CITY

OF
REPRESENTED
No. 185023
BY THE CITY TREASURER and
THE CITY ASSESSOR,
Petitioner,Present:,
- versus -

PASIG,
G.R.

Iloilo assessed real property taxes on

the Iloilo Fishing Port Complex (IFPC),
which was managed and operated by
PFDA. The Court held that PFDA is an
instrumentality of the government
and is thus exempt from the payment
of real property tax, thus:

REPUBLIC OF THE PHILIPPINES,

REPRESENTED BY THE
PRESIDENTIAL COMMISSION ON
GOOD
GOVERNMENT,
Promulgated:
Respondent.
August 24, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------------x

The Court rules that the

Authority is not a GOCC but an
instrumentality of the national
government which is generally
exempt from payment of real
property tax. However, said
exemption does not apply to
the portions of the IFPC which
the Authority leased to private
entities. With respect to these
properties, the Authority is
liable to pay property tax.
Nonetheless, the IFPC, being a
property of public dominion cannot
be sold at public auction to satisfy
the tax delinquency.

DECISION
Even as the Republic of the Philippines is now the
owner of the properties in view of the voluntary
surrender of MPLDC by its former registered
owner, Campos, to the State, such transfer does
not prevent a third party with a better right from
claiming such properties in the proper forum. In
the meantime, the Republic of the Philippines is
the presumptive owner of the properties for
taxation purposes.
Section 234(a) of Republic Act No. 7160 states
that properties owned by the Republic of the
Philippines are exempt from real property tax
except when the beneficial use thereof has
been
granted,
for
consideration
or
otherwise, to a taxable person. Thus, the
portions of the properties not leased to taxable
entities are exempt from real estate tax while the
portions of the properties leased to taxable
entities are subject to real estate tax. The law
imposes the liability to pay real estate tax on the
Republic of the Philippines for the portions of the
properties leased to taxable entities. It is, of
course, assumed that the Republic of the
Philippines passes on the real estate tax as part
of the rent to the lessees.
In Philippine Fisheries Development Authority v.
Central Board of Assessment Appeals,12 the Court
held:
In the 2007 case of Philippine Fisheries
Development Authority v. Court of
Appeals, the Court resolved the issue of
whether the PFDA is a government-owned
or
controlled
corporation
or
an
instrumentality
of
the
national
government. In that case, the City of

xxxx

This ruling was affirmed by the Court in a

subsequent
PFDA
case
involving
the Navotas Fishing Port Complex, which is also
managed and operated by the PFDA. In
consonance with the previous ruling, the Court
held in the subsequent PFDA case that the
PFDA is a government instrumentality not
subject to real property tax except those
portions
of
the NavotasFishing
Port
Complex that were leased to taxable or
private persons and entities for their
beneficial use.
Similarly, we hold that as a government
instrumentality, the PFDA is exempt from
real
property
tax
imposed
on
the Lucena Fishing Port Complex, except
those portions which are leased to private
persons or entities.13 (Emphasis supplied)
In Government Service Insurance System v. City
Treasurer of the City of Manila,14 the Court held:
x x x The tax exemption the property
of
the
Republic
or
its
instrumentalities carries ceases only
if, as stated in Sec. 234(a) of the LGC
of 1991, beneficial use thereof has
been granted, for a consideration or
otherwise, to a taxable person. GSIS,
as a government instrumentality, is not a
taxable juridical person under Sec. 133(o)
of the LGC. GSIS, however, lost in a
sense that status with respect to
the Katigbak property
when
it
contracted its beneficial use to MHC,
doubtless a taxable person. Thus, the

real
estate
tax
assessment
of Php54,826,599.37 covering 1992 to
2002
over
the
subject Katigbak property
is
valid
insofar as said tax delinquency is
concerned as assessed over said
property.15 (Emphasis supplied)
In Manila International Airport Authority v. Court
of Appeals,16 the Court held:
x x x Section 234(a) of the Local
Government Code states that real
property owned by the Republic loses
its tax exemption only if the
beneficial use thereof has been
granted,
for
consideration
or
otherwise, to a taxable person. MIAA,
as a government instrumentality, is not a
taxable person under Section 133(o) of
the local Government Code. Thus, even if
we assume that the Republic has granted
to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not
make these real properties subject to real
estate tax.
However, portions of the Airport Lands
and Buildings that MIAA leases to
private entities are not exempt from
real estate tax. For example, the land
area occupied by hangars that MIAA
leases to private corporations is
subject to real estate tax. In such a
case, MIAA has granted the beneficial
use of such land area for a
consideration to a taxable person and
therefore such land area is subject to
real estate tax.17 (Emphasis supplied)
In Lung Center of the
City,18 the Court held:

Philippines

v.

Quezon

x x x While portions of the hospital are

used for the treatment of patients and the
dispensation of medical services to them,
whether paying or non-paying, other
portions thereof are being leased to
private individuals for their clinics and a
canteen. Further, a portion of the land is
being leased to a private individual for her
business enterprise under the business
name
Elliptical
Orchids
and
Garden Center. Indeed, the petitioners
evidence
shows
that
it
collected P1,136,483.45 as rentals in 1991
and P1,679,999.28 for 1992 from the said
lessees.

Accordingly, we hold that the portions of

the land leased to private entities as
well as those parts of the hospital
leased to private individuals are not
exempt from such taxes. On the other
hand, the portions of the land occupied by
the hospital and portions of the hospital
used for its patients, whether paying or
non-paying, are exempt from real property
taxes.19 (Emphasis supplied)
Article 420 of the Civil Code classifies as
properties of public dominion those that are
intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by
the State, banks, shores, roadsteads and those
that are intended for some public service or for
the development of the national wealth.
Properties of public dominion are not only exempt
from real estate tax, they are exempt from sale at
public auction. In Heirs of Mario Malabanan v.
Republic,20 the Court held that, It is clear that
property of public dominion, which generally
includes property belonging to the State, cannot
be x x x subject of the commerce of man.21
In Philippine Fisheries Development Authority v.
Court of Appeals,22 the Court held:
x x x [T]he real property tax assessments
issued by the City of Iloilo should be
upheld only with respect to the portions
leased to private persons. In case the
Authority fails to pay the real
property taxes due thereon, said
portions cannot be sold at public
auction
to
satisfy
the
tax
delinquency. In Chavez v. Public Estates
Authority it was held that reclaimed
lands are lands of the public
dominion
and
cannot,
without
Congressional fiat, be subject of a
sale, public or private x x x.
In the same vein, the port built by the
State in the Iloilo fishing complex is a
property of the public dominion and
cannot therefore be sold at public
auction. Article 420 of the Civil Code,
provides:
Article 420. The following
property of public dominion:
1.

things

are

Those intended for public

use, such as roads, canals,
rivers, torrents, ports and
bridges constructed by the
State,
banks,

shores, roadsteads,
and
others of similar character;
2.
Those which belong to the
State, without being for
public use, and are intended
for some public service or
for the development of the
national wealth.
The Iloilo fishing port which was
constructed by the State for public
use and/or public service falls within
the
term
port
in
the aforecited provision.
Being
a
property of public dominion the same
cannot be subject to execution or
foreclosure sale. In like manner, the
reclaimed land on which the IFPC is built
cannot be the object of a private or public
sale
without
Congressional
authorization.23 (Emphasis supplied)
In Manila International
Court held:

Airport

Authority,24 the

x x x [T]he Airport Lands and Buildings of

MIAA are properties devoted to public use
and thus are properties of public
dominion. Properties of public dominion
are owned by the State or the Republic.
Article 420 of the Civil Code provides:
Art. 420. The following things are property
of public dominion:
(1) Those intended for public use, such as
roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks,
shores, roadsteads, and others of similar
character;
(2) Those which belong to the State,
without being for public use, and are
intended for some public service or for the
development of the national wealth.
The term ports x x x constructed by the
Sate includes airports and seaports. The
Airport Lands and Buildings of MIAA are
intended for public use, and at the very
least intended for public service. Whether
intended for public use or public service,
the Airport Lands and Buildings are
properties
of
public
dominion.
As
properties
of
public
dominion,
the the Airport lands and Buildings are
owned by the Republic and thus exempt
from real estate tax under Section 234(a)
of the Local Government Code.
xxxx

Under Article 420 of the Civil Code, the

Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of
public dominion and thus owned by the
State or the Republic of the Philippines.
Article 420 specifically mentions ports
x x x constructed by the State, which
includes public airports and seaports, as
properties of public dominion and owned
by the Republic. As properties of public
dominion owned by the Republic, there is
no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt
from real estate tax under Section 234(a)
of the local Government Code. This Court
has also repeatedly ruled that
properties of public dominion are not
subject to execution or foreclosure
sale.25 (Emphasis supplied)
In the present case, the parcels of land are not
properties of public dominion because they are
not intended for public use, such as roads,
canals, rivers, torrents, ports and bridges
constructed
by
the
State,
banks,
shores, roadsteads. Neither are they intended
for some public service or for the development of
the national wealth. MPLDC leases portions of
the
properties
to
different
business
establishments. Thus, the portions of the
properties leased to taxable entities are not only
subject to real estate tax, they can also be sold at
public auction to satisfy the tax delinquency.
In sum, only those portions of the properties
leased to taxable entities are subject to real
estate tax for the period of such leases. Pasig City
must, therefore, issue to respondent new real
property tax assessments covering the portions
of the properties leased to taxable entities. If the
Republic of the Philippines fails to pay the real
property tax on the portions of the properties
leased to taxable entities, then such portions may
be sold at public auction to satisfy the tax
delinquency.

G.R. No. 195909

2012

September 26,

COMMISSIONER
OF
REVENUE, PETITIONER,
vs.
ST.
LUKE'S
MEDICAL
INC., RESPONDENT.
x-----------------------x

INTERNAL
CENTER,

G.R. No. 195960

ST.
LUKE'S
MEDICAL
INC., PETITIONER,
vs.
COMMISSIONER
OF
REVENUE, RESPONDENT.

CENTER,
INTERNAL

DECISION
The Court partly grants the petition of the BIR but
on a different ground. We hold that Section 27(B)
of the NIRC does not remove the income tax
exemption of proprietary non-profit hospitals
under Section 30(E) and (G). Section 27(B) on one
hand, and Section 30(E) and (G) on the other
hand, can be construed together without the
removal of such tax exemption. The effect of the
introduction of Section 27(B) is to subject the
taxable income of two specific institutions,
namely,
proprietary
non-profit
educational
institutions 36 and proprietary non-profit hospitals,
among the institutions covered by Section 30, to
the 10% preferential rate under Section 27(B)
instead of the ordinary 30% corporate rate under
the last paragraph of Section 30 in relation to
Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10%
preferential tax rate on the income of (1)
proprietary non-profit educational institutions and
(2) proprietary non-profit hospitals. The only
qualifications for hospitals are that they must be
proprietary and non-profit. "Proprietary" means
private, following the definition of a "proprietary
educational institution" as "any private school
maintained
and
administered
by
private
individuals or groups" with a government permit.
"Non-profit" means no net income or asset
accrues to or benefits any member or specific
person, with all the net income or asset devoted
to the institution's purposes and all its activities
conducted not for profit.
"Non-profit"
does
not
necessarily
mean
"charitable." In Collector of Internal Revenue v.
Club Filipino Inc. de Cebu, 37 this Court considered
as non-profit a sports club organized for
recreation and entertainment of its stockholders
and members. The club was primarily funded by
membership fees and dues. If it had profits, they
were used for overhead expenses and improving
its golf course. 38 The club was non-profit because
of its purpose and there was no evidence that it
was engaged in a profit-making enterprise. 39
The sports club in Club Filipino Inc. de Cebu may
be non-profit, but it was not charitable. The Court
defined "charity" in Lung Center of the Philippines
v. Quezon City 40 as "a gift, to be applied

consistently with existing laws, for the benefit of

an indefinite number of persons, either by
bringing their minds and hearts under the
influence of education or religion, by assisting
them to establish themselves in life or [by]
otherwise
lessening
the
burden
of
government." 41 A non-profit club for the benefit
of its members fails this test. An organization
may be considered as non-profit if it does not
distribute any part of its income to stockholders
or members. However, despite its being a tax
exempt institution, any income such institution
earns from activities conducted for profit is
taxable, as expressly provided in the last
paragraph of Section 30.
To be a charitable institution, however, an
organization must meet the substantive test of
charity in Lung Center. The issue in Lung Center
concerns exemption from real property tax and
not income tax. However, it provides for the test
of charity in our jurisdiction. Charity is essentially
a gift to an indefinite number of persons which
lessens the burden of government. In other
words, charitable institutions provide for free
goods and services to the public which would
otherwise fall on the shoulders of government.
Thus, as a matter of efficiency, the government
forgoes taxes which should have been spent to
address public needs, because certain private
entities already assume a part of the burden. This
is the rationale for the tax exemption of
charitable institutions. The loss of taxes by the
government is compensated by its relief from
doing public works which would have been
funded by appropriations from the Treasury. 42
Charitable institutions, however, are not ipso
facto entitled to a tax exemption. The
requirements for a tax exemption are specified by
the law granting it. The power of Congress to tax
implies the power to exempt from tax. Congress
can create tax exemptions, subject to the
constitutional provision that "[n]o law granting
any tax exemption shall be passed without the
concurrence of a majority of all the Members of
Congress." 43 The
requirements
for
a
tax
exemption are strictly construed against the
taxpayer 44 because an exemption restricts the
collection of taxes necessary for the existence of
the government.
The Court in Lung Center declared that the Lung
Center of the Philippines is a charitable institution
for the purpose of exemption from real property
taxes. This ruling uses the same premise as
Hospital de San Juan 45and Jesus Sacred Heart
College 46 which says that receiving income from
paying patients does not destroy the charitable
nature of a hospital.

As a general principle, a charitable institution

does not lose its character as such and its
exemption from taxes simply because it derives
income from paying patients, whether outpatient, or confined in the hospital, or receives
subsidies from the government, so long as the
money received is devoted or used altogether to
the charitable object which it is intended to
achieve; and no money inures to the private
benefit of the persons managing or operating the
institution. 47
For real property taxes, the incidental generation
of income is permissible because the test of
exemption is the use of the property. The
Constitution
provides
that
"[c]haritable
institutions,
churches
and
personages
or
convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively
used for religious, charitable, or educational
purposes shall be exempt from taxation." 48The
test of exemption is not strictly a requirement on
the intrinsic nature or character of the institution.
The test requires that the institution use the
property in a certain way, i.e. for a charitable
purpose. Thus, the Court held that the Lung
Center of the Philippines did not lose its
charitable character when it used a portion of its
lot for commercial purposes. The effect of failing
to meet the use requirement is simply to remove
from the tax exemption that portion of the
property not devoted to charity.
The Constitution exempts charitable institutions
only from real property taxes. In the NIRC,
Congress decided to extend the exemption to
income taxes. However, the way Congress crafted
Section 30(E) of the NIRC is materially different
from Section 28(3), Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation
or association that is exempt from income tax. On
the other hand, Section 28(3), Article VI of the
Constitution does not define a charitable
institution, but requires that the institution
"actually, directly and exclusively" use the
property for a charitable purpose.
Section 30(E) of the NIRC provides that a
charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable
purposes;
(3) Operated exclusively for charitable
purposes; and

(4) No part of its net income or asset shall

belong to or inure to the benefit of any
member, organizer, officer or any specific
person.
Thus, both the organization and operations of the
charitable
institution
must
be
devoted
"exclusively" for charitable purposes. The
organization of the institution refers to its
corporate form, as shown by its articles of
incorporation, by-laws and other constitutive
documents. Section 30(E) of the NIRC specifically
requires that the corporation or association be
non-stock, which is defined by the Corporation
Code as "one where no part of its income is
distributable as dividends to its members,
trustees, or officers" 49 and that any profit
"obtain[ed] as an incident to its operations shall,
whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which
the corporation was organized." 50 However,
under Lung Center, any profit by a charitable
institution must not only be plowed back
"whenever necessary or proper," but must be
"devoted or used altogether to the charitable
object which it is intended to achieve." 51
The operations of the charitable institution
generally refer to its regular activities. Section
30(E) of the NIRC requires that these operations
be exclusive to charity. There is also a specific
requirement that "no part of [the] net income or
asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific
person." The use of lands, buildings and
improvements of the institution is but a part of its
operations.
There is no dispute that St. Luke's is organized as
a non-stock and non-profit charitable institution.
However, this does not automatically exempt St.
Luke's from paying taxes. This only refers to the
organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution
is not ipso facto tax exempt. To be exempt from
real property taxes, Section 28(3), Article VI of
the Constitution requires that a charitable
institution use the property "actually, directly and
exclusively" for charitable purposes. To be
exempt from income taxes, Section 30(E) of the
NIRC requires that a charitable institution must be
"organized
and
operated
exclusively"
for
charitable purposes. Likewise, to be exempt from
income taxes, Section 30(G) of the NIRC requires
that the institution be "operated exclusively" for
social welfare.
However, the last paragraph of Section 30 of the
NIRC qualifies the words "organized and operated
exclusively" by providing that:

Notwithstanding the provisions in the preceding

paragraphs, the income of whatever kind and
character of the foregoing organizations from any
of their properties, real or personal, or from any
of their activities conducted for profit regardless
of the disposition made of such income, shall be
subject to tax imposed under this Code.
(Emphasis supplied)
In short, the last paragraph of Section 30
provides that if a tax exempt charitable
institution conducts "any" activity for profit, such
activity is not tax exempt even as its not-for-profit
activities remain tax exempt. This paragraph
qualifies the requirements in Section 30(E) that
the "[n]on-stock corporation or association [must
be] organized and operated exclusively for x x x
charitable x x x purposes x x x." It likewise
qualifies the requirement in Section 30(G) that
the civic organization must be "operated
exclusively" for the promotion of social welfare.
Thus, even if the charitable institution must be
"organized
and
operated
exclusively"
for
charitable purposes, it is nevertheless allowed to
engage in "activities conducted for profit" without
losing its tax exempt status for its not-for-profit
activities. The only consequence is that the
"income of whatever kind and character" of a
charitable institution "from any of its activities
conducted for profit, regardless of the disposition
made of such income, shall be subject to tax."
Prior to the introduction of Section 27(B), the tax
rate on such income from for-profit activities was
the ordinary corporate rate under Section 27(A).
With the introduction of Section 27(B), the tax
rate is now 10%.
In 1998, St. Luke's had total revenues
of P1,730,367,965 from services to paying
patients. It cannot be disputed that a hospital
which receives approximately P1.73 billion from
paying patients is not an institution "operated
exclusively" for charitable purposes. Clearly,
revenues from paying patients are income
received
from
"activities
conducted
for
profit." 52 Indeed, St. Luke's admits that it derived
profits from its paying patients. St. Luke's
declared P1,730,367,965 as "Revenues from
Services to Patients" in contrast to its "Free
Services" expenditure ofP218,187,498. In its
Comment in G.R. No. 195909, St. Luke's showed
the following "calculation" to support its claim
that 65.20% of its "income after expenses was
allocated to free or charitable services" in
1998. 53
REVENUES
SERVICES

FROM P1,730,367,96
TO 5.00

PATIENTS

OPERATING
EXPENSES
Professional
patients

care

Administrative

Household
Property

of P1,016,608,39
4.00
287,319,334.0
0
and 91,797,622.00

P1,395,725,35
0.00

INCOME
OPERATIONS

FROM P334,642,615.
00

100%

218,187,498.
00

65.20
%

INCOME
FROM P116,455,117.
OPERATIONS, Net of 00
FREE SERVICES

34.80
%

Free Services

OTHER INCOME

EXCESS
REVENUES
EXPENSES

17,482,304.00

OF P133,937,42
OVER 1.00

In Lung Center, this Court declared:

"[e]xclusive" is defined as possessed and enjoyed
to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is
defined, "in a manner to exclude; as enjoying a
privilege exclusively." x x x The words "dominant
use" or "principal use" cannot be substituted for
the words "used exclusively" without doing
violence to the Constitution and the law. Solely is
synonymous with exclusively. 54
The Court cannot expand the meaning of the
words "operated exclusively" without violating
the NIRC. Services to paying patients are
activities conducted for profit. They cannot be
considered any other way. There is a "purpose to
make profit over and above the cost" of
services. 55 The P1.73 billion total revenues from
paying patients is not even incidental to St.
Luke's charity expenditure of P218,187,498 for
non-paying patients.
St. Luke's claims that its charity expenditure
of P218,187,498 is 65.20% of its operating
income in 1998. However, if a part of the
remaining 34.80% of the operating income is
reinvested in property, equipment or facilities
used for services to paying and non-paying
patients, then it cannot be said that the income is
"devoted or used altogether to the charitable
object which it is intended to achieve." 56 The
income is plowed back to the corporation not
entirely for charitable purposes, but for profit as
well. In any case, the last paragraph of Section 30
of the NIRC expressly qualifies that income from
activities for profit is taxable "regardless of the
disposition made of such income."
Jesus Sacred Heart College declared that there is
no official legislative record explaining the phrase
"any activity conducted for profit." However, it
quoted a deposition of Senator Mariano Jesus
Cuenco, who was a member of the Committee of
Conference for the Senate, which introduced the
phrase "or from any activity conducted for profit."
P. Cuando ha hablado de la Universidad de Santo
Toms que tiene un hospital, no cree Vd. que es
una actividad esencial dicho hospital para el
funcionamiento del colegio de medicina de dicha
universidad?
xxxx
R. Si el hospital se limita a recibir enformos
pobres, mi contestacin seria afirmativa; pero
considerando que el hospital tiene cuartos de
pago, y a los mismos generalmente van enfermos
de buena posicin social econmica, lo que se

paga por estos enfermos debe estar sujeto a

'income tax', y es una de las razones que hemos
tenido para insertar las palabras o frase 'or from
any activity conducted for profit.' 57
The question was whether having a hospital is
essential to an educational institution like the
College of Medicine of the University of Santo
Tomas. Senator Cuenco answered that if the
hospital has paid rooms generally occupied by
people of good economic standing, then it should
be subject to income tax. He said that this was
one of the reasons Congress inserted the phrase
"or any activity conducted for profit."
The question in Jesus Sacred Heart College
involves an educational institution. 58 However, it
is applicable to charitable institutions because
Senator Cuenco's response shows an intent to
focus on the activities of charitable institutions.
Activities for profit should not escape the reach of
taxation. Being a non-stock and non-profit
corporation does not, by this reason alone,
completely exempt an institution from tax. An
institution cannot use its corporate form to
prevent its profitable activities from being taxed.
The Court finds that St. Luke's is a corporation
that is not "operated exclusively" for charitable or
social welfare purposes insofar as its revenues
from paying patients are concerned. This ruling is
based not only on a strict interpretation of a
provision granting tax exemption, but also on the
clear and plain text of Section 30(E) and (G).
Section 30(E) and (G) of the NIRC requires that an
institution
be
"operated
exclusively"
for
charitable or social welfare purposes to be
completely exempt from income tax. An
institution under Section 30(E) or (G) does not
lose its tax exemption if it earns income from its
for-profit activities. Such income from for-profit
activities, under the last paragraph of Section 30,
is merely subject to income tax, previously at the
ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).
A tax exemption is effectively a social subsidy
granted by the State because an exempt
institution is spared from sharing in the expenses
of government and yet benefits from them. Tax
exemptions for charitable institutions should
therefore be limited to institutions beneficial to
the public and those which improve social
welfare. A profit-making entity should not be
allowed to exploit this subsidy to the detriment of
the government and other taxpayers.1wphi1
St. Luke's fails to meet the requirements under
Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income.

However, it remains a proprietary non-profit

hospital under Section 27(B) of the NIRC as long
as it does not distribute any of its profits to its
members and such profits are reinvested
pursuant to its corporate purposes. St. Luke's, as
a proprietary non-profit hospital, is entitled to the
preferential tax rate of 10% on its net income
from its for-profit activities.
St. Luke's is therefore liable for deficiency income
tax in 1998 under Section 27(B) of the NIRC.
However, St. Luke's has good reasons to rely on
the letter dated 6 June 1990 by the BIR, which
opined that St. Luke's is "a corporation for purely
charitable and social welfare purposes"59 and
thus exempt from income tax. 60 In Michael J.
Lhuillier, Inc. v. Commissioner of Internal
Revenue, 61 the Court said that "good faith and
honest belief that one is not subject to tax on the
basis of previous interpretation of government
agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of
surcharges and interest." 62

FIRST DIVISION

MOBIL PHILIPPINES, INC.,

Petitioner,

and the CHIEF OF THE LICENSE

DIVISION OF THE CITY OF MAKATI,
Respondents.

July 14
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

Simply stated, the issue is: Are the

business taxes paid by petitioner in 1998,
business taxes for 1997 or 1998?
According to petitioner, the 1997 gross
sales/revenue is merely the basis for the amount
of business taxes due for the privilege of carrying
on a business in the year when the tax was paid.
For their part, respondents argue that
since local taxes, which include business taxes,
are paid either within the first twenty days of
January of each year or of each subsequent
quarter, as the case may be, what the taxpayer
actually pays during the recorded calendar year
is actually its business tax for the preceding
year.
G.R. No. 154092
Prefatorily, it is necessary to distinguish
between a business tax vis--vis an income tax.
Business taxes imposed in the exercise of
Present:
police power for regulatory purposes are paid for
the privilege of carrying on a business in the year
the tax was paid. It is paid at the beginning of
the year as a fee to allow the business to operate
for the rest of the year. It is deemed a
prerequisite to the conduct of business.

- versus -

THE CITY TREASURER OF MAKATI

Income tax, on the other hand, is a tax on

all yearly profits arising from property,
professions, trades or offices, or as a tax on a
persons income, emoluments, profits and the
like. It is tax on income, whether net or gross
realized in one taxable year.[15] It is due on or
before the 15th day of the 4th month following the
close of the taxpayers taxable year and is
generally regarded as an excise tax, levied upon
the right of a person or entity to receive income
or profits.
Promulgated:

The trial court erred when it said that the

payments made by petitioner in 1998 are
payments for business tax incurred in 1997 which
only accrued in January 1998. Likewise, it erred
when it ruled that petitioner was still liable for
business taxes based on its gross income/revenue
for January to August 1998.

year 1998 is for the privilege of engaging in

business for the same year, and not for having
engaged in business for 1997.
Upon
its
transfer,
petitioner
was
apparently subjected to Sec. 3A.11 par. (g) which
states:

Section 3A.04 of the Makati City Revenue

Code states:

. . .
(g) Retirement of business.

Sec.3A.04. Computation of
tax for newly-started business. In
the case of newly-started business
under Sec. 3A.02, (a), (b), (c), (d),
(e), (f), (g), (h), (i), (j), (k), (l), and
(m) above, the tax shall be fixed by
the quarter. The initial tax of the
quarter in which the business starts
to operate shall be two and one
half percent (2 %) of one percent
(1%) of the capital investment.

. . .
For
purposes
thereof,
termination
shall
mean
that
business operation are stopped
completely.
. . .
(2) If it is found that the
retirement or termination of the
business is legitimate, [a]nd the
tax due therefrom be less than the
tax due for the current year based
on the gross sales or receipts, the
difference in the amount of the tax
shall be paid before the business is
considered officially retired or
terminated.[17]

In the succeeding quarter or

quarters, in cases where the
business opens before the last
quarter of the year, the tax shall be
based on the gross sales or receipt
for the preceding quarter at onehalf ( ) of the rates fixed therefor
by the pertinent schedule in
Section 3A.02, (a), (b), (c), (d), (e),
(f), (g), (h), (i), (j), (k), (l), and (m).
In the succeeding calendar
year, regardless of when the
business started to operate, the tax
shall be based on the gross sales or
receipts for the preceding calendar
year, or any fraction thereof as
provided in the same pertinent
schedules.[16]

Under the Makati Revenue Code, it

appears that the business tax, like income tax, is
computed based on the previous years figures.
This is the reason for the confusion. A newlystarted business is already liable for business
taxes (i.e. license fees) at the start of the quarter
when it commences operations. In computing the
amount of tax due for the first quarter of
operations, the business capital investment is
used as the basis. For the subsequent quarters of
the first year, the tax is based on the gross
sales/receipts for the previous quarter. In the
following year(s), the business is then taxed
based on the gross sales or receipts of the
previous year. The business taxes paid in the

Based on this foregoing provision, on the

year an establishment retires or terminates its
business within the municipality, it would be
required to pay the difference in the amount if
the tax collected, based on the previous years
gross sales or receipts, is less than the actual tax
due based on the current years gross sales or
receipts.
For the year 1998, petitioner paid a total
of P2,262,122.48 to the City Treasurer of
Makati[18] as business taxes for the year 1998.
The amount of tax as computed based on
petitioners
gross
sales
for
1998
is
only P1,331,638.84. Since the amount paid is
more than the amount computed based on
petitioners actual gross sales for 1998, petitioner
upon its retirement is not liable for additional
taxes to the City of Makati. Thus, we find that the
respondent erroneously treated the assessment
and collection of business tax as if it were income
tax, by rendering an additional assessment
of P1,331,638.84 for the revenue generated for
the year 1998.
.

G.R. No. 183137

April 10, 2013

PELIZLOY
REALTY
CORPORATION,
represented
herein
by
its
President,
GREGORY
K.
LOY, Petitioner,
vs.
THE PROVINCE OF BENGUET, Respondent.

"subject to such guidelines and limitations as the

Congress may provide".13
In conformity with Section 3, Article X of the 1987
Constitution,14 Congress enacted Republic Act No.
7160, otherwise known as the Local Government
Code of 1991. Book II of the LGC governs local
taxation and fiscal matters.

DECISION
The power to tax "is an attribute of
sovereignty,"7 and as such, inheres in the State.
Such, however, is not true for provinces, cities,
municipalities and barangays as they are not the
sovereign;8 rather, they are mere "territorial and
political subdivisions of the Republic of the
Philippines".9

Relevant provisions of Book II of the LGC establish

the parameters of the taxing powers of LGUS
found below.
First, Section 130 provides for the following
fundamental principles governing the taxing
powers of LGUs:
1. Taxation shall be uniform in each LGU.

The rule governing the taxing power of provinces,

cities,
muncipalities
and
barangays
is
summarized in Icard v. City Council of Baguio:10
It is settled that a municipal corporation unlike a
sovereign state is clothed with no inherent power
of taxation. The charter or statute must plainly
show an intent to confer that power or the
municipality, cannot assume it. And the power
when granted is to be construed in strictissimi
juris. Any doubt or ambiguity arising out of the
term used in granting that power must be
resolved against the municipality. Inferences,
implications, deductions all these have no
place in the interpretation of the taxing power of
a
municipal
corporation.11 [Underscoring
supplied]
Therefore, the power of a province to tax is
limited to the extent that such power is delegated
to it either by the Constitution or by statute.
Section 5, Article X of the 1987 Constitution is
clear on this point:
Section 5. Each local government unit shall have
the power to create its own sources of revenues
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 governments.
[Underscoring supplied]
Per Section 5, Article X of the 1987 Constitution,
"the power to tax is no longer vested exclusively
on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and
other charges."12 Nevertheless, such authority is

2. Taxes, fees,
impositions shall:

charges

and

other

a. be equitable and based as far as

practicable on the taxpayer's
ability to pay;
b. be levied and collected only for
public purposes;
c. not be unjust, excessive,
oppressive, or confiscatory;
d. not be contrary to law, public
policy, national economic policy, or
in the restraint of trade.
3. The collection of local taxes, fees,
charges and other impositions shall in no
case be let to any private person.
4. The revenue collected pursuant to the
provisions of the LGC shall inure solely to
the benefit of, and be subject to the
disposition by, the LGU levying the tax,
fee, charge or other imposition unless
otherwise specifically provided by the
LGC.
5. Each LGU shall, as far as practicable,
evolve a progressive system of taxation.
Second, Section 133 provides for the common
limitations on the taxing powers of LGUs.
Specifically, Section 133 (i) prohibits the levy by
LGUs of percentage or value-added tax (VAT) on
sales,
barters
or
exchanges
or
similar

transactions on goods or services except as

otherwise provided by the LGC.
As it is Pelizloys contention that Section 59,
Article X of the Tax Ordinance levies a prohibited
percentage tax, it is crucial to understand first
the concept of a percentage tax.
In Commissioner of Internal Revenue v. Citytrust
Investment Phils. Inc.,15 the Supreme Court
defined percentage tax as a "tax measured by a
certain percentage of the gross selling price or
gross value in money of goods sold, bartered or
imported; or of the gross receipts or earnings
derived by any person engaged in the sale of
services." Also, Republic Act No. 8424, otherwise
known as the National Internal Revenue Code
(NIRC), in Section 125, Title V, 16 lists amusement
taxes as among the (other) percentage taxes
which are levied regardless of whether or not a
taxpayer is already liable to pay value-added tax
(VAT).
Amusement taxes are fixed at a certain
percentage of the gross receipts incurred by
certain specified establishments.
Thus, applying the definition in CIR v. Citytrust
and drawing from the treatment of amusement
taxes by the NIRC, amusement taxes are
percentage taxes as correctly argued by Pelizloy.
However, provinces are not barred from levying
amusement taxes even if amusement taxes are a
form of percentage taxes. Section 133 (i) of the
LGC prohibits the levy of percentage taxes
"except as otherwise provided" by the LGC.
Section 140 of the LGC provides:
SECTION 140. Amusement Tax - (a) The province
may levy an amusement tax to be collected from
the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia,
and other places of amusement at a rate of not
more than thirty percent (30%) of the gross
receipts from admission fees.
(b) In the case of theaters of cinemas, the
tax shall first be deducted and withheld by
their proprietors, lessees, or operators and
paid to the provincial treasurer before the
gross receipts are divided between said
proprietors, lessees, or operators and the
distributors of the cinematographic films.

(c) The holding of operas, concerts,

dramas,
recitals,
painting
and
art
exhibitions,
flower
shows,
musical
programs,
literary
and
oratorical
presentations, except pop, rock, or similar
concerts shall be exempt from the
payment of the tax herein imposed.
(d) The Sangguniang Panlalawigan may
prescribe the time, manner, terms and
conditions for the payment of tax. In case
of fraud or failure to pay the tax, the
Sangguniang Panlalawigan may impose
such surcharges, interests and penalties.
(e) The proceeds from the amusement tax
shall be shared equally by the province
and
the
municipality
where
such
amusement
places
are
located.
[Underscoring supplied]
Evidently, Section 140 of the LGC carves a clear
exception to the general rule in Section 133 (i).
Section 140 expressly allows for the imposition by
provinces of amusement taxes on "the
proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia,
and other places of amusement."
However, resorts, swimming pools, bath houses,
hot springs, and tourist spots are not among
those places expressly mentioned by Section 140
of the LGC as being subject to amusement taxes.
Thus, the determination of whether amusement
taxes may be levied on admissions to resorts,
swimming pools, bath houses, hot springs, and
tourist spots hinges on whether the phrase other
places of amusement encompasses resorts,
swimming pools, bath houses, hot springs, and
tourist spots.
Under the principle of ejusdem generis, "where a
general word or phrase follows an enumeration of
particular and specific words of the same class or
where the latter follow the former, the general
word or phrase is to be construed to include, or to
be restricted to persons, things or cases akin to,
resembling, or of the same kind or class as those
specifically mentioned."17
The purpose and rationale of the principle was
explained by the Court in National Power
Corporation v. Angas18as follows:
The purpose of the rule on ejusdem generis is to
give effect to both the particular and general
words, by treating the particular words as

indicating the class and the general words as

including all that is embraced in said class,
although not specifically named by the particular
words. This is justified on the ground that if the
lawmaking body intended the general terms to be
used in their unrestricted sense, it would have
not made an enumeration of particular subjects
but would have used only general terms. [2
Sutherland, Statutory Construction, 3rd ed., pp.
395-400].19
In Philippine Basketball Association v. Court of
Appeals,20 the Supreme Court had an opportunity
to interpret a starkly similar provision or the
counterpart provision of Section 140 of the LGC in
the Local Tax Code then in effect. Petitioner
Philippine Basketball Association (PBA) contended
that it was subject to the imposition by LGUs of
amusement taxes (as opposed to amusement
taxes
imposed
by
the
national
government).1wphi1 In
support
of
its
contentions, it cited Section 13 of Presidential
Decree No. 231, otherwise known as the Local Tax
Code of 1973, (which is analogous to Section 140
of the LGC) providing the following:
Section 13. Amusement tax on admission. - The
province shall impose a tax on admission to be
collected from the proprietors, lessees, or
operators of theaters, cinematographs, concert
halls, circuses and other places of amusement
xxx.
Applying the principle of ejusdem generis, the
Supreme Court rejected PBA's assertions and
noted that:

which were already mentioned in PD No. 231.

Also, 'artistic expression' as a characteristic does
not pertain to 'boxing stadia'.
In the present case, the Court need not embark
on a laborious effort at statutory construction.
Section 131 (c) of the LGC already provides a
clear definition of amusement places:
Section 131. Definition of Terms. - When used in
this Title, the term:
xxx
(c) "Amusement Places" include theaters,
cinemas, concert halls, circuses and other places
of amusement where one seeks admission to
entertain oneself by seeing or viewing the show
or performances [Underscoring supplied]
Indeed, theaters, cinemas, concert halls, circuses,
and boxing stadia are bound by a common
typifying characteristic in that they are all venues
primarily for the staging of spectacles or the
holding
of
public
shows,
exhibitions,
performances, and other events meant to be
viewed by an audience. Accordingly, other places
of amusement must be interpreted in light of the
typifying characteristic of being venues "where
one seeks admission to entertain oneself by
seeing or viewing the show or performances" or
being venues primarily used to stage spectacles
or hold public shows, exhibitions, performances,
and other events meant to be viewed by an
audience.

In determining the meaning of the phrase 'other

places of amusement', one must refer to the prior
enumeration
of
theaters,
cinematographs,
concert halls and circuses with artistic expression
as their common characteristic. Professional
basketball games do not fall under the same
category as theaters, cinematographs, concert
halls and circuses as the latter basically belong to
artistic forms of entertainment while the former
caters to sports and gaming.21 [Underscoring
supplied]

As defined in The New Oxford American

Dictionary,22 show means "a spectacle or display
of
something,
typically
an
impressive
23
one"; while performance means "an act of
staging or presenting a play, a concert, or other
form of entertainment."24 As such, the ordinary
definitions of the words show and performance
denote not only visual engagement (i.e., the
seeing or viewing of things) but also active doing
(e.g., displaying, staging or presenting) such that
actions are manifested to, and (correspondingly)
perceived by an audience.

However, even as the phrase other places of

amusement was already clarified in Philippine
Basketball Association, Section 140 of the LGC
adds to the enumeration of 'places of
amusement' which may properly be subject to
amusement
tax.
Section
140
specifically
mentions 'boxing stadia' in addition to "theaters,
cinematographs, concert halls and circuses"

Considering these, it is clear that resorts,

swimming pools, bath houses, hot springs and
tourist spots cannot be considered venues
primarily "where one seeks admission to
entertain oneself by seeing or viewing the show
or performances". While it is true that they may
be venues where people are visually engaged,
they are not primarily venues for their proprietors

or operators to actively display, stage or present

shows and/or performances.
Thus, resorts, swimming pools, bath houses, hot
springs and tourist spots do not belong to the
same category or class as theaters, cinemas,
concert halls, circuses, and boxing stadia. It
follows that they cannot be considered as among
the other places of amusement contemplated by
Section 140 of the LGC and which may properly
be subject to amusement taxes.
At this juncture, it is helpful to recall this Courts
pronouncements in Icard:
The power to tax when granted to a province is to
be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting
that power must be resolved against the
province. Inferences, implications, deductions
all these have no place in the interpretation of
the taxing power of a province.25
In this case, the definition of' amusement places'
in Section 131 (c) of the LGC is a clear basis for
determining what constitutes the 'other places of
amusement' which may properly be subject to
amusement tax impositions by provinces. There
is no reason for going beyond such basis. To do
otherwise would be to countenance an arbitrary
interpretation/application of a tax law and to
inflict an injustice on unassuming taxpayers.
The previous pronouncements notwithstanding, it
will be noted that it is only the second paragraph
of Section 59, Article X of the Tax Ordinance
which imposes amusement taxes on "resorts,
swimming pools, bath houses, hot springs, and
tourist spots". The first paragraph of Section 59,
Article X of the Tax Ordinance refers to "theaters,
cinemas, concert halls, circuses, cockpits,
dancing halls, dancing schools, night or day
clubs,
and
other
places
of
amusement".1wphi1 In any case, the issues
raised by Pelizloy are pertinent only with respect
to the second paragraph of Section 59, Article X
of the Tax Ordinance. Thus, there is no reason to
invalidate the first paragraph of Section 59,
Article X of the Tax Ordinance. Any declaration as
to the Province of Benguet's lack of authority to
levy amusement taxes must be limited to
admission fees to resorts, swimming pools, bath
houses, hot springs and tourist spots.
Moreover, the second paragraph of Section 59,
Article X of the Tax Ordinance is not limited to
resorts, swimming pools, bath houses, hot

springs, and tourist spots but also covers

admission fees for boxing. As Section 140 of the
LGC allows for the imposition of amusement
taxes on gross receipts from admission fees to
boxing stadia, Section 59, Article X of the Tax
Ordinance must be sustained with respect to
admission fees from boxing stadia.
WHEREFORE, the petition for review on certiorari
is GRANTED. The second paragraph of Section 59,
Article X of the Benguet Provincial Revenue Code
of 2005, in so far as it imposes amusement taxes
on admission fees to resorts, swimming pools,
bath houses, hot springs and tourist spots, is
declared null and void. Respondent Province of
Benguet is permanently enjoined from enforcing
the second paragraph of Section 59, Article X of
the Benguet Provincial Revenue Code of 2005
with respect to resorts, swimming pools, bath
houses, hot springs and tourist spots.
SO ORDERED.

G.R. No. 188500

July 24, 2013

PROVINCE OF CAGAYAN, represented by

HON. ALVARO T. ANTONIO, Governor, and
ROBERT ADAP, Environmental and Natural
Resources
Officer, Petitioners,
vs.
JOSEPH LASAM LARA, Respondent.
RESOLUTION
In order for an entity to legally undertake a
quarrying business, he must first comply with all
the requirements imposed not only by the
national government, but also by the local
government unit where his business is situated.
Particularly, Section 138(2) of RA 716026 requires
that such entity must first secure a governors
permit prior to the start of his quarrying
operations, viz:
SECTION 138. Tax on Sand, Gravel and Other
Quarry Resources.
x x x.
The permit to extract sand, gravel and other
quarry resources shall be issued exclusively by
the provincial governor, pursuant to the

ordinance of the sangguniang panlalawigan.

(Emphasis and underscoring supplied)

capacity as the City Treasurer of Manila,

and THE CITY OF MANILA, Respondents.

xxxx

DECISION

In
connection
thereto,
the
Sangguniang
Panlalawigan of Cagayan promulgated Provincial
Ordinance No. 2005-07, Article H, Section 2H.04
of which provides:

The Courts Ruling

SECTION 2H.04. Permit for Gravel and Sand

Extraction and Quarrying. No person shall
extract ordinary stones, gravel, earth, boulders
and quarry resources from public lands or from
the beds of seas, rivers, streams, creeks or other
public waters unless a permit has been issued by
the Governor (or his deputy as provided herein) x
x x. (Emphasis and underscoring supplied)
A plain reading of the afore-cited provisions
clearly shows that a governors permit is a prerequisite before one can engage in a quarrying
business in Cagayan. Records, however, reveal
that Lara admittedly failed to secure the same;
hence, he has no right to conduct his quarrying
operations within the Permit Area. Consequently,
he is not entitled to any injunction.
In view of the foregoing, the Court need not delve
into the issue respecting the necessity of
securing a mayors permit, especially since it is
the main issue in another case, Civil Case No.
7049, which remains pending before the court a
quo.
WHEREFORE,
the
petition
is
GRANTED.
Accordingly, the June 30, 2009 Decision of the
Regional Trial Court of Tuguegarao City, Cagayan,
Branch 5 in Civil Case No. 7077 is hereby
REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. 190818

June 5, 2013

METRO MANILA SHOPPING MECCA CORP.,

SHOEMART, INC., SM PRIME HOLDINGS,
INC., STAR APPLIANCES CENTER, SUPER
VALUE, INC., ACE HARDWARE PHILIPPINES,
INC., HEALTH AND BEAUTY, INC., JOLLIMART
PHILS. CORP., and SURPLUS MARKETING
CORPORATION, Petitioners,
vs.
MS. LIBERTY M. TOLEDO, in her official

The petition is bereft of merit.

A.
Respondents
Review with the CTA Division

Petition

for

Petitioners argue that the CTA Division erred in

extending the reglementary period within which
respondents may file their Petition for Review,
considering that Section 3, Rule 8 33 of the Revised
Rules of the CTA (RRCTA) is silent on such matter.
Further, even if it is assumed that an extension is
allowed, the CTA Division should not have
entertained respondents Petition for Review for
their failure to comply with the filing requisites
set forth in Section 4, Rule 5 34 and Section 2, Rule
635 of the RRCTA.
Petitioners arguments fail to persuade.
Although the RRCTA does not explicitly sanction
extensions to file a petition for review with the
CTA, Section 1, Rule 736 thereof reads that in the
absence of any express provision in the RRCTA,
Rules 42, 43, 44 and 46 of the Rules of Court may
be applied in a suppletory manner. In particular,
Section 937 of Republic Act No. 9282 makes
reference to the procedure under Rule 42 of the
Rules of Court. In this light, Section 1 of Rule
4238 states that the period for filing a petition for
review may be extended upon motion of the
concerned party. Thus, in City of Manila v. CocaCola Bottlers Philippines, Inc.,39 the Court held
that the original period for filing the petition for
review may be extended for a period of fifteen
(15) days, which for the most compelling reasons,
may be extended for another period not
exceeding fifteen (15) days. 40 In other words, the
reglementary period provided under Section 3,
Rule 8 of the RRCTA is extendible and as such,
CTA Divisions grant of respondents motion for
extension falls squarely within the law.
Neither did respondents failure to comply with
Section 4, Rule 5 and Section 2, Rule 6 of the
RRCTA militate against giving due course to their
Petition for Review. Respondents submission of
only one copy of the said petition and their failure
to attach therewith a certified true copy of the
RTCs decision constitute mere formal defects

which may be relaxed in the interest of

substantial justice. It is well-settled that dismissal
of appeals based purely on technical grounds is
frowned upon as every party litigant must be
afforded the amplest opportunity for the proper
and just determination of his cause, free from the
unacceptable plea of technicalities. 41 In this
regard, the CTA Division did not overstep its
boundaries when it admitted respondents
Petition for Review despite the aforementioned
defects "in the broader interest of justice."
Having resolved the foregoing procedural matter,
the Court proceeds to the main issue in this case.
B.
Petitioners
refund/credit

claim

for

tax

A perusal of Section 19642 of the LGC reveals that

in order to be entitled to a refund/credit of local
taxes, the following procedural requirements
must concur: first, the taxpayer concerned must
file a written claim for refund/credit with the local
treasurer; and second, the case or proceeding for
refund has to be filed within two (2) years from
the date of the payment of the tax, fee, or charge
or from the date the taxpayer is entitled to a
refund or credit.
Records disclose that while the case or
proceeding for refund was filed by petitioners
within two (2) years from the time of
payment,43 they, however, failed to prove that
they have filed a written claim for refund with the
local treasurer considering that such fact
although subject of their Request for Admission
which respondents did not reply to had already
been controverted by the latter in their Motion to
Dismiss and Answer.
To elucidate, the scope of a request for admission
filed pursuant to Rule 26 of the Rules of Court and
a partys failure to comply with the same are
respectively detailed in Sections 1 and 2 thereof,
to wit:
SEC. 1. Request for admission. At any time after
issues have been joined, a party may file and
serve upon any other party a written request for
the admission by the latter of the genuineness of
any material and relevant document described in
and exhibited with the request or of the truth of
any material and relevant matter of fact set forth
in the request. Copies of the documents shall be
delivered with the request unless copies have
already been furnished.

SEC. 2. Implied admission. Each of the matters

of which an admission is requested shall be
deemed admitted unless, within a period
designated in the request, which shall not be less
than fifteen (15) days after service thereof, or
within such further time as the court may allow
on motion, the party to whom the request is
directed files and serves upon the party
requesting the admission a sworn statement
either denying specifically the matters of which
an admission is requested or setting forth in
detail the reasons why he cannot truthfully either
admit or deny those matters.
Objections to any request for admission shall be
submitted to the court by the party requested
within the period for and prior to the filing of his
sworn statement as contemplated in the
preceding paragraph and his compliance
therewith shall be deferred until such objections
are resolved, which resolution shall be made as
early as practicable. (Emphasis and underscoring
supplied)
Based on the foregoing, once a party serves a
request for admission regarding the truth of any
material and relevant matter of fact, the party to
whom such request is served is given a period of
fifteen (15) days within which to file a sworn
statement answering the same. Should the latter
fail to file and serve such answer, each of the
matters of which admission is requested shall be
deemed admitted.44
The exception to this rule is when the party to
whom such request for admission is served had
already controverted the matters subject of such
request in an earlier pleading. Otherwise stated,
if the matters in a request for admission have
already been admitted or denied in previous
pleadings by the requested party, the latter
cannot be compelled to admit or deny them
anew. In turn, the requesting party cannot
reasonably expect a response to the request and
thereafter, assume or even demand the
application of the implied admission rule in
Section 2, Rule 26.45 The rationale behind this
exception had been discussed in the case of CIR
v. Manila Mining Corporation,46 citing Concrete
Aggregates Corporation v. CA,47 where the Court
held as follows:
As Concrete Aggregates Corporation v. Court of
Appeals holds, admissions by an adverse party as
a
mode
of
discovery
contemplates
of
interrogatories that would clarify and tend to
shed light on the truth or falsity of the allegations

in a pleading, and does not refer to a mere

reiteration of what has already been alleged in
the pleadings; otherwise, it constitutes an utter
redundancy and will be a useless, pointless
process which petitioner should not be subjected
to.

Resolution of the Court of Tax Appeals En Bane in

CT A E.B. No. 480 are hereby AFFIRMED.

Petitioner controverted in its Answers the matters

set forth in respondents Petitions for Review
before the CTA the requests for admission being
mere reproductions of the matters already stated
in the petitions. Thus, petitioner should not be
required to make a second denial of those
matters
it
already
denied
in
its
Answers.1wphi1(Emphasis and underscoring
supplied; citations omitted)

VALBUECO,
INC., Petitioner,
vs.
PROVINCE OF BATAAN, represented by its
Provincial
Governor
ANTONIO
ROMAN;1 EMMANUEL M. AQUINO,2 in his
official capacity as Registrar of the Register
of Deeds of Balanga, Bataan; and PASTOR P.
VICHUACO,3 in his official capacity as
Provincial
Treasurer
of
Balanga,
Bataan, Respondents.

Likewise, in the case of Limos v. Odones,48 the

Court explained:
A request for admission is not intended to merely
reproduce or reiterate the allegations of the
requesting partys pleading but should set forth
relevant evidentiary matters of fact described in
the request, whose purpose is to establish said
partys cause of action or defense. Unless it
serves that purpose, it is pointless, useless and a
mere redundancy. (Emphasis and underscoring
supplied)
Records show that petitioners filed their Request
for Admission with the RTC and also served the
same on respondents, requesting that the fact
that they filed a written claim for refund with the
City
Treasurer
of
Manila
be
admitted.49 Respondents, however, did not and
in fact, need not reply to the same considering
that they have already stated in their Motion to
Dismiss and Answer that petitioners failed to file
any written claim for tax refund or credit. 50 In this
regard, respondents are not deemed to have
admitted the truth and veracity of petitioners
requested fact.
Indeed, it is hornbook principle that a claim for a
tax refund/credit is in the nature of a claim for an
exemption and the law is construed in strictissimi
juris against the one claiming it and in favor of
the
taxing
authority.51Consequently,
as
petitioners have failed to prove that they have
complied with the procedural requisites stated
under Section 196 of the LGC, their claim for local
tax refund/credit must be denied.
WHEREFORE, the petition is DENIED. The
September 8, 2009 Decision and January 4, 2010

SO ORDERED.
G.R. No. 173829

June 10, 2013

The petition lacks merit.

While it has been ruled that the notices and
publication, as well as the legal requirements for
a tax delinquency sale under Presidential Decree
No. 464 (otherwise known as the Real Property
Tax Code),20 are mandatory and that failure to
comply therewith can invalidate the sale in view
of the requirements of due process, We have
equally held that the claim of lack of notice is a
factual question.21 In a petition for review, the
Court can only pass upon questions of law; it is
not a trier of facts and will not inquire into and
review the evidence presented by the contending
parties during the trial and relied upon by the
lower courts to support their findings. 22 The
issues raised in this petition undeniably involve
only questions of fact. On this ground alone, it
should be dismissed outright.
Even if We dig deeper and scrutinize the entire
case records, the same conclusion would be
arrived at. Indeed, petitioner utterly failed to
present preponderant evidence to support its
allegations that the auction sale of the subject
properties due to tax delinquency was attended
by irregularities. The two witnesses it presented
are neither competent nor convincing to attest
with reasonable certainty that respondents failed
to observe the procedural requirements of PD
464.23 The Court is thus, satisfied with the factual
findings of the trial court, as affirmed by the CA,
and sees no reason to disturb the same.
We cannot lend credence to the testimony of
Gaudencio P. Juan, petitioners Forestry and
Technical Consultant who claimed to have been
an employee since 1964,24 that no notice of tax
delinquency, demand for tax payment or

collection notice was received and that there was

no publication and posting of notice of sale held.
According to him, his duties and responsibilities
include: bringing out some technical matters to
the company (e.g., use of grazing lands) and
preparing plans for implementation by the
company (e.g., occupation of the area, the
conversion
of
the
area
for
pasture
purposes);25 land and boundary disputes between
petitioner
and
owners
of
adjoining
areas;26 planning some other plans for the
implementation in the area like reforestation and
other forestry cases;27 and planning preparation
of reports, uses of the land for forestry and
agricultural purposes.28These, however, have
nothing to do with the duty of ensuring the
prompt and timely settlement of petitioners
realty taxes or of making any representation, for
or in behalf of petitioner, with respondents in
connection thereto. In fact, Juan categorically
admitted that he is not the custodian of
petitioners corporate records:
Under Section 7338 of PD 464
x x x notices of the sale at public auction may be
sent to the delinquent taxpayer, either (i) at the
address as shown in the tax rolls or property tax
record cards of the municipality or city where the
property is located or (ii) at his residence, if
known to such treasurer or barrio captain. Plainly,
Section 73 gives the treasurer the option of
where to send the notice of sale. In giving the
treasurer the option, nowhere in the wordings is
there an indication of a requirement that notice
must actually be received by the intended
recipient. Compliance by the treasurer is limited
to strictly following the provisions of the statute:
he may send it at the address of the delinquent
taxpayer as shown in the tax rolls or tax records
or to the residence if known by him or the barrio
captain.39
In this case, it is reasonable to deduce that
respondent Provincial Treasurer actually sent the
notices at the address uniformly indicated in TCT
No. 47377, 47378, 47379, 47380, 47381, 47382,
47385 and 47386, as well as in the tax
declarations, which is 7th Floor, Bank of P.I. Bldg.,
Ayala Avenue, Makati, Rizal. The fault herein lies
with petitioner, not with respondent Provincial
Treasurer. It had a number of years to amend its
address and provide a more updated and reliable
one. By neglecting to do so, it should be aware of
the chances it was taking should notices be sent
to it. Respondent Provincial Treasurer cannot be
faulted for presumably sending the notices to

petitioners address indicated in the land titles

and tax declarations of the subject properties.
The principle We enunciated in Valencia v.
Jimenez,40 Camo v. Riosa Boyco,41 and Requiron v.
Sinaban42 that there can be no presumption of
regularity of any administrative action which
results in depriving a taxpayer of his property
through a tax sale does not apply in the case at
bar. By and large, these cases cited by petitioner
involved facts that are way too different from the
one found in the instant case. More importantly,
in the present case, respondent Province, through
its witness, Josephine Espino, unequivocally
attested that the procedural requisites mandated
by PD 464 were definitely observed. During her
presentation, Espino stated that she is a Local
Treasury Operation Officer IV of the Provincial
Treasurers Office since March 2000 and that she
had previously served as Local Treasury
Operations Officer and Local Revenue Collection
Officer III of the Provincial Treasurers Office,
being in charge of collecting taxes. 43 Under oath,
she declared to have personal knowledge of the
fact that notice of tax delinquency was sent by
the Provincial Treasurers Office to petitioner. She
could not, however, show any documentary proof
mainly because
the
exclusive
folder
of
petitioners properties are now missing despite
exercise of all possible means to locate them in
other property files.44 Considering the long time
that elapsed between the public sale held
sometime in 1987 or 1988 and the presentation
of her testimony in 2002, it is also
understandable that Espino could no longer
remember the minute details surrounding the
notices, publication, and posting that respondent
Provincial Treasurer observed relative to the
auction sale of the subject properties.
The Court, therefore, affirms the RTCs opinion
that petitioner was not able to establish its cause
of action for its failure to submit convincing
evidence to establish a case and the CAs position
that it must rely on the strength of its evidence
and not on the weakness of respondents claim.
Indeed, in Sapu-an v. Court of Appeals,45 We held:
The general rule in civil cases is that the party
having the burden of proof must establish his
case by a preponderance of evidence. By
"preponderance of evidence" is meant that the
evidence as a whole adduced by one side is
superior to that of the other.
In determining where the preponderance or
superior weight of evidence on the issues

involved lies, the court may consider all the facts

and circumstances of the case, the witnesses
manner of testifying, their intelligence, their
means and opportunity of knowing the facts on
which they are testifying, the nature of such
facts, the probability or improbability of their
testimony, their interest or want of interest, and
also their personal credibility as far as the same
may legitimately appear at the trial. The court
may also consider the number of witnesses,
although the preponderance is not necessarily
with the greatest number.1wphi1

G.R. No. 112497 August 4, 1994

It is settled that matters of credibility are

addressed basically to the trial judge who is in a
better position than the appellate court to
appreciate the weight and evidentiary value of
the testimonies of witnesses who have personally
appeared before him.46

Section 187 authorizes the Secretary of Justice to

review only the constitutionality or legality of the
tax ordinance and, if warranted, to revoke it on
either or both of these grounds. When he alters or
modifies or sets aside a tax ordinance, he is not
also permitted to substitute his own judgment for
the judgment of the local government that
enacted the measure. Secretary Drilon did set
aside the Manila Revenue Code, but he did not
replace it with his own version of what the Code
should be. He did not pronounce the ordinance
unwise or unreasonable as a basis for its
annulment. He did not say that in his judgment it
was a bad law. What he found only was that it
was illegal. All he did in reviewing the said
measure was determine if the petitioners were
performing their functions in accordance with
law, that is, with the prescribed procedure for the
enactment of tax ordinances and the grant of
powers to the city government under the Local
Government Code. As we see it, that was an act
not of control but of mere supervision.

What petitioner has accomplished is only to cast

doubts by capitalizing on the absence of
documentary
evidence
on
the
part
of
respondents. While such approach would succeed
if carried out by the accused in criminal cases,
plaintiffs in civil cases need to do much more to
overturn findings of fact and credibility by the
trial court, especially when the same had been
affirmed by the CA. It must be stressed that
overturning judgments in civil cases should be
based on preponderance of evidence, and with
the further qualification that, when the scales
shall stand upon an equipoise, the court should
find for the defendant.47 The "equiponderance of
evidence" rule states that when the scale shall
stand upon an equipoise and there is nothing in
the evidence which shall incline it to one side or
the other, the court will find for the
defendant.48 Under this principle, the plaintiff
must rely on the strength of his evidence and not
on the weakness of the defendant's claim; even if
the evidence of the plaintiff may be stronger than
that of the defendant, there is no preponderance
of evidence on his side if such evidence is
insufficient in itself to establish his cause of
action.49
WHEREFORE, the petition is DENIED. The assailed
October 24, 2005 Decision and July 18, 2006
Resolution of the Court of Appeals in CAG.R. CV
No. 81191, which sustained the August 19,2003
Decision of the Regional Trial Court, Branch 1,
Balanga City, Bataan dismissing the case are
hereby AFFIRMED.

HON. FRANKLIN M. DRILON, in his capacity

as
SECRETARY
OF
JUSTICE, petitioner,
vs.
MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE
L. ATIENZA, CITY TREASURER ANTHONY
ACEVEDO,
SANGGUNIANG
PANGLUNSOD
AND THE CITY OF MANILA, respondents.
We do not share that view. The lower court was
rather hasty in invalidating the provision.

An officer in control lays down the rules in the

doing of an act. If they are not followed, he may,
in his discretion, order the act undone or re-done
by his subordinate or he may even decide to do it
himself. Supervision does not cover such
authority. The supervisor or superintendent
merely sees to it that the rules are followed, but
he himself does not lay down such rules, nor does
he have the discretion to modify or replace them.
If the rules are not observed, he may order the
work done or re-done but only to conform to the
prescribed rules. He may not prescribe his own
manner for the doing of the act. He has no
judgment on this matter except to see to it that
the rules are followed. In the opinion of the Court,
Secretary Drilon did precisely this, and no more
nor less than this, and so performed an act not of
control but of mere supervision.
The case of Taule v. Santos 9 cited in the decision
has no application here because the jurisdiction

claimed by the Secretary of Local Governments

over election contests in the Katipunan ng Mga
Barangay was held to belong to the Commission
on Elections by constitutional provision. The
conflict was over jurisdiction, not supervision or
control.
Significantly, a rule similar to Section 187
appeared in the Local Autonomy Act, which
provided in its Section 2 as follows:
A tax ordinance shall go into effect
on the fifteenth day after its
passage, unless the ordinance shall
provide
otherwise:
Provided,
however, That the Secretary of
Finance shall have authority to
suspend the effectivity of any
ordinance within one hundred and
twenty days after receipt by him of
a copy thereof, if, in his opinion,
the tax or fee therein levied or
imposed is unjust, excessive,
oppressive, or confiscatory, or
when it is contrary to declared
national economy policy, and when
the said Secretary exercises this
authority the effectivity of such
ordinance shall be suspended,
either in part or as a whole, for a
period of thirty days within which
period the local legislative body
may
either
modify
the
tax
ordinance to meet the objections
thereto, or file an appeal with a
court of competent jurisdiction;
otherwise, the tax ordinance or the
part or parts thereof declared
suspended, shall be considered as
revoked. Thereafter, the local
legislative body may not reimpose
the same tax or fee until such time
as the grounds for the suspension
thereof shall have ceased to exist.
That section allowed the Secretary of Finance to
suspend the effectivity of a tax ordinance if, in
his opinion, the tax or fee levied was unjust,
excessive, oppressive
or
confiscatory.
Determination of these flaws would involve the
exercise of judgment or discretion and not merely
an examination of whether or not the
requirements or limitations of the law had been
observed; hence, it would smack of control rather
than mere supervision. That power was never
questioned before this Court but, at any rate, the
Secretary of Justice is not given the same latitude

under Section 187. All he is permitted to do is

ascertain the constitutionality or legality of the
tax measure, without the right to declare that, in
his opinion, it is unjust, excessive, oppressive or
confiscatory. He has no discretion on this matter.
In fact, Secretary Drilon set aside the Manila
Revenue Code only on two grounds, to with, the
inclusion therein of certain ultra vires provisions
and
non-compliance
with
the
prescribed
procedure in its enactment. These grounds
affected
the legality,
not
the wisdom or reasonableness,
of
the
tax
measure.
The issue of non-compliance with the prescribed
procedure in the enactment of the Manila
Revenue Code is another matter.
In his resolution, Secretary Drilon declared that
there were no written notices of public hearings
on the proposed Manila Revenue Code that were
sent to interested parties as required by Art.
276(b) of the Implementing Rules of the Local
Government Code nor were copies of the
proposed ordinance published in three successive
issues of a newspaper of general circulation
pursuant to Art. 276(a). No minutes were
submitted to show that the obligatory public
hearings had been held. Neither were copies of
the measure as approved posted in prominent
places in the city in accordance with Sec. 511(a)
of the Local Government Code. Finally, the Manila
Revenue Code was not translated into Pilipino or
Tagalog and disseminated among the people for
their information and guidance, conformably to
Sec. 59(b) of the Code.
Judge Palattao found otherwise. He declared that
all the procedural requirements had been
observed in the enactment of the Manila Revenue
Code and that the City of Manila had not been
able to prove such compliance before the
Secretary only because he had given it only five
days within which to gather and present to him
all the evidence (consisting of 25 exhibits) later
submitted to the trial court.
To get to the bottom of this question, the Court
acceded to the motion of the respondents and
called for the elevation to it of the said exhibits.
We have carefully examined every one of these
exhibits and agree with the trial court that the
procedural requirements have indeed been
observed. Notices of the public hearings were
sent to interested parties as evidenced by
Exhibits G-1 to 17. The minutes of the hearings
are found in Exhibits M, M-1, M-2, and M-3.

Exhibits B and C show that the proposed

ordinances were published in the Balita and the
Manila Standard on April 21 and 25, 1993,
respectively, and the approved ordinance was
published in the July 3, 4, 5, 1993 issues of the
Manila Standard and in the July 6, 1993 issue
of Balita, as shown by Exhibits Q, Q-1, Q-2, and
Q-3.
The only exceptions are the posting of the
ordinance as approved but this omission does not
affect its validity, considering that its publication
in three successive issues of a newspaper of
general circulation will satisfy due process. It has
also not been shown that the text of the
ordinance has been translated and disseminated,
but this requirement applies to the approval of
local development plans and public investment
programs of the local government unit and not to
tax ordinances.
We make no ruling on the substantive provisions
of the Manila Revenue Code as their validity has
not been raised in issue in the present petition.
WHEREFORE, the judgment is hereby rendered
REVERSING the challenged decision of the
Regional Trial Court insofar as it declared Section
187
of
the
Local
Government
Code
unconstitutional but AFFIRMING its finding that
the procedural requirements in the enactment of
the Manila Revenue Code have been observed.
No pronouncement as to costs.
SO ORDERED.

SPOUSES
MONTAO,

EDUARDO

and

LETICIA

Petitioners,

- versus -

ROSALINA
FRANCISCO,
THE
CITY
GOVERNMENT OF ILOILO, ROMEO V.
MANIKAN, City Treasurer of Iloilo City,
and ERLINDA C. ZARANDIN, Head of the
Treasurers Enforcement Group,
Respondents.

x--------------------------------------------------------------------------------------x
In Talusan v. Tayag,[31] the
Court held that for purposes of the
collection of real property taxes,
the registered owner of the
property
is
considered
the
taxpayer. Hence,
only
the
registered owner is entitled to a
notice of tax delinquency and other
proceedings relative to the tax
sale.[32]
In this case, the Court of Appeals correctly
held that the GSIS, as the registered owner of the
subject property, was the taxpayer that was
entitled to the notice of tax delinquency and that
of the auction sale, as well as other related
notices. It found that the GSIS was not deprived
of its property without due process and that
notice was regularly served. It pointed out that it
had already upheld the validity of the assessment
of the real property taxes upon GSIS and the
auction
sale
proceedings
in GSIS
v.
City Assessor of Iloilo City.[33]
It is important to note that both the GSIS,
as the registered owner of the subject property,
and
herein
petitioners
Spouses
Montao
separately questioned the validity of the auction
sale of the subject property covered by TCT No. T41681.
The Court of Appeals mentioned in its
Decision that there are two cases involving the
same issue, namely, this action for declaration of
nullity of sale and damages filed by the Spouses
Montao, and the petition for annulment of
judgment
filed by the GSIS, docketed as CA-G.R.
G.R.
No. 160380
SP No. 51149, entitled GSIS v. City Assessor of
Iloilo City, the Register of Deeds of Iloilo City and
Present
Rosalina Francisco (GSIS v. City Assessor of Iloilo
City).
YNARES-SANTIAGO,
In GSIS v. City Assessor of Iloilo City, the
CHICO-NAZARIO,
GSIS
assailed
the Order dated April 29, 1993 of
VELASCO, JR.,
the
RTC
of
Iloilo
City, Branch 36 and the Order
NACHURA
dated
November
8, 1994 of the RTC of Iloilo,
PERALTA,
Branch 31 in regard to the petition of herein
respondent Rosalina Francisco for the entry
of new transfer certificates of title in her name,
which included TCT No. T-41681 covering the
subject parcel of land in this case. The GSIS
Promulgated
claimed that the assessment of real property
taxes on the parcels of land was void because it
was exempt from all forms of taxes under its
charter, Republic Act No. 8291. The GSIS also
claimed that it had no notice of the proceedings

in the assessment and levy of the taxes, as well

as the sale of the properties at public auction;
hence, its right to due process was violated.
In GSIS v. City Assessor of Iloilo
City, the Court of
Appeals
upheld
the findings of the lower courts
that notices were sent to GSIS and the
beneficial owners of the properties in question. It
gave no credence to the arguments of GSIS and
denied its petition.
GSIS appealed the decision of the Court of
Appeals before this Court via a petition for
review on certiorari. In a Decision dated June 27,
2006 in
G.R.
No.
147192,
[34]
this Court dismissed the GSIS petition for
review on certiorari of the Decision of the Court
of
Appeals
in CA-G.R.
SP
No.
51149
dated August 8, 2000. Hence, the finding of the
Court of Appeals in regard to the validity of the
auction sale proceedings of the subject
property has long been final.
WHEREFORE, the petition is DENIED.
The Decision dated April 24, 2003 and the
Resolution dated August 20, 2003 of the Court of
Appeals
in
CA-G.R.
CV
No.
71004
are hereby AFFIRMED.
SECOND DIVISION

The
CITY
OF
ILOILO, Mr. ROMEO
V. MANIKAN, in his capacity as the Treasurer of
Iloilo City,
Petitioners,

versus

which, except for the respondent, involves the

same set of facts and issues we find SMARTs
claim
for
exemption
to
be
unfounded.
Consequently, we find the petition meritorious.
The basic principle in the construction of
laws granting tax exemptions has been very
stable. As early as 1916, in the case
of Government of the Philippine Islands v. Monte
de Piedad,[5] this Court has declared that he who
claims an exemption from his share of the
common burden of taxation must justify his claim
by showing that the Legislature intended to
exempt him by words too plain to be beyond
doubt or mistake. This doctrine was repeated in
the 1926 case of Asiatic Petroleum v. Llanes,[6] as
well as in the case of Borja v. Commissioner of
Internal Revenue (CIR)[7] decided in 1961. Citing
American jurisprudence, the Court stated in E.
Rodriguez, Inc. v. CIR:[8]
The right of taxation is inherent in
the State. It is a prerogative
essential to the perpetuity of the
government; and he who claims an
exemption from the common
burden, must justify his claim by
the clearest grant of organic or
statute law xxx When exemption is
claimed,
it
must
be
shown
indubitably to exist. At the outset,
every presumption is against it. A
well-founded doubt is fatal to the
claim; it is only when the terms of
the concession are too explicit to
admit
fairly
of
any
other
construction that the proposition
can be supported.
In the recent case of Digital Telecommunications,
Inc. v. City Government of Batangas, et al.,[9] we
adhered to the same principle when we said:

A tax exemption cannot arise from

vague inference...Tax exemptions
SMART COMMUNICATIONS, INC. (SMART),
must be clear and unequivocal. A
Respondent.
taxpayer claiming a tax exemption
x -------------------------------------------------------------------------------------------x
must point to a specific provision of
law conferring on the taxpayer, in
clear and plain terms, exemption
THE COURTS RULING
from a common burden. Any doubt
whether a tax exemption exists is
resolved against the taxpayer.
SMART relies on two provisions of law to
support its claim for tax exemption: Section 9 of
SMARTs franchise and Section 23 of the Public
The burden therefore is on SMART to prove that,
Telecoms Act. After a review of pertinent laws
based on its franchise and the Public Telecoms
and jurisprudence particularly of SMART
Act, it is entitled to exemption from the local
Communications, Inc. v. City of Davao,[4] a case

franchise and business taxes being collected by

the petitioner.
Claim for Exemption under
SMARTs franchise
Section 9 of SMARTs franchise states:
Section 9. Tax provisions.
The grantee, its successors or
assigns shall be liable to pay the
same taxes on their real estate
buildings and personal property,
exclusive of' this franchise, as
other persons or corporations
which are now or hereafter may be
required by law to pay. In addition
thereto, the
grantee,
its
successors or assigns shall pay
a franchise tax equivalent to
three percent (3%) of all gross
receipts
of
the
business
transacted under this franchise
by the grantee, its successors
or
assigns
and
the
said
percentage shall be in lieu of
all taxes on this franchise or
earnings thereof: Provided, That
the grantee, its successors or
assigns shall continue to be liable
for income taxes payable under
Title II of the National Internal
Revenue Code pursuant to Section
2 of Executive Order No. 72 unless
the latter enactment is amended or
repealed, in which case the
amendment or repeal shall be
applicable thereto.
The grantee shall file the
return with and pay the tax due
thereon to the Commissioner of
Internal Revenue or his duly
authorized
representative
in
accordance with the National
Internal Revenue Code and the
return shall be subject to audit by
the
Bureau
of
Internal
Revenue. [Emphasis supplied.]
The petitioner posits that SMARTs claim for
exemption under its franchise is not equivocal
enough to prevail over the specific grant of power
to local government units to exact taxes from
businesses operating
within
its territorial
jurisdiction under Section 137 in relation to
Section 151 of the LGC. More importantly, it
claimed that exemptions from taxation have
already been removed by Section 193 of the LGC:

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
governmentowned or controlled corporations,
except
local
water
districts,
cooperatives duly registered under
RA No. 6938, non-stock and nonprofit hospitals and educational
institutions, are
hereby
withdrawn upon the effectivity
of this Code. [Emphasis supplied.]
The petitioner argues, too, that SMARTs claim for
exemption from taxes under Section 9 of its
franchise is not couched in plain and unequivocal
language such that it restored the withdrawal of
tax exemptions under Section 193 above. It
claims that if Congress intended that the tax
exemption privileges withdrawn by Section 193 of
RA 7160 [LGC] were to be restored in
respondents [SMARTs] franchise, it would have
so expressly provided therein and not merely
[restored the exemption] by the simple expedient
of including the in lieu of all taxes provision in
said franchise.[10]
We have indeed ruled that by virtue of
Section 193 of the LGC, all tax exemption
privileges then enjoyed by all persons, save those
expressly mentioned, have been withdrawn
effective January 1, 1992 the date of effectivity
of the LGC.[11] The first clause of Section 137 of
the LGC states the same rule.[12] However, the
withdrawal of exemptions, whether under Section
193 or 137 of the LGC, pertains only to those
already existing when the LGC was enacted. The
intention of the legislature was to remove all tax
exemptions or incentives granted prior to the
LGC.[13] As SMARTs franchise was made effective
on March 27, 1992 after the effectivity of the
LGC Section 193 will therefore not apply in this
case.
But while Section 193 of the LGC will not
affect the claimed tax exemption under SMARTs
franchise, we fail to find a categorical and
encompassing grant of tax exemption to SMART
covering exemption from both national and local
taxes:
R.A. No 7294 does not expressly
provide what kind of taxes SMART

is exempted from. It is not clear

whether the in lieu of all taxes
provision in the franchise of SMART
would include exemption from local
or national taxation. What is clear
is
that
SMART
shall
pay
franchise tax equivalent to
three percent (3%) of all gross
receipts
of
the
business
transacted under its franchise.
But whether the franchise tax
exemption
would
include
exemption from exactions by
both the local and the national
government is not unequivocal.
The uncertainty in the in lieu
of all taxes clause in R.A. No.
7294 on whether SMART is
exempted from both local and
national franchise tax must be
construed
strictly
against
SMART
which
claims
the
exemption. [Emphasis supplied.]
[14]

Justice Carpio, in his Separate Opinion in PLDT v.

City of Davao,[15] explains why:
The proviso in the first paragraph
of Section 9 of Smarts franchise
states that the grantee shall
continue to be liable for income
taxes payable under Title II of the
National Internal Revenue Code.
Also, the second paragraph of
Section 9 speaks of tax returns
filed and taxes paid to the
Commissioner of Internal Revenue
or
his
duly
authorized
representative in accordance with
the National Internal Revenue
Code.
Moreover,
the
same
paragraph declares that the tax
returns shall be subject to audit by
the Bureau of Internal Revenue.
Nothing is mentioned in Section 9
about local taxes. The clear intent
is for the in lieu of all taxes
clause to apply only to taxes under
the National Internal Revenue Code
and not to local taxes.
Nonetheless, even if Section 9 of SMARTs
franchise can be construed as covering local
taxes as well, reliance thereon would now be
unavailing. The in lieu of all taxes clause
basically exempts SMART from paying all other
kinds of taxes for as long as it pays the 3%
franchise tax; it is the franchise tax that shall be
in lieu of all taxes, and not any other form of tax.

[16]

Franchise
taxes
on telecommunications
companies, however, have been abolished by
R.A. No. 7716 or the Expanded Value-Added Tax
Law (E-VAT Law), which was enacted by Congress
on January 1, 1996.[17] To replace the franchise
tax, the E-VAT Law imposed a 10%[18] value-added
tax on telecommunications companies under
Section 108 of the National Internal Revenue
Code.[19] The in lieu of all taxes clause in the
legislative franchise of SMART has thus
become functus officio, made inoperative for lack
of a franchise tax.[20]
SMARTs claim for exemption from local
business and franchise taxes based on Section 9
of its franchise is therefore unfounded.
Claim for Exemption
Under Public Telecoms Act
SMART additionally invokes the equality
clause under Section 23
of the Public Telecoms Act:
SECTION 23. Equality of
Treatment
in
the
Telecommunications Industry.

Any
advantage,
favor,
privilege,
exemption,
or
immunity
granted
under
existing franchises, or may
hereafter
be
granted,
shall ipso facto become part of
previously
granted
telecommunications franchise
and
shall
be
accorded
immediately
and
unconditionally to the grantees
of such franchises: Provided,
however, That the foregoing shall
neither
apply
to
nor
affect
provisions of telecommunications
franchises
concerning
territory
covered by the franchise, the life
span of the franchise, or the type
of service authorized by the
franchise. [Emphasis supplied.]
As in the case of SMART v. City of Davao,
[21]
SMART posits that since the franchise of
telecommunications companies granted after the
enactment of its franchise contained provisions
exempting these companies from both national
and local taxes, these privileges should extend to
and benefit SMART, applying the equality
clause above. The petitioner, on the other hand,
believes that the claimed exemption under

Section 23 of the Public Telecoms Act is similarly

unfounded.
We agree with the petitioner.
Whether Section 23 of the cited law
extends tax exemptions granted by Congress to
new franchise holders to existing ones has been
answered in the negative in the case of PLDT v.
City of Davao.[22] The term exemption in
Section 23 of the Public Telecoms Act does not
mean tax exemption; rather, it refers to
exemption from certain regulatory or reporting
requirements imposed by government agencies
such as the National Telecommunications
Commission. The thrust of the Public Telecoms
Act is to promote the gradual deregulation of
entry, pricing, and operations of all public
telecommunications entities, and thus to level the
playing
field
in
the
telecommunications
industry. The language of Section 23 and the
proceedings of both Houses of Congress are
bereft of anything that would signify the grant of
tax exemptions to all telecommunications
entities.[23] Intent to grant tax exemption cannot
therefore be discerned from the law; the term
exemption is too general to include tax
exemption and runs counter to the requirement
that the grant of tax exemption should be stated
in clear and unequivocal language too plain to be
beyond doubt or mistake.
Surcharge and Interests
Since SMART cannot validly claim any tax
exemption based either on Section 9 of its
franchise or Section 23 of the Public Telecoms
Act, it follows that petitioner can impose and
collect the local franchise and business taxes
amounting to P764,545.29 it assessed against
SMART. Aside from these, SMART should also be
made to pay surcharge and interests on the taxes
due.

government may impose under Section 137 of

the LGC.[25] SMART, relying on the letter-opinion
of the BLGF, invoked the same in the
administrative protest it filed against petitioner
on February 15, 2002, as well as in the petition
for prohibition that it filed before the RTC of Iloilo
on April 30, 2002. However, in the 2001 case
of PLDT v. City of Davao,[26] we declared that we
do not find BLGFs interpretation of local tax laws
to be authoritative and persuasive. The BLGFs
function is merely to provide consultative
services and technical assistance to the local
governments and the general public on local
taxation, real property assessment, and other
related matters.[27] Unlike the Commissioner of
Internal Revenue who has been given the express
power to interpret the Tax Code and other
national tax laws,[28] no such power is given to the
BLGF. SMARTs
dependence
on
BLGFs
interpretation was thus misplaced.
WHEREFORE,
we
hereby GRANT the
petition and REVERSE the decision of the RTC
dated January 19, 2005 in Civil Case No. 0227144 and find SMART liable to pay the local
franchise
and
business
taxes
amounting
to P764,545.29, assessed against it by petitioner,
plus the surcharges and interest due thereon.
SO ORDERED.

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.
The Petition has no merit.
Main

Issue:

May Real Property Taxes be Assessed and Collected?

The settled rule is that good faith and

honest belief that one is not subject to tax on the
basis of previous interpretation of government
agencies tasked to implement the tax laws are
sufficient justification to delete the imposition of
surcharges and interest.[24] In refuting liability for
the local franchise and business taxes, we do not
believe SMART relied in good faith in the findings
and conclusion of the Bureau of Local
Government and Finance (BLGF).

The Real Property Tax Code,[6] 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."[7]

In a letter dated August 13, 1998, the

BLGF opined that SMART should be considered
exempt from the franchise tax that the local

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 essence, it contends that to impose
a tax on the carriageways and terminal stations
would be to impose taxes on public roads.
The argument does not persuade. We quote
with approval the solicitor general's astute
comment on this matter:
"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, viza-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."[8]
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.[9] 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 governmentowned 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,[10] which is defined as "the
purpose for which the property is principally or
predominantly utilized by the person in
possession of the property."[11]
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 publicuse 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."[12]
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:
"ARTICLE 4

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.
Taxation is the rule and exemption is the
exception. Any claim for tax exemption is strictly
construed against the claimant.[13] LRTA has not
shown its eligibility for exemption; hence, it is
subject to the tax.
WHEREFORE,
the
Petition
is
hereby DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against the
petitioner.
SO ORDERED.

ALLIED BANKING CORPORATION

AS TRUSTEE FOR THE TRUST
FUND OF COLLEGE ASSURANCE
PLAN PHILIPPINES, INC. (CAP),
Petitioner,

-versus-

THE QUEZON CITY GOVERNMENT,

THE QUEZON CITY TREASURER,
THE QUEZON CITY ASSESSOR AND
THE CITY MAYOR OF QUEZON CITY,
Respondents.

G.R. No.
Present:

DAVIDE,
PUNO,
PANGAN
QUISUM
YNARES
SANDOV
CARPIO
AUSTRIA
CORONA
CARPIO
CALLEJO
AZCUNA
TINGA,
CHICO-N
GARCIA

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

Promulgate

October 11
x--------------------------------------------- -------------------x

Although as a rule, administrative

remedies must first be exhausted before resort
to judicial action can prosper, there is a wellsettled 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 attorneys 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, petitioners 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]
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]

the repealing ordinance

retroactive effect.

should

be

given

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 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, andlastly, the issue of
constitutionality must be the very lis mota of the
case.[45]
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.
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]

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.

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]

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

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. 192[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.

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]

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 light of the foregoing disquisitions,

addressing the issue of retroactivity of the
repealing ordinance is rendered unnecessary.

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

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.

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.