Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

152904 June 8, 2007

CITY SSESSOR O! CE"U CITY, petitioner, vs. SSOCI TION O! "ENEVO# DE CE"U, INC., respondent. DECISION VE# SCO, JR., J.: Is a medical arts center built b a hospital to house its doctors a separate commercial establishment or an appurtenant to the hospital! "his is the core issue to be resolved in the instant petition #here petitioner insists on a $%& assessment rate on the buildin' #hich he considers commercial in nature contrar to respondent(s position that it is a special real propert entitled to a )*& assessment rate for purposes of realt ta+. T$e C%&e "his Petition for Revie# on Certiorari) under Rule ,% assails the October $), -**) Decision- of the Court of .ppeals /C.0 in C.12.R. SP No. 3-%,4, #hich affirmed the 5anuar -,, -*** Decision$ and October -%, -*** Resolution, of the Central 6oard of .ssessment .ppeals

/C6..07 and the March )), -**- Resolution% of the same court den in' petitioner(s Motion for Reconsideration.3 "he C6.. upheld the 8ebruar )*, )999 Decision of the :ocal 6oard of .ssessment .ppeals /:6..0, #hich overturned the $%& assessment rate of respondent Cebu Cit .ssessor and ruled that petitioner is entitled to a )*& assessment. T$e !%'(& Respondent .ssociation of 6enevola de Cebu, Inc. is a non1stoc;, non1profit or'ani<ation or'ani<ed under the la#s of the Republic of the Philippines and is the o#ner of Chon' =ua =ospital /C==0 in Cebu Cit . In the late )99*(s, respondent constructed the C== Medical .rts Center /C==M.C0. "hereafter, an .pril )>, )994 Certificate of Occupanc > #as issued to the center #ith a classification of ?Commercial @ClinicA.? Petitioner Cit .ssessor of Cebu Cit assessed the C==M.C buildin' under "a+ Declaration /"D0 No. (9> 2R1*,1*-,1*-%-9 as ?commercial? #ith a mar;et value of PhP -4,*3*,%-* and an assessed value of PhP 9,4-),)4* at the assessment level of $%& for commercial buildin's, and not at the )*& special assessment currentl imposed for C== and its other separate buildin'sBthe C==(s Dietar and Records Departments. "hus, respondent filed its September )%, )994 letter1 petition #ith the Cebu Cit :6.. for reconsideration, assertin' that C==M.C is part of C== and ou'ht to be imposed the same special assessment level of )*& #ith

that of C==. On September -%, )994, respondent formall filed its appeal #ith the :6.. #hich #as doc;eted as Case No. ,,*3, "D No. (9> 2R1*,1*-,1*-%-9 entitled .ssociation 6enevola de Cebu, Inc. v. Cit .ssessor. In the September $*, )994 Order, the :6.. directed petitioner to conduct an ocular inspection of the subCect propert and to submit a report on the scheduled date of hearin'. In the October >, )994 hearin', the parties #ere reDuired to submit their respective position papers. In its position paper, petitioner ar'ued that C==M.C is a ne#l constructed five1store buildin' situated about )** meters a#a from C== and, based on actual inspection, #as ascertained that it is not a part of the C== buildin' but a separate buildin' #hich is actuall used as commercial clinicEroom spaces for rentin' out to ph sicians and, thus, classified as ?commercial.? Petitioner contended that in turn the medical specialists in C==M.C char'e consultation fees for patients #ho consult for dia'nosis and relief of bodil ailment to'ether #ith the ancillar /or support0 services #hich include the areas of anesthesia, radiolo' , patholo' , and more. Petitioner concluded the fore'oin' set up to be ultimatel 'eared for commercial purposes, and thus havin' the proper classification as ?commercial? under 6uildin' Permit No. 6*)19>%**4> pursuant to Section )* of the :ocal .ssessment Re'ulations No. )19- issued b the Department of 8inance /DO80. On the other hand, respondent contended in its position paper that C==M.C buildin' is actuall , directl , and

e+clusivel part of C== and should have a special assessment level of )*& as provided under Cit "a+ Ordinance :FF. Respondent asserted that the C==M.C buildin' is similarl situated as the buildin's of C==, housin' its Dietar and Records Departments, are completel separate from the main C== buildin' and are imposed the )*& special assessment level. In fine, respondent ar'ued that the C==M.C, thou'h not actuall indispensable, is nonetheless incidental and reasonabl necessar to C==(s operations. T$e Ru)*n+ o, ($e #o'%) "o%-. o, &&e&&/en( 00e%)& On 8ebruar )*, )999, the :6.. rendered a Decision,4 the dispositive portion of #hich readsG H=ERE8ORE, premises considered, the appealed decision imposin' a thirt five /$%0 percent assessment level of "D No. (9> 2R1*,1*-,1*-%-9 on the Chon' =ua =ospital Medical .rts buildin' is reversed and set aside and other @sicA one issued declarin' that the buildin' is entitled to a ten /)*0 percent assessment level. In reversin' the rulin' of petitioner Cit .ssessor of Cebu Cit , the :6.. reasoned that it is of public ;no#led'e that hospitals have plent of spaces leased out to medical practitioners, #hich is both an accepted and desirable fact7 thus, respondent(s claim is not disputed that such is a must for a tertiar hospital li;e C==. "he :6.. held that it is inconseDuential that a separate buildin' #as constructed for that purpose pointin' out that departments

or services of other institutions and establishments are also not al#a s housed in the same buildin'. "hus, the :6.. pointed to the fact that respondent(s Dietar and Records Departments #hich are housed in separate buildin's #ere similarl imposed #ith C== the special assessment level of )*&, ratiocinatin' in turn that there is no reason therefore #h a hi'her level #ould be imposed for C==M.C as it is similarl situated #ith the Dietar and Records Departments of the C==. T$e Ru)*n+ o, ($e Cen(-%) "o%-. o, &&e&&/en( 00e%)& .''rieved, petitioner filed its March )%, )999 Notice of .ppeal9 and March )3, )999 .ppeal Memorandum)*before the C6.. Iisa as 8ield Office #hich doc;eted the appeal as C6.. Case No. I1)%, In ReG :6.. Case No. ,,*3, "D No. (9> 2R1*,1*-,1*-%-9 entitled Cit .ssessor of Cebu Cit v. :ocal 6oard of .ssessment .ppeals of Cebu Cit and .ssociacion 6enevola de Cebu, Inc. On 5une $, )999, respondent filed its .ns#er)) to petitioner(s appeal. SubseDuentl , on 5anuar -,, -***, the C6.. rendered a Decision)- affirmin' in toto the :6.. Decision and resolved the issue of #hether the subCect buildin' of C==M.C is part and parcel of C==. It a'reed #ith the above disDuisition of the :6.. that it is a matter of public ;no#led'e that hospitals lease out spaces to its accredited medical practitioners, and in particular it is of public ;no#led'e that before the C==M.C #as constructed, the accredited doctors of C== #ere housed

in the main hospital buildin' of C==. Moreover, citin' Herrera v. Quezon City Board of Assessment Appeals)$ later applied in Abra Valley College, Inc. v. Aquino,), the C6.. held that the fact that the subCect buildin' is detached from the main hospital buildin' is of no conseDuence as the e+emption in favor of propert used e+clusivel for charitable or educational purposes is not onl limited to propert actuall indispensable to the hospital, but also e+tends to facilities #hich are incidental and reasonabl necessar for the accomplishment of such purposes. "hrou'h its October -%, -*** Resolution,)% the C6.. denied petitioner(s Motion for Reconsideration.)3 T$e Ru)*n+ o, ($e Cou-( o, 00e%)& Not satisfied, petitioner brou'ht before the C. a petition for revie#)> under Rule ,$ of the Rules of Court, doc;eted as C.12.R. SP No. 3-%,4, ascribin' error on the C6.. in dismissin' his appeal and in affirmin' the 8ebruar )*, )999 Decision)4 of the :6... On October $), -**), the appellate court rendered the assailed Decision)9 #hich affirmed the 5anuar -,, -*** Decision of the C6... It a'reed #ith the C6.. that C==M.C is part and parcel of C== in line #ith the rulin' inHerrera-* on #hat the term ?appurtenant thereto? means. "hus, the C. held that the facilities and utilities of C==M.C are undoubtedl necessar and indispensable for the C== to achieve its ultimate purpose.

"he C. li;e#ise ruled that the fact that rentals are paid b C== accredited doctors and medical specialists for spaces in C==M.C has no bearin' on its classification as a hospital since C==M.C serves also as a place for medical chec;1up, dia'nosis, treatment, and care for its patients as #ell as a speciali<ed out1patient department of C== #here treatment and dia'nosis are done b accredited medical specialists in their respective fields of anesthesia, radiolo' , patholo' , and more. "he appellate court also applied Secs. -)% and -)3 of the :ocal 2overnment Code /Republic .ct No. >)3*0 #hich classif lands, buildin's, and improvements actuall , directl , and e+clusivel used for hospitals as special cases of real propert and not as commercial. "hus, C==M.C bein' an inte'ral part of C== is not commercial but special and should be imposed the )*& special assessment, the same as C==, instead of the $%& for commercial establishments. :astl , the C. pointed out that courts 'enerall #ill not interfere in matters #hich are addressed to the sound discretion of the 'overnment a'encies entrusted #ith the re'ulation of activities under their special technical ;no#led'e and trainin'Btheir findin's and conclusions are accorded not onl respect but even finalit . "hrou'h the assailed March )), -**- Resolution,-) the C. denied petitioner(s Motion for Reconsideration. T$e I&&ue&

=ence, before us is the instant petition #ith the solitar issue, as follo#sG H=E"=ER OR NO" "=ERE IS SERIOJS ERROR 6K "=E COJR" O8 .PPE.:S IN .88IRMIN2 "=E DECISION O8 "=E CEN"R.: 6O.RD O8 .SSESSMEN" .PPE.:S "=." "=E NEH 6JI:DIN2 ?C=ON2 =J. =OSPI".: .ND MEDIC.: .R"S CEN"ER? /C==M.C0 IS .N ESSEN"I.: P.R" O8 "=E O:D 6JI:DIN2 LNOHN .S ?C=ON2 =J. =OSPI".:.? IN "=E NE2."IIE, H=E"=ER OR NO" "=E NEH 6JI:DIN2 IS :I.6:E "O P.K "=E $%& .SSESSMEN" :EIE:. .ND H=E"=ER OR NO" "=E COJR" O8 .PPE.:S COJ:D IN"ER8ERE HI"= "=E 8INDIN2S O8 "=E CEN"R.: 6O.RD O8 .SSESSMEN" .PPE.:S, . 2OIERNMEN" .2ENCK =.IIN2 SPECI.: "EC=NIC.: LNOH:ED2E .ND "R.ININ2 ON "=E M.""ER SJ65EC" O8 "=E PRESEN" C.SE.-T$e Cou-(1& Ru)*n+ "he petition is devoid of merit. It is petitioner(s stron' belief that the subCect buildin', C==M.C, #hich is built on a rented land and situated about )** meters from the main buildin' of C==, is not an e+tension nor an inte'ral part of C== and thus should not enCo the )*& special assessment. Petitioner anchors the classification of C==M.C as ?commercial,? first, on Sec. )* of :ocal .ssessment Re'ulations No. )19- issued b the DO8, #hich providesG

SEC. )*. .ctual use of Real Propert as basis of .ssessment.MMReal Propert shall be classified, valued and assessed on the basis of its actual use re'ardless of #here located, #hoever o#ns it, and #hoever uses it. /Sec. -)>, R... >)3*0 .. ?.ctual use? refers to the purpose for #hich the propert is principall or predominantl utili<ed b the person in possession of the propert . /Sec. )99 /b0, R... >)3*0 Secondl , the result of the inspection on subCect buildin' b the Cit .ssessor(s inspection team sho#s that C==M.C is a commercial establishment based on the follo#in'G /)0 C==M.C is e+clusivel intended for lease to doctors7 /-0 there are neither operatin' rooms nor beds for patients7 and /$0 the doctors rentin' the spaces earn income from the patients #ho avail themselves of their services. "hus, petitioner ar'ues that C==M.C is principall and actuall used for lease to doctors, and respondent as o#ner of C==M.C derives rental income from it7 hence, C==M.C #as built and is intended for profit and functions commerciall . Moreover, petitioner asserts that C==M.C is not part of the C== main buildin' as it is e+clusivel used as private clinics of ph sicians #ho pa rental fees to petitioner. .nd #hile the private clinics mi'ht be considered facilities, the are not incidental to nor reasonabl necessar for the accomplishment of the hospital(s purposes as C== can still function and accomplish its purpose #ithout the e+istence of C==M.C. In addition, petitioner contends that theAbra Valley College, Inc.-$ rulin' is not applicable

to the instant case for schools, the subCect matter in said case, are alread entitled to special assessment. 6esides, petitioner points C==M.C is not amon' the facilities mentioned in said case. 8urther, petitioner ar'ues that C==M.C is not in the same cate'or as nurses( homes and housin' facilities for the hospital staff as these are clearl not for profit, that is, not commercial, and are clearl incidental and reasonabl necessar for the hospital(s purposes. He are not persuaded. . careful revie# of the records compels us to affirm the assailed C. Decision as #e find no reversible error for us to reverse or alter it. C$on+ 2u% 2o&0*(%) Me.*'%) -(& Cen(e- *& %n *n(e+-%) 0%-( o, C$on+ 2u% 2o&0*(%) He so hold that C==M.C is an inte'ral part of C==. It is undisputed that the doctors and medical specialists holdin' clinics in C==M.C are those dul accredited b C==, that is, the are consultants of the hospital and the ones #ho can treat C==(s patients confined in it. "his fact alone ta;es a#a C==M.C from bein' cate'ori<ed as ?commercial? since a tertiar hospital li;e C== is reDuired b la# to have a pool of ph sicians #ho comprises the reDuired medical departments in various medical fields. .s aptl pointed out b respondentG Chon' =ua =ospital is a dul licensed tertiar hospital and is covered b Dept. of =ealth /DO=0 .dm. Order No. 341.

and the ?)949 Revised Rules and Re'ulations? 'overnin' the re'istration, licensure and operation of hospitals in the Philippines. Jnder Sec. 3, sub1sec. 3.$, it is mandated b la#, that respondent appellee in order to retain its classification as a ?"ER"I.RK =OSPI".:,? must be full departmentali<ed and eDuipped #ith the service capabilities needed to support certified medical specialists and other licensed ph sicians renderin' services in the field of medicine, pediatrics, obstetrics and ' necolo' , sur'er , and their sub1specialties, ICCJ and ancillar services #hich is precisel the function of the Chon' =ua =ospital Medical .rts Center.-, Sec. 3.$, .dministrative Order No. /.O0 341., Series of )949, Revised Rules and Re'ulations 2overnin' the Re'istration, :icensure and Operation of =ospitals in the Philippines pertinentl providesG "ertiar =ospital MM is ,u))3 .e0%-(/en(%)*4e. %n. e5u*00e. 6*($ ($e &e-7*'e '%0%8*)*(*e& needed to support certified medical specialists and other licensed ph sicians renderin' services in the field of Medicine, Pediatrics, Obstetrics and 2 necolo' , Sur'er , their subspecialties and ancillar services. /Emphasis supplied.0 Moreover, .O 341. li;e#ise provides #hat clinic service and medical ancillar service are, thusG )).$.- Clinical ServiceMM"he medical services to patients shall be performed b the medical staff appointed b the 'overnin' bod of the institution. + + +

)).$.$ Medical .ncillar ServiceMM"hese are support services #hich include .nesthesia Department, Patholo' Department, Radiolo' Department, Out1Patient Department /OPD0, Emer'enc Service, Dental, Pharmac , Medical Records and Medical Social Services. 6ased on these provisions, these ph sicians holdin' offices or clinics in C==M.C, dul appointed or accredited b C==, precisel fulfill and carr out their roles in the hospital(s services for its patients throu'h the C==M.C. "he fact that the are holdin' office in a separate buildin', li;e at C==M.C, does not ta;e a#a the essence and nature of their services vis1N1vis the over1all operation of the hospital and the benefits to the hospital(s patients. 2iven #hat the la# reDuires, it is clear that C==M.C is an inte'ral part of C==. "hese accredited ph sicians normall hold offices #ithin the premises of the hospital7 in #hich case there is no Duestion as to the conduct of their business in the ambit of dia'nosis, treatment andEor confinement of patients. "his #as the case before )994 and before C==M.C #as built. Ieril , their transfer to a more spacious and, perhaps, convenient place and location for the benefit of the hospital(s patients does not remove them from bein' an inte'ral part of the overall operation of the hospital. Conversel , it #ould have been different if C==M.C #as also open for non1accredited ph sicians, that is, an medical practitioner, for then respondent #ould be runnin' a commercial buildin' for lease onl to doctors #hich

#ould indeed subCect the C==M.C to the commercial level of $%& assessment. Moreover, the C==M.C, bein' hundred meters a#a from the C== main buildin', does not deni'rate from its bein' an inte'ral part of the latter. .s aptl applied b the C6.., the Herrera rulin' on #hat constitutes propert e+empt from ta+ation is indeed applicable in the instant case, thusG Moreover, the e+emption in favor of propert used e+clusivel for charitable or educational purposes is ?not limited to propert actuall indispensable? therefore /Coole on "a+ation, Iol. -, p. ),$*0, but e+tends to facilities #hich are ?incidental to and reasonabl necessar for? the accomplishment of said purposes, such as, in the case of hospitals, ?a school for trainin' nurses, a nurses( home, propert use to provide housin' facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns and residents? /4, C.5.S., 3-)0, such as ?athletic fields,? includin' ?a farm used for the inmates of the institution? /Coole on "a+ation, Iol. -, p. ),$*0.-% Ieril , bein' an inte'ral part of C==, C==M.C should be under the same special assessment level of as that of the former. T$e C22M C ,%'*)*(3 *& .e,*n*(e)3 *n'*.en(%) (o %n. -e%&on%8)3 ne'e&&%-3 ,o- ($e o0e-%(*on& o, C$on+ 2u% 2o&0*(%)

2iven our discussion above, the C==M.C facilit , #hile seemin'l not indispensable to the operations of C==, is definitel incidental to and reasonabl necessar for the operations of the hospital. Considerin' the le'al reDuirements and the ramifications of the medical and clinical operations that have been transferred to the C==M.C from the C== main buildin' in li'ht of the accredited ph sicians( transfer of offices in )994 after the C==M.C buildin' #as finished, it cannot be 'ainsaid that the services done in C==M.C are indispensable and essential to the hospital(s operation. 8or one, as found b the appellate court, the C==M.C facilit is primaril used b the hospital(s accredited ph sicians to perform medical chec;1up, dia'nosis, treatment, and care of patients. 8or another, it also serves as a speciali<ed outpatient department of the hospital. Indubitabl , the operation of the hospital is not onl for confinement and sur'ical operations #here hospital beds and operatin' theaters are reDuired. 2enerall , confinement is reDuired in emer'enc cases and #here a patient necessitates close monitorin'. "he usual course is that patients have to be dia'nosed, and then treatment and follo#1up consultations follo# or are reDuired. Other cases ma necessitate sur'ical operations or other medical intervention and confinement. "hus, the more the patients, the more important tas; of dia'nosis, treatment, and care that ma or ma not reDuire eventual confinement or medical operation in the C==M.C.

"hus, the importance of C==M.C in the operation of C== cannot be over1emphasi<ed nor disputed. Clearl , it pla s a ;e role and provides critical support to hospital operations. C$%-+*n+ -en(%)& ,o- ($e o,,*'e& u&e. 83 *(& %''-e.*(e. 0$3&*'*%n& '%nno( 8e e5u%(e. (o % 'o//e-'*%) 7en(u-e 8inall , respondent(s char'e of rentals for the offices and clinics its accredited ph sicians occup cannot be eDuated to a commercial venture, #hich is mainl for profit. Respondent(s e+planation on this point is #ell ta;en. 8irst, C==M.C is onl for its consultants or accredited doctors and medical specialists. Second, the char'in' of rentals is a practical necessit G /)0 to recoup the investment cost of the buildin', /-0 to cover the rentals for the lot C==M.C is built on, and /$0 to maintain the C==M.C buildin' and its facilities. "hird, as correctl pointed out b respondent, it pa s the proper ta+es for its rental income. .nd, fourth, if there is indeed an net income from the lease income of C==M.C, such does not inure to an private or individual person as it #ill be used for respondent(s other charitable proCects. 2iven the fore'oin' ar'uments, #e fail to see an reason #h the C==M.C buildin' should be classified as ?commercial? and be imposed the commercial level of $%& as it is not operated primaril for profit but as an inte'ral part of C==. "he C==M.C, #ith operations bein'

devoted for the benefit of the C==(s patients, should be accorded the )*& special assessment. In this re'ard, #e point #ith approbation the appellate court(s application of Sec. -)3 in relation #ith Sec. -)% of the :ocal 2overnment Code on the proper classification of the subCect C==M.C buildin' as ?special? and not ?commercial.? Secs. -)% and -)3 pertinentl provideG SEC. -)%. Classes of Real Propert for .ssessment Purposes.B8or purposes of assessment, real propert shall be classified as residential, a'ricultural, commercial, industrial, mineral, timberland or &0e'*%). ++++ SEC. -)3. Special Classes of Real Propert .MM )) )%n.&, 8u*).*n+&, %n. o($e- */0-o7e/en(& ($e-eon %'(u%))3, .*-e'()3 %n. e9')u&*7e)3 u&e. ,o- $o&0*(%)&, cultural or scientific purposes, and those o#ned and used b local #ater districts, and 'overnment1o#ned or controlled corporations renderin' essential public services in the suppl and distribution of #ater andEor 'eneration and transmission of electric po#er &$%)) 8e ')%&&*,*e. %& &0e'*%). /Emphasis supplied.0 "hus, appl in' the above provisos in line #ith Cit "a+ Ordinance :FF of Cebu Cit , ($e 10: &0e'*%) %&&e&&/en( &$ou). 8e */0o&e. ,o- ($e C22M C 8u*).*n+ 6$*'$ &$ou). 8e ')%&&*,*e. %& ;&0e'*%).; H=ERE8ORE, the petition is DENIED for lac; of merit and the October $), -**) Decision and March )), -**-

Resolution of the C. are hereb .88IRMED. No pronouncement as to costs. SO ORDERED. PRES"ITERO J. VE# SCO, JR. .ssociate 5ustice HE CONCJRG :EON.RDO .. OJISJM6IN2 .ssociate 5ustice Chairperson .N"ONIO ". C.RPIO CONC=I". C.RPIO MOR.:ES .ssociate 5ustice .ssociate 5ustice D.N"E O. "IN2. .ssociate 5ustice .""ES"."ION I attest that the conclusions in the above Decision had been reached in consultation before the case #as assi'ned to the #riter of the opinion of the Court(s Division. :EON.RDO .. OJISJM6IN2 .ssociate 5ustice Chairperson CER"I8IC."ION

Pursuant to Section )$, .rticle IIII of the Constitution, and the Division Chairperson(s .ttestation, I certif that the conclusions in the above Decision had been reached in consultation before the case #as assi'ned to the #riter of the opinion of the Court(s Division. REYN TO S. PUNO Chief 5ustice