Taxation Real Property Cases

EN BANC ALLIED BANKING CORPORATION AS G.R. No. 154126 TRUSTEE FOR THE TRUST FUND OF COLLEGE ASSURANCE PLAN PHILIPPINES, INC. (CAP), Promulgated: Petitioner, October 11, 2005 -versus-

THE QUEZON CITY GOVERNMENT, THE QUEZON CITY TREASURER, THE QUEZON CITY ASSESSOR AND THE CITY MAYOR OF QUEZON CITY, Respondents. x---------------------------------------------- ------------------x

Section 3. The City Assessor shall undertake a general revision of real property assessments using as basis the newly approved schedule specified in Sections 1 and 2 hereof. He shall apply the new assessment level of 15% for residential and 40% for commercial and industrial classification, respectively as prescribed in Section 8 (a) of the 1993 Quezon City Revenue Code to determine the assessed value of the land. Provided; however, that parcels of land sold, ceded, transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is higher, as evidenced by the certificate of payment of the capital gains tax issued therefor.[4] (Emphasis and underscoring supplied) On July 1, 1998, petitioner, as trustee for College Assurance Plan of the Philippines, Inc., purchased from Liwanag C. Natividad et al. a 1,000 square meter parcel of land located along Aurora Boulevard, Quezon City in the amount of P38,000,000.00.[5]

DECISION CARPIO MORALES, J.: From the Resolution[1] of April 10, 2002 issued by Branch 225 of the Regional Trial Court (RTC) of Quezon City dismissing the petition for prohibition and declaratory relief[2] of Allied Banking Corporation (petitioner), the present appeal by certiorari was lodged. On December 19, 1995, the Quezon City government enacted City Ordinance No. 357, Series of 1995 (the ordinance),[3] Section 3 of which reads:

Prior to the sale, Natividad et al. had been paying the total amount of P85,050.00[6] as annual real property tax based on the property’s fair market value of P4,500,000.00 and assessed value of P1,800,000.00 under Tax Declaration No. D-102-03778.[7] After its acquisition of the property, petitioner was, in accordance with Section 3 of the ordinance, required to pay P102,600.00 as quarterly real estate tax (or P410,400.00 annually) under Tax Declaration No. D-102-03780 which pegged the market value of the property at P38,000,000.00 – the consideration appearing in the Deed of Absolute Sale, and its assessed value at P15,200,000.00.[8] Petitioner paid the quarterly real estate tax for the property from the 1st quarter of 1999 up to the 3rd quarter of 2000. Its tax

payments for the 2nd, 3rd, and 4th quarter of 1999, and 1st and 2nd quarter of 2000 were, however, made under protest.[9]

ground that the ordinance is presumed valid and legal unless otherwise declared by a court of competent jurisdiction.[14]

In its written protest[10] with the City Treasurer, petitioner assailed Section 3 of the ordinance as null and void, it contending that it is violative of the equal protection and uniformity of taxation clauses of the Constitution.[11] Petitioner, moreover, contended that the proviso is unjust, excessive, oppressive, unreasonable, confiscatory and contrary to Section 130 of the Local Government Code which provides:

Petitioner thereupon filed on August 11, 2000 a petition for prohibition and declaratory relief before the Quezon City RTC for the declaration of nullity of Section 3 of the ordinance; the enjoining of respondents – Quezon City Treasurer, Quezon City Assessor, and City Mayor of Quezon City – from further implementing the ordinance; for the Quezon City Treasurer to be ordered to refund the amount of P633,150.00 representing the real property tax erroneously collected and paid under protest; and for respondents to pay attorney’s fees in the amount of P1,000,000.00 and costs of the suit.[15]

SECTION 130. Fundamental Principles. – The following fundamental principles shall govern the exercise of the taxing and revenue-raising powers of local government units: (a) local government unit; (b) impositions shall:

Taxation shall be uniform in each Taxes, fees, charges and other

(1) be equitable and based as far as practicable on the taxpayer’s ability to pay; (2) be levied and collected only for public purposes; (3) not be unjust, excessive, oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in restraint of trade; xxx Petitioner, through its counsel, later sent a March 24, 2000 demand letter to the Quezon City Treasurer’s Office seeking a refund of the real estate taxes it erroneously collected from it.[12] The letter was referred for appropriate action[13] to the City Assessor who, by letter dated May 7, 2000, denied the demand for refund on the

In support of its thesis, petitioner contended that the re-assessment under the third sentence of Section 3 of the ordinance for purposes of real estate taxation of a property’s fair market value where it is sold, ceded, transferred or conveyed for remuneratory consideration is null and void as it is an invalid classification of real properties which are transferred, ceded or conveyed and those which are not, the latter remaining to be valued and assessed in accordance with the general revisions of assessments of real properties under the first sentence of Section 3.[16] Petitioner additionally contended that the proviso of Section 3 of the ordinance which allows re-assessment every time the property is transferred, ceded or conveyed violates Sections 219[17] and 220[18] of the Local Government Code which provide that the assessment of real property shall not be increased oftener than once every three (3) years except in case of new improvements substantially increasing the value of said property or of any change in its actual use.[19] Before respondents could file any responsive pleading or on March 6, 2001, respondent Quezon City Government enacted Ordinance No. SP-1032, S-2001[20] which repealed the assailed proviso in

Section 3 of the 1995 Ordinance. The repealing ordinance which took effect upon its approval on March 28, 2001 reads in part: “WHEREAS, the implementation of the second (2nd) sentence of Section 3 of the Ordinance creates a situation whereby owners of newly acquired land for remuneratory consideration beginning January 1, 1996 and forward will have to pay higher taxes than its adjoining/adjacent lot or lots in the adjoining blocks, or nearby lots within its immediate vicinity which have remained undisturbed, not having been sold, ceded, transferred, and/or conveyed; WHEREAS, the owners of the newly acquired property are complaining/protesting the validity/legality of the second (2nd) sentence of Section 3 of the ordinance for being either arbitrary, unjust, excessive, oppressive, and/or contrary to law; WHEREAS, Section 5 Article X of the Philippine Constitution provides that: ‘Each local government unit shall have the power to create its own sources of revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government’ (Underscoring supplied); WHEREAS, the guidelines and limitations imposed on the local government units in the exercise of their taxing powers have been expressly stipulated by Congress when it enacted Section 130 of Republic Act No. 7160, otherwise known as the Local Government Code of 1991 xxx;

(Churchhill vs. Concepcion, 34 Phi. 969; Eastern Theatrical Co. vs. Alfonso, 83 Phil. 852) xxx. 2. The law requires the real property shall be assessed at its true and full value, or cash value, or fair market value. But in determining or fixing the fair market value of property for tax purposes it is essential that the rules of uniformity be observed. More important tha[n] the obligation to seek the fair market value of property is the obligation of the assessor to see to it that the “rule of taxation shall be uniform,” for this a (sic) rule which is guaranteed by the Constitution. A taxpayer should not be made to pay more taxes on his property while owners of surrounding properties, under the same circumstance pay less. WHEREAS, it is clear from the foregoing premises that the second (2nd) sentence of the Ordinance, fixing the realty tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation x x x is violative of, and repugnant to, the uniformity rule of taxation; WHEREAS, in view of the above considerations there appear to be merit and validity to the complaints/protests of tax payers, a reexamination and repeal of the entire second sentence of Section 3 of the Ordinance is in order.”

WHEREAS, these fundamental principles of taxation find support and affirmation in the following applicable cases decided by the Court of Tax Appeals (sic), on similar cases which held that:

Petitioner subsequently moved to declare respondents in default[21] for failure to file a responsive pleading within the period, as extended. Before the motion could be heard,[22] however, respondents moved to dismiss the petition,[23] averring that the passage of the repealing ordinance had rendered the petition moot and academic.

1. An increase in the valuation of land due to sale and transfer of such property was arbitrary. Uniformity in taxation means that all kinds of property of the same class shall be taxed at the same rate.

Petitioner opposed the motion, it alleging that while its action for the declaration of nullity of the proviso was rendered moot and academic by its repeal, its claim for refund and attorney’s fees had

not been mooted, and the trial court still had to determine if Section 3 of the ordinance “is null and void ab initio and perforce, may not be enforced during the intervening period from the time of its enactment until the time of its repeal.”[24]

Its Motion for Reconsideration[29] having been denied,[30] petitioner comes before this Court on appeal by certiorari under Rule 45 on the following issues: A

Respondents maintained, however, that the assailed proviso remained in full force and effect until the date of its repeal, based on the rule that a statute is construed prospectively unless the legislative intent was to give it retrospective application.[25] And they called attention to the provision in Section 2 of the repealing ordinance that “[it] shall take effect upon its approval,” hence, clearly showing that the local legislative body was to grant it prospective application.[26] As to the claim for refund, respondents averred that it was premature for the trial court to take cognizance thereof as petitioner had an administrative remedy.[27] By Resolution of April 10, 2002, the trial court granted respondents’ motion to dismiss in this wise: There is no need for this Court to resolve whether the subject Ordinance is null and void as the same was already declared to be violative of, and repugnant to the “uniformity rule” on taxation by the Quezon City Council itself thru its pronouncements in Quezon City Ordinance No. 1032, Series of 2001. x x x xxx As to petitioner’s claim for refund, since an administrative remedy is available for refund of taxes illegally and erroneously collected and petitioner has not yet availed of it, the Court shall not take cognizance of this issue considering the rule on “Exhaustion of Administrative Remedy.”[28] (Underscoring supplied)

WHETHER OR NOT THE TRIAL COURT ERRED IN DISMISSING THE INSTANT CASE FOR FAILURE OF THE PETITIONER TO EXHAUST ADMINISTRATIVE REMEDIES. B WHETHER OR NOT SECTION 3, QUEZON CITY ORDINANCE NO. 357, SERIES OF 1995, WHICH WAS ABROGATED FOR BEING UNCONSTITUTIONAL CAN BE THE BASIS OF COLLECTING REAL ESTATE TAXES PRIOR TO ITS REPEAL.[31] Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law.[32] Nevertheless, while cases raising purely legal questions are excepted from the rule requiring exhaustion of administrative remedies before a party may resort to the courts, petitioner, in the case at bar, does not raise just pure questions of law. Its cause of action requires the determination of the amount of real property tax paid under protest and the amount of attorney’s fees. These issues are essentially questions of fact which preclude this Court from reviewing the same.[33] Since the procedure for obtaining a refund of real property taxes is provided under Sections 252,[34] 226,[35] 229,[36] 230[37] and 231[38] of the Local Government Code, petitioner’s action for prohibition in the RTC was premature as it had a plain, speedy and

adequate remedy of appeal in the ordinary course of law.[39] As such, the trial court correctly dismissed its action on the ground that it failed to exhaust the administrative remedies stated above.[40]

person challenging the validity of the act must have standing to challenge. Fourth, the question of constitutionality must have been raised at the earliest opportunity, and lastly, the issue of constitutionality must be the very lis mota of the case.[45]

Raising questions of fact is moreover inappropriate in an appeal by certiorari under Rule 45 of the Rules of Court where only questions of law may be reviewed.[41] It is axiomatic that the Supreme Court is not a trier of facts[42] and the factual findings of the court a quo are conclusive upon it, except: (1) where the conclusion is a finding grounded entirely on speculation, surmise and conjectures; (2) where the inference made is manifestly mistaken; (3) where there is grave abuse of discretion; and (4) where the judgment is based on a misapprehension of facts, and the findings of fact of the trial court are premised on the absence of evidence and are contradicted by evidence on record.[43]

Considering that there are factual issues still waiting to be threshed out at the level of the administrative agency, there is no actual case calling for the exercise of judicial review. In addition, the requisite that the constitutionality of the assailed proviso in question be the very lis mota of the case is absent. Thus, this Court refrains from passing on the constitutionality of the proviso in Section 3 of the 1995 Ordinance.

From a considered scrutiny of the records of the case, this Court finds that petitioner has shown no cause for this Court to apply any of the foregoing exceptions. Petitioner has not put squarely in issue the constitutionality of the proviso in Section 3 of the ordinance. It merely alleges that the said proviso can not be the basis for collecting real estate taxes at any given time, the Sangguniang Panlungsod of Quezon City not having intended to impose such taxes in the first place. As such the repealing ordinance should be given retroactive effect. As a rule, the courts will not resolve the constitutionality of a law, if the controversy can be settled on other grounds.[44] Where questions of constitutional significance are raised, the Court can exercise its power of judicial review only if the following requisites are complied: First, there must be before the Court an actual case calling for the exercise of judicial review. Second, the question before the Court must be ripe for adjudication. Third, the

The factual issues which petitioner interjected in its petition aside, the only crucial legal query in this case is the validity of the proviso fixing the appraised value of property at the stated consideration at which the property was last sold. This Court holds that the proviso in question is invalid as it adopts a method of assessment or appraisal of real property contrary to the Local Government Code, its Implementing Rules and Regulations and the Local Assessment Regulations No. 1-92[46] issued by the Department of Finance.[47] Under these immediately stated authorities, real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated[48] and classified for assessment purposes on the basis of its actual use.[49] “Fair market value” is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy,[50] taking into consideration all uses to which the property is adapted and might in reason be applied. The criterion established by the statute contemplates a hypothetical sale. Hence, the buyers need not be actual and existing purchasers.[51]

As this Court stressed in Reyes v. Almanzor,[52] assessors, in fixing the value of real property, have to consider all the circumstances and elements of value, and must exercise prudent discretion in reaching conclusions.[53] In this regard, Local Assessment Regulations No. 1-92[54] establishes the guidelines to assist assessors in classifying, appraising and assessing real property. Local Assessment Regulations No. 1-92 suggests three approaches in estimating the fair market value, namely: (1) the sales analysis or market data approach; (2) the income capitalization approach; and (3) the replacement or reproduction cost approach.[55] Under the sales analysis approach, the price paid in actual market transactions is considered by taking into account valid sales data accumulated from among the various sources stated in Sections 202, 203, 208, 209, 210, 211 and 213 of the Code.[56] In the income capitalization approach, the value of an income-producing property is no more than the return derived from it. An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property. The reproduction cost approach, on the other hand, is a factual approach used exclusively in appraising man-made improvements such as buildings and other structures, based on such data as materials and labor costs to reproduce a new replica of the improvement. The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the estimated fair market value to be included in the ordinance containing the schedule of fair market values.

Given these different approaches to guide the assessor, it can readily be seen that the Code did not intend to have a rigid rule for the valuation of property, which is affected by a multitude of circumstances which no rule could foresee or provide for. Thus, what a thing has cost is no singular and infallible criterion of its market value.[57] Accordingly, this Court holds that the proviso directing that the real property tax be based on the actual amount reflected in the deed of conveyance or the prevailing BIR zonal value is invalid not only because it mandates an exclusive rule in determining the fair market value but more so because it departs from the established procedures stated in the Local Assessment Regulations No. 1-92 and unduly interferes with the duties statutorily placed upon the local assessor[58] by completely dispensing with his analysis and discretion which the Code and the regulations require to be exercised. An ordinance that contravenes any statute is ultra vires and void.[59] Further, it is noted that there is nothing in the Charter of Quezon City[60] and the Quezon City Revenue Code of 1993[61] that authorize public respondents to appraise property at the consideration stated in the deed of conveyance. Using the consideration appearing in the deed of conveyance to assess or appraise real properties is not only illegal since “the appraisal, assessment, levy and collection of real property tax shall not be let to any private person,”[62] but it will completely destroy the fundamental principle in real property taxation – that real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.[63] Necessarily, allowing the parties to a private sale to dictate the fair market value of the property will dispense with the distinctions of actual use stated in the Code and in the regulations.

The invalidity of the assessment or appraisal system adopted by the proviso is not cured even if the proviso mandates the comparison of the stated consideration as against the prevailing BIR zonal value, whichever is higher, because an integral part of that system still permits valuing real property in disregard of its “actual use.” In the same vein, there is also nothing in the Code or the regulations showing the congressional intent to require an immediate adjustment of taxes on the basis of the latest market developments as, in fact, real property assessments may be revised and/or increased only once every three (3) years.[64] Consequently, the real property tax burden should not be interpreted to include those beyond what the Code or the regulations expressly and clearly state. Still another consequence of the proviso is to provide a chilling effect on real property owners or administrators to enter freely into contracts reflecting the increasing value of real properties in accordance with prevailing market conditions. While the Local Government Code provides that the assessment of real property shall not be increased oftener than once every three (3) years,[65] the questioned part of the proviso subjects the real property to a tax based on the actual amount appearing on the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is higher. As such, any subsequent sale during the three-year period will result in a real property tax higher than the tax assessed at the last prior conveyance within the same period. To save on taxes, real property owners or administrators are forced to hold on to the property until after the said three-year period has lapsed. Should they nonetheless decide to sell within the said three-year period, they are compelled to dispose the property at a price not exceeding that obtained from the last prior conveyance in order to avoid a higher tax assessment. In these two scenarios, real property owners are effectively prevented from

obtaining the best price possible for their properties and unduly hampers the equitable distribution of wealth. While the state may legitimately decide to structure its tax system to discourage rapid turnover in ownership of real properties, such state interest must be expressly stated in the executing statute or it can at least be gleaned from its provisions. In the case at bar, there is nothing in the Local Government Code, the implementing rules and regulations, the local assessment regulations, the Quezon City Charter, the Quezon City Revenue Code of 1993 and the “Whereas” clauses of the 1995 Ordinance from which this Court can draw, at the very least, an intimation of this state interest. As such, the proviso must be stricken down for being contrary to public policy and for restraining trade.[66] In fine, public respondent Quezon City Government exceeded its statutory authority when it enacted the proviso in question. The provision is thus null and void ab initio for being ultra vires and for contravening the provisions of the Local Government Code, its implementing regulations and the Local Assessment Regulations No. 1-92. As such, it acquired no legal effect and conferred no rights from its inception. A word on the applicability of the doctrine in this decision. It applies only in the determination of real estate tax payable by owners or administrators of real property. In light of the foregoing disquisitions, addressing the issue of retroactivity of the repealing ordinance is rendered unnecessary. WHEREFORE, the petition is hereby GRANTED. The assailed portion of the provisions of Section 3 of Quezon City Ordinance No. 357, Series of 1995 is hereby declared invalid.

Petitioner’s claim for refund, however, must be lodged with the Local Board of Assessment Appeals, if it is not barred by the statute of limitations. SO ORDERED. CONCHITA CARPIO MORALES Associate Justice [1] Rollo at 35-39. [2] Id. at 42-60. [3] Entitled “An Ordinance Approving the Schedule of Fair Market Values for Land, Buildings and Other Structures Situated in Quezon City Jointly Prepared by the City Assessors of the Four (4) Local Treasury and Assessment Districts Pursuant to Section 9 of P.D. 921 in Relation to the Provisions of the Local Government Code, R.A. 7160, as Basis for the General Revision of Real Property Assessment.” [4] Rollo at 7. Petitioner failed to attach a certified true copy of the ordinance. [5] Id. at 64-66. [6] Id. at 46. [7] Id. at 63. [8] Id. at 67. [9] Id. at 68-73. [10] Id. at 74-85. [11] CONST. art. VI, sec. 28 (1), viz: Section 28. (1). The rule of taxation shall be uniform and equitable. xxx [12] Rollo at 86-87. [13] Id. at 88-89. [14] Id. at 92. [15] Id. at 42 - 60. [16] Id. at 50.

[17] SECTION 219. General Revision of Assessments and Property Classification. – The provincial, city or municipal assessor shall undertake a general revision of real property assessments within two (2) years after the effectivity of this Code and every three (3) years thereafter. [18] Section 220. Valuation of Real Property. – In cases where (a) real property is declared and listed for taxation purposes for the first time; (b) there is an ongoing general revision of property classification and assessment; or (c) a request is made by the person in whose name the property is declared, the provincial, city or municipal assessor or his duly authorized deputy shall, in accordance with the provisions of this Chapter, make a classification, appraisal and assessment of the real property listed and described in the declaration irrespective of any previous assessment or taxpayer’s valuation thereon: Provided, however, That the assessment of real property shall not be increased oftener than once every three (3) years except in case of new improvements substantially increasing the value of said property or of any change in its actual use. [19] Rollo at 54. [20] Id. at 103. [21] Records at 68-70. [22] Id. at 71. [23] Id. at 72-75. [24] Id. at 107-108. [25] CIVIL CODE, ART. 4. Laws shall have no retroactive effect, unless the contrary is provided. [26] Rollo at 114-115. Vide Rollo 105. [27] Id. at 116. [28] Id. at 37-38. [29] Id. at 124-133. [30] Id. at 40-41. [31] Id. at 15. [32] Ty v. Trampe, 250 SCRA 500, 518 (1995). [33] Ibid.; Vide also PNB v. Romillo, 139 SCRA 320, (1985) where we held that the determination of whether an appeal involves only

questions of law or both questions of law and fact is best left to the appellate court. [34] SECTION 252. Payment Under Protest. — (a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt. (b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned. (c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability. (d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of this Code. [35] SECTION 226. Local Board of Assessment Appeals. — Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the provincial or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. [36] SECTION 229. Action by the Local Board of Assessment Appeals. — (a) The Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without necessarily adhering to technical rules applicable in judicial proceedings. (c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or the person having legal interest therein of such fact using the form prescribed for the purpose. The owner of the property or the person having legal interest therein or the assessor who is not satisfied with the decision of the Board, may, within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment Appeals, as herein provided. The decision of the Central Board shall be final and executory. [37] SECTION 230. Central Board of Assessment Appeals. — The Central Board of Assessment Appeals shall be composed of a chairman, and two (2) members to be appointed by the President, who shall serve for a term of seven (7) years, without reappointment. Of those first appointed, the chairman shall hold office for seven (7) years, one member for five (5) years, and the other member for three (3) years. Appointment to any vacancy shall be only for the unexpired portion of the term of the predecessor. In no case shall any member be appointed or designated in a temporary or acting capacity. The chairman and the members of the Board shall be Filipino citizens, at least forty (40) years old at the time of their appointment, and members of the Bar or Certified Public Accountants for at least ten (10) years immediately preceding their appointment. The chairman of the Board of Assessment Appeals shall have the salary grade equivalent to the rank of Director III under the Salary Standardization Law exclusive of allowances and other emoluments.

The members of the Board shall have the salary grade equivalent to the rank of Director II under the Salary Standardization Law exclusive of allowances and other emoluments. The Board shall have appellate jurisdiction over all assessment cases decided by the Local Board of Assessment Appeals. There shall be Hearing Officers to be appointed by the Central Board of Assessment Appeals pursuant to civil service laws, rules and regulations, one each for Luzon, Visayas and Mindanao, who shall hold office in Manila, Cebu City and Cagayan de Oro City, respectively, and who shall serve for a term of six (6) years, without reappointment until their successors have been appointed and qualified. The Hearing Officers shall have the same qualifications as that of the Judges of the Municipal Trial Courts. The Central Board Assessment Appeals, in the performance of its powers and duties, may establish and organize staffs, offices, units, prescribe the titles, functions and duties of their members and adopt its own rules and regulations. Unless otherwise provided by law, the annual appropriations for the Central Board of Assessment Appeals shall be included in the budget of the Department of Finance in the corresponding General Appropriations Act. [38] SECTION 231. Effect of Appeal on the Payment of Real Property Tax. — Appeal on assessments of real property made under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment depending upon the final outcome of the appeal. [39] Rule 65, Section 1, Rules of Court. [40] Manila Electric Company v. Barlis, 357 SCRA 832, 843 (2001). [41] Rule 45, Section 1, Rules of Court. [42] Macapagal v. Court of Appeals, et al.,/Silverio v. Court of Appeals, et al., 297 SCRA 429 (1998). [43] Pareño v. Sandiganbayan, 256 SCRA 242, 265 (1996). [44] Ty v. Trampe, supra, note 32 at 520.

[45] Board of Optometry v. Colet, 260 SCRA 88, 103 (1996) citing Garcia v. Executive Secretary, 204 SCRA 516, 522 (1991); Santos v. Northwest Orient Airlines, 210 SCRA 256, 261 (1992). [46] Dated October 6, 1992. [47] Pursuant to the authority granted by Rep. Act No. 7160 (1991), Section 201. [48] Rep. Act No. 7160 (1991), Sec. 201. [49] Rep. Act No. 7160 (1991), Sec. 198 (b). [50] Rep. Act No. 7160 (1991), Sec. 198 (l). [51] Army and Navy Club, Manila v. Trinidad, 44 Phil. 383 at 387. [52] 196 SCRA 322, 327 (1991). [53] Army and Navy Club, Manila v. Trinidad, supra, note 51. [54] Dated October 6, 1992. [55] Section 21. Approaches Used to Estimate Values – As discussed in Section 34 hereof, to estimate value, three approaches may be used in the construction of the schedule of fair market values. Sales Analysis Approach (also called Market Data Approach), the Income Capitalization Approach, and the Replacement or Reproduction Cost Approach. A. Under the Sales Analysis Approach, the price pain in actual market transactions is considered. It requires the accumulation of valid sales data. Such data can be secured from the office of the Registrar of Deeds and notaries public, who are required under Section 278 of the Code to furnish the provincial, city or municipal assessors with copies of all contracts, conveying, leasing, or mortgaging of real property, received or acknowledged before them. Other evidences of market values to augment sales data re: bids, offers to sell, opinions of informed real estate appraisers, brokers, salesmen, dealers or bank officials. Values declared by property owners or administrators embodied in sworn statements filed pursuant to Section 202 of the Code fully evaluated, may also be considered as additional source of information of Market Data Analysis. In the absence or unavailability of valid sales, data, price indices of real property situated in the different provinces, cities

and municipalities, compiled in the National Statistics Office and the Economic Research Division of the Central Bank of the Philippines, may be used as primary basis in computing the fair market value that will be incorporated in the schedule of market values. 1. Analysis of Sales Transactions – The elements that enter into sales transactions should be analyzed thoroughly, to determine the relationship between the amount of consideration contained therein and the current value of subject property. Only sales transactions which meet more or less the following criteria shall be considered for the sales analysis: (a) The date of the transaction must be reasonably near the general assessment date. Sales transactions for the current year or preceding year, if adequate, would also serve as a good basis for studies on trends of market values. If the data derived therefrom are inadequate, studies may extend to preceding year, but in no case shall it be for more than three (3) years from the general re-assessment date. (b) Type of conveyance representing a normal transaction is one which envisions willing, able and well-informed, buyers and sellers. Quitclaims, transfers between relatives, inter-related corporations and the like, should not be considered. (c) The amount of consideration reflects a strong presumption of the fair market value of the property involved. 2. Abstraction Method – Where sales cover land and improvements, a method called abstraction method is used to estimate value of land. The value of the improvement is first estimated pursuant to Section 210 of the Code and later deducted from the total sales of the property to derive the land price which, when divided by the area of the land, result in the estimated price per hectare or per square meter. For this process to have validity, as in other techniques for estimating value, it has to be applied to sales of similar real properties so that a range of value may be prepared as basis for studying fair market value for purposes of construction of the schedule of market values.

B. Income Capitalization Approach – Is a direct approach to estimate the value of property. It is based on the theory that the value of an income producing property is no more than the return derived from it. It requires an analysis of the income produced by a property in order to estimate the sum which might be invested in the purchase of the property. A detailed financial study must be made of the property. Gross annual income is either determined from actual figures or is estimated. Annual expense figures are obtained from the owner. The income, operating expenses and fixed charges of the subject property are analyzed and the expenses derived thereof are then subtracted from the gross income. The resultant net income capitalized at a rate which the investor of the property can expect as reasonable return or interest prevailing in the locality. The capitalized value of the income represents the present value of the property. Income method may be utilized to check results derived from sales analysis approach in the case of rental or income producing property. C. Reproduction Cost (New) Approach – This is a factual approach used exclusively in appraising man-made improvements such as buildings and other structures. This method depends on guides and standards, based on such data as materials and labor costs. The “reproduction or replacement cost approach” makes use of a value estimate of reproducing a new replica property within the same or closely similar materials and labor costs. Unit base construction cost is developed on a per square meter or per cubic meter basis for typical buildings or structures. The unit cost is multiplied by the ground area or volume, as the case may be, of the subject structure to derive its total reproduction or replacement cost, allowance for depreciation is deducted to arrive at the depreciated cost of subject property. (1) Quantitative Analysis Method – The schedule of unit base construction cost for buildings shall be established by the quantitative analysis method of the reproduction cost (new)

approach. A base unit cost for each type and sub-type of typical buildings in the province or city or municipality shall be established. By this method, a detailed inventory of all materials and labor that went into the finished building is made. The first step in this method is collection or preparation of plans and specifications for adopted typical (sample) buildings, representing each type. Data on cost of construction materials prevailing in the city or province or municipality shall then be gathered and listed. Labor cost and others that contribute to the construction cost may be estimated by proper consultation with building contractors, engineers, architects and labor agencies. From the plans and specifications, materials and labor quantities are then computed for all parts of the structures. The materials cost shall be determined by applying the price for building materials computed from the material quantities that went with finished buildings. The amount added to the estimated labor cost and miscellaneous expenses, results in the total cost of the subject building. The base unit cost shall be then determined by dividing this total cost by average area in square meters of the subject structure. [56] SECTION 202. Declaration of real Property by the Owner or Administrator. — It shall be the duty of all persons, natural or juridical, owning or administering real property, including the improvements therein, within a city or municipality, or their duly authorized representative, to prepare, or cause to be prepared, and file with the provincial, city or municipal assessor, a sworn statement declaring the true value of their property, whether previously declared or undeclared, taxable or exempt, which shall be the current and fair market value of the property, as determined by the declarant. Such declaration shall contain a description of the property sufficient in detail to enable the assessor or his deputy to identify the same for assessment purposes. The sworn declaration of real property herein referred to shall be filed with the assessor concerned once every three (3) years during the period from January first (1st) to June thirtieth (30th) commencing with the calendar year 1992.

SECTION 203. Duty of Person Acquiring Real Property or Making Improvement Thereon. — It shall also be the duty of any person, or his authorized representative, acquiring at any time real property in any municipality or city or making any improvement on real property, to prepare, or cause to be prepared, and file with the provincial, city or municipal assessor, a sworn statement declaring the true value of subject property, within sixty (60) days after the acquisition of such property or upon completion or occupancy of the improvement, whichever comes earlier. SECTION 208. Notification of Transfer of Real Property Ownership. — Any person who shall transfer real property ownership to another shall notify the provincial, city or municipal assessor concerned within sixty (60) days from the date of such transfer. The notification shall include the mode of transfer, the description of the property alienated, the name and address of the transferee. SECTION 209. Duty of Registrar of Deeds to Appraise Assessor of Real Property Listed in Registry. — (a) To ascertain whether or not any real property entered in the Registry of Property has escaped discovery and listing for the purpose of taxation, the Registrar of Deeds shall prepare and submit to the provincial, city or municipal assessor, within six (6) months from the date of effectivity of this Code and every year thereafter, an abstract of his registry, which shall include brief but sufficient description of the real properties entered therein, their present owners, and the dates of their most recent transfer or alienation accompanied by copies of corresponding deeds of sale, donation, or partition or other forms of alienation. (b) It shall also be the duty of the Registrar of Deeds to require every person who shall present for registration a document of transfer, alienation, or encumbrance of real property to accompany the same with a certificate to the effect that the real property subject of the transfer, alienation, or encumbrance, as the case may be, has been fully paid of all real property taxes due thereon.

Failure to provide such certificate shall be a valid cause for the Registrar of Deeds to refuse the registration of the document. SECTION 210. Duty of Official Issuing Building Permit or Certificate of Registration of Machinery to Transmit Copy to Assessor. — Any public official or employee who may now or hereafter be required by law or regulation to issue to any person a permit for the construction, addition, repair, or renovation of a building, or permanent improvement on land, or a certificate of registration for any machinery, including machines, mechanical contrivances, and apparatus attached or affixed on land or to another real property, shall transmit a copy of such permit or certificate within thirty (30) days of its issuance, to the assessor of the province, city or municipality where the property is situated. SECTION 211. Duty of Geodetic Engineers to Furnish Copy of Plans to Assessor. — It shall be the duty of all geodetic engineers, public or private, to furnish free of charge to the assessor of the province, city or municipality where the land is located with a white or blue print copy of each of all approved original or subdivision plans or maps of surveys executed by them within thirty (30) days from receipt of such plans from the Lands Management Bureau, the Land Registration Authority, or the Housing and Land Use Regulatory Board, as the case may be. SECTION 213. Authority of Assessor to Take Evidence. — For the purpose of obtaining information on which to base the market value of any real property, the assessor of the province, city or municipality or his deputy may summon the owners of the properties to be affected or persons having legal interest therein and witnesses, administer oaths, and take deposition concerning the property, its ownership, amount, nature, and value. [57] Vide Army and Navy Club, Manila v. Trinidad, supra, note 51 at 385. [58] Vide also Local Assessment Regulations No. 1-92 (1992), Section 19. Duty of the Provincial/City/Municipal Assessor – It is the duty of all provincial and city assessors, and municipal assessors of

the municipalities within the Metropolitan Manila Area to prepare of cause to be prepared a schedule of market values as the basis for the appraisal and assessment of lands, buildings and other improvements situated in their respective jurisdictions within one (1) year after the effectivity of the Code and every three (3) years thereafter; and Market values for real property situated within the province shall be prepared by the provincial assessors who shall be assisted by the municipal assessors of municipalities within his jurisdiction. [59] Vide Magtajas v. Pryce Properties Corp., Inc., 234 SCRA 255, at 268 and 274. [60] Rep. Act No. 537 (1950), as amended. [61] City Ordinance No. SP-91, S-93. [62] Rep. Act. No. 7160, Sec. 198 (d). [63] Id., Secs. 198 (b) and 217. [64] Id., Secs. 219 and 220, supra, notes 17 & 18. [65] Id., Sec. 220. [66] Id., Sec. 130 (4).

The Facts THIRD DIVISION

The undisputed facts are quoted by the Court of Appeals (CA) from the CBAA ruling, as follows:

[G.R. No. 127316. October 12, 2000] LIGHT RAIL TRANSIT AUTHORITY, petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF MANILA and the CITY ASSESSOR OF MANILA, respondents. DECISION PANGANIBAN, J.: The Light Rail Transit Authority and the Metro Transit Organization function as service-oriented business entities, which provide valuable transportation facilities to the paying public. In the absence, however, of any express grant of exemption in their favor, they are subject to the payment of real property taxes. The Case In the Petition for Review before us, the Light Rail Transit Authority (LRTA) challenges the November 15, 1996 Decision of the Court of Appeals (CA) in CA-GR SP No. 38137, which disposed as follows: "WHEREFORE, premises considered, the appealed decision (dated October 15, 1994) of the Central Board of Assessment Appeals is hereby AFFIRMED, with costs against the petitioner." The affirmed ruling of the Central Board of Assessment Appeals (CBAA) upheld the June 26, 1992 Resolution of the Board of Assessment Appeals of Manila, which had declared petitioner's carriageways and passenger terminals as improvements subject to real property taxes.

"1. The LRTA is a government-owned and controlled corporation created and organized under Executive Order No. 603, dated July 12, 1980 'x x x primarily responsible for the construction, operation, maintenance and/or lease of light rail transit system in the Philippines, giving due regard to the [reasonable requirements] of the public transportation of the country' (LRTA vs. The Hon. Commission on Audit, GR No. No. 88365); "2. x x x [B]y reason of x x x Executive Order 603, LRTA acquired real properties x x x constructed structural improvements, such as buildings, carriageways, passenger terminal stations, and installed various kinds of machinery and equipment and facilities for the purpose of its operations; "3. x x x [F]or x x x an effective maintenance, operation and management, it entered into a Contract of Management with the Meralco Transit Organization (METRO) in which the latter undertook to manage, operate and maintain the Light Rail Transit System owned by the LRTA subject to the specific stipulations contained in said agreement, including payments of a management fee and real property taxes (Add'l Exhibit "I", Records) "4. That it commenced its operations in 1984, and that sometime that year, Respondent-Appellee City Assessor of Manila assessed the real properties of [petitioner], consisting of lands, buildings, carriageways and passenger terminal stations, machinery and equipment which he considered real propert[y] under the Real Property Tax Code, to commence with the year 1985; "5. That [petitioner] paid its real property taxes on all its real property holdings, except the carriageways and passenger terminal

stations including the land where it is constructed on the ground that the same are not real properties under the Real Property Tax Code, and if the same are real propert[y], these x x x are for public use/purpose, therefore, exempt from realty taxation, which claim was denied by the Respondent-Appellee City Assessor of Manila; and "6. x x x [Petitioner], aggrieved by the action of the RespondentAppellee City Assessor, filed an appeal with the Local Board of Assessment Appeals of Manila x x x. Appellee, herein, after due hearing, in its resolution dated June 26, 1992, denied [petitioner's] appeal, and declared that carriageways and passenger terminal stations are improvements, therefore, are real propert[y] under the Code, and not exempt from the payment of real property tax. "A motion for reconsideration filed by [petitioner] was likewise denied." The CA Ruling The Court of Appeals held that petitioner's carriageways and passenger terminal stations constituted real property or improvements thereon and, as such, were taxable under the Real Property Tax Code. The appellate court emphasized that such pieces of property did not fall under any of the exemptions listed in Section 40 of the aforementioned law. The reason was that they were not owned by the government or any government-owned corporation which, as such, was exempt from the payment of real property taxes. True, the government owned the real property upon which the carriageways and terminal stations were built. However, they were still taxable, because beneficial use had been transferred to petitioner, a taxable entity. The CA debunked the argument of petitioner that carriageways and terminals were intended for public use. The former agreed, instead, with the CBAA. The CBAA had concluded that since petitioner was

not engaged in purely governmental or public service, the latter's endeavors were proprietary. Indeed, petitioner was deemed as a profit-oriented endeavor, serving as it did, only the paying public. Hence, this Petition. The Issues In its Memorandum, petitioner urges the Court to resolve the following matters: "I The Honorable Court of Appeals erred in not holding that the carriageways and terminal stations of petitioner are not improvements for purposes of the Real Property Tax Code. "II The Honorable Court of Appeals erred in not holding that being attached to national roads owned by the national government, subject carriageways and terminal stations should be considered property of the national government. "III The Honorable Court of Appeals erred in not holding that payment of charges or fares in the operation of the light rail transit system does not alter the nature of the subject carriageways and terminal stations as devoted for public use. "IV The Honorable Court of Appeals erred in failing to consider the view advanced by the Department of Finance, which takes charge of the

overall collection of taxes, that subject carriageways and terminal stations are not subject to realty taxes.

essence, it contends that to impose a tax on the carriageways and terminal stations would be to impose taxes on public roads.

"V

The argument does not persuade. We quote with approval the solicitor general's astute comment on this matter:

The Honorable Court of Appeals erred in failing to consider that payment of the realty taxes assessed is not warranted and should the legality of the questioned assessment be upheld, the amount of the realty taxes assessed would far exceed the annual earnings of petitioner, a government corporation." The foregoing all point to one main issue: whether petitioner's carriageways and passenger terminal stations are subject to real property taxes. The Court's Ruling The Petition has no merit. Main Issue: May Real Property Taxes be Assessed and Collected? The Real Property Tax Code, the law in force at the time of the assailed assessment in 1984, mandated that "there shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property such as lands, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted." Petitioner does not dispute that its subject carriageways and stations may be considered real property under Article 415 of the Civil Code. However, it resolutely argues that the same are improvements, not of its properties, but of the government-owned national roads to which they are immovably attached. They are thus not taxable as improvements under the Real Property Tax Code. In

"There is no point in clarifying the concept of industrial accession to determine the nature of the property when what is fundamentally important for purposes of tax classification is to determine the character of the property subject [to] tax. The character of tax as a property tax must be determined by its incidents, and form the natural and legal effect thereof. It is irrelevant to associate the carriageways and/or the passenger terminals as accessory improvements when the view of taxability is focused on the character of the property. The latter situation is not a novel issue as it has already been resolved by this Honorable Court in the case of City of Manila vs. IAC (GR No. 71159, November 15, 1989) wherein it was held: 'The New Civil Code divides the properties into property for public and patrimonial property (Art. 423), and further enumerates the property for public use as provincial road, city streets, municipal streets, squares, fountains, public waters, public works for public service paid for by said [provinces], cities or municipalities; all other property is patrimonial without prejudice to provisions of special laws. (Art. 424, Province of Zamboanga v. City of Zamboanga, 22 SCRA 1334 [1968]) xxx '...while the following are corporate or proprietary property in character, viz: 'municipal water works, slaughter houses, markets, stables, bathing establishments, wharves, ferries and fisheries.' Maintenance of parks, golf courses, cemeteries and airports, among others, are also recognized as municipal or city activities of a

proprietary character (Dept. of Treasury v. City of Evansville; 60 NE 2nd 952)' "The foregoing enumeration in law does not specify or include carriageway or passenger terminals as inclusive of properties strictly for public use to exempt petitioner's properties from taxes. Precisely, the properties of petitioner are not exclusively considered as public roads being improvements placed upon the public road, and this separability nature of the structure in itself physically distinguishes it from a public road. Considering further that carriageways or passenger terminals are elevated structures which are not freely accessible to the public, viz-a-viz roads which are public improvements openly utilized by the public, the former are entirely different from the latter. "The character of petitioner's property, be it an improvements as otherwise distinguished by petitioner, needs no further classification when the law already classified it as patrimonial property that can be subject to tax. This is in line with the old ruling that if the public works is not for such free public service, it is not within the purview of the first paragraph of Art. 424 if the New Civil Code." Though the creation of the LRTA was impelled by public service -- to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila -- its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government-owned or controlled corporation.

True, petitioner's carriageways and terminal stations are anchored, at certain points, on public roads. However, it must be emphasized that these structures do not form part of such roads, since the former have been constructed over the latter in such a way that the flow of vehicular traffic would not be impeded. These carriageways and terminal stations serve a function different from that of the public roads. The former are part and parcel of the light rail transit (LRT) system which, unlike the latter, are not open to use by the general public. The carriageways are accessible only to the LRT trains, while the terminal stations have been built for the convenience of LRTA itself and its customers who pay the required fare. Basis of Assessment Is Actual Use of Real Property Under the Real Property Tax Code, real property is classified for assessment purposes on the basis of actual use, which is defined as "the purpose for which the property is principally or predominantly utilized by the person in possession of the property." Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways and terminal stations are the commuting public. It adds that the public-use character of the LRT is not negated by the fact that revenue is obtained from the latter's operations. We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business and earns money therefrom. Petitioner Not Exempt from Payment of Real Property Taxes

In any event, there is another legal justification for upholding the assailed CA Decision. Under the Real Property Tax Code, real property "owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporation so exempt by its charter, provided, however, that this exemption shall not apply to real property of the abovenamed entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person."

Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly construed against the claimant. LRTA has not shown its eligibility for exemption; hence, it is subject to the tax.

Executive Order No. 603, the charter of petitioner, does not provide for any real estate tax exemption in its favor. Its exemption is limited to direct and indirect taxes, duties or fees in connection with the importation of equipment not locally available, as the following provision shows:

SO ORDERED.

"ARTICLE 4

Penned by Justice Ramon Mabutas Jr., with the concurrence of Justices Minerva P. Gonzaga-Reyes (Division chairperson and now a member of this Court) and Salvador J. Valdez (member).

TAX AND DUTY EXEMPTIONS Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and Materials. - The importation of equipment, machineries, spare parts, accessories and other materials, including supplies and services, used directly in the operations of the Light Rails Transit System, not obtainable locally on favorable terms, out of any funds of the authority including, as stated in Section 7 above, proceeds from foreign loans credits or indebtedness, shall likewise be exempted from all direct and indirect taxes, customs duties, fees, imposts, tariff duties, compensating taxes, wharfage fees and other charges and restrictions, the provisions of existing laws to the contrary notwithstanding." Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against the petitioner.

Melo, (Chairman), Vitug, and Purisima, JJ., concur. Gonzaga-Reyes, J., no part.

Rollo, p. 43. CA Decision, pp. 2-3; rollo, pp. 29-30. This Petition was deemed submitted for decision on October 13, 1999, upon receipt by the Court of the Explanation filed by Attys. Melchor R. Monsod and Jose A. Perello Jr. of the Office of the City Legal Officer of Manila, who clarified that they were adopting as memorandum their February 28, 1998 Comment. Received by the Court on November 3, 1998 was Petitioner LRTA's Memorandum signed by Government Corporate Counsel Jun Valerio, Assistant Government Corporate Counsel Antonio M. Brillantes, and Government Corporate Attorney IV Isabelo G. Gumaru. On September 30, 1998, the Office of the Solicitor General filed a "Manifestation and Motion for Leave to Adopt Comment as Memorandum for the Central Board of Assessment Appeals." The

OSG's May 2, 1997 Comment was signed by Assistant Solicitor General Mariano M. Martinez and Solicitors Luis F. Simon and Brigido Artemon M. Luna.

(1) To have continuous succession under its corporate name, until otherwise provided by law; (2) To prescribe, amend, and/or repeal its by-laws;

Rollo, pp. 151-152; original written entirely in upper case. (3) To adopt and use a seal and alter it at its pleasure; Presidential Decree No. 464. See also the Local Government Code of 1991 or Republic Act No. 7160, which took effect on January 1, 1992.

(4) To sue and be sued;

Ibid., §38. This is identical to §232 of the Local Government Code (LGC), which reads:

(5) To contract any obligation or enter into, assign or accept the assignment of, and vary or rescind any agreement, contract of obligation necessary or incidental to the proper management of the Authority;

"Section 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted." Comment of the Office of the Solicitor General, pp. 8-10; rollo, pp. 70-72. See Section 4 of Executive Order No. 603, the LRTA charter, which provides: "ARTICLE 2 CORPORATE POWERS "Sec. 4. General Powers. - The Authority, through the Board of Directors, may undertake such action as are expedient for or conducive to the attainment of the purposes and objectives of the Authority, or of any purpose reasonably incidental to or consequential upon any of these purposes. As such, the Authority shall have the following general powers:

(6) To borrow funds from any source, private or public, foreign or domestic, and to issue bonds and other evidence of indebtedness, the payment of which shall be guaranteed by the National Government, subject to pertinent borrowing law; (7) To acquire, receive, take, and hold by bequest, devise, gift, purchase or lease, either absolutely or in trust for any of its purposes, from foreign and domestic sources, any asset, grant or property, real or personal, subject to such limitations as are provided in existing laws; to convey or dispose of such assets, grants, or properties, movable and immovable; and invest and/or reinvest such proceeds and deal with and expand its assets and income in such a manner as will best promote its objectives; (8) To improve, develop or alter any property held by it; (9) To carry on any business, either alone or in partnership with any other person or persons; (10) To employ an agent or contractor or perform such things as the Authority may perform;

(11) To exercise the right of eminent domain, whenever the Authority deems it necessary for the attainment of its objectives; (12) To prescribe rules and regulations in the conduct of its general business as well as to fix and implement the terms and conditions of its related activities; (13) To determine the fares payable by persons traveling on the light rail system, in consultation with the Board of Transportation; (14) To establish, operate, and maintain branches or field offices when required by the exigencies of its business; (15) To determine its organizational structure and the number, positions and salaries of its personnel, subject to pertinent organization and compensation law; and (16) To exercise such powers and perform such duties as may be necessary to carry out the business and purposes for which the Authority was established or which, from time to time may be declared by the Board of Directors to be necessary, useful, incidental or auxiliary to accomplish such purposes; and generally, to exercise all powers of an Authority under the Corporation Law that are not inconsistent with the provisions of this Order, or with orders pertaining to government corporate budgeting, organization, borrowing, or compensation." §19 of the Real Property Tax Code reads: "Real property shall be classified for assessment on the basis of its actual use, regardless of where located and whoever uses it." See also §198 (b) of the LGC, an identical proviso which reads: "Real property shall be classified for assessment purposes on the basis of its actual use." See §3 (a) of the Real Property Tax Code and §199 (b) of the LGC.

Section 40 (a) of the Real Property Code and Section 234 (a) of the Local Government Code. Thus, petitioner will not find solace under the Local Government Code either, for the reasons discussed above. Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667, September 11, 1996.

SECOND DIVISION [G.R. No. 143214. November 11, 2004] PHILIPPINE PORTS AUTHORITY, petitioner, vs. THE CITY OF ILOILO; ROMEO MANIKAN, in his capacity as Treasurer of Iloilo City; FRANKLIN CORDERO, JR., in his capacity as Assessor of Iloilo City, respondents. DECISION CALLEJO, SR., J.: On October 9, 1990, the respondent City of Iloilo sent a “Notice of Sale of Delinquent Real Properties” to petitioner Philippine Ports Authority (PPA) for non-payment of real property taxes covering its facilities and edifices at the Iloilo port for the years 1985-1989, to wit: Tax Dec. No. Kind of Property Assessment 56325 Warehouse P 81,369.26 61745 Building (Shed) 5,793.22 61747 Residential House 1,754.68 59949 Building 13,959.42 61741 Building 10,294.10 61742 Building 9,998.86 61744 Building 2,821.41[1] The respondent city was the only winning bidder at the public auction conducted by the City Treasurer and the Assessor. Consequently, the said properties were sold to it, and, conformably with Section 76 of Presidential Decree (P.D.) No. 464, a certificate of sale over the properties was executed in its favor.

On November 16, 1990, the City Treasurer sent a “Notice of Right to Redeem” to the petitioner advising it that it had only until October 30, 1991 within which to redeem the properties. The petitioner forthwith filed its complaint against the respondents, the City of Iloilo, its City Treasurer and its Assessor with the Regional Trial Court (RTC) of Iloilo City, Branch 36, for the nullification of the assessment and the sale with a prayer for a temporary restraining order and/or a writ of preliminary injunction. In its complaint, the petitioner alleged, inter alia, that the properties belonged to the Bureau of Customs and/or the national government; hence, the properties were exempt from the payment of realty taxes. To support its argument, the petitioner cited Section 25 of P.D. No. 857, Section 40(a) of P.D. No. 464 and Section 1(e) of Executive Order (E.O.) No. 93 issued on December 17, 1986. In their answer to the complaint, the respondents alleged that the petitioner’s exemption had already been withdrawn under P.D. No. 1931 which took effect on June 11, 1984. Consequently, the sale of the petitioner’s properties at public auction was in accord with law. On October 22, 1992, the trial court rendered judgment in favor of the respondents and ordered the dismissal of the complaint. The decision was elevated to the Court of Appeals via a petition for review, which rendered judgment affirming the decision of the RTC on September 15, 1999. In its Decision,[2] the appellate court ruled that since the petitioner had acquired the properties, it was liable for realty taxes due thereon. The petitioner’s motion for reconsideration of the said decision was denied by the appellate court; hence, the instant petition for review on certiorari for the reversal thereof. The petitioner contends that the subject properties are owned by the Republic of the Philippines. It avers that while under Section 30 of P.D. No. 857, the said properties were transferred to the petitioner, the Republic of the Philippines retained ownership over the same. It claims that while it administers and operates the port

of Iloilo, it does so for the benefit of the general public and not for taxable persons. As such, the said properties are exempt from realty taxes under Section 40 of P.D. No. 464. The petitioner further asserts that P.D. No. 1931 and E.O. No. 93 have no application to properties owned by the Republic of the Philippines. In their comment on the petition, the respondents aver that by virtue of P.D. No. 857 issued on December 23, 1975, the petitioner became the owner of the subject properties. They point out that the petitioner even declared the properties for taxation purposes under its name. The respondents, likewise, posit that the exemption on realty taxes in favor of the petitioner had effectively been withheld under P.D. No. 1931, and that the petitioner cannot invoke P.D. No. 464 because the subject properties are being leased to taxable private persons. The respondents appended to their comment the tax declarations on the properties under the name of the petitioner.

SEC. 31. Transfer of Intangible Assets – In accordance with the transitory provisions of this Decree, there shall be transferred to the Authority all intangible assets, powers, rights, foreshore rights, interests and privileges belonging to the Bureau of Customs, and Bureau of Public Works and other agencies relating to port works or port operations, subject to terms to be arranged by and between the Authority and agencies concerned. Any disagreement relating to such transfer shall be elevated to the President for decision. SEC. 32. Projects in Progress – In accordance with the transitory provisions of this Decree, all ongoing projects relating to the construction of ports and port facilities shall be continued by the agency or agencies involved until completion. After completion, such projects shall be transferred to the Authority in accordance with the agreement among agencies concerned. Any disagreement relating to such transfer shall be elevated to the President for decision.

The petition has no merit. Petitioner PPA Became the Owner Of the Port Facilities and Appurtenances under P.D. No. 857 When P.D. No. 857 took effect on December 23, 1975, the petitioner became the owner of the facilities and appurtenances, conformably to Sections 30 to 33 thereof, to wit: SEC. 30. Transfer of Existing and Completed Physical Facilities – In accordance with the transitory provisions of this Decree, there shall be transferred to the Authority all existing and completed public port facilities, quays, wharves, docks, lands, buildings and other property, movable or immovable, belonging to those ports declared as Ports Districts for purposes of this Decree.

SEC. 33. Transfer of Liabilities and Debts – Upon the transfer and acceptance by the Authority of the existing physical facilities, intangible assets, and completed projects referred to in the Sections immediately preceding, all debts, liabilities, and obligations of the Bureau of Customs, the Bureau of Public Works, and other government agencies or entities concerned in respect of such physical facilities, intangible assets and completed projects within the Port Districts shall, likewise, be transferred to or deemed incurred by the Authority. Section 40 of the law further provides that any and all other powers, rights, duties and functions vested in and all properties, authority or instrumentality pertaining to every matter concerning port facilities, ports operations, or port works were transferred to and were vested in the petitioner. These provisions are selfexecutory, without need of any other formalities or documentations to implement the same.

That the petitioner has not been issued any torrens title over the port and port facilities and appurtenances is of no legal consequence. A torrens title does not, by itself, vest ownership; it is merely an evidence of title over real properties.[3] The torrens system does not create or vest title. It has never been recognized as a mode of acquiring ownership over real properties.[4]

in question and the exception in Section 234(c) of the LGC is inapplicable.[6]

That the petitioner became the owner of said facilities and appurtenances is bolstered by the fact that under Article VI, Section 10(b) of P.D. No. 857, the initial paid up capital of the petitioner consists of the following:

Facilities and Appurtenances

(i) The value of assets (including port facilities, quays, wharves, and equipment) and such other properties, movable and immovable as may be contributed by the Government or transferred by the Government or any of its agencies as valued at the date of such contribution or transfer and after deducting or taking into account the loans and other liabilities of the Authority at the time of the takeover of the assets and other properties. As we held in Mactan Cebu International Airport Authority v. Marcos:[5] It may be reasonable to assume that the term “lands” refer to “lands” in Cebu City then administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a “transfer” of the “lands,” among other things, to the petitioner and not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This “transfer” is actually an absolute conveyance of the ownership thereof because the petitioner’s authorized capital stock consists of, inter alia, “the value of such real estate owned and/or administered by the airports.” Hence, the petitioner is now the owner of the land

The Petitioner is Liable For Realty Taxes on its

The petitioner cannot escape liability from the payment of realty taxes by invoking its exemption in Section 40(a) of P.D. No. 464,[7] which reads: “SEC. 40. Exemptions from Real Property Tax – The exemption shall be as follows: a) Real Property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned corporation so exempt by its charter, provided, however, that this exemption shall not apply to real property of the above-named entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person. … The petitioner cannot, likewise, find solace in Section 25 of P.D. No. 857,[8] to wit: SEC. 25. Exemption from Realty Taxes – The Authority shall be exempt from the payment of real property taxes imposed by the Republic of the Philippines, its agencies, instrumentalities or political subdivisions; Provided, That no tax exemptions shall be extended to any subsidiaries of the Authority that may be organized; Provided, finally, That investments in fixed assets shall be deductible for income tax purposes.

First. Section 1, P.D. No. 1931 which took effect on June 11, 1984, effectively withdrew the exemption granted to the petitioner, a government-owned or controlled corporation – Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, imports and other charges heretofore granted in favor of government-owned or controlled corporations including their subsidiaries, are hereby withdrawn. Second. Under the last paragraph of Section 234 of Republic Act No. 7160, otherwise known as the Local Government Code (LGC), the petitioner’s exemptions from the real property tax were withdrawn upon the effectivity of the law. Thus:

(e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all governmentowned or controlled corporations are hereby withdrawn upon the effectivity of this Code.[9] Patently then, it was the intention of Congress to withdraw the tax exemptions granted to or presently enjoyed by all persons, including government-owned or controlled corporations, upon the effectivity of the LGC as shown by Section 193 thereof:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof had been granted, for consideration or otherwise, to a taxable person;

Section 193. – Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable or educational purposes;

Furthermore, under the repealing clause, Section 534(f) of the LGC, all general and special laws, acts, decrees, or part or parts thereof which are inconsistent with any of the provisions of the law were repealed:

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;

Section 534(f) – Repealing Clause. – All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this code are hereby repealed or modified accordingly.

SEC. 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; and

The clause partakes of the nature of a general repealing clause because it fails to designate the specific act or acts identified by number or title that are submitted to be repealed.[10]

Thus, Section 25 of P.D. No. 857 and Section 40 of P.D. No. 464 were repealed by Rep. Act No. 7160. We emphasized the raison d’etre for the withdrawal of the exemption in Mactan Cebu International Airport Authority v. Marcos[11] as follows: SEC. 40. Exemptions from Real Property Tax. –The exemption shall be as follows: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporation so exempt by its charter: Provided, however, That this exemption shall not apply to real property of the above-mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person. Note that as reproduced in Section 234(a), the phrase “and any government-owned or controlled corporation so exempt by its charter” was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, especially in light of the general provision on withdrawal of tax exemption privileges in Section 193 and the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of 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. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and 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, and there was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.[12] It is wont to state that even under Section 40 of P.D. No. 464, the petitioner is considered a taxable person. The bare fact that the port and its facilities and appurtenances are accessible to the general public does not exempt it from the payment of real property taxes. It must be stressed that the said port facilities and appurtenances are the petitioner’s corporate patrimonial properties, not for public use, and that the operation of the port and its facilities and the administration of its buildings are in the nature of ordinary business. The petitioner is clothed, under P.D. No. 857, with corporate status and corporate powers in the furtherance of its proprietary interests: SEC. 6. Corporate Powers and Duties – a) The corporate duties of the Authority shall be: (i) To formulate in coordination with the National Economic and Development Authority a comprehensive and practicable Port Development plan for the State and to program its implementation, renew and update the same annually in coordination with other national agencies. (ii) To supervise, control, regulate, construct, maintain, operate, and provide such facilities or services as are necessary in the ports vested in, or belonging to the Authority. (iii) To prescribe rules and regulations, procedures, and guidelines governing the establishment, construction, maintenance, and operation of all other ports, including private ports in the country.

(iv) To license, control, regulate, supervise any construction or structure within any Port District. (v) To provide services (whether on its own, by contract, or otherwise) within the Port Districts and the approaches thereof, including but not limited to --berthing, towing, mooring, moving, slipping, or docking any vessel; -loading or discharging any vessel; -sorting, weighing, measuring, storing, warehousing, or otherwise handling goods. (vi) To exercise control of or administer any foreshore rights or leases which may be vested in the Authority from time to time. (vii) To coordinate with the Bureau of Lands or any other government agency or corporation, in the development of any foreshore area. (viii) To control, regulate, and supervise pilotage and the conduct of pilots in any Port District. (ix) To provide or assist in the provision of training programs and training facilities for its staff of port operators and users for the efficient discharge of its functions, duties and responsibilities. (x) To perform such acts or provide such services as may be deemed proper or necessary to carry out and implement the provisions of this Decree. b) The corporate powers of the Authority shall be as follows: (i) To succeed in its corporate name.

(ii) To sue and be sued in such corporate name. (iii) To adopt, alter, and use a corporate seal which shall be judicially noticed. (iv) To adopt, amend, or repeal its by-laws. (v) To create or alter its own organization or any Port Management Unit, and staff such an organization or Port Management Unit with appropriate and qualified personnel in accordance with what may be deemed proper or necessary to achieve the objectives of the Authority. (vi) To make or enter contracts of any kind or nature to enable it to discharge its functions under this Decree. (vii) To acquire, purchase, own, lease, mortgage, sell, or otherwise dispose of any land, port facility, wharf, quay, or property of any kind, whether movable or immovable. (viii) To exercise the right of eminent domain, by expropriating the land or areas surrounding the Port of harbor, which in the opinion of the Authority, are vital or necessary for the total development of the Port District. (ix) To levy dues, rates, or charges for the use of the premises, works, appliances, facilities, or for services provided by or belonging to the Authority, or any other organization concerned with port operations. (x) To reclaim, excavate, enclose, or raise any part of the lands vested in the Authority. (xi) To dredge or provide dredging services, within a Port District or elsewhere.

(xii) To acquire any undertaking affording or intending to afford facilities for the loading and discharging or warehousing of goods in the Port Districts.

of the Philippines upon recommendation of the Board may order that the revised rates, charges or fees are in effect.

(xiv) To obtain, insure for or require the insurance of any property, movable or immovable, belonging to the Authority and/or goods in the custody of the Authority.

b) The Authority shall regulate the rates or charges for port services or port-related services so that taking one year with another, such rates or charges furnish adequate working capital and produce an adequate return on the assets of the Authority. In regulating the rates or charges for individual ports, the Authority shall take into account the development needs of the port’s hinterland.

(xv) To do all such other things and to transact all such business directly or indirectly necessary, incidental or conducive to the attainment of the purposes of the Authority.

c) All dues, fees, charges and other sums, imposed and collected by the Authority shall accrue to the Authority and shall be disposed of in accordance with the provisions of this Decree.

(xvi) Generally, to exercise all the powers of a corporation under the Corporation Law insofar as they are not inconsistent with the provisions of this Decree.

Clearly then, the petitioner is a profit-earning corporation; hence, its patrimonial properties are subject to tax.[13]

(xiii) To supply water or bunker for ships.

The petitioner is even empowered to invest its funds in such government securities approved by the Board of Directors, and derives its income from rates, charges or fees for the use by vessels of the port premises, appliances or equipment. SEC. 20. Rates and Charges – a) The Authority may impose, fix, prescribe, increase or decrease such rates, charges or fees for the use of port premises, works, appliances or equipment belonging to the Authority and port facilities provided, and for services rendered by the Authority or by any private organization within a Port District. Provided, that upon the coming into operation of this Decree, the rates of storage and arrastre charges in all ports of the Philippines shall be those now provided under Parts 4 and 5 of Title VII, Book II of the Tariff and Customs Code until such time when the President

We reject the petitioner’s claim that it is exempt from the payment of real property taxes, considering that it does not use the port facilities and buildings. This Court overruled a similar submission as follows: Under the Real Property Tax Code, real property is classified for assessment purposes on the basis of actual use, which is defined as “the purpose for which the property is principally or predominantly utilized by the person in possession of the property. Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways and terminal stations are the commuting public. It adds that the public-use character of the LRT is not negated by the fact that revenue is obtained from the latter’s operations. We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the required

fare. It is, thus, apparent that petitioner does not exist solely for public service, and that the LRT carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business and earns money therefrom. … In any event, there is another legal justification for upholding the assailed CA Decision. Under the Real Property Tax Code, real property “owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporation so exempt by its charter, provided, however, that this exemption shall not apply to real property of the abovenamed entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person.[14] IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. No costs. SO ORDERED. Austria-Martinez, (Acting Chairman), and Chico-Nazario, JJ., concur. Puno, J., (Chairman), on official leave. Tinga, J., on leave.

[2] Penned by Associate Justice Angelina Sandoval-Gutierrez (now an Associate Justice of the Supreme Court), with Associate Justices Romeo A. Brawner and Martin S. Villarama, Jr., concurring. [3] Strait Times, Inc. v. Court of Appeals, 294 SCRA 714 (1998). [4] De la Cruz v. Court of Appeals, 286 SCRA 230 (1998). [5] 261 SCRA 667 (1996). [6] Id. at 691-692. [7] P.D. No. 464 took effect on July 1, 1974. [8] P.D. No. 857 took effect on December 23, 1975. [9] Underscoring supplied. [10] City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353 (1999). [11] Supra. [12] Id. at 689-690. [13] Light Rail Transit Authority v. Central Board of Assessment Appeals, 342 SCRA 692 (2000). [14] Id. at 701-702.

[1] Rollo, p. 6.

FIRST DIVISION [G.R. No. 109791. July 14, 2003] PHILIPPINE PORTS AUTHORITY, petitioner, vs. CITY OF ILOILO, respondent. D E CI S I O N AZCUNA, J.: Before us is a petition for review on certiorari assailing the Decision of the Regional Trial Court of Iloilo City, Branch 39, dated February 26, 1993 in Civil Case No. 18477, a case for collection of a sum of money. Seeking to raise questions purely of law, petitioner Philippine Ports Authority (PPA) would want us to set aside the ruling ordering it to pay real property and business taxes to respondent City of Iloilo. The factual antecedents are summarized by the trial court: This is an action for the “recovery of sum of money” filed by [respondent] City of Iloilo, a public corporation organized under the laws of the Republic of the Philippines, represented by the Hon. Rodolfo T. Ganzon as City Mayor, against petitioner, Philippine Ports Authority (PPA), a government corporation created by P.D. 857. [Respondent] seeks to collect from [petitioner] real property taxes as well as business taxes, computed from the last quarter of 1984 up to fourth quarter of 1988.

[Respondent] alleges that [petitioner] is engaged in the business of arrastre and stevedoring services and the leasing of real estate for which it should be obligated to pay business taxes. It further alleges that [petitioner] is the declared and registered owner of a warehouse which is used in the operation of its business and is also thereby subject to real property taxes. It demands the aggregate amount of P510,888.86 in realty and business taxes as of December 1988 (real property tax – last quarter of 1984 to 1988; business tax- 1984 to 1988) including its corresponding interests and penalty charges. On July 19, 1989, [petitioner] filed a motion to dismiss but [it] was denied by this court. A motion for reconsideration was filed, but the same was still denied, after which [petitioner] filed its answer. During the pre-trial conference, the following factual and legal issues were defined and clarified. Factual Issues: 1. Whether or not [petitioner] is engaged in business; 2. Whether or not the assessment of tax by [respondent] is accurate as of 4th quarter of 1988 from the year 1984; real property tax in the amount of P180,953.93 and business tax in the amount of P329,934.93 as of December 31, 1988. Legal Issues: 1. Whether or not Philippine Ports Authority is exempt from the payment of real property tax and business tax; 2. Whether by filing a motion to dismiss, [petitioner] impliedly admitted the allegations in the complaint;

3. Whether Philippine Ports Authority is engaged in business. If in the negative, whether or not it is exempt from payment of business taxes. During trial, [respondent] presented two witnesses, namely: Mrs. Rizalina F. Tulio and Mr. Leoncio Macrangala.

1. the amount of P98,519.16 as real property tax, from [the] last quarter of 1984 up to December 1986; 2. the amount of P3,828.07, as business tax, for leasing of real estate from [the] last quarter of 1984 up to 1988.

x

Petitioner now seeks a review of the case, contending that the court a quo decided a question of substance which has not been decided by us in that:

After [respondent] had rested its case, [petitioner] did not present any evidence. Instead, its counsel asked the court to give him time to file a memorandum, as said counsel is convinced that the issues involved in this case are purely legal issues.

(i) It decreed a property of public dominion (port facility) as subject to realty taxes just because the mentioned property is being administered by what it perceived to be a taxable government corporation. And,

He has no quarrel as regards the computation of the real property and business taxes made by [respondent]. He is convinced, however, that the issue in this case involves a question of law and that [petitioner] is not liable to pay any kind of taxes to the City of Iloilo.

(ii) It declared that petitioner PPA is subject to “business taxes” for leasing to private persons or entities real estate without considering that petitioner PPA is not engaged in “business.”

x x

x

x

x xxx

The court a quo rendered its decision holding petitioner liable for real property taxes from the last quarter of 1984 to December 1986, and for business taxes with respect to petitioner’s lease of real property from the last quarter of 1984 up to 1988. It, however, held that respondent may not collect business taxes on petitioner’s arrastre and stevedoring services, as these form part of petitioner’s governmental functions. The dispositive portion of said decision states: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay the plaintiff, as follows:

In its Comment, respondent in addition raises the issue of whether or not petitioner may change its theory on appeal. It points out that petitioner never raised the issue that the subject property is of public dominion during the trial nor did it mention it in the memorandum it filed with the lower court. It further contends that such change of theory patently contradicts petitioner’s admission in its pleadings and is disallowed under applicable jurisprudence. The records show that the theory of petitioner before the trial court was different from that of the present petition. In fact, even while at the trial court stage, petitioner was not consistent in its theory. Initially in its pleadings therein, it argued that as a governmentowned corporation, it is exempt from paying real property taxes by virtue of its specific exemption in its charter, Section 40 of the Real Property Tax Code and Executive Order No. 93. Subsequently, in the memorandum it filed with the trial court, it omitted its earlier argument and changed its theory by alleging that it is a

government instrumentality, which, according to applicable jurisprudence, may not be taxed by the local government. After obtaining an adverse decision from the trial court, it adopts yet another stance on appeal before us, contesting the taxability of its warehouse. It argued for the first time that since “ports constructed by the State” are considered under the Civil Code as properties of public dominion, its warehouse, which it insists to be part of its port, should be treated likewise. To support this, it invokes Article 420 of the Civil Code, which provides: Art. 420. The following things are property of public dominion: Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; x x

x

x

x

x

xxx

[Emphasis supplied] Insisting that the subject warehouse is considered as part of its port, it points to Section 3 (e) of its charter quoted hereunder: e) “port” means a place where ships may anchor or tie up for the purpose of shelter, repair, loading or discharge of cargo, or for other such activities connected with water-borne commerce, and including all the land and water areas and the structures, equipment and facilities related to these functions. [Emphasis supplied] A perusal of the records shows that this thesis was never presented nor discussed at the trial stage.

As a rule, a party who deliberately adopts a certain theory upon which the case is tried and decided by the lower court will not be permitted to change theory on appeal. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as these cannot be raised for the first time at such late stage. Basic considerations of due process underlie this rule. It would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory, which it could have done had it been aware of it at the time of the hearing before the trial court. To permit petitioner in this case to change its theory on appeal would thus be unfair to respondent, and offend the basic rules of fair play, justice and due process. Petitioner however cites an exception to the rule, as enunciated in Lianga Lumber Co. v. Lianga Timber Co., Inc., wherein we said: [I]n the interest of justice and within the sound discretion of the appellate court, a party may change his theory on appeal only when the factual bases thereof would not require presentation of any further evidence by the adverse party in order to enable it to properly meet the issue raised in the new theory. Petitioner contends that its new theory falls under the aforecited exception, as the issue does not involve any disputed evidentiary matter. Contrary to petitioner’s claim, we find that the new issue raised is not a purely legal question. It must be emphasized that the enumeration of properties of public dominion under Article 420 of the Civil Code specifically states “ports constructed by the State.” Thus, in order to consider the port in the case at bar as falling under the said classification, the fact that the port was constructed by the State must first be established by sufficient evidence. This fact proved crucial in Santos v. Moreno, where the issue raised was whether the canals constructed by private persons were of public or

private ownership. We ruled that the canals were privately owned, thus: Under Art. 420, canals constructed by the State and devoted and devoted to public use are of public ownership. Conversely, canals constructed by private persons within private lands and devoted exclusively for private use must be of private ownership. In the case at bar, no proof was adduced to establish that the port was constructed by the State. Petitioner cannot have us automatically conclude that its port qualified as “property of public dominion.” It would be unfair to respondent, which would be deprived of its opportunity to present evidence to disprove the factual basis of the new theory. It is thus clear that the Lianga exception cannot apply in the case at bar. Moreover, as correctly pointed out by respondent, we cannot ignore the fact that petitioner’s new position runs contrary to its own admission in the pleadings filed in the trial court. Under paragraph 3 of respondent’s complaint quoted hereunder, the fact of petitioner’s ownership of the property was specifically alleged as follows: III Defendant is likewise the declared and registered owner of a warehouse standing on Lot No. 1065 situated at Bgy. Concepcion, City Proper, declared under Tax Declaration No. 56325. Xerox copy of the said Tax Declaration is hereto attached as annex “D” and form[s] an integral part of herein complaint; In its Answer, referring to the abovecited complaint, petitioner stated, “Paragraph 3 is admitted.” Notably, this admission was never questioned nor put at issue during the trial.

Now before us, petitioner contradicts its earlier admission by claiming that the subject warehouse is a property of public dominion. This inconsistency is made more apparent by looking closely at what public dominion means. Tolentino explains this in this wise: Private ownership is defined elsewhere in the Code; but the meaning of public dominion is nowhere defined. From the context of various provisions, it is clear that public dominion does not carry the idea of ownership; property of public dominion is not owned by the State, but pertains to the State, which as territorial sovereign exercises certain judicial prerogatives over such property. The ownership of such property, which has the special characteristics of a collective ownership for the general use and enjoyment, by virtue of their application to the satisfaction of collective needs, is in the social group, whether national, provincial, or municipal. Their purpose is not to serve the State as a juridical person, but the citizens; they are intended for the common and public welfare, and so they cannot be the object of appropriation, either by the State or by private persons. [Emphasis supplied] Following the above, properties of public dominion are owned by the general public and cannot be declared to be owned by a public corporation, such as petitioner. As the object of the pleadings is to draw the lines of battle, so to speak, between the litigants and to indicate fairly the nature of the claims or defenses of both parties, a party cannot subsequently take a position contrary to, or inconsistent, with his pleadings. Unless a party alleges palpable mistake or denies such admission, judicial admissions cannot be controverted. Petitioner is thus bound by its admission of ownership of the subject property and is barred from claiming otherwise. We also note that petitioner failed to raise the issue of ownership during the pre-trial. In its petition, it insists that to determine

liability for real property tax, the ownership of the property must first be ascertained. In the pre-trial order, however, to which petitioner did not object, nowhere was the issue of ownership included in the stipulated factual or legal issues. We have ruled that a pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus to obviate the element of surprise, parties are expected to disclose at the pre-trial conference all issues of law and fact which they intend to raise at the trial. Consequently, the determination of issues at a pre-trial conference bars the consideration of other questions on appeal. Hence, in the case at bar, the fact that the issue of ownership is outside of what has been delimited during the pre-trial further justifies the disallowance of petitioner’s new theory. Therefore, on the basis of the foregoing considerations and in the absence of compelling reasons to rule otherwise, we hold that petitioner may not be permitted to change its theory at this stage. Well-settled is the rule that questions that were not raised in the lower court cannot be raised for the first time on appeal. In any case, granting that petitioner’s present theory is allowed at this stage, we nevertheless find it untenable. Concededly, “ports constructed by the State” are properties of the public dominion, as Article 420 of the Civil Code enumerates these as properties “intended for public use.” It must be stressed however that what is being taxed in the present case is petitioner’s warehouse, which, although located within the port, is distinct from the port itself. In Light Rail Transit Authority v. Central Board of Assessment Appeals et al., petitioner therein similarly sought an exemption from real estate taxes on its passenger terminals, arguing that said properties are considered as part of the “public roads,” which are classified as property of public dominion in the Civil Code. We ruled therein that:

…[T]he properties of petitioner are not exclusively considered as public roads being improvements placed upon the public road, and this [separable] nature of the structure in itself physically distinguishes it from a public road. Considering further that carriageways or passenger terminals are elevated structures which are not freely accessible to the public, vis-à-vis roads which are public improvements openly utilized by the public, the former are entirely different from the latter. Using the same reasoning, the warehouse in the case at bar may not be held as part of the port, considering its separable nature as an improvement upon the port, and the fact that it is not open for use by everyone and freely accessible to the public. In the same way that we ruled in one case that the exemption of public property from taxation does not extend to improvements made thereon by homesteaders or occupants at their own expense, we likewise uphold the taxability of the warehouse in the instant case, it being a mere improvement built on an alleged property of public dominion, assuming petitioner’s port to be so. Moreover, petitioner may not invoke the definition of “port” in its charter to expand the meaning of “ports constructed by the State” in the Civil Code to include improvements built thereon. It must be noted that the charter itself limited the use of said definition only for the interpretation of Presidential Decree (P.D.) No. 857, its by-laws, regulations and rules, and not of other statutes such as the Civil Code. Given these parameters, therefore, petitioner’s move to present its new theory, even if allowed, would nonetheless prove to be futile. The trial court correctly ruled that for the assessed period of 1984 to 1988, petitioner’s exemption from real property taxes was withdrawn by P.D. No. 1931, at least for the period of 1984 to 1986. Originally, petitioner was exempt from real property taxes on the basis of the Real Property Tax Code then governing, which provided:

SECTION 40. Exemptions from Real Property Tax. – The exemption shall be as follows: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned corporation so exempt by its charter: Provided; however, That this exemption shall not apply to real property of the above-named entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person. Petitioner’s charter, P.D. 857, further specifically exempted it from real property taxes: SECTION 25. Exemption from Realty Taxes – The Authority shall be exempt from the payment of real property taxes imposed by the Republic of the Philippines, its agencies, instrumentalities or political subdivisions; Provided, That no tax exemptions shall be extended to any subsidiaries of the Authority that may be organized; Provided, finally, That investments in fixed assets shall be deductible for income tax purposes. It can thus be seen from the foregoing that petitioner, as a government-owned or controlled corporation, enjoyed an exemption from real property taxes. On June 11, 1984, however, P.D. 1931 effectively withdrew all tax exemption privileges granted to government-owned or controlled corporations as stated in Section 1 thereof, which reads: Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of government-owned or controlled corporations including their subsidiaries, are hereby withdrawn.

Under the same law, the exemption can be restored in special cases through an application for restoration with the Secretary of Finance, which, notably, petitioner did not avail. Subsequently, Executive Order (E.O.) No. 93 was enacted on December 17, 1986 restoring tax exemptions provided under certain laws, one of which is the Real Property Tax Code. The pertinent portion of said law provides: SECTION 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except: x x

x

x

x

x

xxx

e) those conferred under four basic codes namely: (i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended; [Emphasis supplied] The abovecited laws, therefore, indicate that petitioner’s tax exemption from real property taxes was withdrawn by P.D. 1931 effective June 11, 1984, but was subsequently restored by virtue of E.O. 93, starting December 17, 1986. Hence, petitioner is liable for real property taxes on its warehouse, computed from the last quarter of 1984 up to December 1986.

Petitioner, however, seeks to be excused from liability for taxes by invoking the pronouncement in Basco v. PAGCOR (Basco) quoted hereunder: PAGCOR has a dual role, to operate and to 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 subject to control by a mere Local government. [Emphasis supplied] Petitioner points out that its exercise of regulatory functions as decreed by its charter places it within the category of an “agency or instrumentality of the government,” which, according to Basco, is beyond the reach of local taxation. Reliance in the abovecited case is unavailing considering that P.D. 1931 was never raised therein, and given that the issue in said case focused on the constitutionality of P.D. 1869, the charter of PAGCOR. The said decision did not absolutely prohibit local governments from taxing government instrumentalities. In fact we stated therein: The power of local government to “impose taxes and fees” is always subject to “limitations” which Congress may provide by law. Since P.D. 1869 remains an “operative” law until “amended, repealed or revoked”…its “exemption clause” remains an exemption to the exercise of the power of local governments to impose taxes and fees. Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the Basco case was similarly invoked for tax exemption, we stated: “[N]othing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject

to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.” The fact that tax exemptions of government-owned or controlled corporations have been expressly withdrawn by the present Local Government Code clearly attests against petitioner’s claim of absolute exemption of government instrumentalities from local taxation. Petitioner also contends that the term “government-owned or controlled corporations” referred in P.D. 1931 covers only those not performing governmental functions. This argument is without legal basis for it reads into the law a distinction that is not there. It runs contrary to the clear intent of the law to withdraw from all units of the government, including government-owned or controlled corporations, their exemptions from taxes. Had it been otherwise, the law would have said so. Moreover, the trial court correctly pointed out that if indeed petitioner were not subject to local taxation, petitioner’s charter would not have specifically provided for its exemption from the payment of real property tax. Its exemption therein therefore proves that it was only an exception to the general rule of taxability of petitioner. Given that said privilege was withdrawn by subsequent law, petitioner’s claim for exemption from real property taxes for the entire assessed period fails. We affirm the finding of the lower court on petitioner’s liability for business taxes for the lease of its building to private corporations. During the trial, petitioner did not present any evidence to refute respondent’s proof of petitioner’s income from the lease of its property. Neither did it present any proof of exemption from business taxes. Instead, it emphasized its charter provisions defining its functions as governmental in nature. It averred that it allowed port users to occupy certain premises within the port area only to ensure order and convenience in discharging its governmental functions. It hence claimed that it is not engaged in

business, as the act of leasing out its property was not motivated by profit, but by its duty to manage and control port operations. The argument is unconvincing. As admitted by petitioner, it leases out its premises to private persons for “convenience” and not necessarily as part of its governmental function of administering port operations. In fact, its charter classifies such act of leasing out port facilities as one of petitioner’s corporate powers. Any income or profit generated by an entity, even of a corporation organized without any intention of realizing profit in the conduct of its activities, is subject to tax. What matters is the established fact that it leased out its building to ten private entities from which it regularly earned substantial income. Thus, in the absence of any proof of exemption therefrom, petitioner is liable for the assessed business taxes. In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately suffers no loss. In National Power Corp. v. Presiding Judge, RTC, Br. XXV, we elucidated: Actually, the State has no reason to decry the taxation of NAPOCOR’s properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level. x x

x

x

x

x

xxx

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the government be said to have lost anything. Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to government-

owned and controlled corporations and all other units of government was that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs. SO ORDERED. Davide, Jr., (Chairman), Vitug, Ynares-Santiago, and Carpio, JJ., concur. Rollo, pp. 35-38. Id. at 51. Id. at 14-15. Id. at 4-6. Id. at 38. P.D. No. 857. Lianga Lumber Co. v. Lianga Timber Co., Inc., 76 SCRA 197 (1977). Del Rosario v. Bonga, 350 SCRA 101 (2001).

China Airlines Ltd., v. CA et al., 185 SCRA 449 (1990).

Siredy Enterprises, Inc., v. CA et al., G.R. No. 129039, September 17,

CIVIL CODE, art. 420.

2002. National Development Co. v. Cebu City, 215 SCRA 382 (1992). Supra, note 7. 21 SCRA 1141 (1967). Records, p. 2. Id. at 97. 2 A. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE 30 (1994), citing 3 Manresa 66-69. Lianga Lumber Co. v. Lianga Timber Co., Inc., supra, note 7. Santiago v. Delos Santos, 61 SCRA 146 (1974). See also Sec. 4, Rule 129 of the 1997 Rules of Civil Procedure, which provides: Judicial admissions- An admission, verbal or written, made by a party in the course of the proceedings in the same case does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

Sec. 3 of P.D. 857 provides: Definitions – For the purpose of this Decree and of the by-laws, regulations, or rules promulgated thereunder, the terms or words used herein, shall, unless the context indicates otherwise, mean or be understood to mean, as follows: xxx P.D. 464, which took effect on June 1, 1974, is the precursor of the Local Government Code of 1991. Revised Charter of December 23, 1975.

the

Philippine

Ports

Authority

effective

Sec. 2, P.D. 1931. Note: In National Power Corp. v. Province of Albay, (186 SCRA 198 [1990]), E.O. 93 was declared to be prospective in character. 197 SCRA 52 (1991). P.D. 857, Secs. 26-29.

Rollo, p. 17.

Basco v. PAGCOR, supra, note 30.

Records, pp. 113-114.

261 SCRA 667 (1996).

Son v. Son, 251 SCRA 556 (1995). Lianga Lumber Co. v. Lianga Timber Co., Inc., supra, note 7.

Sec. 234, R.A. 7160, effective January 1, 1992, provides: Exemptions from Real Property Tax – The following are exempted from payment of the real property tax:

342 SCRA 692 (2000).

xxx

xxx

xxx

Except as provided herein, any exemption from payment of real property tax previously granted to or presently enjoyed by, all persons, whether natural or juridical, including all governmentowned or controlled corporations are hereby withdrawn upon the effectivity of this Code. National Power Corp. v. Presiding Judge, RTC, Br. XXV, 190 SCRA 477 (1990). Sec. 6, P.D. 857 reads: (b)

The corporate powers of the Authority shall be as follows:

xxx

xxx

xxx

(vii) To acquire, purchase, own, lease, mortgage, sell, or otherwise dispose of any land, port facility, wharf, quay, or property of any kind, whether movable or immovable. CIR v. CA and Commonwealth Management and Services Corp., 329 SCRA 237 (2000). Supra, note 35. Mactan Cebu International Airport Authority v. Marcos, citing P.D. No. 1931, supra, note 33.