4. G.R. No. 149110 April 9, 2003 repeals of statutes by implication are not favored.
repeals of statutes by implication are not favored. The presumption is against inconsistency and repugnancy for the
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and
July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to
respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as
amended.4 It is tasked to undertake the "development of hydroelectric generations of power and the production of
electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide
basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and
maintain power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic
power and supplying such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding
year.9
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the
tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also
contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall devote
all its return from its capital investment, as well as excess revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative
proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission, utilization, and sale of electric power." 12
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay
the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly
interest.13Respondent alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep.
Act No. 7160,14 which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned
or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code."
On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax exemption privileges
granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No.
6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of
Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no
power to tax instrumentalities of the national government. Pertinent portion of the Order reads:
"The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative
intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly and
specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A declaration in
a statute, usually in its repealing clause, that a particular and specific law, identified by its number or title is repealed
is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because
it fails to identify the act or acts that are intended to be repealed. It is a well-settled rule of statutory construction that
legislative is presumed to know the existing laws on the subject and not to have enacted inconsistent or conflicting
statutes. It is also a well-settled rule that, generally, general law does not repeal a special law unless it clearly
appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus,
despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs.
Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government
owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the
National Government. xxx Being an instrumentality of the government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere local
government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its shares
of stocks owned by the National Government, is beyond the taxing power of the Local Government. Corollary to
this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared that: 'xxx (2) the total
electrification of the Philippines through the development of power from all services to meet the needs of industrial
development and dispersal and needs of rural electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial
institutions.' (underscoring supplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede
the avowed goal of this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is
provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts resolved
against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not impose
the subject tax on the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in relation to
sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. 18 It ordered the
petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing the
franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross
receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P
10,000.00 as litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was
denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing power
of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or corporations
in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may not impliedly
repeal the NPC Charter which is a special law—finds the answer in Section 193 of the LGC to the effect that 'tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except local water districts xxx are hereby withdrawn.' The repeal is
direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION
137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE
PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL
FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE
AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF
POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT
CODE."21
It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose
an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the
LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province
may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%)
of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall
be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein."
(emphasis supplied)
x x x special law. Where there is a conflict between a general law and a special statute, the special statute should prevail
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees,
and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by
not more than fifty percent (50%) except the rates of professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It
contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent
city government to private entities that are engaged in trade or occupation for profit. 22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is
conferred upon private persons or corporations, under such terms and conditions as the government and its political
subdivisions may impose in the interest of the public welfare, security and safety." From the phraseology of this
provision, the petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence,
when the LGC uses the term "franchise," petitioner submits that it should refer specifically to franchises granted to
private natural persons and to private corporations.23 Ergo, its charter should not be considered a "franchise" for the
purpose of imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged
in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in
as much as its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that
the accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled
for expansion and improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National Government,25 and as such, may not be taxed by
the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation26where this Court held that local governments have no power to tax instrumentalities of the National
Government, viz:
"Local governments have no power to tax instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it
in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government,
PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded
or subjected to control by a mere local government.
'The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation
of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government over local governments.
'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as ' a tool regulation' (U.S. v. Sanchez, 340
US 42).
The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield
it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or
controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or
modified impliedly by the local government code which is a general law. Consequently, petitioner claims that its
exemption from all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much
as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter
of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory
construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a
since it evinces the legislative intent more clearly than the general statute."28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over
the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's
exemption from taxation; "police power being the most pervasive, the least limitable and most demanding of all
powers, including the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A
principal attribute of sovereignty,31 the exercise of taxing power derives its source from the very existence of the
state whose social contract with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity; 32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection
of local industries as well as public welfare and similar objectives. 33 Taxation assumes even greater significance
with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges 34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development can be achieved only by strengthening
local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized
government structure has bred a culture of dependence among local government leaders upon the national leadership.
It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development
on the part of local government leaders."35 The only way to shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the
purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to
this grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective mechanisms of
recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities,
and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and operation of the local
units."
To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government Code of 1991
(LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of
1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of
1983.40 Despite these initiatives, however, the shackles of dependence on the national government remained. Local
government units were faced with the same problems that hamper their capabilities to participate effectively in the
national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external
sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on
external sources of income, and (e) limited supervisory control over personnel of national line agencies. 41
Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC effectively deals with the
fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous
laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations,
and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and
capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates
and leaves the determination of the actual rates to the respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and
agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot
impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule
now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the 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:
x x x lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river,
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was
decided prior to the effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu
International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be subject to tax. 46 In
enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees
fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in
section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and charges of
any kind on the national government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, 'real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable
person as provided in the item (a) of the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city
government to impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority, which does not belong to
citizens of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a
general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a
corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the
corporation.49 The right under a primary or general franchise is vested in the individuals who compose the
corporation and not in the corporation itself.50 On the other hand, the latter refers to the right or privileges conferred
upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or
string wires.51 The rights under a secondary or special franchise are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such
special or secondary franchises as are charged with a public use. 52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly
used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises
granted by the state."53 It is not levied on the corporation simply for existing as a corporation, upon its property54 or
its income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need
not pay franchise tax from the time it ceased to do business and exercise its franchise. 56 It is within this context that
the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be interpreted and understood.
Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites
should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes
petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition,
capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. 57 As its
secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are
not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes
specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons
owning or interested in waters which are or may be necessary for said purposes, upon payment of just compensation
therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof: Provided, That just compensation shall be paid
to any person or persons whose property is, directly or indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission
creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof; to acquire,
construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers, generators
and machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate,
maintain and administer power and lighting systems for the transmission and utilization of its power generation; to
sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other
government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property
incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created:
Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be
sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof shall be
the fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue, highway or
railway of private and public ownership, as the location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for instituting
condemnation proceedings by the national, provincial and municipal governments;
x x x
(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration and
public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of
the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration and
the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of waterworks
systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural resources
xxx "58
With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This
monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power industry.
Although Exec. Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial
jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in
the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites,
petitioner is, and ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are
wholly owned by the National Government, and its charter characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege
to do business. The taxable entity is the corporation which exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name, 61 and can exercise all the powers of a corporation under the
Corporation Code.62
To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that
petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies government-owned or
controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary
functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by special law or if organized under the general
corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or
subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock x x x." (emphases
supplied)
Governmental functions are those pertaining to the administration of government, and as such, are treated as
absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only
by way of advancing the general interest of society, and are merely optional on the government.64 Included in the
class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation
(NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service
Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), 65 among others.
Petitioner was created to "undertake the development of hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide
basis."66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities
do not partake of the sovereign functions of the government. They are purely private and commercial undertakings,
albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the
true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone
and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies,
power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions
of government aimed at advancing the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a
"business," although it limits petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of
its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds subject
to approval of the President upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and
purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary,
useful, incidental or auxiliary to accomplish the said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main
difference is that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess
revenues from its operation, for expansion"70 while other franchise holders have the option to distribute their profits
to its stockholders by declaring dividends. We do not see why this fact can be a source of difference in tax treatment.
In both instances, the taxable entity is the corporation, which exercises the franchise, and not the individual
stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the
passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly
and categorically, and supported by clear legal provisions.71 In the case at bar, the petitioner's sole refuge is section
13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities, municipalities and other government agencies and
instrumentalities." However, section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, section
193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes.72 It
reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity
of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.73 Not being a local water
district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational
institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point
to some provisions of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise
tax "notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC
does not admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from
the payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the
subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor of the local government in
both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by
MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their
position that MERALCO's tax exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law or other special
law' is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special
laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided
in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations except (1) local water districts, (2) cooperatives duly
registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon
the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a
basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes
all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of
the Code to the contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may
now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax
privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137
and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not
only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used." 76(emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant
tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual
franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government
clearly did not intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in
the Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned
or controlled corporations and all other units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated enterprises."78 With the added burden of devolution,
it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED.
Case Digest
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
FACTS: Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as
amended.
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latter’s gross receipts for the preceding year.
Petitioner refused to pay the tax assessment arguing that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of
taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended.
The respondent filed a collection suit in the RTC, demanding that petitioner pay the assessed tax due, plus surcharge.
Respondent alleged that petitioner’s exemption from local taxes has been repealed by section 193 of the LGC, which
reads as follows:
“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned or
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.”
RTC upheld NPC’s tax exemption. On appeal the CA reversed the trial court’s Order on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.
ISSUE: W/N the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual
tax on “businesses enjoying a franchise
HELD: YES. Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of
the state whose social contract with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity;32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.
Section 137 of the LGC clearly states that the LGUs can impose franchise tax “notwithstanding any exemption granted
by any law or other special law.” This particular provision of the LGC does not admit any exception. In City
Government of San Pablo, Laguna v. Reyes,74 MERALCO’s exemption from the payment of franchise taxes was
brought as an issue before this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled that the
franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:
“It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position
that MERALCO’s tax exemption has been withdrawn. The explicit language of section 137 which authorizes the
province to impose franchise tax ‘notwithstanding any exemption granted by any law or other special law’ is
all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in
this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations except (1) local water districts, (2) cooperatives duly
registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon
the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic
precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others
as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to
the contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed by MERALCO
under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may
now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax
privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used.”76 (emphases supplied)
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan
case, “the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises.” With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or
other charges due from them.
ALTA VISTA GOLF AND COUNTRY CLUB, Petitioner, v. THE CITY OF CEBU, HON. MAYOR TOMAS
R. OSMEÑA, IN HIS CAPACITY AS MAYOR OF CEBU, AND TERESITA C. CAMARILLO, IN HER
CAPACITY AS THE CITY TREASURER, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari of the Resolution1 dated March 14, 2007 and the Order2 dated
October 3, 2007 of the Regional Trial Court (RTC), Cebu City, Branch 9 in Civil Case No. CEB-31988, dismissing
the Petition for Injunction, Prohibition, Mandamus, Declaration of Nullity of Closure Order, Declaration of Nullity
of Assessment, and Declaration of Nullity of Section 42 of Cebu City Tax Ordinance, with Prayer for Temporary
Restraining Order and Writ of Preliminary Injunction 3 filed by petitioner Alta Vista Golf and Country Club against
respondents City of Cebu (Cebu City), then Cebu City Mayor Tomas R. Osmeña (Osmeña), and then Cebu City
Treasurer Teresita Camarillo (Camarillo).
Petitioner is a non-stock and non-profit corporation operating a golf course in Cebu City.
On June 21, 1993, the Sangguniang Panlungsod of Cebu City enacted City Tax Ordinance No. LXIX, otherwise
known as the "Revised Omnibus Tax Ordinance of the City of Cebu" (Revised Omnibus Tax Ordinance).
Section 42 of the said tax ordinance on amusement tax was amended by City Tax Ordinance Nos. LXXXII4and
LXXXIV5 (which were enacted by the Sangguniang Panlungsod of Cebu City on December 2, 1996 and April 20,
1998, respectively6) to read as follows:
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by
the proprietors, lessees or operators of theaters, cinemas, concert halls, circuses and other
similar places of entertainment, an amusement tax at the rate of thirty percent (30%), golf
courses and polo grounds at the rate of twenty percent (20%), of their gross receipts on
entrance, playing green, and/or admission fees; PROVIDED, HOWEVER, That in case of
movie premieres or gala shows for the benefit of a charitable institution/foundation or any
government institution where higher admission fees are charged, the aforementioned rate of
thirty percent (30%) shall be levied against the gross receipts based on the regular admission
fees, subject to the approval of the Sangguniang Panlungsod; PROVIDED FURTHER, That
 in case payment of the amusement tax is made promptly on or before the date hereinbelow
prescribed, a rebate of five percent (5%) on the aforementioned gross receipts shall be given Permit Fee 1,874.00
to the proprietors, lessees or operators of theaters; PROVIDED FURTHERMORE, that as an
incentive to theater operators who own the real property and/or building where the theater is
located, an additional one percent (1%) rebate shall be given to said operator/real property Retail Cigarettes - P42,076.11 - Permit 84.15
owner concerned for as long as their theater/movie houses are then (10) years old or older or
the theater or movie house is located at the city's redevelopment area bounded on the north by
Gen. Maxilom Street up to the port area; on the south by V. Rama Avenue up to San Nicolas Non-Securing of Permit 979.33
area; and on the west by B. Rodriguez St. and General Maxilom Avenue; PROVIDED
FINALLY, that the proceeds of this additional one percent (1%) rebate shall be used by the
building/property owner-theater operator to modernize their theater facilities. (Emphases Sub-Total P 82,997.98
supplied.)

Less: Payment based on computer assessment 74,858.61

In an Assessment Sheet7 dated August 6, 1998, prepared by Cebu City Assessor Sandra I. Po, petitioner was
originally assessed deficiency business taxes, fees, and other charges for the year 1998, in the total amount of
P3,820,095.68, which included amusement tax on its golf course amounting to P2,612,961.24 based on gross Short payment P 12,723.18
receipts of P13,064,806.20.8chanroblesvirtuallawlibrary

Through the succeeding years, respondent Cebu City repeatedly attempted to collect from petitioner its deficiency 25% surcharge 3,180.80
business taxes, fees, and charges for 1998, a substantial portion of which consisted of the amusement tax on the golf
course. Petitioner steadfastly refused to pay the amusement tax arguing that the imposition of said tax by Section 42
of the Revised Omnibus Tax Ordinance, as amended, was irregular, improper, and illegal. 72% interest 11,450.00
Petitioner reasoned that under the Local Government Code, amusement tax can only be imposed on operators of
theaters, cinemas, concert halls, or places where one seeks to entertain himself by seeing or viewing a show or Penalty for understatement 500.00
performance. Petitioner further cited the ruling in Philippine Basketball Association (PBA) v. Court of Appeals9 that
under Presidential Decree No. 231, otherwise known as the Local Tax Code of 1973, the province could only
impose amusement tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert
Amount Due P 27,854.85
halls, circuses, and other places of amusement, but not professional basketball games. Professional basketball games
did not fall under the same category as theaters, cinematographs, concert halls, and circuses as the latter basically
belong to artistic forms of entertainment while the former catered to sports and gaming.
Add: Amusement Tax on golf course P 1,373,761.24
Through a letter dated October 11, 2005, respondent Camarillo sought to collect once more from petitioner
deficiency business taxes, fees, and charges for the year 1998, totaling P2,981,441.52, computed as follows:
25% surcharge (P6,868,806.20 x 20%) 343,440.31

Restaurant - P4,021,830.65 P 40,950.00

72% Interest 1,236,385.12 2,953,586.67

Permit Fee 2,000.00

GRAND TOTAL P2,981,441.5210

Liquor-P1,940,283.80 20,160.00
(Emphasis supplied.)

Permit Fee 2,000.00

Petitioner, through counsel, wrote respondent Camarillo a letter11 dated October 17, 2005 still disputing the
Commission/Other Income 14,950.00 amusement tax assessment on its golf course for 1998 for being illegal. Petitioner, in a subsequent letter dated
November 30, 2005, proposed that:

P1,262,764.28 While the question of the legality of the amusement tax on golf courses is still unresolved,
may we propose that Alta Vista Golf and Country Club settle first the other assessments
contained in your Assessment Sheet issued on October 11, 2005.

At this early stage, we also request that pending resolution of the legality of the amusement
 tax imposition on golf courses in [the Revised Omnibus Tax Ordinance, as amended], Alta
Vista Golf and Country Club be issued the required Mayor's and/or Business
Permit.12chanrobleslaw
Respondent Camarillo treated the letter dated October 17, 2005 of petitioner as a Protest of Assessment and
rendered on December 5, 2005 her ruling denying said Protest on the following grounds: (a) a more thorough and
comprehensive reading of the PBA case would reveal that the Court actually ruled therein that PBA was liable to
pay amusement tax, but to the national government, not the local government; (b) Section 42 of the Revised
Omnibus Tax Ordinance, as amended, enjoyed the presumption of constitutionality and petitioner failed to avail
itself of the remedy under Section 187 of the Local Government Code to challenge the legality or validity of Section
42 of the Revised Omnibus Tax Ordinance, as amended, by filing an appeal with the Secretary of Justice within 30
days from effectivity of said ordinance; and (c) the Office of the City Attorney issued a letter dated July 9, 2004
affirming respondent Camarillo's position that petitioner was liable to pay amusement tax on its golf
course.13Ultimately, respondent Camarillo held:
WHEREFORE, upon consideration of the legal grounds as above-mentioned, we reiterate
our previous stand on the validity of the ASSESSMENT SHEET pertaining to the Tax
Deficiencies for CY 1998 and this ruling serve as the FINAL DEMAND for immediate
settlement and payment of your amusement tax liabilities and/or delinquencies otherwise we
will constrained (sic) the non-issuance of a Mayor's Business Permit for nonpayment of the
said deficiency on amusement tax and/or other tax liabilities as well as to file the appropriate
filing of administrative and judicial remedies for the collection of the said tax liability and the
letter treated as a Protest of Assessment that was duly submitted before this office is
hereby DENIED.14chanrobleslaw
Shortly after, on January 12, 2006, petitioner was served with a Closure Order 15 dated December 28, 2005 issued by
respondent City Mayor Osmefia. According to the Closure Order, petitioner committed blatant violations of the laws
and Cebu City Ordinances, to wit:
1. Operating a business without a business permit for five (5) years, from year
2001-2005, in relation to Chapters I and II and the penalty clauses under Sections
4, 6, 8, 66 (f) and 114 of the City Tax Ordinance No. 69, otherwise known as the
REVISED CITY TAX ORDINANCE OF THE CITY OF CEBU, as amended by
CO. 75;
2. Nonpayment of deficiency on Business Taxes and Fees amounting to
Seventeen Thousand Four Hundred Ninety-Nine Pesos and Sixty-Four
Centavos (Php17,499.64), as adjusted, despite repeated demands in violation [of]
Sections 4 and 8 of City Tax Ordinance No. 69, as amended;
3. Nonpayment of deficiency on Amusement Tax and the penalties relative
therewith totaling Two Million Nine Hundred Fifty-Three Thousand Five
Hundred Eighty-Six Pesos and Eighty-Six Centavos (Php2,953,586.86) in
violation of Sections 4 and 8 in relation to Section 42 of City Tax Ordinance No.
69, as amended, business permit-violation of the Article 172, Revised Penal Code
of the Philippines. (Emphases supplied.)
The Closure Order established respondent Mayor Osmeña's authority for issuance of the same and contained the
following directive:
As the chief executive of the City, the Mayor has the power and duty to: Enforce all laws and
ordinances relative to the governance of the city x x x and, in addition to the foregoing, shall x
x x Issue such executive orders for the faithful and appropriate enforcement and execution of
laws and ordinances x x x. These are undeniable in the LOCAL GOVERNMENT CODE,
Section 455, par. (2) and par. (2)(iii).
Not only that, these powers can be exercised under the general welfare clause of the Code,
particularly Section 16 thereof, where it is irrefutable that "every government unit shall
exercise the powers expressly granted, those necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental of its efficient and effective governance, and those which
are essential to the promotion of the general welfare."
This CLOSURE ORDER precisely satisfies these legal precedents. Hence now, in view
whereof, your business establishment is hereby declared closed in direct contravention of the
above-specified laws and city ordinances. Please cease and desist from further operating your
business immediately upon receipt of this order.
This closure order is without prejudice to the constitutional/statutory right of the City to file
criminal cases against corporate officers, who act for and its behalf, for violations of Section
114 of the REVISED CITY TAX ORDINANCE OF THE CITY OF CEBU and Section 516
of the LOCAL GOVERNMENT CODE, with penalties of imprisonment and/or fine.
FOR STRICT AND IMMEDIATE COMPLIANCE.16chanrobleslaw
The foregoing developments prompted petitioner to file with the RTC on January 13, 2006 a Petition for Injunction,
Prohibition, Mandamus, Declaration of Nullity of Closure Order, Declaration of Nullity of Assessment, and
Declaration of Nullity of Section 42 of Cebu City Tax Ordinance, with Prayer for Temporary Restraining Order and
Writ of Preliminary Injunction, against respondents, which was docketed as Civil Case No. CEB-31988.17 Petitioner
eventually filed an Amended Petition on January 19, 2006.18Petitioner argued that the Closure Order is
unconstitutional as it had been summarily issued in violation of its right to due process; a city mayor has no power
under the Local Government Code to deny the issuance of a business permit and order the closure of a business for
nonpayment of taxes; Section 42 of the Revised Omnibus Tax Ordinance, as amended, is null and void for
being ultra vires or beyond the taxing authority of respondent Cebu City, and consequently, the assessment against
petitioner for amusement tax for 1998 based on said Section 42 is illegal and unconstitutional; and
assuming arguendothat respondent Cebu City has the power to impose amusement tax on petitioner, such tax for
1998 already prescribed and could no longer be enforced.
Respondents filed a Motion to Dismiss based on the grounds of (a) lack of jurisdiction of the RTC over the subject
matter; (b) non-exhaustion of administrative remedies; (c) noncompliance with Section 187 of the Local
Government Code, which provides the procedure and prescriptive periods for challenging the validity of a local tax
ordinance; (d) noncompliance with Section 252 of the Local Government Code and Section 75 of Republic Act No.
3857, otherwise known as the Revised Charter of the City of Cebu, requiring payment under protest of the tax
assessed; and (e) failure to establish the authority of Ma. Theresa Ozoa (Ozoa) to institute the case on behalf of
petitioner.19chanroblesvirtuallawlibrary
In its Opposition to the Motion to Dismiss, petitioner countered that the RTC, a court of general jurisdiction, could
take cognizance of its Petition in Civil Case No. CEB-31988, which not only involved the issue of legality or
illegality of a tax ordinance, but also sought the declaration of nullity of the Closure Order and the issuance of writs
of injunction and prohibition. Petitioner likewise asserted that Section 195 of the Local Government Code on the
protest of assessment does, not require payment under protest. Section 252 of the same Code invoked by
respondents applies only to real property taxes. In addition, petitioner maintained that its Petition in Civil Case No.
CEB-31988 could not be barred by prescription. There is nothing in the Local Government Code that could deprive
the courts of the power to determine the constitutionality or validity of a tax ordinance due to prescription. It is the
constitutional duty of the courts to pass upon the validity of a tax ordinance and such duty cannot be limited or
restricted. Petitioner further contended that there is no need for exhaustion of administrative remedies given that the
issues involved are purely legal; the notice of closure is patently illegal for having been issued without due process;
and there is an urgent need for judicial intervention. Lastly, petitioner pointed out that there were sufficient
allegations in the Petition that its filing was duly authorized by petitioner. At any rate, petitioner already attached to
its Opposition its Board Resolution No. 104 authorizing Ozoa to file a case to nullify the Closure Order. Thus,
petitioner prayed for the denial of the Motion to Dismiss.20chanroblesvirtuallawlibrary
21
Respondents, in their Rejoinder to Petitioner's Opposition to the Motion to Dismiss, asserted that the Closure
Order was just a necessary consequence of the nonpayment by petitioner of the amusement tax assessed against it.
The Revised Omnibus Tax Ordinance of respondent Cebu City directs that no permit shall be issued to a business
enterprise which made no proper payment of tax and, correspondingly, no business enterprise may be allowed to
operate or continue to operate without a business permit. The fundamental issue in the case was still the nonpayment
by petitioner of amusement tax. Respondents relied on Reyes v. Court of Appeals,22 in which the Court categorically
ruled that the prescriptive periods fixed in Section 187 of the Local Government Code are mandatory and
prerequisites before seeking redress from a competent court. Section 42 of the Revised Omnibus Tax Ordinance, as
amended, was passed on April 20, 1998, so the institution by petitioner of Civil Case No. CEB-31988 before the
RTC on January 13, 2006 - without payment under protest of the assessed amusement tax and filing of an appeal
before the Secretary of Justice within 30 days from the effectivity of the Ordinance - was long barred by prescription.
After filing by the parties of their respective Memorandum, the RTC issued an Order 23 dated March 16, 2006
denying the prayer of petitioner for issuance of a Temporary Restraining Order (TRO). The RTC found that when
the business permit of petitioner expired and it was operating without a business permit, it ceased to have a legal
right to do business. The RTC affirmed respondent Mayor Osmeña's authority to issue or grant business licenses and
permits pursuant to the police power inherent in his office; and such authority to issue or grant business licenses and
permits necessarily included the authority to suspend or revoke or even refuse the issuance of the said business
licenses and permits in case of violation of the conditions for the issuance of the same. The RTC went on to hold
that:
[Petitioner] was given opportunities to be heard when it filed a protest [of] the assessment
which was subsequently denied. To the mind of this court, this already constitutes the
observance of due process and that [petitioner] had already been given the opportunity to be
heard. Due process and opportunity to be heard does not necessarily mean winning the
argument in one's favor but to be given the fair chance to explain one's side or views with
regards [to] the matter in issue, which in this case is the legality of the tax assessment.
It is therefore clear that when this case was filed, [petitioner] had no more legal right in its
favor for the courts to protect. It would have been a different story altogether had [petitioner]
paid the tax assessment for the green fees even under protest and despite payment and
[respondent] Mayor refused the issuance of the business permit because all the requisites for
the issuance of the said permit are all complied with.24chanroblesvirtuallawlibrary
On March 20, 2006, petitioner paid under protest to respondent Cebu City, through respondent Camarillo, the
assessed amusement tax, plus penalties, interest, and surcharges, in the total amount of P2,750,249.17.25cralawred
Since the parties agreed that the issues raised in Civil Case No. CEB-31988 were all legal in nature, the RTC already
considered the case submitted for resolution after the parties filed their respective
Memorandum.26chanroblesvirtuallawlibrary
On March 14, 2007, the RTC issued a Resolution granting the Motion to Dismiss of respondents. Quoting
from Reyes and Hagonoy Market Vendor Association v. Municipality of Hagonoy, Bulacan,27 the RTC sustained the
position of respondents that Section 187 of the Local Government Code is mandatory. Thus, the RTC adjudged:
From the above cited cases, it can be gleaned that the period in the filing of the protests is
important. In other words, it is the considered opinion of this court [that] when a taxpayer
questions the validity of a tax ordinance passed by a local government legislative body, a
different procedure directed in Section 187 is to be followed. The reason for this could be
because the tax ordinance is clearly different from a law passed by Congress. The local
government code has set several limitations on the taxing power of the local government
legislative bodies including the issue of what should be taxed.
In this case, since the Petitioner failed to comply with the procedure outlined in Section 187
of the Local Government Code and the fact that this case was filed way beyond the period to
file a case in court, then this court believes that the action must fail.
Because of the procedural infirmity in bringing about this case to the court, then the
substantial issue of the propriety of imposing amusement taxes on the green fees could no
longer be determined.
WHEREFORE, in view of the aforegoing, this case is hereby DISMISSED.28chanrobleslaw
The RTC denied the Motion for Reconsideration of petitioner in an Order dated October 3, 2007.
Petitioner is presently before the Court on pure questions of law, viz.:
1. WHETHER OR NOT THE POWER OF JUDICIAL REVIEW OVER THE
VALIDITY OF A LOCAL TAX ORDINANCE HAS BEEN RESTRICTED BY
SECTION 187 OF THE LOCAL GOVERNMENT CODE.
2. WHETHER OR NOT THE CITY OF CEBU OR ANY LOCAL GOVERNMENT
CAN VALIDLY IMPOSE AMUSEMENT TAX TO THE ACT OF PLAYING
GOLF.29
There is merit in the instant Petition.
The RTC judgment on pure
questions of law may be directly
appealed to this Court via a petition
for review on certiorari.
Even before the RTC, the parties already acknowledged that the case between them involved only questions of law;
hence, they no longer presented evidence and agreed to submit the case for resolution upon submission of their
respective memorandum.
It is incontestable that petitioner may directly appeal to this Court from the judgment of the RTC on pure questions
of law via its Petition for Review on Certiorari. Rule 41, Section 2(c) of the Rules of Court provides that "[i]n all
cases where only questions of law are raised or involved, the appeal shall be to the Supreme Court by petition for
review on certiorari in accordance with Rule 45." As the Court declared in Bonifacio v. Regional Trial Court of
Makati, Branch 14930:
The established policy of strict observance of the judicial hierarchy of courts, as a rule,
requires that recourse must first be made to the lower-ranked court exercising concurrent
jurisdiction with a higher court. A regard for judicial hierarchy clearly indicates that petitions
for the issuance of extraordinary writs against first level courts should be filed in the RTC and
those against the latter should be filed in the Court of Appeals. The rule is not iron-clad,
however, as it admits of certain exceptions.
Thus, a strict application of the rule is unnecessary when cases brought before the appellate
courts do not involve factual but purely legal questions. (Citations omitted.)
"A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to
a certain set of facts; or when the issue does not call for an examination of the probative value of the evidence
presented, the truth or falsehood of facts being admitted[;]" and it may be brought directly before this Court, the
undisputed final arbiter of all questions of law. 31chanroblesvirtuallawlibrary
The present case is an exception
to Section 187 of the Local Government
Code and the doctrine of exhaustion of
administrative remedies.
Section 187 of the Local Government Code reads:
Sec. 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures;
Mandatory Public Hearings. - The procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the enactment thereof: Provided,
further, That any question on the constitutionality or legality of tax ordinances or revenue
measures may be raised on appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt
of the appeal: Provided, however, That such appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied
therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse
of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved
party may file appropriate proceedings with a court of competent jurisdiction.
Indeed, the Court established in Reyes that the aforequoted provision is a significant procedural requisite and,
therefore, mandatory:
Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of
a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity
thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an
aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60
days, a party could already proceed to seek relief in court. These three separate periods are
clearly given for compliance as a prerequisite before seeking redress in a competent court.
Such statutory periods are set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions. For this reason the courts construe these provisions of statutes
as mandatory.
A municipal tax ordinance empowers a local government unit to impose taxes. The power to
tax is the most effective instrument to raise needed revenues to finance and support the
myriad activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and enhancement of peace, progress, and prosperity of the
people. Consequently, any delay in implementing tax measures would be to the detriment of
the public. It is for this reason that protests over tax ordinances are required to be done within
certain time frames. In the instant case, it is our view that the failure of petitioners to appeal to
the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their
cause.32 (Citations omitted.)
The Court further affirmed in Hagonoy that:
At this point, it is apropos to state that the timeframe fixed by law for parties to avail of their
legal remedies before competent courts is not a "mere technicality" that can be easily brushed
aside. The periods stated in Section 187 of the Local Government Code are
mandatory. Ordinance No. 28 is a revenue measure adopted by the municipality of Hagonoy
to fix and collect public market stall rentals. Being its lifeblood, collection of revenues by the
government is of paramount importance. The funds for the operation of its agencies and
provision of basic services to its inhabitants are largely derived from its revenues and
collections. Thus, it is essential that the validity of revenue measures is not left uncertain for a
considerable length of time. Hence, the law provided a time limit for an aggrieved party to
assail the legality of revenue measures and tax ordinances.33 (Citations omitted.)
Nevertheless, in later cases, the Court recognized exceptional circumstances that justify noncompliance by a
taxpayer with Section 187 of the Local Government Code.
The Court ratiocinated in Ongsuco v. Malones,34 thus:
It is true that the general rule is that before a party is allowed to seek the intervention of the
court, he or she should have availed himself or herself of all the means of administrative
processes afforded him or her. Hence, if resort to a remedy within the administrative
machinery can still be made by giving the administrative officer concerned every opportunity
to decide on a matter that comes within his or her jurisdiction, then such remedy should be
exhausted first before the court's judicial power can be sought. The premature invocation of
the intervention of the court is fatal to one's cause of action. The doctrine of exhaustion of
administrative remedies is based on practical and legal reasons. The availment of
administrative remedy entails lesser expenses and provides for a speedier disposition of
controversies. Furthermore, the courts of justice, for reasons of comity and convenience, will
shy away from a dispute until the system of administrative redress has been completed and
complied with, so as to give the administrative agency concerned every opportunity to correct
its error and dispose of the case. However, there are several exceptions to this rule.
The rule on the exhaustion of administrative remedies is intended to preclude a court from
arrogating unto itself the authority to resolve a controversy, the jurisdiction over which is
initially lodged with an administrative body of special competence. Thus, a case where the
issue raised is a purely legal question, well within the competence; and the jurisdiction
of the court and not the administrative agency, would clearly constitute an exception.
Resolving questions of law, which involve the interpretation and application of laws,
constitutes essentially an exercise of judicial power that is exclusively allocated to the
Supreme Court and such lower courts the Legislature may establish.
In this case, the parties are not disputing any factual matter on which they still need to
present evidence. The sole issue petitioners raised before the RTC in Civil Case No. 25843
was whether Municipal Ordinance No. 98-01 was valid and enforceable despite the absence,
prior to its enactment, of a public hearing held in accordance with Article 276 of the
Implementing Rules and Regulations of the Local Government Code. This is undoubtedly a
pure question of law, within the competence and jurisdiction of the RTC to resolve.
Paragraph 2(a) of Section 5, Article VIII of the Constitution, expressly establishes the
appellate jurisdiction of this Court, and impliedly recognizes the original jurisdiction of lower
courts over cases involving the constitutionality or validity of an
ordinance:ChanRoblesVirtualawlibrary
Section 5. The Supreme Court shall have the following powers:
xxxx
(2) Review, revise, reverse, modify or affirm on appeal or certiorari, as
the law or the Rules of Court may provide, final judgments and orders
of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty,
international or executive agreement, law, presidential decree,
 proclamation, order, instruction, ordinance, or regulation is in
question.
In J.M. Tuason and Co., Inc. v. Court of Appeals, Ynot v. Intermediate Appellate Court, and
Commissioner of Internal Revenue v. Santos, the Court has affirmed the jurisdiction of the
RTC to resolve questions of constitutionality and validity of laws (deemed to include local
ordinances) in the first instance, without deciding questions which pertain to legislative policy.
(Emphases supplied, citations omitted.)
In Cagayan Electric Power and Light Co., Inc. (CEPALCO) v. City of Cagayan De Oro,35 the Court initially
conceded that as in Reyes, the failure of taxpayer CEPALCO to appeal to the Secretary of Justice within the
statutory period of 30 days from the effectivity of the ordinance should have been fatal to its cause. However, the
Court purposefully relaxed the application of the rules in view of the more substantive matters.
Similar to Ongsuco and CEPALCO, the case at bar constitutes an exception to the general rule. Not only does the
instant Petition raise pure questions of law, but it also involves substantive matters imperative for the Court to
resolve.
Section 42 of the Revised Omnibus
Tax Ordinance, as amended, imposing
amusement tax on golf courses is null
and void as it is beyond the authority of
respondent Cebu City to enact under the
Local Government Code.
The Local Government Code authorizes the imposition by local government units of amusement tax under Section
140, which provides:
Sec. 140. Amusement Tax. - (a) The province may levy an amusement tax to be
collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts
are divided between said proprietors, lessees, or operators and the distributors of the
cinematographic films.
(c) The holding of operas, concerts, dramas, recitals, painting, and art exhibitions, flower
shows, musical programs, literary and oratorical presentations, except pop, rock, or similar
concerts shall be exempt from the payment of the tax hereon imposed.
(d) The sangguniang panlalawigan may prescribe the time, manner, terms and conditions for
the payment of tax. In case of fraud or failure to pay the tax, the sangguniang
panlalawigan may impose such surcharges, interests and penalties as it may deem appropriate.
(e) The proceeds from the amusement tax shall be shared equally by the province and the
municipality where such amusement places are located. (Emphasis supplied.)
"Amusement places," as defined in Section 131 (c) of the Local Government Code, "include theaters, cinemas,
concert halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or
viewing the show or performance."
The pronouncements of the Court in Pelizloy Realty Corporation v. The Province of Benguet36 are of particular
significance to this case. The Court, in Pelizloy Realty, declared null and void the second paragraph of Article X,
Section 59 of the Benguet Provincial Code, in so far as it imposes amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs, and tourist spots. Applying the principle of ejusdem generis, as well as
the ruling in the PBA case, the Court expounded on the authority of local government units to impose amusement
tax under Section 140, in relation to Section 131(c), of the Local Government Code, as follows:
Under the principle of ejusdem generis, "where a general word or phrase follows an
enumeration of particular and specific words of the same class or where the latter follow the
former, the general word or phrase is to be construed to include, or to be restricted to persons,
things or cases akin to, resembling, or of the same kind or class as those specifically
mentioned."
The purpose and rationale of the principle was explained by the Court in National Power
Corporation v. Angas as follows:ChanRoblesVirtualawlibrary
The purpose of the rule on ejusdem generis is to give effect to both the
particular and general words, by treating the particular words as
indicating the class and the general words as including all that is
embraced in said class, although not specifically named by the
particular words. This is justified on the ground that if the lawmaking
body intended the general terms to be used in their unrestricted sense, it
would have not made an enumeration of particular subjects but would
have used only general terms. [2 Sutherland, Statutory Construction,
3rd ed., pp. 395-400].
In Philippine Basketball Association v. Court of Appeals, the Supreme Court had an
opportunity to interpret a starkly similar provision or the counterpart provision of Section 140
of the LGC in the Local Tax Code then in effect. Petitioner Philippine Basketball Association
(PBA) contended that it was subject to the imposition by LGUs of amusement taxes (as
opposed to amusement taxes imposed by the national government). In support of its
contentions, it cited Section 13 of Presidential Decree No. 231, otherwise known as the Local
Tax Code of 1973, (which is analogous to Section 140 of the LGC) providing the
following:ChanRoblesVirtualawlibrary
Section 13. Amusement tax on admission. — The province shall
impose a tax on admission to be collected from the proprietors, lessees,
or operators of theaters, cinematographs, concert halls, circuses and
other places of amusement xxx.
Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and
noted that:ChanRoblesVirtualawlibrary
[I]n determining the meaning of the phrase 'other places of amusement',
one must refer to the prior enumeration of theaters, cinematographs,
concert halls and circuses with artistic expression as their common
characteristic. Professional basketball games do not fall under the same
category as theaters, cinematographs, concert halls and circuses as the
latter basically belong to artistic forms of entertainment while the
former caters to sports and gaming.
However, even as the phrase 'other places of amusement' was already clarified in Philippine
Basketball Association, Section 140 of the LGC adds to the enumeration of 'places of
amusement' which may properly be subject to amusement tax. Section 140 specifically
mentions 'boxing stadia' in addition to "theaters, cinematographs, concert halls [and] circuses"
which were already mentioned in PD No. 231. Also, 'artistic expression' as a characteristic
does not pertain to 'boxing stadia'.

In the present case, the Court need not embark on a laborious effort at statutory construction.
Section 131 (c) of the LGC already provides a clear definition of 'amusement places':
xxxx
Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a
common typifying characteristic in that they are all venues primarily for the staging of
spectacles or the holding of public shows, exhibitions, performances, and other events
meant to be viewed by an audience. Accordingly, 'other places of amusement' must be
interpreted in light of the typifying characteristic of being venues "where one seeks
admission to entertain oneself by seeing or viewing the show or performances" or being
venues primarily used to stage spectacles or hold public shows, exhibitions,
performances, and other events meant to be viewed by an audience.
As defined in The New Oxford American Dictionary, 'show' means "a spectacle or display of
something, typically an impressive one"; while 'performance' means "an act of staging or
presenting a play, a conceit, or other form of entertainment." As such, the ordinary
definitions of the words 'show' and 'performance' denote not only visual engagement
(i.e., the seeing or viewing of things) but also active doing (e.g., displaying, staging or
presenting) such that actions are manifested to, and (correspondingly) perceived by an
audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist
spots cannot be considered venues primarily "where one seeks admission to entertain oneself
by seeing or viewing the show or performances". While it is true that they may be venues
where people are visually engaged, they are not primarily venues for their proprietors or
operators to actively display, stage or present shows and/or performances.
Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the
same category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It
follows that they cannot be considered as among the 'other places of amusement'
contemplated by Section 140 of the LGC and which may properly be subject to amusement
taxes.37 (Emphases supplied, citations omitted.)
In light of Pelizloy Realty, a golf course cannot be considered a place of amusement. As petitioner asserted, people
do not enter a golf course to see or view a show or performance. Petitioner also, as proprietor or operator of the golf
course, does not actively display, stage, or present a show or performance. People go to a golf course to engage
themselves in a physical sport activity, i.e., to play golf; the same reason why people go to a gym or court to play
badminton or tennis or to a shooting range for target practice, yet there is no showing herein that such gym, court, or
shooting range is similarly considered an amusement place subject to amusement tax. There is no basis for singling
out golf courses for amusement tax purposes from other places where people go to play sports. This is in
contravention of one of the fundamental principles of local taxation: that the "[taxation shall be uniform in each
local government unit."38 Uniformity of taxation, like the kindred concept of equal protection, requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities.39chanroblesvirtuallawlibrary
Not lost on the Court is its declaration in Manila Electric Co. v. Province of Laguna40 that under the 1987
Constitution, "where there is neither a grant nor a prohibition by statute, the tax power [of local government units]
must be deemed to exist although Congress may provide statutory limitations and guidelines." Section 186 of the
Local Government Code also expressly grants local government units the following residual power to tax:
Sec. 186. Power to Levy Other Taxes, Fees, or Charges. - Local government units may
exercise the power to levy taxes, fees, or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions of the National Internal
Revenue Code, as amended, or other applicable laws: Provided,that the taxes, fees, or
charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared
national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall
not be enacted without any prior public hearing conducted for the purpose. (Emphasis
supplied.)
Respondents, however, cannot claim that Section 42 of the Revised Omnibus Tax Ordinance, as amended, imposing
amusement tax on golf courses, was enacted pursuant to the residual power to tax of respondent Cebu City. A local
government unit may exercise its residual power to tax when there is neither a grant nor a prohibition by statute; or
when such taxes, fees, or charges are not otherwise specifically enumerated in the Local Government Code,
National Internal Revenue Code, as amended, or other applicable laws. In the present case, Section 140, in relation
to Section 131(c), of the Local Government Code already explicitly and clearly cover amusement tax and
respondent Cebu City must exercise its authority to impose amusement tax within the limitations and guidelines as
set forth in said statutory provisions.
WHEREFORE, in view of all the foregoing, the Court GRANTS the instant Petition, and REVERSES and SETS
ASIDE the Resolution dated March 14, 2007 and the Order dated October 3, 2007 of the Regional Trial Court, Cebu
City, Branch 9 in Civil Case No. CEB-31988. The Court DECLARES NULL and VOID the following: (a) Section
42 of the Revised Omnibus Tax Ordinance of the City of Cebu, as amended by City Tax Ordinance Nos. LXXXII
and LXXXIV, insofar as it imposes amusement tax of 20% on the gross receipts on entrance, playing green, and/or
admission fees of golf courses; (b) the tax assessment against petitioner for amusement tax on its golf course for the
year 1998 in the amount of Pl,373,761.24, plus surcharges and interest pertaining to said amount, issued by the
Office of the City Treasurer, City of Cebu; and (c) the Closure Order dated December 28, 2005 issued against Alta
Vista Golf and Country Club by the Office of the Mayor, City of Cebu. The Court also ORDERS the City of Cebu
to refund to Alta Vista Golf and Country Club the amusement tax, penalties, surcharge, and interest paid under
protest by the latter in the total amount of P2,750,249.17 or to apply the same amount as tax credit against existing
or future tax liability of said Club.
SO ORDERED
Case digest
Facts:
A golf course has been operated in the city of Cebu for 5 years already. The local government has promulgated a
law for imposing tax on amusement places in their jurisdiction.
Issue:
WON golf course is to be considered an amusement place
Held:
Golf course cannot be considered as an amusement place and is therefore not subject to amusement tax. According
to Section 140 of the Local Government Code on amusement tax, the province may levy an amusement tax to be
collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and
other places of amusement
In applying the principle of ejusdem generis, where a general word or phrase follows an enumeration of particular
and specific words of the same class or where the latter follows the former, the general word or phrase is to be
construed to include, or to be restricted to persons, things or cases akin to, resembling, or of the same kind or class
as those specifically mentioned. A golf course is not similar to that of the expressly provided amusement places as it
cannot be considered as an amusement place in itself. An amusement place is defined as a place where people enter
to witness a show or a performance.
9.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DE LA SALLE UNIVERSITY,
INC., Respondent.
G.R. No. 198841
DE LA SALLE UNIVERSITY INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,Respondent.
G.R. No. 198941
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. 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 BancCase 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.chanroblesvirtuallawlibrary
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 (VAT) on business income; and (3) documentary stamp tax (DST) on loans and lease
contracts. The BIR demanded the payment of P17,303,001.12, 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:
chanRoblesvirtualLawlibrary
All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and
(3)
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:
chanRoblesvirtualLawlibrary
WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST assessment
on the loan transactions of [DLSU] in the amount of P1,1681,774.00 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 P18,421,363.53...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.9ChanRoblesVirtualawlibrary
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. 13The
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:
chanRoblesvirtualLawlibrary
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 P5,506,456.71...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.15ChanRoblesVirtualawlibrary
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.18chanroblesvirtuallawlibrary
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 proved 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. 15-2001.25cralawred
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 P2,554,825.47 inclusive 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.chanroblesvirtuallawlibrary
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 payment 42 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:
chanRoblesvirtualLawlibrary
The practice of issuing [LOAs] covering audit of 'unverified prior years' is hereby
prohibited.ChanRoblesVirtualawlibrary
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.
198841.51chanroblesvirtuallawlibrary
Counter-arguments
DLSU's Comment on G.R. No. 196596
52
First, DLSU questions the defective verification attached to the petition.
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 nonstock, 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 nonstock 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 owmg 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 crossexamination 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.68chanroblesvirtuallawlibrary
Issues
Although the parties raised a number of issues, the Court shall decide only the pivotal issues, which we summarize
as follows:
1. Whether DLSU's income and revenues proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes;chanrobleslaw
2. Whether the entire assessment should be voided because of the defective LOA;chanrobleslaw
3. Whether the CTA correctly admitted DLSU's supplemental pieces of evidence; and
4. Whether the CTA's appreciation of the sufficiency ofDLSU's evidence may be disturbed by the Court.
Our Ruling
As we explain in full below, we rule that:
1. 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.
2. The LOA issued to DLSU is not entirely void. The assessment for taxable year 2003 is valid.
3. The CTA correctly admitted DLSU's formal offer of supplemental evidence; and
4. 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:
1. DLSU proved that a portion of its rental income was used actually, directly and exclusively
for educational purposes; and
2. 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:
chanRoblesvirtualLawlibrary
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 nonstock, 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:
chanRoblesvirtualLawlibrary
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]ChanRoblesVirtualawlibrary
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 income 78for 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 Commission79 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 non profit
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 oftax,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 process97 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:
chanRoblesvirtualLawlibrary
1. A Letter of Authority [LOA] should cover a taxable period not exceeding one
taxable year. The practice of issuing [LOAs] 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.101 Besides, 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.
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 CTA 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 assessmentcase. 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 tules 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.
1. 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 P93.86 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 P10,610,379.00 in taxable year 2003.125 DLSU
earned this income from leasing a portion of its premises to: 1) MTO-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) P4,007,724.00127 used to pay the loan obtained by DLSU to build the Sports
Complex; and 2) P6,602,655.00 transferred to the CF-CPA Account.128
DLSU also submitted documents to the Independent CPA to prove that the P6,602,655.00 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 P6,259,078.30.
Contradicting the findings of the Independent CPA, the CTA concluded that out of the P10,610,379.00 rental
income, P4,841,066.65 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%.130The CTA held as follows:
chanRoblesvirtualLawlibrary
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 P-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 P6,259,078.3 (Exhibit
"LL-25-C"), and the total disbursements per subsidiary ledger amounts to P23,463,543.02
(Exhibit "LL-29-C"), the ratio of substantiated disbursements for fiscal year 2003 is 26.68%
(P6,259,078.30/P23,463,543.02). 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 P6,602,655.00 ts
P1,761,588.35.131 (emphasis supplied)ChanRoblesVirtualawlibrary
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 (P4,007,724.00)
from the rental income (P10,610,379.00) earned from the abovementioned concessionaries. The
difference (P6,602,655.00) 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 (P1,761,308.37)
from the P6,602,655.00 to arrive at the supposed unsubstantiated portion of the rental income
(P4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements (P1,761,308.37)133 was derived by multiplying the
rental income claimed to have been added to the CF-CPA Account (P6,602,655.00) by 26.68% or the
ratio of substantiated disbursements to total disbursements (P23,463,543.02).
4. The 26.68% ratio134 was the result of dividing the substantiated disbursements from the CF-CPA
Account as found by the Independent CPA (P6,259,078.30) by the total disbursements (P23,463,543.02)
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, nonprofit 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 P10.61 million)135 were used for educational purposes. This amount was divided into two
parts: (a) the P4.01 million, which was used to pay the loan obtained for the construction of the Sports Complex; and
(b) the P6.60 million,136 which was transferred to the CF-CPA account.
For year 2003, the total disbursement from the CF-CPA account amounted to P23.46 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 P23.46 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 P23.46 million had been for
educational purposes and should thus be tax-exempt; DLSU only claimed P10.61 million for taxexemption and
should thus be required to prove that this amount had been used as claimed.
Of this amount, P4.01 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 P6.60 million which was transferred to the CF-CPA which in
turn made disbursements of P23.46 million for various general purposes, among them the P6.60 million transferred
by DLSU.
Significantly, the Independent CPA confirmed that the CF-CPA made disbursements for educational purposes in
year 2003 in the amount P6.26 million. Based on these given figures, the CTA concluded that the expenses for
educational purposes that had been coursed through the CF-CPA should be prorated so that only the portion that
P6.26 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 P23.46 million CF-CPA disbursement had been used for educational purposes; it only claims that P6.60
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
(P10,610,379.00) was used for educational purposes. Hence, while the total disbursements from the CF-CPA
Account amounted to P23,463,543.02, DLSU only had to substantiate its P10.6 million rental income, part of which
was the P6,602,655.00 transferred to the CF-CPA account. Of this latter amount, P6.259 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:
chanRoblesvirtualLawlibrary
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 separate case, the CTA explained that the issue in the Ateneo case was not the same
as the issue in the present case.
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 issuances139that required the educational institution to own and operate the
canteens, or other commercial enterprises within its campus, as condition for tax exemption. The CTA held that the
Constitution does not require the educational institution to own or operate these commercial establishments to avail
of the exemption.140
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 equated on its decision on two different cases with two different issues."141
DLSU disagrees with the CTA and argues that the entire assessment must be cancelled because it submitted similar,
if not stronger sets of evidence, as Ateneo. We reject DLSU's argument for being non sequitur. Its reliance on the
concept of uniformity of taxation is also incorrect.
First, even granting that Ateneo and DLSU submitted similar evidence, the sufficiency and materiality of the
evidence supporting their respective claims for tax exemption would necessarily differ because their attendant issues
and facts differ.
To state the obvious, the amount of income received by DLSU and by Ateneo 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 assessment
cancelled by the CTA varied.
On the one hand, the BIR assessed DLSU a total tax deficiency of P17,303,001.12 for taxable years 2001, 2002 and
2003. On the other hand, the BIR assessed Ateneo a total deficiency tax of P8,864,042.35 for the same period.
Notably, DLSU was assessed deficiency DST, while Ateneo was not.143
Thus, although both Ateneo and DLSU claimed that they used their rental income actually, directly and exclusively
for educational purposes by submitting similar evidence, e.g., the testimony of their employees on the use of
university revenues, the report of the Independent CPA, their income summaries, financial statements, 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.
The CTA significantly found that some documents that could have fully supported DLSU's claim were not produced
in court. Indeed, the Independent CPA testified that some disbursements had not been proven to have been used
actually, directly and exclusively for educational purposes.144
The final nail on the question of evidence is DLSU's own admission that the original of these documents had not in
fact been produced before the CTA although it claimed that there was no bad faith on its part.145 To our mind, this
admission is a good indicator of how the Ateneo and the DLSU cases varied, resulting in DLSU's failure to
substantiate a portion of its claimed exemption.
Further, DLSU's invocation of Section 5, Rule 130 of the Revised Rules on Evidence, that the contents of the
missing supporting documents were 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 faith. Besides, it is not our duty to go over these documents
to test the truthfulness of their contents, this Court not being a trier of facts.
Second, DLSU misunderstands the concept of uniformity oftaxation. 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.150The 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 P13,265.48.152
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 MODIFICATIONthat the base for the deficiency income tax and VAT for taxable year 2003 is P343,576.70.
SO ORDERED.cralawlawlibrary
Case digest
COMMISSIONER OF INTERNAL REVENUE, vs. DE LA SALLE UNIVERSITY, INC.
G.R. No. 196596, November 09, 2016
The Commissioner submits the following arguments:
DLSU's rental income is taxable regardless of how such income is derived, used or disposed of. DLSU's operations
of canteens and bookstores within its campus even though exclusively serving the university community do not
negate income tax liability.
Article XIV, Section 4 (3) of the Constitution and Section 30 (H) of the Tax Code
“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.”
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. 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
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.
ISSUE: Whether DLSU's income and revenues proved to have been used actually, directly and
exclusively for educational purposes are exempt from duties and taxes.
RULING: YES.
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.
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.
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.
We further declare that the last paragraph of Section 30 of the Tax Code is 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 duty to uphold the primacy of the Constitution. 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.
10.
PROVINCIAL ASSESSOR OF AGUSAN DEL SUR, Petitioner, v. FILIPINAS PALM OIL PLANTATION,
INC., Respondent.
DECISION
LEONEN, J.:
The exemption from real property taxes given to cooperatives applies regardless of whether or not the land owned is
leased. This exemption benefits the cooperative's lessee. The characterization of machinery as real property is
governed by the Local Government Code and not the Civil Code.
This Petition1 for review assails the Decision2 dated September 26, 2007 and the Resolution3 dated May 26, 2008 of
the Court of Appeals in CA-G.R. SP No. 74060. The Court of Appeals affirmed the Decision of the Central Board of
Assessment Appeals (CBAA) exempting Filipinas Palm Oil Plantation Inc. from payment of real property
taxes.4chanrobleslaw
Filipinas Palm Oil Plantation Inc. (Filipinas) is a private organization engaged in palm oil plantation5 with a total
land area of more than 7,000 hectares of National Development Company (NDC) lands in Agusan del
Sur.6 Harvested fruits from oil palm trees are converted into oil through Filipinas' milling plant in the middle of the
plantation area.7 Within the plantation, there are also three (3) plantation roads and a number of residential homes
constructed by Filipinas for its employees.8chanrobleslaw
After the Comprehensive Agrarian Reform Law9 was passed, NDC lands were transferred to Comprehensive
Agrarian Reform Law beneficiaries who formed themselves as the merged NDC-Guthrie Plantations, Inc. -
NDC-Guthrie Estates, Inc. (NGPI-NGEI) Cooperatives.10 Filipinas entered into a lease contract agreement with
NGPI-NGEI.11chanrobleslaw
The Provincial-Assessor of Agusan del Sur (Provincial Assessor) is a government agency in charge with the
assessment of lands under the public domain.12 It assessed Filipinas' properties found within the plantation
area,13 which Filipinas assailed before the Local Board of Assessment Appeals (LBAA) on the following grounds:
chanRoblesvirtualLawlibrary
(1.) The [petitioner] Provincial Assessors of Agusan del Sur ERRED in finding that the
Market Value of a single fruit bearing oil palm tree is P207.00 when it should only be P42.00
pesos per tree;
(2.) The [petitioner] ERRED in finding that the total number of standing and fruit bearing oil
palm tree is PI 10 [sic] trees per hectare when it should be only 92 trees;
 (3.) The [petitioner] ERRED in finding that the Market Value[s] of the plantation roads
are:ChanRoblesVirtualawlibrary
A.) P270,000.00 per kilometer for primary roads
B.) P135,000.00 for secondary roads
C.) P67,567.00 for tertiary roads constructed by the company.
It should only be:ChanRoblesVirtualawlibrary
A.) P105,000.00 for primary roads
B.) P52,300.00 for secondary roads
C.) P26,250.00 for tertiary roads
Likewise, bridges, culverts, canals and pipes should not be assessed separately from
plantation roads, the same being components of the roads thereof;
(4.) The [petitioner] ERRED in imposing real property taxes against the petitioner for roads,
bridges, culverts, pipes and canals as these belonged to the cooperatives;
([5].) The [petitioner] ERRED in finding that the Market Value of NDC service area is
P11,000.00 per hectare when it should only be P6,000.00 per hectare;
([6].) The [petitioner] ERRED in imposing realty taxes on Residential areas built by
[respondent] except for three of them;
([7].) The [petitioner] ERRED when it included haulers and other equipments [sic] which are
unmovable as taxable real properties.14
In its Decision15 dated June 8, 1999, the LBAA found that the P207.00 market value declared in the assessment by
the Provincial Assessor was unreasonable.16 It found that the market value should not have been more than P85.00
per oil palm tree.17 The sudden increase of realty tax assessment level from P42.00 for each oil palm tree in 1993 to
P207.00 was confiscatory.18chanrobleslaw
The LBAA adopted Filipinas' claim that the basis for assessment should only be 98 trees.19 Although one (1) hectare
of land can accommodate 124 oil palm trees, the mountainous terrain of the plantation should be
considered.20 Because of the terrain, not every meter of land can be fully planted with trees.21The LBAA found that
roads of any kind, as well as all their improvements, should not be taxed since these roads were intermittently used
by the public.22 It resolved that the market valuation should be based on the laws of the Department of Agrarian
Reform since the area is owned by the NDC, a quasi-governmental body of the Philippines.23chanrobleslaw
The LBAA exempted the low-cost housing units from taxation except those with a market value of more than
P150,000.00 under the Local Government Code.24 Finally, the LBAA considered the road equipment and mini
haulers as movables that are vital to Filipinas' business.
Filipinas appealed before the CBAA on July 16, 1999.26 On November 21, 2001, the CBAA rendered a decision, the
dispositive portion of which reads:
chanRoblesvirtualLawlibrary
WHEREFORE, this Board has decided to set aside, as it does hereby set aside, the decision
rendered by the Local Board of Assessment Appeals of the Province of Agusan del Sur on
June 8, 1999 in an unnumbered case entitled "[F]ilipinas Palm Oil Co., Inc. Petitioner, versus
the Provincial Assessors Office of Agusan del Sur, Respondent" and hereby orders as follows:
chanRoblesvirtualLawlibraryA. The market value for each oil palm tree should be FIFTY-
SEVEN & 55/100 PESOS (57.55), effective January 1, 1991. The assessment for each
municipality shall be based on the corresponding number of trees as listed in
Petitioner-Appellee's "Hectarage Statement" discussed hereinabove;
B. Petitioner-Appellee should not be made to pay for the real property taxes due on the roads
starting from January 1, 1991;
C. Petitioner-Appellee is not liable to the Government for real property taxes on the lands
owned by the Multi-purpose Cooperative;
D. The housing units with a market value of PI75,000.00 or less each shall be subjected to 0%
assessment level, starting 1994;
E. Road Equipment and haulers are not real properties and, accordingly, Petitioner-Appellee
is not liable for real property tax thereon;
F. Any real property taxes already paid by Petitioner-Appellee which, by virtue "of this
decision, were not due, shall be applied to future taxes rightfully due from Petitioner-Appellee.
SO ORDERED.27 (Emphasis supplied)
The CBAA denied the Motion for Reconsideration filed by the Provincial Assessor.28 The Provincial Assessor filed
a Petition for Review before the Court of Appeals, which, in turn, sustained the CBAA's Decision. 29chanrobleslaw
The Court of Appeals held that the land owned by NGPI-NGEI, which Filipinas has been leasing, cannot be
subjected to real property tax since these are owned by cooperatives that are tax-exempt.30 Section 133(n) of the
Local Government Code provides:
chanRoblesvirtualLawlibrary
SECTION 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:
....
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No.
6938) otherwise known as the "Cooperative Code of the Philippines."
(Emphasis supplied)
Section 234(d) of the Local Government Code exempts duly registered cooperatives, like NGPI-NGEI, from
payment of real property taxes:
chanRoblesvirtualLawlibrary
SECTION 234. Exemptions from Real Property Tax. — The following are exempted from
payment of the real property tax:
....
(d) All real property owned by duly registered cooperatives as provided
for under R.A. No. 6938[.] (Emphasis supplied)
The Court of Appeals held that the pertinent provisions "neither distinguishes nor specifies" that the exemption only
applies to real properties used by the cooperatives.31 It ruled that "[t]he clear absence of any restriction or limitation
in the provision could only mean that the exemption applies to wherever the properties are situated and to whoever
uses them."32 Therefore, the exemption privilege extends to Filipinas as the cooperatives' lessee.33chanrobleslaw
On the roads constructed by Filipinas, the Court of Appeals held that although it is undisputed that the roads were
built primarily for Filipinas' benefit, the roads should be tax-exempt since these roads were also being used by the
cooperatives and the public.34 It applied, by analogy, Bislig Bay Lumber Company, Inc. v. Provincial Government
of Surigao:35chanrobleslaw
We are inclined to uphold the theory of appellee. In the first place, it cannot be disputed that
the ownership of the road that was constructed by appellee belongs to the government by right
accession not only because it is inherently incorporated or attached to the timber land leased
to appellee but also because upon the expiration of the concession, said road would ultimately
pass to the national government. In the second place, while the road was constructed by
appellee primarily for its use and benefit, the privilege is not exclusive, for, under the lease
contract entered into by the appellee and the government and by public in by the general.
Thus, under said lease contract, appellee cannot prevent the use of portions, of the concession
for homesteading purposes. It is also in duty bound to allow the free use of forest products
within the concession for the personal use of individuals residing in or within the vicinity of
the land. . . . In other words, the government has practically reserved the rights to use the road
to promote its varied activities. Since, as above shown, the road in question cannot be
considered as an improvement which belongs to appellee, although in part is for its benefit, it
is clear that the same cannot be the subject of assessment within the meaning of section 2 of
Commonwealth Act No. 470.36 (Citations omitted)
Furthermore, the Court of Appeals agreed with the CBAA that the roads constructed by Filipinas had become
permanent improvements on the land owned by NGPI-NGEI.37 Articles 440 and 445 of the Civil Code provide that
these improvements redound to the benefit of the land owner under the right of accession:38chanrobleslaw
Article 440. The ownership of property gives the right by accession to everything which is
produced thereby, or which is incorporated or attached thereto, either naturally or artificially.
....
Article 445. Whatever is built, planted or sown on the land of another and the improvements
or repairs made thereon, belong to the owner of the land, subject to the provisions of the
following articles.
On the road equipment and mini haulers as real properties subject to tax, the Court of Appeals affirmed the CBAA's
Decision that these are only movables.39 Section 199(o) of the Local Government Code provides a definition of
machinery subject to real property taxation:
chanRoblesvirtualLawlibrary
SECTION 199. Definition of Terms. — When used in this Title, the term:
....
(o) "Machinery" embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus which may or may
not be attached, permanently or temporarily, to the real property. It
includes the physical facilities for production, the installations and
appurtenant service facilities, those which are mobile, self-powered or
self-propelled, and those not permanently attached to the real property
which are actually, directly, and exclusively used to meet the needs of
the particular industry, business or activity and which by their very
nature and purpose are designed for, or necessary to its manufacturing,
mining.
The Court of Appeals held that Section 19^(o) of the Local Government Code should be construed to include
machineries covered by the meaning of real properties provided for under Article 415(5) of the Civil
Code:40chanrobleslaw
Article 415. The following are immovable property:
....
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works[.]
The Court of Appeals cited Davao Sawmill Company v. Castillo,41 where it has been held that machinery that is
movable by nature becomes immobilized only when placed by the owner of the tenement, but not so when placed by
a tenant or any other person having a temporary right unless this person acts as an agent of the owner. 42 Thus, the
mini haulers and other road equipment retain their nature as movables. 43chanrobleslaw
The Provincial Assessor filed before this Court a Petition for Review raising the following issues:
chanRoblesvirtualLawlibraryFirst, whether the exemption privilege of NGPI-NGEI from payment of real property
tax extends to respondent Filipinas Palm Oil Plantation Inc. as lessee of the parcel of land owned by cooperatives;
and cralawlawlibrary
Second, whether respondent's road equipment and mini haulers are movable properties and have not been
immobilized by destination for real property taxation.
Petitioner argues that based on Mactan Cebu International Airport Authority v. Ferdinand J. Marcos,44cooperatives
cannot extend its exemption from real property tax to taxable persons. 45 It argues that Sections 198, 199, 205, and
217 of the Local Government Code provide that real property taxes are assessed based on actual use. 46 Moreover,
the exemption of cooperatives applies only when it is the cooperative that actually, directly, and exclusively uses
and possesses the properties.47 Sections 198, 199, 205, and 217 of the Local Government Code provide:
chanRoblesvirtualLawlibrary
SECTION 198. Fundamental Principles. — The appraisal, assessment, levy and collection of
real property tax shall be guided by the following fundamental principles:
....
(b) Real property shall be classified for assessment purposes on the basis of its actual use[.]
....
SECTION 199. Definition of Terms. — When used in this Title, the term:
....
(b) "Actual Use" refers to the purpose for which the property is principally or predominantly
utilized by the person in possession thereof[.]
....
SECTION 205. Listing of Real Property in the Assessment Rolls. —
....
(d) Real property owned by the Republic of the Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a
taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of
the public entity if such property has been acquired or held for resale or lease.
....

SECTION 217. Actual Use of Real Property as Basis for Assessment. — Real property shall
be classified, valued and assessed on the basis of its actual use regardless of where located,
whoever owns it, and whoever uses it. (Emphasis supplied)
Petitioner claims that Section 199(o) of the Local Government Code specifically covers respondent's road equipment
and mini haulers since these are directly and exclusively used to meet the needs of respondent's industry, business,
or activity.48 Article 415(5) of the Civil Code, which defines real property, should not be made to control the Local
Government Code,49 a subsequent legislation that specifically defines "machinery" for taxation
purposes.50chanrobleslaw
In the Resolution51 dated October 13, 2008, this Court denied the Petition for Review due to procedural missteps,
which included the failure to attach legible duplicate original or certified true copies of the assailed decision and
failure to pay proper fees. On November 25, 2008, petitioner moved for reconsideration, 52 praying for the reversal of
the Petition's denial due to mere technicalities.
On January 26, 2009, this Court granted Petitioner's Motion for Reconsideration. 53 It directed the reinstatement of
the Petition and required respondent to comment.54chanrobleslaw
On November 20, 2009, respondent filed its Comment.55chanrobleslaw
Respondent reiterates the rulings of the CBAA and the Court of Appeals that the exemption of cooperatives from
real property taxes extends to it as the lessee.56 It asserts that under its lease agreement with NGPI-NGEI, it pays an
Annual Fixed Rental, which includes the payment of taxes.57 It claims that in case NGPI-NGEI is liable to the local
government for real property tax on the land, the tax should be taken from the Annual Fixed Rental. 58 To make
respondent pay real property taxes on the leased land would be equivalent to assessing it twice for the same
property.59chanrobleslaw
On the road equipment and mini haulers being subjected to real property taxation, respondent maintains that it
should be spared from real property tax since the equipment and mini haulers are movables.60chanrobleslaw
The Petition is granted to modify the Court of Appeals Decision, but only with respect to the nature of respondent's
road equipment and mini haulers.
Under Section 133(n) of the Local Government Code, the taxing power of local government units shall not extend to
the levy of taxes, fees, or charges on duly registered cooperatives under the Cooperative Code. 61 Section 234(d) of
the Local Government Code specifically provides for real property tax exemption to cooperatives:
chanRoblesvirtualLawlibrary
SECTION 234. Exemptions from Real Property Tax. — The following are exempted from
payment of the real property tax:
....
(d) All real property owned by duly registered cooperatives as provided for under [Republic
Act] No. 6938[.] (Emphasis supplied)
NGPI-NGEI, as the owner of the land being leased by respondent, falls within the purview of the law. Section 234
of the Local Government Code exempts all real property owned by cooperatives without distinction. Nothing in the
law suggests that the real property tax exemption only applies when the property is used by the cooperative itself.
Similarly, the instance that the real property is leased to either an individual or corporation is not a ground for
withdrawal of tax exemption.62chanrobleslaw
In arguing the first issue, petitioner hinges its claim on a misplaced reliance in Mactan, which refers to the
revocation of tax exemption due to the effectivity of the Local Government Code. However, Mactan does not refer
to the tax exemption extended to cooperatives. The portion that petitioner cited specifically mentions that the
exemption granted to cooperatives has not been withdrawn by the effectivity of the Local Government Code:
chanRoblesvirtualLawlibrary
[S]ection 232 must be deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the L[ocal] G[overnment] C[ode], we
conclude that as a general rule, as laid down in Section 133, the taxing powers of local
government units cannot extend to the levy of, inter alia, "taxes, fees and charges of any kind
on the National Government, its agencies and instrumentalities, and local government units";
however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan
Manila Area may impose the real property tax except on, inter alia, "real property owned by
the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person," as provided
in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical
persons, including government-owned and controlled corporations, Section 193 of the L[ocal]
G[overnment] C[ode] prescribes the general rule, viz., they are withdrawn upon the effectivity
of the L[ocal] G[overnment] C[ode], except those granted to local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, and unless otherwise provided in the L[ocal] Gfovernment] C[ode].
The latter proviso could refer to Section 234 which enumerates the properties exempt from
real property tax. But the last paragraph of Section 234 further qualifies the retention of the
exemption insofar as real property taxes are concerned by limiting the retention only to those
enumerated therein; all others not included in the enumeration lost the privilege upon the
effectivity of the L[ocal] G[overnment] C[ode]. Moreover, even as to real property owned by
the Republic of the Philippines or any of its political subdivisions covered by item (a) of the
first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such
property has been granted to a taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the
L[ocal] G[overnment] C[ode], 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. Any claim to the contrary can only be
justified if the petitioner can seek refuge under any of the exceptions provided in Section 234,
but not under Section 133, as it now asserts, since, as shown above, the said section is
qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing
powers of the local government units cannot extend to the levy of:
chanRoblesvirtualLawlibrary
(o) taxes, fees or charges of any kind on the National Government, its
agencies or instrumentalities, and local government units.
It must show that the parcels of land in question, which are real property, are any one of those
enumerated in Section 234, either by virtue of ownership, character, or use of the
property.63 (Emphasis supplied)
The roads that respondent constructed within the leased area should not be assessed with real property taxes. Bislig
Bay finds application here. Bislig Bay Lumber Company, Inc. (Bislig Bay) was a timber concessionaire of a portion
of public forest in the provinces of Agusan and Surigao.64 To aid in developing its concession, Bislig Bay built a
road at its expense from a barrio leading towards its area.65 The Provincial Assessor of Surigao assessed Bislig Bay
with real property tax on the constructed road, which was paid by the company under protest. 66 It claimed that even
if the road was constructed on public land, it should be subjected to real property tax because it was built by the
company for its own benefit.67 On the other hand, Bislig Bay asserted that the road should be exempted from real
property tax because it belonged to national government by right of accession. 68 Moreover, the road constructed
already became an inseparable part of the land.69 The records also showed that the road was not only built for the
benefit of Bislig Bay, but also of the public.70 This Court ruled for Bislig Bay, thus:
chanRoblesvirtualLawlibrary
We are inclined to uphold the theory of appellee. In the first place, it cannot be disputed that
the ownership of the road that was constructed by appellee belongs to the government by right
accession not only because it is inherently incorporated or attached to the timber land leased
to appellee but also because upon the expiration of the concession, said road would ultimately
pass to the national government. ... In the second place, while the road was constructed by
appellee primarily for its use and benefit, the privilege is not exclusive, for, under the lease
contract entered into by the appellee and the government and by public in by the general.
Thus, under said lease contract, appellee cannot prevent the use of portions, of the concession
for homesteading purposes. ... It is also in duty bound to allow the free use of forest products
within the concession for the personal use of individuals residing in or within the vicinity of
the land. ... In other words, the government has practically reserved the rights to use the road
to promote its varied activities. Since, as above shown, the road in question cannot be
considered as an improvement which belongs to appellee, although in part is for its benefit, it
is clear that the same cannot be the subject of assessment within the meaning of section 2 of
Commonwealth Act No. 470.71
This was reiterated in Board of Assessment Appeals ofZamboanga del Sur v. Samar Mining Company, Inc. 72 Samar
Mining Company, Inc. (Samar Mining) was a domestic corporation engaged in the mining industry. 73 Since Samar
Mining's mining site and mill were in an inland location entailing long distance from its area to the loading point,
Samar Mining was constrained to construct a road for its convenience. 74 Initially, Samar Mining filed miscellaneous
lease applications for a road right of way covering lands under the jurisdiction of the Bureau of Lands and the
Bureau of Forestry where the proposed road would pass through. 75 Samar Mining was given a "temporary permit to
occupy and use the lands applied for by it";76 hence, it was able to build what was eventually known as the Samico
Road. Samar Mining was assessed by the Provincial Assessor of Zamboanga del Sur with real property taxes on the
road, which prompted it to appeal before the Board of Assessment Appeals.77 Invoking Bislig Bay,Samar Mining
claimed that it should not be assessed with real property tax since the road was constructed on public land. This
Court ruled for Samar Mining, thus:
chanRoblesvirtualLawlibrary
There is no question that the road constructed by respondent Saimar on the public lands
leased to it by the government is an improvement. But as to whether the same is taxable under
the aforequoted provision of the Assessment Law, this question has already been answered in
the negaitive by this Court. In the case of Bislig Bay Lumber Co., Inc. vs. Provincial
Government of Surigao, where a similar issue was raised. . ..
....
. . . What is emphasized in the Bislig case is that the improvement is exempt from taxation
because it is an integral part of the public land on which it is constructed and the improvement
is the property of the government by right of accession. Under Section 3(a) of the Assessment
Law, all properties owned by the government, without any distinction, are exempt from
taxation.79 (Emphasis supplied, citations omitted)
The roads that respondent constructed became permanent improvements on the land owned by the NGPI-NGEI by
right of accession under the Civil Code, thus:
chanRoblesvirtualLawlibrary
Article 440. The ownership of property gives the right by accession to everything which is
produced thereby, or which is incorporated or attached thereto, either naturally or artificially.
....
Article 445. Whatever is built, planted or sown on the land of another and the improvements
or repairs made thereon, belong to the owner of the land[.]
Despite the land being leased by respondent when the roads were constructed, the ownership of the improvement
still belongs to NGPI-NGEI. As provided under Article 440 and 445 of the Civil Code, the land is owned by the
cooperatives at the time respondent built the roads. Hence, whatever is incorporated in the land, either naturally or
artificially, belongs to the NGPI-NGEI as the landowner.
Although the roads were primarily built for respondent's benefit, the roads were also being used by the members of
NGPI and the public.80 Furthermore, the roads inured to the benefit of NGPI-NGEI as owners of the land not only by
right of accession but through the express provision in the lease agreement:
chanRoblesvirtualLawlibrary
On March 7, 1990 NGPI Multi-Purpose Cooperative, Inc., as Lessor, and NDC-Guthrie
Plantations, Inc., as Lessee, entered into a "Lease Agreement" . . . covering the agricultural
lands transferred by NDC to the DAR, which lands the DAR ultimately distributed undivided
to qualified workers-beneficiaries. . . .
....
Clause No. 6.3 of the same lease agreement provides that "All taxes due on the improvements
on the Leased Property except those improvements on the Area that the LESSOR shall have
utilized under Clause 1.2 hereof, shall be for the account of the LESSEE."
Clause No. 9.4 of the same lease agreement provides that ". . . All fixed and permanent
improvements, such as roads and palm trees introduced on the Leased Property, shall
automatically accrue to the LESSOR upon termination of this Lease Agreement without need
of reimbursement."
All the above-cited stipulations in the lease agreement between NGPI Multi-Purpose
Cooperative and NDC-Guthrie Plantations, Inc. were reconfirmed and reaffirmed in the
Addendum to Lease Agreement entered into by and between NGPI Multi-Purpose
Cooperative and Filipinas Palmoil Plantations, Inc. on January 30, 1998. . . . The main subject
of the said Addendum was the extension of the term of the lease agreement up to December
31, 2032, along with economic benefits to the lessor other than rentals.
There is no dispute that the roads are on the land owned by NGPI Multi-Purpose Cooperative
which leased the same to Petitioner-Appellee. These roads belong to the Multi-Purpose
Cooperative, not only by right of accession but also by express provisions of the Contract of
Lease[.]81
Respondent claims that under its lease agreement with NGPI-NGEI, it pays an Annual Fixed Rental, which includes
the payment of taxes.82 If NGPI-NGEI were liable to the local government for real property tax on the land, the tax
should be taken from the Annual Fixed Rental:
chanRoblesvirtualLawlibrary
 "2.1. In consideration of this Lease Agreement, the LESSEE shall pay the LESSOR the
following annual rentals:ChanRoblesVirtualawlibrary
"1) An annual fixed rental, in the following amount — "SIX
HUNDRED THIRTY FIVE PESOS" (P635.00) PER HECTARE PER
ANNUM which would cover the following:
chanRoblesvirtualLawlibrary"(1) All Taxes on the Land
"(2) Administration Charges
"(3) Amortization charges
"It is understood that, if the annual fixed rental of "SIX HUNDRED
THIRTY FIVE PESOS" (p 635.00) is insufficient to pay any increase
on the land taxes, the Lessee shall pay the difference, provided such
increase does not exceed ten percent (10%) of the immediately
preceding tax imposed on the land; provided further, that any increase
beyond these percentage shall be borne equally by the LESSOR and
LESSEE.
"The foregoing notwithstanding, it is understood and agreed that at all
times, liability for realty taxes on the Leased Property Primarily and
principally lies with the LESSOR and any reference herein to payment
by LESSEE of said taxes is only for purposes of earmarking the
proceeds of the rentals herein agreed upon."
Clause No. 6.3 of the same lease agreement provides that "All taxes due on the improvements
on the Leased Property except those improvements on the Area that the LESSOR shall have
utilized under Clause 1.2 hereof, shall be for the account of the LESSEE."83 (Emphasis
supplied)
Therefore, NGPI-NGEI, as owner of the roads that permanently became part of the land being leased by respondent,
shall be liable for real property taxes, if any. However, by express provision of the Local Government Code,
NGPI-NGEI is exempted from payment of real property tax.84chanrobleslaw
II
The road equipment and mini haulers shall be considered as real property, subject to real property tax.
Section 199(o) of the Local Government Code defines "machinery" as real property subject to real property
tax,85 thus:
chanRoblesvirtualLawlibrary
SECTION 199. Definition of Terms. — When used in this Title, the term:
....
(o) "Machinery" embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus which may or may
not be attached, permanently or temporarily, to the real property. It
includes the physical facilities for production, the installations and
appurtenant service facilities, those which are mobile, self-powered or
self-propelled, and those not permanently attached to the real property
which are actually, directly, and exclusively used to meet the needs of
the particular industry, business or activity and which by their very
nature and purpose are designed for, or necessary to its manufacturing,
mining, logging, commercial, industrial or agricultural purposes[.]
Article 415(5) of the New Civil Code defines "machinery" as that which constitutes an immovable property:
chanRoblesvirtualLawlibrary
Article 415. The following are immovable property:
....
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or works[.] (Emphasis supplied)
Petitioner contends that the second sentence of Section 199(o) includes the road equipment and mini haulers since
these are directly and exclusively used by respondent to meet the needs of its operations.86It further claims that
Article 415(5) of the New Civil Code should not control the Local Government Code, a subsequent
legislation.87chanrobleslaw
On the other hand, respondent claims that the road equipment and mini haulers are movables by nature. It asserts
that although there may be a difference between the meaning of "machinery" under the Local Government Code arid
that of immovable property under Article 415(5) of the Civil Code, "the controlling interpretation of Section 199(o)
of [the Local Government Code] is the interpretation of Article 415(5) of the Civil Code." 88chanrobleslaw
In Manila Electric Company v. City Assessor,89 a similar issue of which definition of "machinery" prevails to
warrant the assessment of real property tax on it was raised.
Manila Electric Company (MERALCO) insisted on harmonizing the provisions of the Civil Code and the Local
Government Code and asserted that "machinery" contemplated under Section 199(o) of the Local Government must
still be within the contemplation of immovable property under Article 415 of the Civil Code. 90 However, this Court
ruled that harmonizing such laws "would necessarily mean imposing additional requirements for classifying
machinery as real property for real property tax purposes not provided for, or even in direct conflict with, the
provisions of the Local Government Code."91 Thus:
chanRoblesvirtualLawlibrary
While the Local Government Code still does not provide for a specific definition of "real
property," Sections 199(o) and 232 of the said Code, respectively, gives an extensive
definition of what constitutes "machinery" and unequivocally subjects such machinery to real
property tax. The Court reiterates that the machinery subject to real property tax under the
Local Government Code "may or may not be attached, permanently or temporarily to the real
property"; and the physical facilities for production, installations, and appurtenant service
facilities, those which are mobile, self-powered or self-propelled, or are not permanently
attached must (a) be actually, directly, and exclusively used to meet the needs of the particular
industry, business, or activity; and (b) by their very nature and purpose, be designed for, or
necessary for manufacturing, mining, logging, commercial, industrial, or agricultural purposes.
....
Article 415, paragraph (5) of the Civil Code considers as immovables or real properties
"[m]achinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or works." The Civil Code, however,
does not define "machinery."
The properties under Article 415, paragraph (5) of the Civil Code are immovables by
destination, or "those which are essentially movables, but by the purpose for which they have
 been placed in an immovable, partake of the nature of the latter because of the added utility
derived therefrom." These properties, including machinery, become immobilized if the
following requisites concur: (a) they are placed in the tenement by the owner of such
tenement; (b) they are destined for use in the industry or work in the tenement; and (c) they
tend to directly meet the needs of said industry or works. The first two requisites are not
found anywhere in the Local Government Code.92 (Emphasis supplied, citations omitted)
Section 199(o) of the Local Government prevails over Article 415(5) of the Civil Code. In Manila Electric Company:
chanRoblesvirtualLawlibrary
As between the Civil Code, a general law governing property and property relations, and the
Local Government Code, a special law granting local government units the power to impose
real property tax, then the latter shall prevail. As the Court pronounced in Disomangcop v.
The Secretary of the Department of Public Works and Highways Simeon A.
Datumanong:ChanRoblesVirtualawlibrary
It is a finely-imbedded principle in statutory construction that a special
provision or law prevails over a general one. Lex specialis derogant
generali. As this Court expressed in the case of Leveriza v.
Intermediate Appellate Court, "another basic principle of statutory
construction mandates that general legislation must give way to special
legislation on the same subject, and generally be so interpreted as to
embrace only cases in which the special provisions are not applicable,
that specific statute prevails over a general statute and that where two
statutes are of equal theoretical application to a particular case, the one
designed therefor specially should prevail."
The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco Corporationthat:
chanRoblesvirtualLawlibrary
A general law and a special law on the same subject are statutes in pari
materia and should, accordingly, be read together and harmonized, if
possible, with a view to giving effect to both. The rule is that where
there are two acts, one of which is special and particular and the other
general which, if standing alone, would include the same matter and
thus conflict with the special act, the special law must prevail since it
evinces the legislative intent more clearly than that of a general statute
and must not be taken as intended to affect the more particular and
specific provisions of the earlier act, unless it is absolutely necessary so
to construe it in order to give its words any meaning at all.
The circumstance that the special law is passed before or after the
general act does not change the principle. Where the special law is later,
it will be regarded as an exception to, or a qualification of, the prior
general act; and where the general act is later, the special statute will be
construed as remaining an exception to its terms, unless repealed
expressly or by necessary implication.
Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals, the Court
acknowledged that "[i]t is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property[.]"
Therefore, for determining whether machinery is real property subject to real property tax, the
definition and requirements under the Local Government Code are controlling.93(Emphasis
supplied, citations omitted)
Respondent is engaged in palm oil plantation.94 Thus, it harvests fruits from palm trees for oil conversion through its
milling plant.95 By the nature of respondent's business, transportation is indispensable for its operations.
Under the definition provided in Section 199(o) of the Local Government Code, the road equipment and the mini
haulers are classified as machinery, thus:
chanRoblesvirtualLawlibrary
SECTION 199. Definition of Terms. — When used in this Title, the terra:
....
(o) "Machinery" . . . includes the physical facilities for production,
the installations and appurtenant service facilities, those which are
mobile, self-powered or self-propelled, and those not permanently
attached to the real property which are actually, directly, and
exclusively used to meet the needs of the particular industry,
business or activity and which by their very nature and purpose are
designed for, or necessary to its manufacturing, mining, logging,
commercial, industrial or agricultural purposes [.] (Emphasis supplied)
Petitioner is correct in claiming that the phrase pertaining to physical facilities for production is comprehensive
enough to include the road equipment and mini haulers as actually, directly, and exclusively used by respondent to
meet the needs of its operations in palm oil production.96 Moreover, "mini-haulers are farm tractors pulling attached
trailers used in the hauling of seedlings during planting season and in transferring fresh palm fruits from the farm [or]
field to the processing plant within the plantation area."97 The indispensability of the road equipment and mini
haulers in transportation makes it actually, directly, and exclusively used in the operation of respondent's business.
In its Comment, respondent claims that the equipment is no longer vital to its operation because it is currently
employing equipment outside the company to do the task.98 However, respondent never raised this contention before
the lower courts. Hence, this is a factual issue of which this Court cannot take cognizance. This Court is not a trier
of facts.99 Only questions of law are entertained in a petition for review assailing a Court of Appeals
decision.100chanrobleslaw
WHEREFORE, the Petition is PARTLY GRANTED. The Decision of the Court of Appeals dated September 26,
2007 and the Resolution dated May 26, 2008 in CA-G.R. SP No. 74060 are AFFIRMED with MODIFICATION,
in that the road equipment and the mini haulers should be assessed with real property taxes.
SO ORDERED.
Case digest
13. Prov. Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation October 5, 2016
FACTS:
The exemption from real property taxes given to cooperatives applies regardless of whether or not the land owned is
leased. This exemption benefits the cooperative's lessee. The characterization of machinery as real property is
governed by the Local Government Code and not the Civil Code.
(Filipinas) is a private organization engaged in palm oil plantation with a total land area of more than 7,000
hectares of National Development Company (NDC) lands in Agusan del Sur. Harvested fruits from oil palm trees
are converted into oil through Filipinas' milling plant in the middle of the plantation area. Within the plantation,
there are also three (3) plantation roads and a number of residential homes constructed by Filipinas for its
employees.
NDC lands were transferred to Comprehensive Agrarian Reform Law beneficiaries who formed themselves as the
10
merged NDC-Guthrie Plantations, Inc. - NDC-Guthrie Estates, Inc. (NGPI-NGEI) Cooperatives. Filipinas
entered into a lease contract agreement with NGPI-NGEI.
(Provincial Assessor) assessed Filipinas' properties found within the plantation area
ISSUE:
1. Whether the exemption privilege of NGPI-NGEI from payment of real property tax extends to Filipinas
Palm Oil Plantation Inc. as lessee of the parcel of land owned by cooperatives.
2. Whether Filipinas Palm Oil Plantation Inc. roads equipment and mini haulers are movable properties
and have not been immobilized by destination for real property taxation.
RULING:
1. Under Section 133(n) of the Local Government Code, the taxing power of local government units shall not extend
to the levy of taxes, fees, or charges on duly registered cooperatives under the Cooperative Code. Section 234(d) of
the Local Government Code specifically provides for real property tax exemption to cooperatives:
SECTION 234. Exemptions from Real Property Tax. - The following are exempted from payment o f the real
property tax:
(d) All real property owned by duly registered cooperatives as provided for under {Republic Act} No. 6938
NGPI-NGEI, as the owner of the land being leased by respondent, falls within the purview of the law. Section 234 of
the Local Government Code exempts all real property owned by cooperatives without distinction. Nothing in the law
suggests that the real property tax exemption only applies when the property is used by the cooperative itself.
Similarly, the instance that the real property is leased to either an individual or corporation is not a ground for
withdrawal of tax exemption
2. The roads that respondent constructed within the leased area should not be assessed with real property taxes.
The roads that respondent constructed became permanent improvements on the land owned by the NGPI-NGEI by
right of accession under the Civil Code, thus:
Article 440. The ownership of property gives the right by accession to everything which is produced thereby, or
which is incorporated or attached thereto, either naturally or artificially.
Article445. Whatever is built, planted or sown on the land of another and the improvements or repairs made thereon,
belong to the owner of the land[.]
Despite the land being leased by respondent when the roads were constructed, the ownership of the improvement
still belongs to NGPI-NGEI. As provided under Article 440 and 445 of the Civil Code, the land is owned by the
cooperatives at the time respondent built the roads. Hence, whatever is incorporated in the land, either naturally or
artificially, belongs to the
NGPI-NGEI as the landowner.
Although the roads were primarily built for respondent's benefit, the roads were also being used by the members of
80
NGPI and the public. Furthermore, the roads inured to the benefit of NGPI-NGEI as owners of the land not only
by right of accession but through the express provision in the lease agreement:
2b. The road equipment and mini haulers shall be considered as real property, subject to real property tax.
Respondent is engaged in palm oil plantation. Thus, it harvests fruits from palm trees for oil conversion through its
milling plant. By the nature of respondent's business, transportation is indispensable for its operations
Section 199(o) of the Local Government Code defines "machinery" as real property subject to real property tax,
(road equipment and mini haulers are classified as machinery)
(o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus
which may or may not be attached, permanently or temporarily, to the real property. It includes the physical
facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered
or self- propelled, and those not permanently attached to the real property which are actually, directly, and
exclusively used to meet the needs of the particular industry, business or activity and which by their very nature
and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or
agricultural purposes
Article 415(5) of the New Civil Code defines "machinery" as that which constitutes an immovable property:
Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece
o f land, and which tend directly to meet the needs o f the said industry or works[.]
The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or "those which
are essentially movables, but by the purpose for which they have been placed in an immovable, partake of the of the
latter because of the added utility derived therefrom." These properties, including machinery, become immobilized If
the following requisites concur (a) they are placed in the tenement by the owner of such tenement; (b) they are
destined for use in the industry or work in the tenement; and (c) they tend to directly meet the needs of said industry
or works. The first two requisites are not found anywhere in the Local Government Code.
As between the Civil Code, a general law governing property and property relations, and the Local Government
Code, a special law granting local government units the power to impose real property tax, then the latter shall
prevail
Therefore, for determining whether machinery is real property subject to real property tax, the ·definition and
requirements under the Local Government Code are controlling.
Petitioner is correct in claiming that the phrase pertaining to physical facilities for production is comprehensive
enough to include the road equipment and mini haulers as actually, directly, and exclusively used by respondent to
meet the needs of its operations in palm oil production. Moreover, "mini-haulers are farm tractors pulling attached
trailers used in the hauling of seedlings during planting season and in transferring fresh palm fruits from the farm
[or] field to the processing plant within the plantation area."
The indispensability of the road equipment and mini haulers in transportation makes it actually, directly, and
exclusively used in the operation of respondent's business.