
respondent City.44Petitioner alleges that Republic Act No. 6958 placed "a limitation
on petitioner’s administration of its assets and properties" as it provides under
Section 4(e) that "any asset in the international airport important to national security
cannot be alienated or mortgaged by petitioner or transferred to any entity other
than the National Government."45
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in
disregarding the following:
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY
DECLARED BY THE HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS
EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT
CITY OF LAPULAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT
TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS
ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY
TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX
WITHOUT ANY APPROPRIATE ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1%
TAX FOR THE SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY
CORRESPONDING ORDINANCE.
V
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST
SANSANY ORDINANCE MANDATING ITS IMPOSITION.46
Petitioner claims the following similarities with MIAA:
1. MCIAA belongs to the same class and performs identical functions as
MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic airport in
Paranaque City for public use, while MCIAA was organized to operate the
international and domestic airport in Mactan for public use.
 4. Both are attached agencies of the Department of Transportation and
Communications.47
Petitioner compares its charter (Republic Act No. 6958) with that of MIAA
(Executive Order No. 903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila International Airport Authority. There is hereby
established a body corporate to be known as the Manila International Airport
Authority which shall be attached to the Ministry of Transportation and
Communications. The principal office of the Authority shall be located at the New
Manila International Airport. The Authority may establish such offices, branches,
agencies or subsidiaries as it may deem proper and necessary; x x x.
Section 2 of Republic Act No. 6958 reads:
Section 2. Creation of the Mactan-Cebu International Airport Authority.– There is
hereby established a body corporate to be known as the Mactan-Cebu International
Airport Authority which shall be attached to the Department of Transportation and
Communications. The principal office of the Authority shall be located at the Mactan
International Airport, Province of Cebu.
The Authority may have such branches, agencies or subsidiaries as it may deem
proper and necessary.
As to MIAA’s purposes and objectives, Section 4 of Executive Order No. 903 reads:
Sec. 4. Purposes and Objectives. The Authority shall have the following purposes
and objectives:
(a) To help encourage and promote international and domestic air traffic in
the Philippines as a means of making the Philippines a center of
international trade and tourism and accelerating the development of the
means of transportation and communications in the country;
(b) To formulate and adopt for application in the Airport internationally
acceptable standards of airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for
international and domestic air travel.
Petitioner claims that the above purposes and objectives are analogous to those
enumerated in its charter, specifically Section 3 of Republic Act No. 6958, which
reads:
Section 3. Primary Purposes and Objectives.– The Authority shall principally
undertake the economical, efficient and effective control, management and
supervision of the Mactan International Airport in the Province of Cebu and the
Lahug Airport in Cebu City, hereinafter collectively referred to as the airports, and
such other airports as may be established in the Province of Cebu. In addition, it
shall have the following objectives:
(a) To encourage, promote and develop international and domestic air
traffic in the central Visayas and Mindanao regions as a means of making
the regions centers of international trade and tourism, and accelerating the
development of the means of transportation and communications in the
country; and
(b) To upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and
service.
The powers, functions and duties of MIAA under Section 5 of Executive Order No.
903 are:
Sec. 5. Functions, Powers and Duties. The Authority shall have the following
functions, powers and duties:
(a) To formulate, in coordination with the Bureau of Air Transportation and
other appropriate government agencies, a comprehensive and integrated
policy and program for the Airport and to implement, review and update
such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such
facilities or services as shall be necessary for the efficient functioning of
the Airport;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the Airport, and
to control and/or supervise as may be necessary the construction of any
structure or the rendition of any services within the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to
time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property of
whatever kind and nature, whether movable or immovable, or any interest
therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes
and objectives;
(k) To levy, and collect dues, charges, fees or assessments for the use of
the Airport premises, works, appliances, facilities or concessions or for
any service provided by the Authority, subject to the approval of the
Minister of Transportation and Communications in consultation with the
Minister of Finance, and subject further to the provisions of Batas
Pambansa Blg. 325 where applicable;
(l) To invest its idle funds, as it may deem proper, in government securities
and other evidences of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the
Airport and the approaches thereof, which shall include but shall not be
limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft
on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the
care, convenience and security of passengers, visitors and other
airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of
baggage and goods.
(n) To perform such other acts and transact such other business, directly
or indirectly necessary, incidental or conducive to the attainment of the
purposes and objectives of the Authority, including the adoption of
necessary measures to remedy congestion in the Airport; and
(o) To exercise all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this
Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties under
Section 4 of Republic Act No. 6958, as shown in the provision quoted below:
Section 4. Functions, Powers and Duties.– The Authority shall have the following
functions, powers and duties:
(a) To formulate a comprehensive and integrated development policy and
program for the airports and to implement, review and update such policy
and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such
facilities or services as shall be necessary for the efficient functioning of
the airports;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the airports,
and to control and supervise the construction of any structure or the
rendition of any service within the airports;
(d) To exercise all the powers of a corporation under the Corporation
Code of the Philippines, insofar as those powers are not inconsistent with
the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property of
whatever kind and nature, whether movable or immovable, or any interest
therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or
mortgage by the Authority nor to transfer to any entity other than the
National Government;
(f) To exercise the power of eminent domain in the pursuit of its purposes
and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use of
airport premises, works, appliances, facilities or concessions, or for any
service provided by the Authority;
 (h) To retain and appropriate dues, fees and charges collected by the
Authority relative to the use of airport premises for such measures as may
be necessary to make the Authority more effective and efficient in the
discharge of its assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government securities
and other evidences of indebtedness; and
(j) To provide services, whether on its own or otherwise, within the airports
and the approaches thereof as may be necessary or in connection with
the maintenance and operation of the airports and their facilities.
Petitioner claims that like MIAA, it has police authority within its premises, as shown
in their respective charters quoted below:
EO 903, Sec. 6. Police Authority. — The Authority shall have the power to exercise
such police authority as may be necessary within its premises to carry out its
functions and attain its purposes and objectives, without prejudice to the exercise of
functions within the same premises by the Ministry of National Defense through the
Aviation Security Command (AVSECOM) as provided in LOI 961: Provided, That
the Authority may request the assistance of law enforcement agencies, including
request for deputization as may be required. x x x.
R.A. No. 6958, Section 5. Police Authority.– The Authority shall have the power to
exercise such police authority as may be necessary within its premises or areas of
operation to carry out its functions and attain its purposes and objectives: Provided,
That the Authority may request the assistance of law enforcement agencies,
including request for deputization as may be required. x x x.
Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and
regulations (Section 15, Executive Order No. 903; Section 12, Republic
Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21,
Executive Order No. 903; Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an
annual report generally dealing with their activities and operations (Section
14, Executive Order No. 903; Section 11, Republic Act No. 6958); and
4. Both have borrowing power subject to the approval of the President
(Section 16, Executive Order No. 903; Section 13, Republic Act No.
6958).48
Petitioner suggests that it is because of its similarity with MIAA that this Court, in
the 2006 MIAA case, placed it in the same class as MIAA and considered it as a
government instrumentality. Petitioner submits that since it is also a government
instrumentality like MIAA, the following conclusion arrived by the Court in the 2006
MIAA case is also applicable to petitioner:
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.49 (Emphases added.)
Petitioner insists that its properties consisting of the airport terminal building,
airfield, runway, taxiway and the lots on which they are situated are not subject to
real property tax because they are actually, solely and exclusively used for public
purposes.50 They are indispensable to the operation of the Mactan International
Airport and by their very nature, these properties are exempt from tax. Said
properties belong to the State and are merely held by petitioner in trust. As earlier
mentioned, petitioner claims that these properties are important to national security
and cannot be alienated, mortgaged, or transferred to any entity except the
National Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying real property taxes as it is a
government instrumentality;
 b) Declaring respondent City of Lapu-Lapu as bereft of any authority to
levy and collect the basic real property tax, the additional tax for the SEF
and the penalty interest for its failure to pass the corresponding tax
ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of petitioner
as exempt from real property taxes as they are used solely and
exclusively for public purpose.51
In its Consolidated Reply filed through the OSG, petitioner claims that the 2006
MIAA ruling has overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante
O. Tinga’s dissent in the MIAA ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in
Mactan. The majority provides for a wildly different interpretation of Section 133,
193 and 234 of the Local Government Code than that employed by the Court in
Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as
can be obviously deducted from the fact that both petitioners are airport authorities
operating under similarly worded charters. And the fact that the majority cites
doctrines contrapuntal to the Local Government Code as in Basco and Maceda
evinces an intent to go against the Court’s jurisprudential trend adopting the
philosophy of expanded local government rule under the Local Government Code.
x x x The majority is obviously inconsistent with Mactan and there is no way these
two rulings can stand together. Following basic principles in statutory construction,
Mactan will be deemed as giving way to this new ruling.
xxxx
There is no way the majority can be justified unless Mactan is overturned. The
MCIAA and the MIAA are similarly situated. They are both, as will be demonstrated,
GOCCs, commonly engaged in the business of operating an airport. They are the
owners of airport properties they respectively maintain and hold title over these
properties in their name. These entities are both owned by the State, and denied by
their respective charters the absolute right to dispose of their properties without
prior approval elsewhere. Both of them are not empowered to obtain loans or
encumber their properties without prior approval the prior approval of the
President.52 (Citations omitted.)
Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an
admission on respondent City’s part that it must have a tax measure to be able to
impose a tax or special assessment. Petitioner avers that assuming that it is a non-
exempt entity or that its airport lands and buildings are not exempt, it was only upon
the effectivity of Ordinance No. 070-2007 on January 1,2008 that respondent City
could properly impose the basic real property tax, the additional tax for the SEF,
and the interest in case of nonpayment.53
Petitioner filed its Memorandum54 on June 17, 2009.
RESPONDENTS’ THEORY
In their Comment,55 respondents point out that petitioner partially moved for a
reconsideration of the questioned Decision only as to the issue of whether
petitioner is a GOCC or not. Thus, respondents declare that the other portions of
the questioned decision had already attained finality and ought not to be placed in
issue in this petition for certiorari. Thus, respondents discussed the other issues
raised by petitioner with reservation as to this objection. Respondents summarized
the issues and the grounds relied upon as follows:
STATEMENT OF THE ISSUES
WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY
EXEMPT FROM PAYING REAL PROPERTY TAXES
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX,
SPECIAL EDUCATION FUND AND PENALTY INTEREST
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,
TAXIWAY INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE
EXEMPT FROM REALTY TAXES
GROUNDS RELIED UPON
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY
TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT
FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY
WARRANTING INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56
Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of
Appeals] case does not make it the controlling case on the matter."57 Respondents
further claim that the 1996 MCIAA case where this Court held that petitioner is a
GOCC is the controlling jurisprudence. Respondents point out that petitioner and
MIAA are two very different entities. Respondents argue that petitioner is a GOCC
contrary to its assertions, based on its Charter and on DOJ Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an instrumentality of the
government, still the following statement in the 1996 MCIAA case applies:
Besides, nothing can prevent Congress from decreeing that even instrumentalities
or agencies of the Government performing governmental functions may be subject
to tax. Where it is done precisely to fulfill a constitutional mandate and national
policy, no one can doubt its wisdom.58 Respondents argue that MCIAA properties
such as the terminal building, taxiway and runway are not exempt from real
property taxation. As discussed in the 1996 MCIAA case, Section 234 of the LGC
omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said
decision also provides that the transfer of ownership of the land to petitioner was
absolute and petitioner cannot evade payment of taxes.59
Even if the following issues were not raised by petitioner in its motion for
reconsideration of the questioned Decision, and thus the ruling pertaining to these
issues in the questioned decision had become final, respondents still discussed its
side over its objections as to the propriety of bringing these up before this Court.
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233,
255) and its IRR (Sections 241, 247).
b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or
the Omnibus Tax Ordinance, wherein the imposition of real
property tax was made. This Ordinance was in force and effect
by virtue of Article 278 of the IRR of Republic Act No. 7160.60
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu
City Revenue Code, imposed real property taxes, special
education fund and further provided for the payment of interest
and surcharges. Thus, the issue is passé and is moot and
academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for
the collection of the SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy,
imposition and collection need not be covered by ordinance.
Besides, the City has enacted the Revenue Code containing
provisions for the levy and collection of the SEF.61
Furthermore, respondents aver that:
1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the
denial of the writ of preliminary injunction by the RTC and the
Court of Appeals. Petitioner failed to show irreparable injury.
b. Comparing the alleged damage that may be caused petitioner
and the direct affront and challenge against the power to tax,
which is an attribute of sovereignty, it is but appropriate that
injunctive relief should be denied.
2. Petitioner did not comply with LGC provisions on payment under
protest.
a. Petitioner should have protested the tax imposition as provided
in Article 285 of the IRR of Republic Act No. 7160. Section 252 of
Republic Act No. 716062 requires that the taxpayer’s protest can
only be entertained if the tax is first paid under protest. 63
Respondents submitted their Memorandum64 on June 30, 2009, wherein they
allege that the 1996 MCIAA case is still good law, as shown by the following cases
wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment Appeals of
Batangas [545 Phil. 92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302
(2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil. 785
(2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference to the 1996 MCIAA case "could
hardly mean that the doctrine has breathed its last" and that the 1996 MCIAA case
stands as precedent and is controlling on petitioner MCIAA.65
Respondents allege that the issue for consideration is whether it is proper for
petitioner to raise the issue of whether it is not liable to pay real property taxes,
special education fund (SEF), interests and/or surcharges.66 Respondents argue
that the Court of Appeals was correct in declaring petitioner liable for realty taxes,
etc., on the terminal building, taxiway, and runway. Respondent City relies on the
following grounds:
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local
Government Code of 1991 authorizes the collection of real property taxes
(etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public Dominion
and are not exempt from realty taxes, special education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and Special
Education Fund from MCIAA; [and]
6. Estoppel does not lie against the government. 67
THIS COURT’S RULING
The petition has merit. The petitioner is an instrumentality of the government; thus,
its properties actually, solely and exclusively used for public purposes, consisting of
the airport terminal building, airfield, runway, taxiway and the lots on which they are
situated, are not subject to real property tax and respondent City is not justified in
collecting taxes from petitioner over said properties.
DISCUSSION
The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still
controls and that petitioner is a GOCC. The 2006 MIAA case governs.
The Court of Appeals’ reliance on the 1996 MCIAA case is misplaced and its
staunch refusal to apply the 2006 MIAA case is patently erroneous. The Court of
Appeals, finding for respondents, refused to apply the ruling in the 2006 MIAA case
on the premise that the same had not yet reached finality, and that as far as MCIAA
is concerned, the 1996 MCIAA case is still good law.68
While it is true, as respondents allege, that the 1996 MCIAA case was cited in a
long line of cases,69 still, in 2006, the Court en banc decided a case that in effect
reversed the 1996 Mactan ruling. The 2006 MIAA case had, since the promulgation
of the questioned Decision and Resolution, reached finality and had in fact been
either affirmed or cited in numerous cases by the Court.70 The decision became
final and executory on November 3, 2006.71Furthermore, the 2006 MIAA case was
decided by the Court en banc while the 1996 MCIAA case was decided by a
Division. Hence, the 1996 MCIAA case should be read in light of the subsequent
and unequivocal ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that MIAA’s airport lands and buildings
are exempt from real estate tax imposed by local governments; that it is not a
GOCC but an instrumentality of the national government, with its real properties
being owned by the Republic of the Philippines, and these are exempt from real
estate tax. Specifically referring to petitioner, we stated as follows:
Many government instrumentalities are vested with corporate powers but they do
not become stock or non-stock corporations, which is a necessary condition before
an agency or instrumentality is deemed a government-owned or controlled
corporation. Examples are the Mactan International Airport Authority, the Philippine
Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas.
All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities. 72 (Emphases
ours.)
In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands
and Buildings of MIAA are exempt from real estate tax under existing laws." 73 We
quote the extensive discussion of the Court that led to its finding that MIAA’s lands
and buildings were 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
xxxx
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 (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.
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. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is divided into
shares.
Section 3 of the Corporation Code defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the holders
of such shares dividends x x x." MIAA has capital but it is not divided into shares of
stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock
corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of
the Corporation Code defines a non-stock corporation as "one where no part of its
income is distributable as dividends to its members, trustees or officers." A non-
stock corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to
their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury. This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade,
industry, agriculture and like chambers." MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify
as a government-owned or controlled corporation. 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
(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.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, police
authority and the levying of fees and charges. At the same time, MIAA exercises
"all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order."
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a "separate and autonomous
body" will make its operation more "financially viable."
Many government instrumentalities are vested with corporate powers but they do
not become stock or non-stock corporations, which is a necessary condition before
an agency or instrumentality is deemed a government-owned or controlled
corporation. Examples are the Mactan International Airport Authority, the Philippine
Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas.
All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.74 (Emphases ours,
citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation on the taxing
power of the local governments as against the national government or its
instrumentality:
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.-
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units. x x x.
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the
powers of local governments, local governments may only exercise such power
"subject to such guidelines and limitations as the Congress may provide."
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The
rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is
resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer
claiming the exemption. However, when Congress grants an exemption to a
national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. x x x.
xxxx
There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from
one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities. x x x.75 (Emphases ours, citations omitted.)
The Court emphasized that the airport lands and buildings of MIAA are owned by
the Republic and belong to the public domain. The Court said:
The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. x x x.
xxxx
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. x x x.
xxxx
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.
The Airport Lands and Buildings of MIAA x x x are properties of public dominion
because they are intended for public use. As properties of public dominion, they
indisputably belong to the State or the Republic of the Philippines. 76 (Emphases
supplied, citations omitted.)
The Court also held in the 2006 MIAA case that airport lands and buildings are
outside the commerce of man.
As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public
dominion are outside the commerce of man. As early as 1915, this Court already
ruled in Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:
xxxx
The Civil Code, Article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, x x x.
xxxx
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy
on execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. This will
happen if the City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. x x x.
xxxx
Thus, unless the President issues a proclamation withdrawing the Airport Lands
and Buildings from public use, these properties remain properties of public
dominion and are inalienable. Since the Airport Lands and Buildings are inalienable
in their present status as properties of public dominion, they are not subject to levy
on execution or foreclosure sale. As long as the Airport Lands and Buildings are
reserved for public use, their ownership remains with the State or the Republic of
the Philippines.
The authority of the President to reserve lands of the public domain for public use,
and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book
III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. - (1) The President shall have the power to reserve for settlement or
public use, and for specific public purposes, any of the lands of the public domain,
the use of which is not otherwise directed by law. The reserved land shall thereafter
remain subject to the specific public purpose indicated until otherwise provided by
law or proclamation;
xxxx
There is no question, therefore, that unless the Airport Lands and Buildings are
withdrawn by law or presidential proclamation from public use, they are properties
of public dominion, owned by the Republic and outside the commerce of man.77
Thus, the Court held that MIAA is "merely holding title to the Airport Lands and
Buildings in trust for the Republic. [Under] Section 48, Chapter 12, Book I of the
Administrative Code [which] allows instrumentalities like MIAA to hold title to real
properties owned by the Republic."78
The Court in the 2006 MIAA case cited Section 234(a) of the Local Government
Code and held that said provision exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines."79 The Court emphasized, however, that
"portions of the Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax." The Court further held:
This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing "[t]axes, fees or charges of any
kind on the National Government, its agencies and instrumentalities 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.
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real
property is transferred to an agency or instrumentality even as the Republic
remains the owner of the real property. Such arrangement does not result in the
loss of the tax exemption. Section 234(a) of the Local Government Code states that
real property owned by the Republic loses its tax exemption only if the "beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person."
MIAA, as a government instrumentality, is not a taxable person under Section
133(o) of the Local Government Code. Thus, even if we assume that the Republic
has granted to MIAA the beneficial use of the Airport Lands and Buildings, such
fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. For example, the land area occupied
by hangars that MIAA leases to private corporations is subject to real estate tax. In
such a case, MIAA has granted the beneficial use of such land area for a
consideration to a taxable person and therefore such land area is subject to real
estate tax. x x x.80
Significantly, the Court reiterated the above ruling and applied the same reasoning
in Manila International Airport Authority v. City of Pasay, 81 thus:
The only difference between the 2006 MIAA case and this case is that the 2006
MIAA case involved airport lands and buildings located in Parañaque City while this
case involved airport lands and buildings located in Pasay City. The 2006 MIAA
case and this case raised the same threshold issue: whether the local government
can impose real property tax on the airport lands, consisting mostly of the runways,
as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions
of the Administrative Code of 1987 uses the phrase "includes x x x government-
owned or controlled corporations" which means that a government "instrumentality"
may or may not be a "government-owned or controlled corporation." Obviously, the
term government "instrumentality" is broader than the term "government-owned or
controlled corporation." x x x.
xxxx
The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation,"
there may be a government "instrumentality" that will not qualify as a "government-
owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled corporation" in
Section 2(13) will show that MIAA would not fall under such definition. MIAA is a
government "instrumentality" that does not qualify as a "government-owned or
controlled corporation." x x x.
xxxx
Thus, MIAA is not a government-owned or controlled corporation but a government
instrumentality which is exempt from any kind of tax from the local governments.
Indeed, the exercise of the taxing power of local government units is subject to the
limitations enumerated in Section 133 of the Local Government Code. Under
Section 133(o) of the Local Government Code, local government units have no
power to tax instrumentalities of the national government like the MIAA. Hence,
MIAA is not liable to pay real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public
dominion intended for public use, and as such are exempt from real property tax
under Section 234(a) of the Local Government Code. However, under the same
provision, if MIAA leases its real property to a taxable person, the specific property
leased becomes subject to real property tax. In this case, only those portions of the
NAIA Pasay properties which are leased to taxable persons like private parties are
subject to real property tax by the City of Pasay. (Emphases added, citations
omitted.)
The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It
also mentioned several other government instrumentalities, among which was the
Philippine Fisheries Development Authority. Thus, applying the 2006 MIAA ruling,
the Court, in Philippine Fisheries Development Authority v. Court of
Appeals,82 held:
On the basis of the parameters set in the MIAA case, the Authority should be
classified as an instrumentality of the national government. As such, it is generally
exempt from payment of real property tax, except those portions which have been
leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited
as among the instrumentalities of the national government. x x x.
xxxx
Indeed, the Authority is not a GOCC but an instrumentality of the government. The
Authority has a capital stock but it is not divided into shares of stocks. Also, it has
no stockholders or voting shares. Hence, it is not a stock corporation. Neither [is it]
a non-stock corporation because it has no members.
The Authority is actually a national government instrumentality which is defined as
an agency of the national government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers.
Thus, the Authority which is tasked with the special public function to carry out the
government’s policy "to promote the development of the country’s fishing industry
and improve the efficiency in handling, preserving, marketing, and distribution of
fish and other aquatic products," exercises the governmental powers of eminent
domain, and the power to levy fees and charges. At the same time, the Authority
exercises "the general corporate powers conferred by laws upon private and
government-owned or controlled corporations."
 xxxx
In light of the foregoing, the Authority should be classified as an instrumentality of
the national government which is liable to pay taxes only with respect to the
portions of the property, the beneficial use of which were vested in private entities.
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The
rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is
resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Thus, the real property tax assessments issued by the City of Iloilo should be
upheld only with respect to the portions leased to private persons.1âwphi1 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. x x x.
xxxx
In sum, the Court finds that the Authority is an instrumentality of the national
government, hence, it is liable to pay real property taxes assessed by the City of
Iloilo on the IFPC only with respect to those portions which are leased to private
entities. Notwithstanding said tax delinquency on the leased portions of the IFPC,
the latter or any part thereof, being a property of public domain, cannot be sold at
public auction. This means that the City of Iloilo has to satisfy the tax delinquency
through means other than the sale at public auction of the IFPC. (Citations
omitted.) Another government instrumentality specifically mentioned in the 2006
MIAA case was the Philippine Ports Authority (PPA). Hence, in Curata v. Philippine
Ports Authority,83 the Court held that the PPA is similarly situated as MIAA, and
ruled in this wise:
This Court’s disquisition in Manila International Airport Authority v. Court of Appeals
–– ruling that MIAA is not a government-owned and/or controlled corporation
(GOCC), but an instrumentality of the National Government and thus exempt from
local taxation, and that its real properties are owned by the Republic of the
Philippines –– is instructive. x x x. These findings are squarely applicable to PPA,
as it is similarly situated as MIAA. First, PPA is likewise not a GOCC for not having
shares of stocks or members. Second, the docks, piers and buildings it administers
are likewise owned by the Republic and, thus, outside the commerce of man. Third,
PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a
government instrumentality, an agency of the government vested with corporate
powers to perform efficiently its governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA partake of
government funds, and such may not be garnished absent an allocation by its
Board or by statutory grant. If the PPA funds cannot be garnished and its
properties, being government properties, cannot be levied via a writ of execution
pursuant to a final judgment, then the trial court likewise cannot grant discretionary
execution pending appeal, as it would run afoul of the established jurisprudence
that government properties are exempt from execution. What cannot be done
directly cannot be done indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and City Assessor of
the City of Manila84 the Court found that the GSIS was also a government
instrumentality and not a GOCC, applying the 2006 MIAA case even though the
GSIS was not among those specifically mentioned by the Court as similarly situated
as MIAA. The Court said:
GSIS an instrumentality of the National Government
Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila
International Airport Authority v. Court of Appeals, a case likewise involving real
estate tax assessments by a Metro Manila city on the real properties administered
by MIAA, argues for the non-tax liability of GSIS for real estate taxes. x x x.
xxxx
While perhaps not of governing sway in all fours inasmuch as what were involved in
Manila International Airport Authority, e.g., airfields and runways, are properties of
the public dominion and, hence, outside the commerce of man, the rationale
underpinning the disposition in that case is squarely applicable to GSIS, both MIAA
and GSIS being similarly situated. First, while created under CA 186 as a non-stock
corporation, a status that has remained unchanged even when it operated under
PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of
the LGC, a GOCC following the teaching of Manila International Airport Authority,
for, like MIAA, GSIS’s capital is not divided into unit shares. Also, GSIS has no
members to speak of. And by members, the reference is to those who, under Sec.
87 of the Corporation Code, make up the non-stock corporation, and not to the
compulsory members of the system who are government employees. Its
management is entrusted to a Board of Trustees whose members are appointed by
the President.
Second, the subject properties under GSIS’s name are likewise owned by the
Republic. The GSIS is but a mere trustee of the subject properties which have
either been ceded to it by the Government or acquired for the enhancement of the
system. This particular property arrangement is clearly shown by the fact that the
disposal or conveyance of said subject properties are either done by or through the
authority of the President of the Philippines. x x x. (Emphasis added, citations
omitted.)
All the more do we find that petitioner MCIAA, with its many similarities to the
MIAA, should be classified as a government instrumentality, as its properties are
being used for public purposes, and should be exempt from real estate taxes. This
is not to derogate in any way the delegated authority of local government units to
collect realty taxes, but to uphold the fundamental doctrines of uniformity in taxation
and equal protection of the laws, by applying all the jurisprudence that have
exempted from said taxes similar authorities, agencies, and instrumentalities,
whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock
or non-stock corporation, which is a necessary condition before an agency or
instrumentalityis deemed a government-owned or controlled corporation. Like
MIAA, petitioner MCIAA has capital under its charter but it is not divided into shares
of stock. It also has no stockholders or voting shares. Republic Act No. 6958
provides:
Section 9. Capital.– The [Mactan-Cebu International Airport] Authority shall have an
authorized capital stock equal to and consisting of:
(a) The value of fixed assets (including airport facilities, runways and
equipment) and such other properties, movable and immovable, currently
administered by or belonging to the airports as valued on the date of the
effectivity of this Act;
(b) The value of such real estate owned and/or administered by the
airports; and
(c) Government contribution in such amount as may be deemed an
appropriate initial balance.1âwphi1 Such initial amount, as approved by
the President of the Philippines, which shall be more or less equivalent to
six (6) months working capital requirement of the Authority, is hereby
authorized to be appropriated in the General Appropriations Act of the
year following its enactment into law. Thereafter, the government
contribution to the capital of the Authority shall be provided for in the
General Appropriations Act.
Like in MIAA, the airport lands and buildings of MCIAA are properties of public
dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the Philippines,
and are outside the commerce of man. This, unless petitioner leases its real
property to a taxable person, the specific property leased becomes subject to real
property tax; in which case, only those portions of petitioner’s properties which are
leased to taxable persons like private parties are subject to real property tax by the
City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the
Court in the 2006 MIAA case, and we quote:
To summarize, MIAA is not a government-owned or controlled corporation under
Section 2(13) of the Introductory Provisions of the Administrative Code because it
is not organized as a stock or non-stock corporation. Neither is MIAA a
government-owned or controlled corporation under Section 16, Article XII of the
1987 Constitution because MIAA is not required to meet the test of economic
viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. As a government instrumentality, MIAA is
not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does
not apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public
use and thus are properties of public dominion. Properties of public dominion are
owned by the State or the Republic. x x x.
xxxx
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use or public service,
the Airport Lands and Buildings are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the Local Government
Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative
Code, which governs the legal relation and status of government units, agencies
and offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under
Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or
charges of any kind" by local governments. The only exception is when MIAA
leases its real property to a "taxable person" as provided in Section 234(a) of the
Local Government Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands and Buildings
leased to taxable persons like private parties are subject to real estate tax by the
City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the
State or the Republic of the Philippines. Article 420 specifically mentions "ports x x
x constructed by the State," which includes public airports and seaports, as
properties of public dominion and owned by the Republic. As properties of public
dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also repeatedly ruled that
properties of public dominion are not subject to execution or foreclosure
sale.85 (Emphases added.) WHEREFORE, we hereby GRANT the petition. We
REVERSE and SET ASIDE the Decision dated October 8, 2007 and the Resolution
dated February 12, 2008 of the Court of Appeals (Cebu City) in CA-G.R. SP No.
01360. Accordingly, we DECLARE:

1. Petitioner's properties that are actually, solely and exclusively used for
public purpose, consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated, EXEMPT from real
property tax imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax
for the special education fund and the penalty interest, as well as the final
notices of real property tax delinquencies, issued by the City of Lapu-Lapu
on petitioner's properties, except the assessment covering the portions
that petitioner has leased to private parties.

3. NULL and VOID the sale in public auction of 27 of petitioner's properties

and the eventual forfeiture and purchase of the said properties by
respondent City of Lapu-Lapu. We likewise declare VOID the
corresponding Certificates of Sale of Delinquent Property issued to
respondent City of Lapu-Lapu.

SO ORDERED.
 G.R. No. 212920, September 16, 2015
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NIPPON EXPRESS
(PHILS.) CORPORATION, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1
are the Decision2
dated December
18, 2013 and the Resolution3 dated June 10, 2014 of the Court of Tax Appeals
(CTA) En Banc in CTA EB No. 924, which affirmed the Resolution4 dated July 31,
2012 of the CTA Third Division (CTA Division) in CTA Case No. 6967, granting
respondent Nippon Express (Phils.) Corporation's (Nippon) motion to withdraw
petition for review5 (motion to withdraw).
The Facts
Nippon is a domestic corporation duly organized and existing under Philippine laws
which is primarily engaged in the business of freight forwarding, namely, in the
international and domestic air and sea freight and cargo forwarding, hauling,
carrying, handling, distributing, loading, and unloading general cargoes and all
classes of goods, wares, and merchandise, and the operation of container depots,
warehousing, storage, hauling, and packing facilities. 6 It is a Value-Added Tax
(VAT) registered entity with Tax Identification No. VAT Registration No. 004-669-
434-000.7 As such, it filed its quarterly VAT returns for the year 2002 on April 25,
2002, July 25, 2002, October 25, 2002, and January 27, 2003, respectively. 8 It
maintained that during the said period it incurred input VAT attributable to its zero-
rated sales in the amount of P28,405,167.60, from which only P3,760,660.74 was
applied as tax credit, thus, reflecting refundable excess input VAT in the amount of
P24,644,506.86.9
On April 22, 2004, Nippon filed an administrative claim for refund 10 of its unutilized
input VAT in the amount of P24,644,506.86 for the year 2002 before the Bureau of
Internal Revenue (BIR).11 A day later, or on April 23, 2004, it filed a judicial claim for
tax refund, by way of petition for review,12 before the CTA, docketed as CTA Case
No. 6967.13
For its part, petitioner the Commissioner of Internal Revenue (CIR) asserted, inter
alia, that the amounts being claimed by Nippon as unutilized input VAT were not
properly documented, hence, should be denied.14
Proceedings Before the CTA Division
In a Decision15 dated August 10, 2011, the CTA Division partially granted Nippon's
claim for tax refund, and thereby ordered the CIR to issue a tax credit certificate in
the reduced amount of P2,614,296.84, representing its unutilized input VAT which
was attributable to its zero-rated sales.16 It found that while Nippon timely filed its
administrative and judicial claims within the two (2)-year prescriptive period,17 it,
however, failed to show that the recipients of its services - which, in this case, were
mostly Philippine Economic Zone Authority registered enterprises - were non-
residents "doing business outside the Philippines." Accordingly, it concluded that
Nippon's purported sales therefrom could not qualify as zero-rated sales, hence,
the reduction in the amount of tax credit certificate claimed.18
Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon
filed a motion to withdraw,19 considering that the BIR, acting on its administrative
claim, already issued a tax credit certificate in the amount of P21,675,128.91 on
July 27, 2011 (July 27, 2011 Tax Credit Certificate).
Separately, the CIR moved for reconsideration20 of the August 10, 2011 Decision
and filed its comment/opposition21 to Nippon's motion to withdraw, claiming that: (a)
the CTA Division had already resolved the factual issue pertaining to Nippon's
entitlement to a tax credit certificate, which, after trial, was proven to be only in the
amount of P2,614,296.84; (b) the issuance of the July 27, 2011 Tax Credit
Certificate was bereft of factual and legal bases, and prejudicial to the interest of
the government; and (c) Nippon's motion to withdraw was "tantamount to [a]
withdrawal and abandonment of its [mjotion for [reconsideration also filed in this
case."22
Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011
Decision on August 16, 2011,23 likewise sought for reconsideration,24 praying that
the CTA Division set aside its August 10, 2011 Decision and render judgment
ordering the CIR to issue a tax credit certificate in the full amount of
P24,644,506.86, or in the alternative, grant its motion to withdraw. 25cralawred
In a Resolution dated July 31, 2012,26 the CTA Division granted Nippon's motion to
withdraw and, thus, considered the case closed and terminated.27 It found that
pursuant to Revenue Memorandum Circular No. 49-03 (RMC No. 49-03) dated
August 15, 2003, Nippon correctly availed of the proper remedy notwithstanding
the promulgation of the August 10, 2011 Decision. It added that in approving the
withdrawal of Nippon's petition for review, it exercised its discretionary authority
under Section 3, Rule 50 of the Rules of Court after due consideration of the
reasons proffered by Nippon, namely: (a) that the parties had already arrived at a
reasonable settlement of the issues; (b) further legal and related costs would be
avoided; and (c) the court's time and resources would be saved.28
Aggrieved, the CIR elevated29 its case to the CTA En Banc.
The CTA En Banc Ruling
In a Decision30 dated December 18, 2013, the CTA En Banc affirmed the July 31,
2012 Resolution of the CTA Division granting Nippon's motion to withdraw. 31 It
debunked the CIR's assertions that Nippon failed to comply with the requirements
set forth in RMC No. 49-03 - i.e., that Nippon failed to notify the BIR that it agreed
with its findings and to file the necessary motion before the CTA Division prior to
the promulgation of its Decision -noting that RMC No. 49-03 did not expressly
require a taxpayer to inform the BIR of its assent nor prescribe a definite period for
filing a motion to withdraw. It also observed that the CIR did not deny the existence
and issuance of the July 27, 2011 Tax Credit Certificate. In this regard, the same
may be taken judicial notice of, and the need for its formal offer dispensed with.32
The CIR moved for partial reconsideration33 which was, however, denied by the
CTA En Banc in a Resolution34 dated June 10, 2014; hence, this petition.
The Issue Before the Court
The core issue in this case is whether the CTA properly granted Nippon's motion to
withdraw.
The Court's Ruling
The petition is meritorious.
A perusal of the Revised Rules of the Court of Tax Appeals 35 (RRCTA) reveals the
lack of provisions governing the procedure for the withdrawal of pending appeals
before the CTA. Hence, pursuant to Section 3, Rule 1 of the RRCTA, the Rules of
Court shall suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in the Philippines
shall apply suppletorily to these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA
under Rules 42, 43, 44, and 46 of the Rules of Court which are equally adopted in
the RRCTA36 - states that when the case is deemed submitted for resolution,
withdrawal of appeals made after the filing of the appellee's brief may still be
allowed in the discretion of the court:
RULE 50
DISMISSAL OF APPEAL
xxxx
Section 3. Withdrawal of appeal. � An appeal may be withdrawn as of right at any
time before the filing of the appellee's brief. Thereafter, the withdrawal may be
allowed in the discretion of the court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit
Certificate, Nippon filed a motion to withdraw the case, proffering that:
Having arrived at a reasonable settlement of the issues with the [CIR]/BIR, and to
avoid incurring further legal and related costs, not to mention the time and
resources of [the CTA], [Nippon] most respectfully moves for the withdrawal of its
Petition for Review.37
Finding the aforementioned grounds to be justified, the CTA Division allowed the
withdrawal of Nippon's appeal thereby ordering the case closed and terminated,
notwithstanding the fact that the said motion was filed after the promulgation of its
August 10, 2011 Decision.
While it is true that the CTA Division has the prerogative to grant a motion to
withdraw under the authority of the foregoing legal provisions, the attendant
circumstances in this case should have incited it to act otherwise.
First, it should be pointed out that the August 10, 2011 Decision was rendered by
the CTA Division after a full-blown hearing in which the parties had already
ventilated their claims. Thus, the findings contained therein were the results of an
exhaustive study of the pleadings and a judicious evaluation of the evidence
submitted by the parties, as well as the report of the commissioned certified public
accountant. In Reyes v. Commission on Elections,38 the Court only noted, and did
not grant, a motion to withdraw the petition filed after it had already acted on said
petition, ratiocinating in the following wise:
It may well be in order to remind petitioner that jurisdiction, once acquired, is not
lost upon the instance of the parties, but continues until the case is terminated.
When petitioner filed her Petition for Certiorari jurisdiction vested in the Court and,
in fact, the Court exercised such jurisdiction when it acted on the petition. Such
jurisdiction cannot be lost by the unilateral withdrawal of the petition by petitioner. 39
The primary reason, however, that militates against the granting of the motion to
withdraw is the fact that the CTA Division, in its August 10, 2011 Decision, had
already determined that Nippon was only entitled to refund the reduced amount
of P2,614,296.84 since it failed to prove that the recipients of its services were non-
residents "doing business outside the Philippines"; hence, Nippon's purported sales
therefrom could not qualify as zero-rated sales, necessitating the reduction in the
amount of refund claimed. Markedly different from this is the BIR's determination
that Nippon should receive P21,675,128.91 as per the July 27, 2011 Tax Credit
Certificate, which is, in all, P19,060,832.07 larger than the amount found due by the
CTA Division. Therefore, as aptly pointed out by Associate Justice Teresita J.
Leonardo-De Castro during the deliberations on this case, the massive discrepancy
alone between the administrative and judicial determinations of the amount to be
refunded to Nippon should have already raised a red flag to the CTA Division.
Clearly, the interest of the government, and, more significantly, the public, will be
greatly prejudiced by the erroneous grant of refund - at a substantial amount at that
- in favor of Nippon. Hence, under these circumstances, the CTA Division should
not have granted the motion to withdraw.
In this relation, it deserves mentioning that the CIR is not estopped from assailing
the validity of the July 27, 2011 Tax Credit Certificate which was issued by her
subordinates in the BIR. In matters of taxation, the government cannot be estopped
by the mistakes, errors or omissions of its agents for upon it depends the ability of
the government to serve the people for whose benefit taxes are collected. 40
Finally, the Court has observed that based on the records, Nippon's administrative
claim for the first taxable quarter of 2002 which closed on March 31, 2002 was
already time-barred41 for being filed on April 22, 2004, or beyond the two (2)-year
prescriptive period pursuant to Section 112(A)42 of the National Internal Revenue
Code of 1997. Although prescription was not raised as an issue, it is well-settled
that if the pleadings or the evidence on record show that the claim is barred by
prescription, the Court may motu proprio order its dismissal on said ground.43

All told, the CTA committed a reversible error in granting Nippon's motion to
withdraw. The August 10, 2011 Decision of the CTA Division should therefore be
reinstated, without prejudice, however, to the right of either party to appeal the
same in accordance with the RRCTA.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2013
and the Resolution dated June 10, 2014 of the Court of Tax Appeals En Banc in
CTA EB Case No. 924 are hereby SET ASIDE. The Decision dated August 10,
2011 of the Court of Tax Appeals Third Division in CTA Case No. 6967
is REINSTATED, without prejudice, however, to the right of either party to appeal
the same in accordance with the Revised Rules of the Court of Tax Appeals.

SO ORDERED.chanroblesvirtuallawlibrary
 COMMISSION OF INTERNAL REVENUE, G.R. No. 170389
Petitioner, On September 15, 2000, Regional Director Leonardo Q. Sacamos (Director
Present: Sacamos) of the Revenue Region Iloilo City sent two Assessment Notices apprising
respondent of CGT and DST defencies in the sum of Php1,372,171.46 and
CARPIO, J., Chairperson, Php356,267.62, respectively. Director Sacamos relied on the findings of the SID that
- versus - LEONARDO-DE CASTRO,* the subject properties were commercial with a zonal valuation of Php2,000.00 per
PERALTA, square meter.
MENDOZA, and
SERENO,** JJ. On October 1, 2000, respondent sent a letter protesting the assessments made by
Director Sacamos. On December 1, 2000, Director Sacamos denied respondent's
AQUAFRESH SEAFOODS, INC., Promulgated: protest for lack of legal basis. Respondent appealed, but the same was denied with
Respondent. finality on February 13, 2002.
October 20, 2010
On March 19, 2002, respondent filed a petition for review[3] before the CTA seeking
x-----------------------------------------------------------------------------------------x the reversal of the denial of its protest. The main thrust of respondent's petition was
that the subject properties were located in Barrio Banica, Roxas, where the pre-
defined zonal value was Php650.00 per square meter based on the Revised Zonal
Values of Real Properties in the City of Roxas under Revenue District Office No. 72
DECISION Roxas City (1995 Revised Zonal Values of Real Properties). Respondent asserted
that the subject properties were classified as RR or residential and not commercial.
Respondent argued that since there was already a pre-defined zonal value for
PERALTA, J.: properties located in Barrio Banica, the BIR officials had no business re-classifying
the subject properties to commercial.
Before this Court is a petition for review on certiorari,[1] under Rule 45 of the Rules of
Court, seeking to set aside the November 9, 2005 Decision[2] of the Court of Tax On December 22, 2004, the CTA promulgated a Decision[4] ruling in favor of
Appeals (CTA) En Banc in CTA-E.B. No. 77. The CTA En Banc affirmed the respondent, the dispositive portion of which reads:
December 22, 2004 Decision of the CTA First Division.

The facts of the case are as follows:
On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc.
two parcels of land, including improvements thereon, located at Barrio Banica,
Roxas City, for the consideration of Three Million One Hundred Thousand Pesos
(Php 3,100, 000.00). Said properties were covered under Transfer Certificate of
Titles Nos. T-21799 and T-21804.
Respondent then filed a Capital Gains Tax Return/Application for Certification
Authorizing Registration and paid the amount of Php186,000.00, representing the
Capital Gains Tax (CGT) and the amount of Php46,500.00, representing the
Documentary Stamp Tax (DST) due from the said sale. Subsequently, Revenue
District Officer Gil G. Tabanda issued Certificate Authorizing Registration No.
1071477.
The Bureau of Internal Revenue (BIR), however, received a report that the lots sold
were undervalued for taxation purposes. This prompted the Special Investigation
Division (SID) of the BIR to conduct an occular inspection over the properties. After
the investigation, the SID concluded that the subject properties were commercial with
a zonal value of Php2,000.00 per square meter.
IN VIEW OF THE FOREGOING, respondent's assessments for
deficiency capital against tax and documentary stamp taxes are
hereby CANCELLED and SET ASIDE. x x x
SO ORDERED.[5]
Ruling in favor of respondent, the CTA opined that that the existing Revised Zonal
Values in the City of Roxas should prevail for purposes of determining respondent's
tax liabilities, thus:
While respondent is given the authority to determine the fair market
value of the subject properties for the purpose of computing internal
revenue taxes, such authority is not without restriction or
limitation. The first sentence of Section 6(E) sets the limitation
or condition in the exercise of such power by requiring
respondent to consult with competent appraisers both from
private and public sectors. As there was no re-evaluation and no
revision of the zonal values of the subject properties in Roxas City
at the time of the sale, respondent cannot unilaterally determine the
 zonal values of the subject properties by invoking his powers of
obtaining information and making assessments under Sections 5
and 6 of the NIRC. The existing Revised Zonal Values of Real
Properties in the City of Roxas shall prevail for the purpose of
determining the proper tax liabilities of petitioner.[6]
Petitioner Commissioner of Internal Revenue filed a Motion for Reconsideration,
which was, however, denied by the CTA in a Resolution [7] dated April 4, 2005.
Petitioner then appealed to the CTA En Banc.
In a Decision dated November 9, 2005, the CTA En Banc dismissed petitioner's
appeal, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition for
Review is DISMISSED for lack of merit.
SO ORDERED.[8]
The CTA En Banc ruled that the 1995 Revised Zonal Values of Real Properties
should prevail. Said court relied on Section 6 (E) of the National Internal Revenue
Code (NIRC) which requires consultation from appraisers, from both the public and
private sectors, in fixing the zonal valuation of properties. The CTA En Banc held that
petitioner failed to prove any amendment effected on the 1995 Revised Zonal Values
of Real Properties at the time of the sale of the subject properties.
Hence, herein petition, with petitioner raising the following issues for this Court's
resolution, to wit:
I.
WHETHER OR NOT THE REQUIREMENT OF CONSULTATION
WITH COMPETENT APPRAISERS BOTH FROM THE PRIVATE
AND PUBLIC SECTORS IN DETERMINING THE FAIR MARKET
VALUE OF THE SUBJECT LOTS IS APPLICABLE IN THE CASE AT
BAR.
II.
WHETHER OR NOT THE COURT OF TAX APPEALS EN
BANC COMMITTED GRAVE ERROR IN APPLYING THE FAIR
MARKET VALUE BASED ON THE ZONAL VALUATION OF A
RESIDENTIAL LAND AS TAX BASE IN THE COMPUTATION OF
CAPITAL GAINS TAX AND DOCUMENTARY STAMP TAX
DEFICIENCIES OF RESPONDENT.[9]
The petition is not meritorious. The issues being interrelated, this Court shall discuss
the same in seriatim.
Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%) percent is imposed
on the gains presumed to have been realized in the sale, exchange or disposition of
lands and/or buildings which are not actively used in the business of a corporation
and which are treated as capital assets based on the gross selling price or fair market
value as determined in accordance with Section 6(E) of the NIRC, whichever is
higher.
On the other hand, under Section 196 of the NIRC, DST is based on the
consideration contracted to be paid or on its fair market value determined in
accordance with Section 6(E) of the NIRC, whichever is higher.
Thus, in determining the value of CGT and DST arising from the sale of a property,
the power of the CIR to assess is subject to Section 6(E) of the NIRC, which provides:
Section 6. Power of the Commissioner to Make Assessments and
Prescribe Additional Requirements for Tax Administration and
Enforcement. -
xxxx
(E) Authority of the Commissioner to Prescribe Real Property Values
The Commissioner is hereby authorized to divide the Philippines into
different zones or area and shall, upon consultation with
competent appraisers both from the private and public sectors,
determine the fair market value of real properties located in each
zone or area. For purposes of computing internal revenue tax, the
value of the property shall be, whichever is higher of:
(1) the fair market value as determined by the
Commissioner; or
(2) the fair market value as shown in the
schedule of values of the Provincial and City Assessors.
While the CIR has the authority to prescribe real property values and divide the
Philippines into zones, the law is clear that the same has to be done upon
consultation with competent appraisers both from the public and private sectors. It is
undisputed that at the time of the sale of the subject properties found
in Barrio Banica, Roxas City, the same were classified as RR, or residential, based
on the 1995 Revised Zonal Value of Real Properties. Petitioner, thus, cannot
unilaterally change the zonal valuation of such properties to commercial without first
conducting a re-evaluation of the zonal values as mandated under Section 6(E) of
the NIRC.
Petitioner argues, however, that the requirement of consultation with competent
appraisers is mandatory only when it is prescribing real property values that is when
a formulation or change is made in the schedule of zonal values. Petitioner also
contends that what it did in the instant case was not to prescribe the zonal value, but
merely classify the same as commercial and apply the corresponding zonal value for
such classification based on the existing schedule of zonal values in Roxas City. [10]
We disagree.
To this Court's mind, petitioner's act of re-classifying the subject properties from
residential to commercial cannot be done without first complying with the procedures
prescribed by law. It bears to stress that ALL the properties in Barrio Banica were
classified as residential, under the 1995 Revised Zonal Values of Real
Properties. Thus, petitioner's act of classifying the subject properties involves a re-
classification and revision of the prescribed zonal values.
In addition, Revenue Memorandum No. 58-69 provides for the procedures on the
establishment of the zonal values of real properties, viz.:
(1) The submission or review by the Revenue District
Offices Sub-Technical Committee of the schedule of
recommended zonal values to the TCRPV;
(2) The evaluation by TCRPV of the submitted schedule
of recommended zonal values of real properties;
(3) Except in cases of correction or adjustment, the
TCRPV finalizes the schedule and submits the same to the
Executive Committee on Real Property Valuation (ECRPV);
(3) Upon approval of the schedule of zonal
values by the ECRPV, the same is embodied in a Department
Order for implementation and signed by the Secretary of Finance.
Thereafter, the schedule takes effect (15) days after its publication
in the Official Gazette or in any newspaper of general circulation.
Petitioner failed to prove that it had complied with Revenue Memorandum No. 58-69
and that a revision of the 1995 Revised Zonal Values of Real Properties was made
prior to the sale of the subject properties. Thus, notwithstanding petitioner's
disagreement to the classification of the subject properties, the same must be
followed for purposes of computing the CGT and DST. It bears stressing, and as
observed by the CTA En Banc, that the 1995 Revised Zonal Values of Real
Properties was drafted by petitioner, BIR personnel, representatives from the
Department of Finance, National Tax Research Center, Institute of Philippine Real
Estate Appraisers and Philippine Association of Realtors Board, which duly satisfied
the requirement of consultation with public and private appraisers. [11]
Petitioner contends, nevertheless, that its act of classifying the subject properties
based on actual use was in accordance with guidelines number 1-b and 2 as set forth
in Certain Guidelines in the Implementation of Zonal Valuation of Real Properties for
RDO 72 Roxas City (Zonal Valuation Guidelines).[12]
Section 1 (b) of the Zonal Valuation Guidelines reads:
1. No zonal value has been prescribed for a
particular classification of real property.
Where in the approved schedule of zonal values for a particular
barangay -
xxxx
b) No zonal value has been
prescribed for a particular classification of real
property in one barangay, the zonal value
prescribed for the same classification of real
property located in an adjacent barangay of
similar conditions shall be used.
Section 1 (b) does not apply to the case at bar for the simple reason that said proviso
operates only when no zonal valuation has been prescribed. The properties located
in BarrioBanica, Roxas City were already subject to a zonal valuation, a fact which
even petitioner has admitted in its petition, thus:
It must be noted that under the schedule of zonal values, Barangay
Banica, where the subject lots are situated, has a single classification
only that of a residential area. Accordingly, it has a prescribed zonal
value of Php650.00 per square meter.[13]
Petitioner, however, also relies on Section 2 (a) of the Zonal Valuation Guidelines, to
justify its action. Said section states:
2. Predominant Use of Property.
a) All real properties, regardless of actual use, located in a
street/barangay zone, the use of which are predominantly
commercial shall be classified as Commercial for
purposes of zonal valuation.
In BIR Ruling No. 041-2001, issued on September 18, 2001, the BIR tackled the
application of a provision which is identical to Section 2 (a) of the Zonal Valuation
Guidelines. BIR Ruling No. 041-2001 involved a request by the Iglesia Ni Cristo that
the re-computation of CGT and DST based on the predominant use of the real
properties located at Mindanao Avenue, Quezon City, be set aside. In said case,
the Iglesia ni Cristo paid the CGT and DST based on the zonal value of residential
lots in Quezon City. The Revenue District Officer, however, ordered a re-computation
of the CGT and DST based on the ground that the real property is located in a
predominantly commercial area and must be classified as commercial for purposes
of zonal valuation. The BIR ruled in favor of Iglesia ni Cristo stating that Certain
Guidelines in the Implementation of Zonal Valuation of Real Properties for RDO No.
38, applying the predominant use of property as the basis for the computation of the
Capital Gains and Documentary Stamp Taxes, shall apply only when the real
property is located in an area or zone where the properties are not yet
classified and their respective zonal valuation are not yet determined. The
pertinent portion of BIR Ruling No. 041-2001 reads:

In reply, please be informed that this Office finds your request
meritorious. The number 2 guideline laid down in Certain
Guidelines in the implementation of Zonal valuation of Real
Properties for RDO No. 38- North Quezon City xxx does not apply
to this case.
Number 2 of the CERTAIN GUIDELINES IN THE
IMPLEMENTATION OF ZONAL VALUATION OF REAL
PROPERTIES FOR RD NO. 38 NORTH QUEZON CITY provides:
valuation. Since internal revenue taxes, such as CGT and DST, are assessed on the
basis of valuation, the zonal valuation existing at the time of the sale should be taken
into account.[16]
If petitioner feels that the properties in Barrio Banica should also be classified as
commercial, then petitioner should work for its revision in accordance with Revenue
Memorandum Order No. 58-69. The burden was on petitioner to prove that the
classification and zonal valuation in Barrio Banica have been revised in accordance
with the prevailing memorandum. In the absence of proof to the contrary, the 1995
Revised Zonal Values of Real Properties must be followed.

2. PREDOMINANT USE OF PROPERTY: Lastly, this Court takes note of the wording of Section 2 (b) of the Zonal Valuation
Guidelines, to wit:
ALL REAL PROPERTIES REGARDLESS OF
ACTUAL USE, LOCATED IN A 2. Predominant Use of Property.
STREET/BARANGAY ZONE, THE USE OF
WHICH ARE PREDOMINANTLY b) The predominant use of other classification of properties located
COMMERCIAL SHALL BE CLASSIFIED AS in a street/barangay zone, regardless of actual use shall be
'COMMERICIAL'FOR PURPOSES OF ZONAL considered for purposes of zonal valuation.
VALUATION.
It is the considered opinion of this Office that the guideline Based thereon, this Court rules that even assuming arguendo that the subject
applies when the real property is located in an area or zone where properties were used for commercial purposes, the same remains to be residential
the properties are not yet classified and their respective zonal for zonal value purposes. It appears that actual use is not considered for zonal
valuation are not yet determined. valuation, but the predominant use of other classification of properties located in the
In the instant case, however, the classification and valuation of zone. Again, it is undisputed that the entire Barrio Banica has been classified as
the properties located in Mindanao Avenue, Bagong Bantay, have residential.
already been determined. Under Department of Finance Order No. WHEREFORE, premises considered, the petition is denied. The November 9, 2005
6-2000, the properties along Mindanao Avenue had already been Decision of the Court of Tax Appeals En Banc, in CTA-E.B. No. 77, is
classified as residential and commercial. The zonal valuation thereof hereby AFFIRMED.
had already been determined. x x x Therefore, the Revenue District
Officer of RDO No. 38 has no discretion to determine the
classification or valuation of the properties located in the
pertinent area. The computation of the capital gains and
documentary stamp taxes shall be based on the zonal of residential
properties located at Mindanao Avenue, Bago Bantay, Quezon City. [14]

Based on the foregoing, this Court need not belabour on the applicability of Section
2 (a), as the BIR itself has already ruled that the same shall apply only when the real
property is located in an area or zone where the properties are not yet classified and
their respective zonal valuation are not yet determined. As mentioned earlier, the
subject properties were already part of the 1995 Revised Zonal Value of Real
Properties which classified the same as residential with a zonal value of Php650.00
per square meter; thus, Section 2 (a) clearly has no application.
This Court agrees with the observation of the CTA that zonal valuation was
established with the objective of having an efficient tax administration by minimizing
the use of discretion in the determination of the tax based on the part of the
administrator on one hand and the taxpayer on the other hand. [15] Zonal value is
determined for the purpose of establishing a more realistic basis for real property
G.R. No. 196596
COMMISSIONER OF INTERNAL REVENUE, Petitioner
vs.
DE LA SALLE UNIVERSITY, INC., Respondent
x-----------------------x
G.R. No. 198841
DE LA SALLE UNIVERSITY INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x-----------------------x
G.R. No. 198941
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
DE LA SALLE UNIVERSITY, INC., Respondent.
DECISION
BRION, J.:
Before the Court are consolidated petitions for review on certiorari:1
1. G.R. No. 196596 filed by the Commissioner of Internal
Revenue (Commissioner) to assail the December 10, 2010 decision and March 29,
2011 resolution of the Court of Tax Appeals (CTA) in En Banc Case No. 622;2
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to assail the June
8, 2011 decision and October 4, 2011 resolution in CTA En Banc Case No.
671;3 and
3. G.R. No. 198941 filed by the Commissioner to assail the June 8, 2011 decision
and October 4, 2011 resolution in CTA En Banc Case No. 671.4
G.R. Nos. 196596, 198841 and 198941 all originated from CTA Special First
Division (CTA Division) Case No. 7303. G.R. No. 196596 stemmed from CTA En
Banc Case No. 622 filed by the Commissioner to challenge CTA Case No. 7303.
G.R. No. 198841 and 198941 both stemmed from CTA En Banc Case No.
671 filed by DLSU to also challenge CTA Case No. 7303.
The Factual Antecedents
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of
Authority (LOA) No. 2794 authorizing its revenue officers to examine the latter's
books of accounts and other accounting records for all internal revenue taxes for
the period Fiscal Year Ending 2003 and Unverified Prior Years.5
On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.6
Subsequently on August 18, 2004, the BIR through a Formal Letter of
Demand assessed DLSU the following deficiency taxes: (1) income tax on rental
earnings from restaurants/canteens and bookstores operating within the campus;
(2) value-added tax (VAI) on business income; and (3) documentary stamp tax
(DSI) on loans and lease contracts. The BIR demanded the payment
of ₱17,303,001.12, inclusive of surcharge, interest and penalty for taxable years
2001, 2002 and 2003.7
DLSU protested the assessment. The Commissioner failed to act on the protest;
thus, DLSU filed on August 3, 2005 a petition for review with the CTA Division.8
DLSU, a non-stock, non-profit educational institution, principally anchored its
petition on Article XIV, Section 4 (3)of the Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties. xxx.
On January 5, 2010, the CTA Division partially granted DLSU's petition for review.
The dispositive portion of the decision reads:
WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST
assessment on the loan transactions of [DLSU] in the amount of ₱1,1681,774.00 is
hereby CANCELLED. However, [DLSU] is ORDERED TO PAY deficiency income
tax, VAT and DST on its lease contracts, plus 25% surcharge for the fiscal years
2001, 2002 and 2003 in the total amount of ₱18,421,363.53 ... xxx.
In addition, [DLSU] is hereby held liable to pay 20% delinquency interest on the
total amount due computed from September 30, 2004 until full payment thereof
pursuant to Section 249(C)(3) of the [National Internal Revenue Code]. Further, the
compromise penalties imposed by [the Commissioner] were excluded, there being
no compromise agreement between the parties.
SO ORDERED.9
Both the Commissioner and DLSU moved for the reconsideration of the January 5,
2010 decision.10 On April 6, 2010, the CTA Division denied the Commissioner's
motion for reconsideration while it held in abeyance the resolution on DLSU's
motion for reconsideration.11
On May 13, 2010, the Commissioner appealed to the CTA En Banc (CTA En
Banc Case No. 622) arguing that DLSU's use of its revenues and assets for non-
educational or commercial purposes removed these items from the exemption
coverage under the Constitution.12
On May 18, 2010, DLSU formally offered to the CTA Division supplemental pieces
of documentary evidence to prove that its rental income was used actually, directly
and exclusively for educational purposes.13 The Commissioner did not promptly
object to the formal offer of supplemental evidence despite notice. 14
On July 29, 2010, the CTA Division, in view of the supplemental evidence
submitted, reduced the amount of DLSU's tax deficiencies. The dispositive portion
of the amended decision reads:
WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is hereby PARTIALLY
GRANTED. [DLSU] is hereby ORDERED TO PAY for deficiency income tax, VAT
and DST plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the total
adjusted amount of ₱5,506,456.71 ... xxx.
In addition, [DLSU] is hereby held liable to pay 20% per annum deficiency
interest on the ... basic deficiency taxes ... until full payment thereof pursuant to
Section 249(B) of the [National Internal Revenue Code] ... xxx.
Further, [DLSU] is hereby held liable to pay 20% per annum delinquency
interest on the deficiency taxes, surcharge and deficiency interest which have
accrued ... from September 30, 2004 until fully paid.15
Consequently, the Commissioner supplemented its petition with the CTA En
Banc and argued that the CTA Division erred in admitting DLSU's additional
evidence.16
Dissatisfied with the partial reduction of its tax liabilities, DLSU filed
a separate petition for review with the CTA En Banc (CTA En Banc Case No. 671)
on the following grounds: (1) the entire assessment should have been cancelled
because it was based on an invalid LOA; (2) assuming the LOA was valid, the CTA
Division should still have cancelled the entire assessment because DLSU
submitted evidence similar to those submitted by Ateneo De Manila
University (Ateneo) in a separate case where the CTA cancelled Ateneo's tax
assessment;17 and (3) the CTA Division erred in finding that a portion of DLSU's
rental income was not proved to have been used actually, directly and exclusively
for educational purposes.18
The CTA En Banc Rulings
CTA En Banc Case No. 622
The CTA En Banc dismissed the Commissioner's petition for review and sustained
the findings of the CTA Division.19
Tax on rental income
Relying on the findings of the court-commissioned Independent Certified Public
Accountant (Independent CPA), the CTA En Banc found that DLSU was able to
prove that a portion of the assessed rental income was used actually, directly and
exclusively for educational purposes; hence, exempt from tax. 20 The CTA En
Banc was satisfied with DLSU's supporting evidence confirming that part of its
rental income had indeed been used to pay the loan it obtained to build the
university's Physical Education – Sports Complex.21
Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the part of its
income that was not shown by supporting documents to have been actually, directly
and exclusively used for educational purposes, must be subjected to income tax
and VAT.22
DST on loan and mortgage transactions
Contrary to the Commissioner's contention, DLSU froved its remittance of the DST
due on its loan and mortgage documents.23 The CTA En Banc found that DLSU's
DST payments had been remitted to the BIR, evidenced by the stamp on the
documents made by a DST imprinting machine, which is allowed under Section 200
(D) of the National Internal Revenue Code (Tax Code)24 and Section 2 of Revenue
Regulations (RR) No. 15-2001.25
Admissibility of DLSU's supplemental evidence
The CTA En Banc held that the supplemental pieces of documentary evidence
were admissible even if DLSU formally offered them only when it moved for
reconsideration of the CTA Division's original decision. Notably, the law creating the
CTA provides that proceedings before it shall not be governed strictly by the
technical rules of evidence.26
The Commissioner moved but failed to obtain a reconsideration of the CTA En
Banc's December 10, 2010 decision.27 Thus, she came to this court for relief
through a petition for review on certiorari (G.R. No. 196596).
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for review and further reduced
its tax liabilities to ₱2,554,825.47inclusive of surcharge.28
On the validity of the Letter of Authority
The issue of the LOA' s validity was raised during trial;29 hence, the issue was
deemed properly submitted for decision and reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA should cover only one
taxable period and that the practice of issuing a LOA covering audit of unverified
prior years is prohibited.30 The prohibition is consistent with Revenue Memorandum
Order (RMO) No. 43-90, which provides that if the audit includes more than one
taxable period, the other periods or years shall be specifically indicated in the
LOA.31
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and
Unverified Prior Years. Hence, the assessments for deficiency income tax, VAT
and DST for taxable years 2001 and 2002 are void, but the assessment for taxable
year 2003 is valid.32
On the applicability of the Ateneo case
The CTA En Banc held that the Ateneo case is not a valid precedent because it
involved different parties, factual settings, bases of assessments, sets of evidence,
and defenses.33
On the CTA Division's appreciation of the evidence
The CTA En Banc affirmed the CTA Division's appreciation of DLSU' s evidence. It
held that while DLSU successfully proved that a portion of its rental income was
transmitted and used to pay the loan obtained to fund the construction of the Sports
Complex, the rental income from other sources were not shown to have been
actually, directly and exclusively used for educational purposes. 34
Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No. 198841) and the
Commissioner (G.R. No. 198941) came to this Court for relief.
The Consolidated Petitions
G.R. No. 196596
The Commissioner submits the following arguments:
First, DLSU's rental income is taxable regardless of how such income is derived,
used or disposed of.35 DLSU's operations of canteens and bookstores within its
campus even though exclusively serving the university community do not negate
income tax liability.36
The Commissioner contends that Article XIV, Section 4 (3) of the Constitution must
be harmonized with Section 30 (H) of the Tax Code, which states among others,
that the income of whatever kind and character of [a non-stock and non-profit
educational institution] from any of [its] properties, real or personal, or from any of
[its] activities conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed by this Code.37
The Commissioner argues that the CTA En Banc misread and misapplied the case
of Commissioner of Internal Revenue v. YMCA38 to support its conclusion that
revenues however generated are covered by the constitutional exemption, provided
that, the revenues will be used for educational purposes or will be held in reserve
for such purposes.39
On the contrary, the Commissioner posits that a tax-exempt organization like DLSU
is exempt only from property tax but not from income tax on the rentals earned from
property.40 Thus, DLSU's income from the leases of its real properties is not
exempt from taxation even if the income would be used for educational purposes. 41
Second, the Commissioner insists that DLSU did not prove the fact of DST
payment42 and that it is not qualified to use the On-Line Electronic DST Imprinting
Machine, which is available only to certain classes of taxpayers under RR No. 9-
2000.43
Finally, the Commissioner objects to the admission of DLSU's supplemental offer of
evidence. The belated submission of supplemental evidence reopened the case for
trial, and worse, DLSU offered the supplemental evidence only after it received the
unfavorable CTA Division's original decision.44 In any case, DLSU's submission of
supplemental documentary evidence was unnecessary since its rental income was
taxable regardless of its disposition.45
G.R. No. 198841
DLSU argues as that:
First, RMO No. 43-90 prohibits the practice of issuing a LOA with any indication
of unverified prior years. A LOA issued contrary to RMO No. 43-90 is void, thus, an
assessment issued based on such defective LOA must also be void. 46
DLSU points out that the LOA issued to it covered the Fiscal Year Ending 2003 and
Unverified Prior Years. On the basis of this defective LOA, the Commissioner
assessed DLSU for deficiency income tax, VAT and DST for taxable years 2001,
2002 and 2003.47 DLSU objects to the CTA En Banc's conclusion that the LOA is
valid for taxable year 2003. According to DLSU, when RMO No. 43-90 provides
that:
The practice of issuing [LOAs] covering audit of 'unverified prior years' is hereby
prohibited.
it refers to the LOA which has the format "Base Year + Unverified Prior
Years." Since the LOA issued to DLSU follows this format, then any assessment
arising from it must be entirely voided.48
Second, DLSU invokes the principle of uniformity in taxation, which mandates that
for similarly situated parties, the same set of evidence should be appreciated and
weighed in the same manner.49 The CTA En Banc erred when it did not similarly
appreciate DLSU' s evidence as it did to the pieces of evidence submitted by
Ateneo, also a non-stock, non-profit educational institution.50
G.R. No. 198941
The issues and arguments raised by the Commissioner in G.R. No. 198941 petition
are exactly the same as those she raised in her: (1) petition docketed as G.R. No.
196596 and (2) comment on DLSU's petition docketed as G.R. No. 198841.51
Counter-arguments
DLSU's Comment on G.R. No. 196596
First, DLSU questions the defective verification attached to the petition. 52
Second, DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear
that all assets and revenues of non-stock, non-profit educational institutions used
actually, directly and exclusively for educational purposes are exempt from taxes
and duties.53
On this point, DLSU explains that: (1) the tax exemption of non-stock, non-profit
educational institutions is novel to the 1987 Constitution and that Section 30 (H) of
the 1997 Tax Code cannot amend the 1987 Constitution;54 (2) Section 30 of the
1997 Tax Code is almost an exact replica of Section 26 of the 1977 Tax Code -with
the addition of non-stock, non-profit educational institutions to the list of tax-exempt
entities; and (3) that the 1977 Tax Code was promulgated when the 1973
Constitution was still in place.
DLSU elaborates that the tax exemption granted to a private educational institution
under the 1973 Constitution was only for real property tax. Back then, the special
tax treatment on income of private educational institutions only emanates from
statute, i.e., the 1977 Tax Code. Only under the 1987 Constitution that exemption
from tax of all the assets and revenues of non-stock, non-profit educational
institutions used actually, directly and exclusively for educational purposes, was
expressly and categorically enshrined.55
DLSU thus invokes the doctrine of constitutional supremacy, which renders any
subsequent law that is contrary to the Constitution void and without any force and
effect.56 Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the
income of whatever kind and character of a non-stock and non-profit educational
institution from any of its properties, real or personal, or from any of its activities
conducted for profit regardless of the disposition made of such income, should be
declared without force and effect in view of the constitutionally granted tax
exemption on "all revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational purposes." 57
DLSU further submits that it complies with the requirements enunciated in
the YMCA case, that for an exemption to be granted under Article XIV, Section 4
(3) of the Constitution, the taxpayer must prove that: (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly and exclusively for
educational purposes.58 Unlike YMCA, which is not an educational institution,
DLSU is undisputedly a non-stock, non-profit educational institution. It had also
submitted evidence to prove that it actually, directly and exclusively used its income
for educational purposes.59
DLSU also cites the deliberations of the 1986 Constitutional Commission where
they recognized that the tax exemption was granted "to incentivize private
educational institutions to share with the State the responsibility of educating the
youth."60
Third, DLSU highlights that both the CTA En Banc and Division found that the bank
that handled DLSU' s loan and mortgage transactions had remitted to the BIR the
DST through an imprinting machine, a method allowed under RR No. 15-2001.61 In
any case, DLSU argues that it cannot be held liable for DST owing to the
exemption granted under the Constitution.62
Finally, DLSU underscores that the Commissioner, despite notice, did not oppose
the formal offer of supplemental evidence. Because of the Commissioner's failure
to timely object, she became bound by the results of the submission of such
supplemental evidence.63
The CIR's Comment on G.R. No. 198841
The Commissioner submits that DLSU is estopped from questioning the LOA's
validity because it failed to raise this issue in both the administrative and judicial
proceedings.64 That it was asked on cross-examination during the trial does not
make it an issue that the CTA could resolve.65 The Commissioner also maintains
that DLSU's rental income is not tax-exempt because an educational institution is
only exempt from property tax but not from tax on the income earned from the
property.66
DLSU's Comment on G.R. No. 198941
DLSU puts forward the same counter-arguments discussed above.67 In addition,
DLSU prays that the Court award attorney's fees in its favor because it was
constrained to unnecessarily retain the services of counsel in this separate
petition.68
Issues
Although the parties raised a number of issues, the Court shall decide only the
pivotal issues, which we summarize as follows:
I. Whether DLSU' s income and revenues proved to have been used
actually, directly and exclusively for educational purposes are exempt from
duties and taxes;
II. Whether the entire assessment should be voided because of the
defective LOA;
III. Whether the CTA correctly admitted DLSU's supplemental pieces of
evidence; and
IV. Whether the CTA's appreciation of the sufficiency of DLSU's evidence
may be disturbed by the Court.
Our Ruling
As we explain in full below, we rule that:
I. The income, revenues and assets of non-stock, non-profit educational
institutions proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes.
II. The LOA issued to DLSU is not entirely void. The assessment for
taxable year 2003 is valid.
III. The CTA correctly admitted DLSU's formal offer of supplemental
evidence; and
IV. The CTA's appreciation of evidence is conclusive unless the CTA is
shown to have manifestly overlooked certain relevant facts not disputed by
the parties and which, if properly considered, would justify a different
conclusion.
The parties failed to convince the Court that the CTA overlooked or failed to
consider relevant facts. We thus sustain the CTA En Banc's findings that:
a. DLSU proved that a portion of its rental income was used actually,
directly and exclusively for educational purposes; and
b. DLSU proved the payment of the DST through its bank's on-line
imprinting machine.
I. The revenues and assets of non-stock,
non-profit educational institutions
proved to have been used actually,
directly, and exclusively for educational
purposes are exempt from duties and
taxes.
DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which
reads:
(3) All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may
likewise be entitled to such exemptions subject to
the limitations provided by law including restrictions on dividends and provisions
for reinvestment. [underscoring and emphasis supplied]
Before fully discussing the merits of the case, we observe that:
First, the constitutional provision refers to two kinds of educational institutions: (1)
non-stock, non-profit educational institutions and (2) proprietary educational
institutions.69
Second, DLSU falls under the first category. Even the Commissioner admits the
status of DLSU as a non-stock, non-profit educational institution.70
Third, while DLSU's claim for tax exemption arises from and is based on the
Constitution, the Constitution, in the same provision, also imposes certain
conditions to avail of the exemption. We discuss below the import of the
constitutional text vis-a-vis the Commissioner's counter-arguments.
Fourth, there is a marked distinction between the treatment of non-stock, non-profit
educational institutions and proprietary educational institutions. The tax exemption
granted to non-stock, non-profit educational institutions is conditioned only on the
actual, direct and exclusive use of their revenues and assets for educational
purposes. While tax exemptions may also be granted to proprietary educational
institutions, these exemptions may be subject to limitations imposed by Congress.
As we explain below, the marked distinction between a non-stock, non-profit and a
proprietary educational institution is crucial in determining the nature and extent of
the tax exemption granted to non-stock, non-profit educational institutions.
The Commissioner opposes DLSU's claim for tax exemption on the basis of
Section 30 (H) of the Tax Code. The relevant text reads:
The following organizations shall not be taxed under this Title [Tax on
Income] in respect to income received by them as such:
xxxx
(H) A non-stock and non-profit educational institution
xxxx
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. [underscoring and emphasis supplied]
The Commissioner posits that the 1997 Tax Code qualified the tax exemption
granted to non-stock, non-profit educational institutions such that the revenues and
income they derived from their assets, or from any of their activities conducted for
profit, are taxable even if these revenues and income are used for educational
purposes.
Did the 1997 Tax Code qualify the tax exemption constitutionally-granted to non-
stock, non-profit educational institutions?
We answer in the negative.
While the present petition appears to be a case of first impression,71 the Court in
the YMCA case had in fact already analyzed and explained the meaning of Article
XIV, Section 4 (3) of the Constitution. The Court in that case made doctrinal
pronouncements that are relevant to the present case.
The issue in YMCA was whether the income derived from rentals of real property
owned by the YMCA, established as a "welfare, educational and charitable non-
profit corporation," was subject to income tax under the Tax Code and the
Constitution.72
The Court denied YMCA's claim for exemption on the ground that as a charitable
institution falling under Article VI, Section 28 (3) of the Constitution,73 the YMCA is
not tax-exempt per se; " what is exempted is not the institution itself... those
exempted from real estate taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational purposes." 74
The Court held that the exemption claimed by the YMCA is expressly disallowed by
the last paragraph of then Section 27 (now Section 30) of the Tax Code, which
mandates that the income of exempt organizations from any of their properties, real
or personal, are subject to the same tax imposed by the Tax Code, regardless of
how that income is used. The Court ruled that the last paragraph of Section 27
unequivocally subjects to tax the rent income of the YMCA from its property.75
In short, the YMCA is exempt only from property tax but not from income tax.
As a last ditch effort to avoid paying the taxes on its rental income, the YMCA
invoked the tax privilege granted under Article XIV, Section 4 (3) of the
Constitution.
The Court denied YMCA's claim that it falls under Article XIV, Section 4 (3) of the
Constitution holding that the term educational institution, when used in laws
granting tax exemptions, refers to the school system (synonymous with formal
education); it includes a college or an educational establishment; it refers to the
hierarchically structured and chronologically graded learnings organized and
provided by the formal school system.76
The Court then significantly laid down the requisites for availing the tax exemption
under Article XIV, Section 4 (3), namely: (1) the taxpayer falls under the
classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly and exclusively for
educational purposes.77
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without force and effect with
respect to non-stock, non-profit educational institutions, provided, that the non-
stock, non-profit educational institutions prove that its assets and revenues are
used actually, directly and exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non-profit educational
institutions, is not subject to limitations imposed by law.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions is conditioned only
on the actual, direct and exclusive use of
their assets, revenues and income78 for
educational purposes.
We find that unlike Article VI, Section 28 (3) of the Constitution (pertaining to
charitable institutions, churches, parsonages or convents, mosques, and non-profit
cemeteries), which exempts from tax only the assets,
i.e., "all lands, buildings, and improvements, actually, directly, and exclusively
used for religious, charitable, or educational purposes ... ," Article XIV, Section 4
(3) categorically states that "[a]ll revenues and assets ... used actually, directly,
and exclusively for educational purposes shall be exempt from taxes and duties."
The addition and express use of the word revenues in Article XIV, Section 4 (3) of
the Constitution is not without significance.
We find that the text demonstrates the policy of the 1987 Constitution, discernible
from the records of the 1986 Constitutional Commission 79 to provide broader tax
privilege to non-stock, non-profit educational institutions as recognition of their role
in assisting the State provide a public good. The tax exemption was seen as
beneficial to students who may otherwise be charged unreasonable tuition fees if
not for the tax exemption extended to all revenues and assets of non-stock, non-
profit educational institutions.80
Further, a plain reading of the Constitution would show that Article XIV, Section 4
(3) does not require that the revenues and income must have also been sourced
from educational activities or activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any reference to the source of
revenues. Thus, so long as the revenues and income are used actually, directly
and exclusively for educational purposes, then said revenues and income shall be
exempt from taxes and duties.81
We find it helpful to discuss at this point the taxation of revenues versus the
taxation of assets.
Revenues consist of the amounts earned by a person or entity from the conduct of
business operations.82 It may refer to the sale of goods, rendition of services, or the
return of an investment. Revenue is a component of the tax base in income
tax,83 VAT,84 and local business tax (LBT).85
Assets, on the other hand, are the tangible and intangible properties owned by a
person or entity.86 It may refer to real estate, cash deposit in a bank, investment in
the stocks of a corporation, inventory of goods, or any property from which the
person or entity may derive income or use to generate the same. In Philippine
taxation, the fair market value of real property is a component of the tax base in
real property tax (RPT).87 Also, the landed cost of imported goods is a component
of the tax base in VAT on importation88 and tariff duties.89
Thus, when a non-stock, non-profit educational institution proves that it uses
its revenues actually, directly, and exclusively for educational purposes, it shall be
exempted from income tax, VAT, and LBT. On the other hand, when it also shows
that it uses its assets in the form of real property for educational purposes, it shall
be exempted from RPT.
To be clear, proving the actual use of the taxable item will result in an exemption,
but the specific tax from which the entity shall be exempted from shall depend on
whether the item is an item of revenue or asset.
To illustrate, if a university leases a portion of its school building to a bookstore or
cafeteria, the leased portion is not actually, directly and exclusively used for
educational purposes, even if the bookstore or canteen caters only to university
students, faculty and staff.
The leased portion of the building may be subject to real property tax, as held
in Abra Valley College, Inc. v. Aquino.90 We ruled in that case that the test of
exemption from taxation is the use of the property for purposes mentioned in the
Constitution. We also held that the exemption extends to facilities which are
incidental to and reasonably necessary for the accomplishment of the main
purposes.
In concrete terms, the lease of a portion of a school building for commercial
purposes, removes such asset from the property tax exemption granted under the
Constitution.91 There is no exemption because the asset is not used actually,
directly and exclusively for educational purposes. The commercial use of the
property is also not incidental to and reasonably necessary for the accomplishment
of the main purpose of a university, which is to educate its students.
However, if the university actually, directly and exclusively uses for educational
purposes the revenues earned from the lease of its school building, such revenues
shall be exempt from taxes and duties. The tax exemption no longer hinges on the
use of the asset from which the revenues were earned, but on the actual, direct and
exclusive use of the revenues for educational purposes.
Parenthetically, income and revenues of non-stock, non-profit educational
institution not used actually, directly and exclusively for educational purposes are
not exempt from duties and taxes. To avail of the exemption, the taxpayer
must factually prove that it used actually, directly and exclusively for educational
purposes the revenues or income sought to be exempted.
The crucial point of inquiry then is on the use of the assets or on the use of the
revenues. These are two things that must be viewed and treated separately. But
so long as the assets or revenues are used actually, directly and exclusively for
educational purposes, they are exempt from duties and taxes.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions, unlike the exemption
that may be availed of by proprietary
educational institutions, is not subject to
limitations imposed by law.
That the Constitution treats non-stock, non-profit educational institutions differently
from proprietary educational institutions cannot be doubted. As discussed, the
privilege granted to the former is conditioned only on the actual, direct and
exclusive use of their revenues and assets for educational purposes. In clear
contrast, the tax privilege granted to the latter may be subject to limitations imposed
by law.
We spell out below the difference in treatment if only to highlight the privileged
status of non-stock, non-profit educational institutions compared with their
proprietary counterparts.
While a non-stock, non-profit educational institution is classified as a tax-exempt
entity under Section 30 (Exemptions from Tax on Corporations) of the Tax Code, a
proprietary educational institution is covered by Section 27 (Rates of Income Tax
on Domestic Corporations).
To be specific, Section 30 provides that exempt organizations like non-stock, non-
profit educational institutions shall not be taxed on income received by them as
such.
Section 27 (B), on the other hand, states that "[p]roprietary educational institutions
... which are nonprofit shall pay a tax of ten percent (10%) on their taxable income
.. . Provided, that if the gross income from unrelated trade, business or other
activity exceeds fifty percent (50%) of the total gross income derived by such
educational institutions ... [the regular corporate income tax of 30%] shall be
imposed on the entire taxable income ... "92
By the Tax Code's clear terms, a proprietary educational institution is entitled only
to the reduced rate of 10% corporate income tax. The reduced rate is applicable
only if: (1) the proprietary educational institution is nonprofit and (2) its gross
income from unrelated trade, business or activity does not exceed 50% of its total
gross income.
Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do
not apply to non-stock, non-profit educational institutions.
Thus, we declare the last paragraph of Section 30 of the Tax Code without force
and effect for being contrary to the Constitution insofar as it subjects to tax the
income and revenues of non-stock, non-profit educational institutions used actually,
directly and exclusively for educational purpose. We make this declaration in the
exercise of and consistent with our duty93 to uphold the primacy of the
Constitution.94
Finally, we stress that our holding here pertains only to non-stock, non-profit
educational institutions and does not cover the other exempt organizations under
Section 30 of the Tax Code.
For all these reasons, we hold that the income and revenues of DLSU proven to
have been used actually, directly and exclusively for educational purposes are
exempt from duties and taxes.
II. The LOA issued to DLSU is
not entirely void. The
assessment for taxable year
2003 is valid.
DLSU objects to the CTA En Banc 's conclusion that the LOA is valid for taxable
year 2003 and insists that the entire LOA should be voided for being contrary to
RMO No. 43-90, which provides that if tax audit includes more than one taxable
period, the other periods or years shall be specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue officer to examine the
books of account and other accounting records of the taxpayer in order to
determine the taxpayer's correct internal revenue liabilities 95 and for the purpose of
collecting the correct amount of tax,96 in accordance with Section 5 of the Tax
Code, which gives the CIR the power to obtain information, to summon/examine,
and take testimony of persons. The LOA commences the audit process 97 and
informs the taxpayer that it is under audit for possible deficiency tax assessment.
Given the purposes of a LOA, is there basis to completely nullify the LOA issued to
DLSU, and consequently, disregard the BIR and the CTA's findings of tax
deficiency for taxable year 2003?
We answer in the negative.
The relevant provision is Section C of RMO No. 43-90, the pertinent portion of
which reads:
3. A Letter of Authority [LOA] should cover a taxable period not exceeding one
taxable year. The practice of issuing [LO As] covering audit of unverified prior years
is hereby prohibited. If the audit of a taxpayer shall include more than one taxable
period, the other periods or years shall be specifically indicated in the [LOA]. 98
What this provision clearly prohibits is the practice of issuing LOAs covering audit
of unverified prior years. RMO 43-90 does not say that a LOA which contains
unverified prior years is void. It merely prescribes that if the audit includes more
than one taxable period, the other periods or years must be specified. The
provision read as a whole requires that if a taxpayer is audited for more than one
taxable year, the BIR must specify each taxable year or taxable period on separate
LOAs.
Read in this light, the requirement to specify the taxable period covered by the LOA
is simply to inform the taxpayer of the extent of the audit and the scope of the
revenue officer's authority. Without this rule, a revenue officer can unduly burden
the taxpayer by demanding random accounting records from random unverified
years, which may include documents from as far back as ten years in cases
of fraud audit.99
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and
Unverified Prior Years. The LOA does not strictly comply with RMO 43-90 because
it includes unverified prior years. This does not mean, however, that the entire LOA
is void.
As the CTA correctly held, the assessment for taxable year 2003 is valid because
this taxable period is specified in the LOA. DLSU was fully apprised that it was
being audited for taxable year 2003. Corollarily, the assessments for taxable years
2001 and 2002 are void for having been unspecified on separate LOAs as required
under RMO No. 43-90.
Lastly, the Commissioner's claim that DLSU failed to raise the issue of the LOA' s
validity at the CTA Division, and thus, should not have been entertained on appeal,
is not accurate.
On the contrary, the CTA En Banc found that the issue of the LOA's validity came
up during the trial.100 DLSU then raised the issue in its memorandum and motion
for partial reconsideration with the CTA Division. DLSU raised it again on appeal to
the CTA En Banc. Thus, the CTA En Banc could, as it did, pass upon the validity of
the LOA.101Besides, the Commissioner had the opportunity to argue for the validity
of the LOA at the CTA En Banc but she chose not to file her comment and
memorandum despite notice.102
III.The CTA correctly admitted
the supplemental evidence
formally offered by DLSU.
The Commissioner objects to the CTA Division's admission of DLSU's
supplemental pieces of documentary evidence.
To recall, DLSU formally offered its supplemental evidence upon filing its motion for
reconsideration with the CTA Division.103 The CTA Division admitted the
supplemental evidence, which proved that a portion of DLSU's rental income was
used actually, directly and exclusively for educational purposes. Consequently, the
CTA Division reduced DLSU's tax liabilities.
We uphold the CTA Division's admission of the supplemental evidence on distinct
but mutually reinforcing grounds, to wit: (1) the Commissioner failed to timely object
to the formal offer of supplemental evidence; and (2) the CTA is not governed
strictly by the technical rules of evidence.
First, the failure to object to the offered evidence renders it admissible, and the
court cannot, on its own, disregard such evidence.104
The Court has held that if a party desires the court to reject the evidence offered, it
must so state in the form of a timely objection and it cannot raise the objection to
the evidence for the first time on appeal.105 Because of a party's failure to timely
object, the evidence offered becomes part of the evidence in the case. As a
consequence, all the parties are considered bound by any outcome arising from the
offer of evidence properly presented.106
As disclosed by DLSU, the Commissioner did not oppose the supplemental formal
offer of evidence despite notice.107 The Commissioner objected to the admission of
the supplemental evidence only when the case was on appeal to the CTA En
Banc. By the time the Commissioner raised her objection, it was too late;
the formal offer, admission and evaluation of the supplemental evidence were
all fait accompli.
We clarify that while the Commissioner's failure to promptly object had no bearing
on the materiality or sufficiency of the supplemental evidence admitted, she was
bound by the outcome of the CTA Division's assessment of the evidence. 108
Second, the CTA is not governed strictly by the technical rules of evidence. The
CTA Division's admission of the formal offer of supplemental evidence, without
prompt objection from the Commissioner, was thus justified.
Notably, this Court had in the past admitted and considered evidence attached to
the taxpayers' motion for reconsideration.1âwphi1
In the case of BPI-Family Savings Bank v. Court of Appeals,109 the tax refund
claimant attached to its motion for reconsideration with the CT A its Final
Adjustment Return. The Commissioner, as in the present case, did not oppose the
taxpayer's motion for reconsideration and the admission of the Final Adjustment
Return.110 We thus admitted and gave weight to the Final Adjustment
Return although it was only submitted upon motion for reconsideration.
We held that while it is true that strict procedural rules generally frown upon the
submission of documents after the trial, the law creating the CTA specifically
provides that proceedings before it shall not be governed strictly by the technical
rules of evidence111 and that the paramount consideration remains the
ascertainment of truth. We ruled that procedural rules should not bar courts from
considering undisputed facts to arrive at a just determination of a controversy.112
We applied the same reasoning in the subsequent cases of Filinvest Development
Corporation v. Commissioner of Internal Revenue113 and Commissioner of Internal
Revenue v. PERF Realty Corporation,114 where the taxpayers also submitted the
supplemental supporting document only upon filing their motions for
reconsideration.
Although the cited cases involved claims for tax refunds, we also dispense with the
strict application of the technical rules of evidence in the present tax
assessment case. If anything, the liberal application of the rules assumes greater
force and significance in the case of a taxpayer who claims a constitutionally
granted tax exemption. While the taxpayers in the cited cases claimed refund of
excess tax payments based on the Tax Code,115 DLSU is claiming
tax exemption based on the Constitution. If liberality is afforded to taxpayers who
paid more than they should have under a statute, then with more reason that we
should allow a taxpayer to prove its exemption from tax based on the Constitution.
Hence, we sustain the CTA's admission of DLSU's supplemental offer of evidence
not only because the Commissioner failed to promptly object, but more so because
the strict application of the technical rules of evidence may defeat the intent of the
Constitution.
IV. The CTA's appreciation of
evidence is generally binding on
the Court unless compelling
reasons justify otherwise.
It is doctrinal that the Court will not lightly set aside the conclusions reached by the
CTA which, by the very nature of its function of being dedicated exclusively to the
resolution of tax problems, has developed an expertise on the subject, unless there
has been an abuse or improvident exercise of authority. 116 We thus accord
the findings of fact by the CTA with the highest respect. These findings of facts can
only be disturbed on appeal if they are not supported by substantial evidence or
there is a showing of gross error or abuse on the part of the CTA. In the absence of
any clear and convincing proof to the contrary, this Court must presume that the
CTA rendered a decision which is valid in every respect. 117
We sustain the factual findings of the CTA.
The parties failed to raise credible basis for us to disturb the CTA's findings that
DLSU had used actually, directly and exclusively for educational purposes
a portion of its assessed income and that it had remitted the DST payments though
an online imprinting machine.
a. DLSU used actually, directly, and exclusively for educational purposes
a portion of its assessed income.
To see how the CTA arrived at its factual findings, we review the process
undertaken, from which it deduced that DLSU successfully proved that it used
actually, directly and exclusively for educational purposes a portion of its rental
income.
The CTA reduced DLSU' s deficiency income tax and VAT liabilities in view of the
submission of the supplemental evidence, which consisted of statement of receipts,
statement of disbursement and fund balance and statement of fund changes.118
These documents showed that DLSU borrowed ₱93.86 Million, 119 which was used
to build the university's Sports Complex. Based on these pieces of evidence, the
CTA found that DLSU' s rental income from its concessionaires were indeed
transmitted and used for the payment of this loan. The CTA held that the degree of
preponderance of evidence was sufficiently met to prove actual, direct and
exclusive use for educational purposes.
The CTA also found that DLSU's rental income from other concessionaires, which
were allegedly deposited to a fund (CF-CPA Account),120 intended for the
university's capital projects, was not proved to have been used actually, directly
and exclusively for educational purposes. The CTA observed that "[DLSU] ...
failed to fully account for and substantiate all the disbursements from the [fund]."
Thus, the CTA "cannot ascertain whether rental income from the [other]
concessionaires was indeed used for educational purposes."121
To stress, the CTA's factual findings were based on and supported by the report of
the Independent CPA who reviewed, audited and examined the voluminous
documents submitted by DLSU.
Under the CTA Revised Rules, an Independent CPA's functions include: (a)
examination and verification of receipts, invoices, vouchers and other long
accounts; (b) reproduction of, and comparison of such reproduction with, and
certification that the same are faithful copies of original documents, and pre-
marking of documentary exhibits consisting of voluminous documents; (c)
preparation of schedules or summaries containing a chronological listing of the
numbers, dates and amounts covered by receipts or invoices or other relevant
documents and the amount(s) of taxes paid; (d) making findings as to
compliance with substantiation requirements under pertinent tax laws,
regulations and jurisprudence; (e) submission of a formal report with certification
of authenticity and veracity of findings and conclusions in the performance of the
audit; (f) testifying on such formal report; and (g) performing such other functions as
the CTA may direct.122
Based on the Independent CPA's report and on its own appreciation of the
evidence, the CTA held that only the portion of the rental income pertaining to
the substantiated disbursements (i.e., proved by receipts, vouchers, etc.) from the
CF-CPA Account was considered as used actually, directly and exclusively for
educational purposes. Consequently, the unaccounted and unsubstantiated
disbursements must be subjected to income tax and VAT. 123
The CTA then further reduced DLSU's tax liabilities by cancelling the assessments
for taxable years 2001 and 2002 due to the defective LOA. 124
The Court finds that the above fact-finding process undertaken by the CTA shows
that it based its ruling on the evidence on record, which we reiterate, were
examined and verified by the Independent CPA. Thus, we see no persuasive
reason to deviate from these factual findings.
However, while we generally respect the factual findings of the CTA, it does not
mean that we are bound by its conclusions. In the present case, we do not agree
with the method used by the CTA to arrive at DLSU' s unsubstantiated rental
income (i.e., income not proved to have been actually, directly and exclusively used
for educational purposes).
To recall, the CTA found that DLSU earned a rental income of ₱l0,610,379.00 in
taxable year 2003.125 DLSU earned this income from leasing a portion of its
premises to: 1) MTG-Sports Complex, 2) La Casita, 3) Alarey, Inc., 4) Zaide Food
Corp., 5) Capri International, and 6) MTO Bookstore.126
To prove that its rental income was used for educational purposes, DLSU identified
the transactions where the rental income was
expended, viz.: 1) ₱4,007,724.00127 used to pay the loan obtained by DLSU to build
the Sports Complex; and 2) ₱6,602,655.00 transferred to the CF-CPA Account.128
DLSU also submitted documents to the Independent CPA to prove that the
₱6,602,655.00 transferred to the CF-CPA Account was used actually, directly and
exclusively for educational purposes. According to the Independent CPA' findings,
DLSU was able to substantiate disbursements from the CF-CPA Account
amounting to ₱6,259,078.30.
Contradicting the findings of the Independent CPA, the CTA concluded that out of
the ₱l0,610,379.00 rental income, ₱4,841,066.65 was unsubstantiated, and thus,
subject to income tax and VAT.129
The CTA then concluded that the ratio of substantiated disbursements to the total
disbursements from the CF-CPA Account for taxable year 2003 is only
26.68%.130 The CTA held as follows:
However, as regards petitioner's rental income from Alarey, Inc., Zaide Food Corp.,
Capri International and MTO Bookstore, which were transmitted to the CF-CPA
Account, petitioner again failed to fully account for and substantiate all the
disbursements from the CF-CPA Account; thus failing to prove that the rental
income derived therein were actually, directly and exclusively used for educational
purposes. Likewise, the findings of the Court-Commissioned Independent CPA
show that the disbursements from the CF-CPA Account for fiscal year 2003
amounts to ₱6,259,078.30 only. Hence, this portion of the rental income, being the
substantiated disbursements of the CF-CPA Account, was considered by the
Special First Division as used actually, directly and exclusively for educational
purposes. Since for fiscal year 2003, the total disbursements per voucher is
₱6,259,078.3 (Exhibit "LL-25-C"), and the total disbursements per subsidiary ledger
amounts to ₱23,463,543.02 (Exhibit "LL-29-C"), the ratio of substantiated
disbursements for fiscal year 2003 is 26.68%
(₱6,259,078.30/₱23,463,543.02). Thus, the substantiated portion of CF-CPA
Disbursements for fiscal year 2003, arrived at by multiplying the ratio of 26.68%
with the total rent income added to and used in the CF-CPA Account in the amount
of ₱6,602,655.00 is ₱1,761,588.35.131 (emphasis supplied)
For better understanding, we summarize the CTA's computation as follows:
1. The CTA subtracted the rent income used in the construction of the Sports
Complex (₱4,007,724.00) from the rental income (₱10,610,379.00) earned from the
abovementioned concessionaries. The difference (₱6,602,655.00) was the portion
claimed to have been deposited to the CF-CPA Account.
2. The CTA then subtracted the supposed substantiated portion of CF-CPA
disbursements (₱1,761,308.37) from the ₱6,602,655.00 to arrive at the supposed
unsubstantiated portion of the rental income (₱4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements (₱l,761,308.37)133 was
derived by multiplying the rental income claimed to have been added to the CF-
CPA Account (₱6,602,655.00) by 26.68% or the ratio
of substantiated disbursements to total disbursements (₱23,463,543.02).
4. The 26.68% ratio134
was the result of dividing the substantiated disbursements
from the CF-CPA Account as found by the Independent CPA (₱6,259,078.30) by
the total disbursements (₱23,463,543.02) from the same account.
We find that this system of calculation is incorrect and does not truly give effect to
the constitutional grant of tax exemption to non-stock, non-profit educational
institutions. The CTA's reasoning is flawed because it required DLSU to
substantiate an amount that is greater than the rental income deposited in the CF-
CPA Account in 2003.
To reiterate, to be exempt from tax, DLSU has the burden of proving that the
proceeds of its rental income (which amounted to a total of ₱10.61 million) 135 were
used for educational purposes. This amount was divided into two parts: (a) the
₱4.0l million, which was used to pay the loan obtained for the construction of the
Sports Complex; and (b) the ₱6.60 million,136 which was transferred to the CF-CPA
account.
For year 2003, the total disbursement from the CF-CPA account amounted to ₱23
.46 million.137 These figures, read in light of the constitutional exemption, raises the
question: does DLSU claim that the whole total CF-CPA disbursement of
₱23.46 million is tax-exempt so that it is required to prove that all these
disbursements had been made for educational purposes?
We answer in the negative.
The records show that DLSU never claimed that the total CF-CPA disbursements
of ₱23.46 million had been for educational purposes and should thus be tax-
exempt; DLSU only claimed ₱10.61 million for tax-exemption and should thus be
required to prove that this amount had been used as claimed.
Of this amount, ₱4.01 had been proven to have been used for educational
purposes, as confirmed by the Independent CPA. The amount in issue is therefore
the balance of ₱6.60 million which was transferred to the CF-CPA which in turn
made disbursements of ₱23.46 million for various general purposes, among them
the ₱6.60 million transferred by DLSU.
Significantly, the Independent CPA confirmed that the CF-CPA made
disbursements for educational purposes in year 2003 in the amount ₱6.26 million.
Based on these given figures, the CT A concluded that the expenses for
educational purposes that had been coursed through the CF-CPA should be
prorated so that only the portion that ₱6.26 million bears to the total CF-CPA
disbursements should be credited to DLSU for tax exemption.
This approach, in our view, is flawed given the constitutional requirement that
revenues actually and directly used for educational purposes should be tax-exempt.
As already mentioned above, DLSU is not claiming that the whole ₱23.46 million
CF-CPA disbursement had been used for educational purposes; it only claims that
₱6.60 million transferred to CF-CPA had been used for educational purposes. This
was what DLSU needed to prove to have actually and directly used for educational
purposes.
That this fund had been first deposited into a separate fund (the CF -CPA
established to fund capital projects) lends peculiarity to the facts of this case, but
does not detract from the fact that the deposited funds were DLSU revenue funds
that had been confirmed and proven to have been actually and directly used for
educational purposes via the CF-CPA. That the CF-CPA might have had other
sources of funding is irrelevant because the assessment in the present case
pertains only to the rental income which DLSU indisputably earned as revenue in
2003. That the proven CF-CPA funds used for educational purposes should not be
prorated as part of its total CF-CPA disbursements for purposes of crediting to
DLSU is also logical because no claim whatsoever had been made that the totality
of the CF-CPA disbursements had been for educational purposes. No prorating is
necessary; to state the obvious, exemption is based on actual and direct use and
this DLSU has indisputably proven.
Based on these considerations, DLSU should therefore be liable only for the
difference between what it claimed and what it has proven. In more concrete terms,
DLSU only had to prove that its rental income for taxable year 2003
(₱10,610,379.00) was used for educational purposes. Hence, while the total
disbursements from the CF-CPA Account amounted to ₱23,463,543.02, DLSU only
had to substantiate its Pl0.6 million rental income, part of which was the
₱6,602,655.00 transferred to the CF-CPA account. Of this latter amount, ₱6.259
million was substantiated to have been used for educational purposes.
To summarize, we thus revise the tax base for deficiency income tax and VAT for
taxable year 2003 as follows:
 CTA First, even granting that Ateneo and DLSU submitted similar
Decision138 Revised evidence, the sufficiency and materiality of the evidence supporting their
respective claims for tax exemption would necessarily differ because their
Rental income 10,610,379.00 10,610,379.00 attendant issues and facts differ.

4,007,724.00 4,007,724.00
Less: Rent income used in construction of the To state the obvious, the amount of income received by DLSU and by Ateneo
Sports Complex during the taxable years they were assessed varied. The amount of tax
assessment also varied. The amount of income proven to have been used for
educational purposes
also varied because the amount substantiated varied.142 Thus, the amount of tax
Rental income deposited to the CF-CPA assessment cancelled by the CTA varied.
6,602,655.00 6,602,655.00
Account
On the one hand, the BIR assessed DLSU a total tax deficiency
of ₱17,303,001.12 for taxable years 2001, 2002 and 2003. On the other hand, the
1,761,588.35 6,259,078.30 BIR assessed Ateneo a total deficiency tax of ₱8,864,042.35 for the same period.
Less: Substantiated portion of CF-CPA
Notably, DLSU was assessed deficiency DST, while Ateneo was not. 143
disbursements

Thus, although both Ateneo and DLSU claimed that they used their rental income
actually, directly and exclusively for educational purposes by submitting similar
Tax base for deficiency income tax and evidence, e.g., the testimony of their employees on the use of university revenues,
4,841,066.65 343.576.70 the report of the Independent CPA, their income summaries, financial statements,
VAT
vouchers, etc., the fact remains that DLSU failed to prove that a portion of its
income and revenues had indeed been used for educational purposes.
On DLSU' s argument that the CTA should have appreciated its evidence in the
same way as it did with the evidence submitted by Ateneo in another
The CTA significantly found that some documents that could have fully supported
separate case, the CTA explained that the issue in the Ateneo case was not the
DLSU's claim were not produced in court. Indeed, the Independent CPA testified
same as the issue in the present case.
that some disbursements had not been proven to have been used actually, directly
and exclusively for educational purposes.144
The issue in the Ateneo case was whether or not Ateneo could be held liable to pay
income taxes and VAT under certain BIR and Department of Finance
The final nail on the question of evidence is DLSU's own admission that the original
issuances139 that required the educational institution to own and operate the
of these documents had not in fact been produced before the CTA although it
canteens, or other commercial enterprises within its campus, as condition for tax
claimed that there was no bad faith on its part. 145 To our mind, this admission is a
exemption. The CTA held that the Constitution does not require the educational
good indicator of how the Ateneo and the DLSU cases varied, resulting in DLSU's
institution to own or operate these commercial establishments to avail of the
failure to substantiate a portion of its claimed exemption.
exemption.140

Further, DLSU's invocation of Section 5, Rule 130 of the Revised

Given the lack of complete identity of the issues involved, the CTA held that it had
to evaluate the separate sets of evidence differently. The CTA likewise stressed
that DLSU and Ateneo gave distinct defenses and that its wisdom "cannot be Rules on Evidence, that the contents of the missing supporting documents were
equated on its decision on two different cases with two different issues."141 proven by its recital in some other authentic documents on record,146 can no longer
be entertained at this late stage of the proceeding. The CTA did not rule on this
particular claim. The CTA also made no finding on DLSU' s assertion of lack of bad
DLSU disagrees with the CTA and argues that the entire assessment must be
faith. Besides, it is not our duty to go over these documents to test the truthfulness
cancelled because it submitted similar, if not stronger sets of evidence, as Ateneo.
of their contents, this Court not being a trier of facts.
We reject DLSU's argument for being non sequitur. Its reliance on the concept of
uniformity of taxation is also incorrect.
Second, DLSU misunderstands the concept of uniformity of taxation.
Equality and uniformity of taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate.147 A tax is uniform when
it operates with the same force and effect in every place where the subject of it is
found.148 The concept requires that all subjects of taxation similarly situated should
be treated alike and placed in equal footing.149
In our view, the CTA placed Ateneo and DLSU in equal footing. The CTA treated
them alike because their income proved to have been used actually, directly and
exclusively for educational purposes were exempted from taxes. The CTA equally
applied the requirements in the YMCA case to test if they indeed used their
revenues for educational purposes.
DLSU can only assert that the CTA violated the rule on uniformity if it can show
that, despite proving that it used actually, directly and exclusively for educational
purposes its income and revenues, the CTA still affirmed the imposition of taxes.
That the DLSU secured a different result happened because it failed to fully prove
that it used actually, directly and exclusively for educational purposes its revenues
and income.
On this point, we remind DLSU that the rule on uniformity of taxation
does not mean that subjects of taxation similarly situated are treated in literally the
same way in all and every occasion. The fact that the Ateneo and DLSU are both
non-stock, non-profit educational institutions, does not mean that the CTA or this
Court would similarly decide every case for (or against) both universities. Success
in tax litigation, like in any other litigation, depends to a large extent on the
sufficiency of evidence. DLSU's evidence was wanting, thus, the CTA was correct
in not fully cancelling its tax liabilities.
b. DLSU proved its payment of the DST
The CTA affirmed DLSU's claim that the DST due on its mortgage and loan
transactions were paid and remitted through its bank's On-Line Electronic DST
Imprinting Machine. The Commissioner argues that DLSU is not allowed to use this
method of payment because an educational institution is excluded from the class of
taxpayers who can use the On-Line Electronic DST Imprinting Machine.
We sustain the findings of the CTA. The Commissioner's argument lacks basis in
both the Tax Code and the relevant revenue regulations.
DST on documents, loan agreements, and papers shall be levied, collected and
paid for by the person making, signing, issuing, accepting, or transferring the
same.150 The Tax Code provides that whenever one party to the document enjoys
exemption from DST, the other party not exempt from DST shall be directly liable
for the tax. Thus, it is clear that DST shall be payable by any party to the document,
such that the payment and compliance by one shall mean the full settlement of the
DST due on the document.
In the present case, DLSU entered into mortgage and loan agreements with banks.
These agreements are subject to DST.151 For the purpose of showing that the DST
on the loan agreement has been paid, DLSU presented its agreements bearing the
imprint showing that DST on the document has been paid by the bank, its
counterparty. The imprint should be sufficient proof that DST has been paid. Thus,
DLSU cannot be further assessed for deficiency DST on the said documents.
Finally, it is true that educational institutions are not included in the class of
taxpayers who can pay and remit DST through the On-Line Electronic DST
Imprinting Machine under RR No. 9-2000. As correctly held by the CTA, this is
irrelevant because it was not DLSU who used the On-Line Electronic DST
Imprinting Machine but the bank that handled its mortgage and loan transactions.
RR No. 9-2000 expressly includes banks in the class of taxpayers that can use
the On-Line Electronic DST Imprinting Machine.
Thus, the Court sustains the finding of the CTA that DLSU proved the
payment of the assessed DST deficiency, except for the unpaid balance of
₱13,265.48.152
WHEREFORE, premises considered, we DENY the petition of the Commissioner of
Internal Revenue in G.R. No. 196596 and AFFIRM the December 10, 2010
decision and March 29, 2011 resolution of the Court of Tax Appeals En Banc in
CTA En Banc Case No. 622, except for the total amount of deficiency tax liabilities
of De La Salle University, Inc., which had been reduced.
We also DENY both the petition of De La Salle University, Inc. in G.R. No. 198841
and the petition of the Commissioner of Internal Revenue in G.R. No. 198941 and
thus AFFIRM the June 8, 2011 decision and October 4, 2011 resolution of the
Court of Tax Appeals En Banc in CTA En Banc Case No. 671, with
the MODIFICATION that the base for the deficiency income tax and VAT for
taxable year 2003 is ₱343,576.70.
SO ORDERED.