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G.R. No.

144570 September 21, 2005

VIVENCIO V. JUMAMIL, Petitioners,


vs.
JOSE J. CAFE, GLICERIO L. ALERIA, RUDY G. ADLAON, DAMASCENO
AGUIRRE, RAMON PARING, MARIO ARGUELLES, ROLANDO STA. ANA,
NELLIE UGDANG, PEDRO ATUEL, RUBY BONSOBRE, RUTH FORNILLOS,
DANIEL GATCHALIAN, RUBEN GUTIERREZ, JULIET GATCHALIAN,
ZENAIDA POBLETE, ARTHUR LOUDY, LILIAN LU, ISABEL MEJIA,
EDUARDO ARGUELLES, LAO SUI KIEN, SAMUEL CONSOLACION, DR.
ARTURO MONTERO, DRA. LILIOSA MONTERO, PEDRO LACIA, CIRILA
LACIA, EVELYN SANGALANG, DAVID CASTILLO, ARSENIO SARMIENTO,
ELIZABETH SY, METODIO NAVASCA, HELEN VIRTUDAZO, IRENE
LIMBAGA, SYLVIA BUSTAMANTE, JUANA DACALUS, NELLIE
RICAMORA, JUDITH ESPINOSA, PAZ KUDERA, EVELYN PANES, AGATON
BULICATIN, PRESCILLA GARCIA, ROSALIA OLITAO, LUZVIMINDA
AVILA, GLORIA OLAIR, LORITA MENCIAS, RENATO ARIETA, EDITHA
ACUZAR, LEONARDA VILLACAMPA, ELIAS JARDINICO, BOBINO
NAMUAG, FELIMON NAMUAG, EDGAR CABUNOC, HELEN ARGUELLES,
HELEN ANG, FELECIDAD PRIETO, LUISITO GRECIA, LILIBETH PARING,
RUBEN CAMACHO, ROSALINDA LALUNA, LUZ YAP, ROGELIO LAPUT,
ROSEMARIE WEE, TACOTCHE RANAIN, AVELINO DELOS REYES and
ROGASIANO OROPEZA, Respondent.

DECISION

CORONA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Vivencio V. Jumamil seeks to reverse the decision of the Court of Appeals dated July 24,
20001 in CA-G.R. CV No. 35082, the dispositive portion of which read:

With the foregoing, the assailed Decision of Branch 4, Regional Trial Court of Panabo
Davao dated 26 November 1990 in Sp. Civil Action No. 89-1 is hereby AFFIRMED.2

The Regional Trial Court dismissed petitioner’s petition for declaratory relief with
prayer for preliminary injunction and writ of restraining order, and ordered the
petitioner to pay attorney’s fees in the amount of P1,000 to each of the 57 private
respondents.3

The factual antecedents follow.

In 1989, petitioner Jumamil4 filed before the Regional Trial Court (RTC) of Panabo,
Davao del Norte a petition for declaratory relief with prayer for preliminary injunction
and writ of restraining order against public respondents Mayor Jose J. Cafe and the
members of the Sangguniang Bayan of Panabo, Davao del Norte. He questioned the
constitutionality of Municipal Resolution No. 7, Series of 1989 (Resolution No. 7).
Resolution No. 7, enacting Appropriation Ordinance No. 111, provided for an initial
appropriation of P765,000 for the construction of stalls around a proposed terminal
fronting the Panabo Public Market5 which was destroyed by fire.

Subsequently, the petition was amended due to the passage of Resolution No. 49, series
of 1989 (Resolution No. 49), denominated as Ordinance No. 10, appropriating a further
amount of P1,515,000 for the construction of additional stalls in the same public
market.6

Prior to the passage of these resolutions, respondent Mayor Cafe had already entered
into contracts with those who advanced and deposited (with the municipal treasurer)
from their personal funds the sum of P40,000 each. Some of the parties were close
friends and/or relatives of the public respondents.7 The construction of the stalls which
petitioner sought to stop through the preliminary injunction in the RTC was
nevertheless finished, rendering the prayer therefor moot and academic. The leases of
the stalls were then awarded by public raffle which, however, was limited to those who
had deposited P40,000 each.8 Thus, the petition was amended anew to include the 57
awardees of the stalls as private respondents.9

Petitioner alleges that Resolution Nos. 7 and 49 were unconstitutional because they
were:

…passed for the business, occupation, enjoyment and benefit of private respondents
who deposited the amount of P40,000.00 for each stall, and with whom also the mayor
had a prior contract to award the would be constructed stalls to all private
respondents.… As admitted by public respondents some of the private respondents are
close friends and/or relatives of some of the public respondents which makes the
questioned acts discriminatory. The questioned resolutions and ordinances did not
provide for any notice of publication that the special privilege and unwarranted benefits
conferred on the private respondents maybe (sic) availed of by anybody who can deposit
the amount of P40,000.00.10

Neither was there any prior notice or publication pertaining to contracts entered into by
public and private respondents for the construction of stalls to be awarded to private
respondents that the same can be availed of by anybody willing to deposit P40,000.00.11

In this petition, petitioner prays for the reversal of the decision of the Court of Appeals
(CA) and a declaration of the unconstitutionality, illegality and nullity of the questioned
resolutions/ordinances and lease contracts entered into by the public and private
respondents; for the declaration of the illegality of the award of the stalls during the
pendency of this action and for the re-raffling and award of the stalls in a manner that is
fair and just to all interested applicants;12 for the issuance of an order to the local
government to admit any and all interested persons who can deposit the amount of
P40,000 for a stall and to order a re-raffling for the award of the stalls to the winners of
the re-raffle; for the nullification of the award of attorney’s fees to private respondents
on the ground that it was erroneous and unmeritorious; and for the award of damages in
favor of petitioner in the form of attorney’s fees.13
At the outset, we must point out that the issue of the constitutionality of the questioned
resolutions was never ruled upon by both the RTC and the CA.

It appears that on May 21, 1990, both parties agreed14 to await the decision in CA G.R.
SP No. 20424,15 which involved similar facts, issues and parties. The RTC, consequently,
deferred the resolution of the pending petition. The appellate court eventually rendered
its decision in that case finding that the petitioners were not entitled to the declaratory
relief prayed for as they had no legal interest in the controversy. Upon elevation to the
Supreme Court as UDK Case No. 9948, the petition for review on certiorari was denied
for being insufficient in form and substance. 16

The RTC, after receipt of the entry of the SC judgment,17 dismissed the pending petition
on November 26, 1990. It adopted the ruling in CA G.R. SP No. 20424:

xxxxxxxxx

We find petitioners’ aforesaid submission utterly devoid of merit. It is, to say the least,
questionable whether or not a special civil action for declaratory relief can be filed in
relation to a contract by persons who are not parties thereto. Under Sec. 1 of Rule 64 of
the Rules of Court, any person interested under a deed, will, contract, or other written
instruments may bring an action to determine any question of the contract, or validly
arising under the instrument for a declaratory (sic) of his rights or duties thereunder.
Since contracts take effect only between the parties (Art. 1311) it is quite plain that one
who is not a party to a contract can not have the interest in it that the rule requires as a
basis for declaratory reliefs (PLUM vs. Santos, 45 SCRA 147).

Following this ruling, the petitioners were not parties in the agreement for the award of
the market stalls by the public respondents, in the public market of Panabo, Davao, and
since the petitioners were not parties to the award of the market stalls and whose rights
are never affected by merely stating that they are taxpayers, they have no legal interest
in the controversy and they are not, therefore, entitled to bring an action for declaratory
relief.18

WHEREFORE, the petition of the petitioners as taxpayers being without merit and not
in consonance with law, is hereby ordered DISMISSED.

As to the counterclaim for damages, the same not having been actually and fully proven,
the Court gives no award as to the same. It is not amiss to state here that the petitioners
agreed to be bound by the outcome of Special Civil Case No. 89-10.

However, for unnecessarily dragging into Court the fifty-seven (57) private respondents
who are bonafide businessmen and stall holders in the public market of Panabo, it is
fitting and proper for the petitioners to be ordered payment of attorney’s fees.

Accordingly, the herein petitioners are ordered to pay ONE THOUSAND (P1,000.00)
PESOS EACH to the 57 private respondents, as attorney’s fees, jointly and severally, and
for them to pay the costs of this suit.
SO ORDERED.19

From this adverse decision, petitioner again appealed to the Court of Appeals in CA-G.R.
CV No. 35082 which is now before us for review.

The appellate court, yet again, affirmed the RTC decision and held that:

Res judicata does not set in a case dismissed for lack of capacity to sue, because there
has been no determination on the merits. Neither does the law of the case apply.
However, the court a quo took judicial notice of the fact that petitioners agreed to be
bound by the outcome of Special Civil Case No. 89-10. Allegans contraria non est
audiendus. (He is not to be heard who alleges things contradictory to each other.) It
must be here observed that petitioners-appellants were the ones who manifested that it
would be practical to await the decision of the Supreme Court in their petition for
certiorari, for after all the facts, circumstances and issues in that case, are exactly the
same as in the case that is here appealed. Granting that they may evade such
assumption, a careful evaluation of the case would lead Us to the same conclusion: that
the case for declaratory relief is dismissible. As enumerated by Justice Regalado in his
"Remedial Law Compendium", the requisites of an action for declaratory relief are:

(a) The subject matter of the controversy must be a deed, will, contract or other written
instrument, statute, executive order or regulation, or ordinance;

(b) The terms of said documents and the validity thereof are doubtful and require
judicial construction;

(c) There must have been no breach of the documents in question;

(d) There must be an actual justiciable controversy or the "ripening seeds" of one
between persons whose interests are adverse;

(e) The issue must be ripe for judicial determination; and

(f) Adequate relief is not available through other means or other forms of action or
proceeding.

In Tolentino vs. Board of Accountancy, et al, 90 Phil. 83, 88, the Supreme Court
ratiocinated the requisites of justiciability of an action for declaratory relief by saying
that the court must be "satisfied that an actual controversy, or the ripening seeds of one,
exists between parties, all of whom are sui juris and before the court, and that the
declaration sought will be a practical help in ending the controversy."

The petition must show "an active antagonistic assertion of a legal right on one side and
a denial thereof on the other concerning a real, and not a mere theoretical question or
issue. The question is whether the facts alleged a substantial controversy between
parties having adverse legal interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory relief. In GSISEA and GSISSU vs. Hon. Alvendia etc. and
GSIS, 108 Phil. 505, the Supreme Court ruled a declaratory relief improper or
unnecessary when it appears to be a moot case, since it seeks to get a judgment on a
pretended controversy, when in reality there is none. In Kawasaki Port Service
Corporation vs. Amores, 199 SCRA 230, citing Dy Poco vs. Commissioner of
Immigration, et al., 16 SCRA 618, the rule was stated: "where a declaratory judgment as
to a disputed fact would be determinative of issues rather than a construction of definite
stated rights, statuses and other relations, commonly expressed in a written instrument,
the case is not one for declaratory judgment."

Indeed, in its true light, the present petition for declaratory relief seems to be no more
than a request for an advisory opinion to which courts in this and other jurisdiction have
cast a definite aversion. The ordinances being assailed are appropriation ordinances.
The passage of the ordinances were pursuant to the public purpose of constructing
market stalls. For the exercise of judicial review, the governmental act being challenged
must have had an adverse effect on the person challenging it, and the person challenging
the act, must have "standing" to challenge, i.e., in the categorical and succinct language
of Justice Laurel, he must have a "personal and substantial interest in the case such that
he has sustained, or will sustain, direct injury as a result of its enforcement." Standing is
a special concern in constitutional law because in some cases suits are brought not by
parties who have been personally injured by the operation of a law or by official action
taken, but by concerned citizens, taxpayers or voters who actually sue in the public
interest. Hence the question in standing is whether such parties have "alleged such a
personal stake in the outcome of the controversy as to assure that concrete adverseness
which sharpens the presentation of issues upon which the court largely depends for
illumination of difficult constitutional questions.

A careful analysis of the records of the case at bar would disclose that petitioners-
appellants have suffered no wrong under the terms of the ordinances being assailed –
and, naturally need no relief in the form they now seek to obtain. Judicial exercise
cannot be exercised in vacuo. The policy of the courts is to avoid ruling on a
constitutional question and to presume that the acts of the political departments are
valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to
sustain. The issue is not the ordinances themselves, but the award of the market stalls to
the private respondents on the strength of the contracts individually executed by them
with Mayor Cafe. To reiterate, a person who is not a party to a contract cannot file a
petition for declaratory relief and seek judicial interpretation of such contract (Atlas
Consolidated Mining Corp. vs. Court of Appeals, 182 SCRA 166). Not having established
their locus standi, we see no error committed by the court a quo warranting reversal of
the appealed decision.

With the foregoing, the assailed Decision of Branch 4, Regional Trial Court of Panabo
Davao dated 26 November 1990 in Sp. Civil Action No. 89-1 is hereby AFFIRMED.

SO ORDERED.20
Thus, both the RTC and the CA dismissed the case on the ground of petitioner’s lack of
legal standing and the parties’ agreement to be bound by the decision in CA G.R. SP. No.
20424.

The issues to be resolved are the following:

(1) whether the parties were bound by the outcome in CA G.R. SP. No. 20424;

(2) whether petitioner had the legal standing to bring the petition for declaratory relief;

(3) whether Resolution Nos. 7 and 49 were unconstitutional; and

(4) whether petitioner should be held liable for damages.

Locus Standi and the

Constitutionality Issue

We will first consider the second issue. The petition for declaratory relief challenged the
constitutionality of the subject resolutions. There is an unbending rule that courts will
not assume jurisdiction over a constitutional question unless the following requisites are
satisfied: (1) there must be an actual case calling for the exercise of judicial review; (2)
the question before the Court must be ripe for adjudication; (3) the person challenging
the validity of the act must have standing to do so; (4) the question of constitutionality
must have been raised at the earliest opportunity, and (5) the issue of constitutionality
must be the very lis mota of the case.21

Legal standing or locus standi is a party’s personal and substantial interest in a case
such that he has sustained or will sustain direct injury as a result of the governmental
act being challenged. It calls for more than just a generalized grievance. The term
"interest" means a material interest, an interest in issue affected by the decree, as
distinguished from mere interest in the question involved, or a mere incidental
interest.22 Unless a person’s constitutional rights are adversely affected by the statute or
ordinance, he has no legal standing.

The CA held that petitioner had no standing to challenge the two resolutions/ordinances
because he suffered no wrong under their terms. It also concluded that "the issue (was)
not the ordinances themselves but the award of the market stalls to the private
respondents on the strength of the contracts individually executed by them with Mayor
Cafe." Consequently, it ruled that petitioner, who was not a party to the lease contracts,
had no standing to file the petition for declaratory relief and seek judicial interpretation
of the agreements.

We do not agree. Petitioner brought the petition in his capacity as taxpayer of the
Municipality of Panabo, Davao del Norte23 and not in his personal capacity. He was
questioning the official acts of the public respondents in passing the ordinances and
entering into the lease contracts with private respondents. A taxpayer need not be a
party to the contract to challenge its validity.24 Atlas Consolidated Mining &
Development Corporation v. Court of Appeals25 cited by the CA does not apply because
it involved contracts between two private parties.

Parties suing as taxpayers must specifically prove sufficient interest in preventing the
illegal expenditure of

money raised by taxation.26 The expenditure of public funds by an officer of the State for
the purpose of executing an unconstitutional act constitutes a misapplication of such

funds.27 The resolutions being assailed were appropriations ordinances. Petitioner


alleged that these ordinances were "passed for the business, occupation, enjoyment and
benefit of private respondents"28 (that is, allegedly for the private benefit of
respondents) because even before they were passed, respondent Mayor Cafe and private
respondents had already entered into lease contracts for the construction and award of
the market stalls.29 Private respondents admitted they deposited P40,000 each with the
municipal treasurer, which amounts were made available to the municipality during the
construction of the stalls. The deposits, however, were needed to ensure the speedy
completion of the stalls after the public market was gutted by a series of fires.30 Thus,
the award of the stalls was necessarily limited only to those who advanced their personal
funds for their construction.31

Petitioner did not seasonably allege his interest in preventing the illegal expenditure of
public funds or the specific injury to him as a result of the enforcement of the
questioned resolutions and contracts. It was only in the "Remark to Comment" he filed
in this Court did he first assert that "he (was) willing to engage in business and (was)
interested to occupy a market stall."32 Such claim was obviously an afterthought.

Be that as it may, we have on several occasions relaxed the application of these rules on
legal standing:

In not a few cases, the Court has liberalized the locus standi requirement when a
petition raises an issue of transcendental significance or paramount importance to the
people. Recently, after holding that the IBP had no locus standi to bring the suit, the
Court in IBP v. Zamora nevertheless entertained the Petition therein. It noted that "the
IBP has advanced constitutional issues which deserve the attention of this Court in view
of their seriousness, novelty and weight as precedents."33

―oOo―

Objections to a taxpayer's suit for lack of sufficient personality, standing or interest are
procedural matters. Considering the importance to the public of a suit assailing the
constitutionality of a tax law, and in keeping with the Court's duty, specially explicated
in the 1987 Constitution, to determine whether or not the other branches of the
Government have kept themselves within the limits of the Constitution and the laws and
that they have not abused the discretion given to them, the Supreme Court may brush
aside technicalities of procedure and take cognizance of the suit.34
―oOo―

There being no doctrinal definition of transcendental importance, the following


determinants formulated by former Supreme Court Justice Florentino P. Feliciano are
instructive: (1) the character of the funds or other assets involved in the case; (2) the
presence of a clear case of disregard of a constitutional or statutory prohibition by the
public respondent agency or instrumentality of the government; and (3) the lack of any
other party with a more direct and specific interest in raising the questions being
raised.35

But, even if we disregard petitioner’s lack of legal standing, this petition must still fail.
The subject resolutions/ordinances appropriated a total of P2,280,000 for the
construction of the public market stalls. Petitioner alleges that these ordinances were
discriminatory because, even prior to their enactment, a decision had already been
made to award the market stalls to the private respondents who deposited P40,000 each
and who were either friends or relatives of the public respondents. Petitioner asserts
that "there (was) no publication or invitation to the public that this contract (was)
available to all who (were) interested to own a stall and (were) willing to deposit
P40,000."36 Respondents, however, counter that the "public respondents’ act of
entering into this agreement was authorized by the Sangguniang Bayan of Panabo per
Resolution No. 180 dated October 10, 1988"37 and that "all the people interested were
invited to participate in investing their savings."38

We note that the foregoing was a disputed fact which the courts below did not resolve
because the case was dismissed on the basis of petitioner’s lack of legal standing.
Nevertheless, petitioner failed to prove the subject ordinances and agreements to be
discriminatory. Considering that he was asking this Court to nullify the acts of the local
political department of Panabo, Davao del Norte, he should have clearly established that
such ordinances operated unfairly against those who were not notified and who were
thus not given the opportunity to make their deposits. His unsubstantiated allegation
that the public was not notified did not suffice. Furthermore, there was the time-
honored presumption of regularity of official duty, absent any showing to the contrary.39
And this is not to mention that:

The policy of the courts is to avoid ruling on constitutional questions and to presume
that the acts of the political departments are valid, absent a clear and unmistakable
showing to the contrary. To doubt is to sustain. This presumption is based on the
doctrine of separation of powers. This means that the measure had first been carefully
studied by the legislative and executive departments and found to be in accord with the
Constitution before it was finally enacted and approved.40

Therefore, since petitioner had no locus standi to

question the ordinances, there is no need for us to discuss the constitutionality of said
enactments.

Were the Parties Bound by the


Outcome in CA G.R. SP. No. 20424?

Adverting to the first issue, we observe that petitioner was the one who wanted the
parties to await the decision of the Supreme Court in UDK Case No. 9948 since the facts
and issues in that case were similar to this. Petitioner, having expressly agreed to be
bound by our decision in the aforementioned case, should be reined in by the dismissal
order we issued, now final and executory. In addition to the fact that nothing prohibits
parties from committing to be bound by the results of another case, courts may take
judicial notice of a judgment in another case as long as the parties give

their consent or do not object.41 As opined by Justice Edgardo L. Paras:

A court will take judicial notice of its own acts and records in the same case, of facts
established in prior proceedings in the same case, of the authenticity of its own records
of another case between the same parties, of the files of related cases in the same court,
and of public records on file in the same court. In addition, judicial notice will be taken
of the record, pleadings or judgment of a case in another court between the same parties
or involving one of the same parties, as well as of the record of another case between
different parties in the same court.42

Damages

Finally, on the issue of damages, petitioner asserts that he impleaded the 57


respondents in good faith since the award of the stalls to them was made during the
pendency of the action.43 Private respondents refute this assertion and argue that
petitioner filed this action in bad faith and with the intention of harassing them
inasmuch as he had already filed CA G.R. SP. No. 20424 even before then.44 The RTC,
affirmed by the CA, held that petitioner should pay attorney’s fees "for unnecessarily
dragging into Court the 57 private respondents who (were) bonafide businessmen and
stall holders in the public market of Panabo."45

We do not agree that petitioner should be held liable for damages. It is not sound public
policy to put a premium on the right to litigate where such right is exercised in good
faith, albeit erroneously.46 The alleged bad faith of petitioner was never established. The
special circumstances in Article 2208 of the Civil Code justifying the award of attorney’s
fees are not present in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 35082 is


hereby AFFIRMED with the MODIFICATION that the award of attorney's fees to
private respondents is deleted.

Costs against petitioner.

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.

DECISION

PANGANIBAN, J.:

The Light Rail Transit Authority and the Metro Transit Organization function as service-
oriented business entities, which provide valuable transportation facilities to the paying
public. In the absence, however, of any express grant of exemption in their favor, they
are subject to the payment of real property taxes.

The Case

In the Petition for Review before us, the Light Rail Transit Authority (LRTA) challenges
the November 15, 1996 Decisioni[1] of the Court of Appeals (CA) in CA-GR SP No.
38137, which disposed as follows:

"WHEREFORE, premises considered, the appealed decision (dated October 15, 1994) of
the Central Board of Assessment Appeals is hereby AFFIRMED, with costs against the
petitioner."ii[2]

The affirmed ruling of the Central Board of Assessment Appeals (CBAA) upheld the
June 26, 1992 Resolution of the Board of Assessment Appeals of Manila, which had
declared petitioner's carriageways and passenger terminals as improvements subject to
real property taxes.

The Facts

The undisputed facts are quoted by the Court of Appeals (CA) from the CBAA ruling, as
follows:iii[3]

"1. The LRTA is a government-owned and controlled corporation created and organized
under Executive Order No. 603, dated July 12, 1980 'x x x primarily responsible for the
construction, operation, maintenance and/or lease of light rail transit system in the
Philippines, giving due regard to the [reasonable requirements] of the public
transportation of the country' (LRTA vs. The Hon. Commission on Audit, GR No. No.
88365);

"2. x x x [B]y reason of x x x Executive Order 603, LRTA acquired real properties x x x
constructed structural improvements, such as buildings, carriageways, passenger
terminal stations, and installed various kinds of machinery and equipment and facilities
for the purpose of its operations;

"3. x x x [F]or x x x an effective maintenance, operation and management, it entered into


a Contract of Management with the Meralco Transit Organization (METRO) in which
the latter undertook to manage, operate and maintain the Light Rail Transit System
owned by the LRTA subject to the specific stipulations contained in said agreement,
including payments of a management fee and real property taxes (Add'l Exhibit "I",
Records)

"4. That it commenced its operations in 1984, and that sometime that year, Respondent-
Appellee City Assessor of Manila assessed the real properties of [petitioner], consisting
of lands, buildings, carriageways and passenger terminal stations, machinery and
equipment which he considered real propert[y] under the Real Property Tax Code, to
commence with the year 1985;

"5. That [petitioner] paid its real property taxes on all its real property holdings, except
the carriageways and passenger terminal stations including the land where it is
constructed on the ground that the same are not real properties under the Real Property
Tax Code, and if the same are real propert[y], these x x x are for public use/purpose,
therefore, exempt from realty taxation, which claim was denied by the Respondent-
Appellee City Assessor of Manila; and

"6. x x x [Petitioner], aggrieved by the action of the Respondent-Appellee City Assessor,


filed an appeal with the Local Board of Assessment Appeals of Manila x x x. Appellee,
herein, after due hearing, in its resolution dated June 26, 1992, denied [petitioner's]
appeal, and declared that carriageways and passenger terminal stations are
improvements, therefore, are real propert[y] under the Code, and not exempt from the
payment of real property tax.

"A motion for reconsideration filed by [petitioner] was likewise denied."

The CA Ruling

The Court of Appeals held that petitioner's carriageways and passenger terminal
stations constituted real property or improvements thereon and, as such, were taxable
under the Real Property Tax Code. The appellate court emphasized that such pieces of
property did not fall under any of the exemptions listed in Section 40 of the
aforementioned law. The reason was that they were not owned by the government or
any government-owned corporation which, as such, was exempt from the payment of
real property taxes. True, the government owned the real property upon which the
carriageways and terminal stations were built. However, they were still taxable, because
beneficial use had been transferred to petitioner, a taxable entity.

The CA debunked the argument of petitioner that carriageways and terminals were
intended for public use. The former agreed, instead, with the CBAA. The CBAA had
concluded that since petitioner was not engaged in purely governmental or public
service, the latter's endeavors were proprietary. Indeed, petitioner was deemed as a
profit-oriented endeavor, serving as it did, only the paying public.

Hence, this Petition.iv[4]


The Issues

In its Memorandum,v[5] petitioner urges the Court to resolve the following matters:

"I

The Honorable Court of Appeals erred in not holding that the carriageways and
terminal stations of petitioner are not improvements for purposes of the Real
Property Tax Code.

"II

The Honorable Court of Appeals erred in not holding that being attached to national
roads owned by the national government, subject carriageways and terminal
stations should be considered property of the national government.

"III

The Honorable Court of Appeals erred in not holding that payment of charges or
fares in the operation of the light rail transit system does not alter the nature of the
subject carriageways and terminal stations as devoted for public use.

"IV

The Honorable Court of Appeals erred in failing to consider the view advanced by
the Department of Finance, which takes charge of the overall collection of taxes,
that subject carriageways and terminal stations are not subject to realty taxes.

"V

The Honorable Court of Appeals erred in failing to consider that payment of the
realty taxes assessed is not warranted and should the legality of the questioned
assessment be upheld, the amount of the realty taxes assessed would far exceed the
annual earnings of petitioner, a government corporation."

The foregoing all point to one main issue: whether petitioner's carriageways and
passenger terminal stations are subject to real property taxes.

The Court's Ruling

The Petition has no merit.

Main Issue:
May Real Property Taxes be Assessed and Collected?

The Real Property Tax Code,vi[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."vii[7]

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, viz-a-viz roads which are public
improvements openly utilized by the public, the former are entirely different from the
latter.

"The character of petitioner's property, be it an improvements as otherwise


distinguished by petitioner, needs no further classification when the law already
classified it as patrimonial property that can be subject to tax. This is in line with the old
ruling that if the public works is not for such free public service, it is not within the
purview of the first paragraph of Art. 424 if the New Civil Code."viii[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.ix[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 government-owned or controlled corporation.

True, petitioner's carriageways and terminal stations are anchored, at certain points, on
public roads. However, it must be emphasized that these structures do not form part of
such roads, since the former have been constructed over the latter in such a way that the
flow of vehicular traffic would not be impeded. These carriageways and terminal
stations serve a function different from that of the public roads. The former are part and
parcel of the light rail transit (LRT) system which, unlike the latter, are not open to use
by the general public. The carriageways are accessible only to the LRT trains, while the
terminal stations have been built for the convenience of LRTA itself and its customers
who pay the required fare.

Basis of Assessment Is Actual Use of Real Property

Under the Real Property Tax Code, real property is classified for assessment purposes
on the basis of actual use,x[10] which is defined as "the purpose for which the property
is principally or predominantly utilized by the person in possession of the
property."xi[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 public-use character of the LRT is not negated by the fact that revenue is
obtained from the latter's operations.

We do not agree. Unlike public roads which are open for use by everyone, the LRT is
accessible only to those who pay the required fare. It is thus apparent that petitioner
does not exist solely for public service, and that the LRT carriageways and terminal
stations are not exclusively for public use. Although petitioner is a public utility, it is
nonetheless profit-earning. It actually uses those carriageways and terminal stations in
its public utility business and earns money therefrom.
Petitioner Not Exempt from Payment of Real Property Taxes

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

TAX AND DUTY EXEMPTIONS

Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and Materials. -
The importation of equipment, machineries, spare parts, accessories and other
materials, including supplies and services, used directly in the operations of the Light
Rails Transit System, not obtainable locally on favorable terms, out of any funds of the
authority including, as stated in Section 7 above, proceeds from foreign loans credits or
indebtedness, shall likewise be exempted from all direct and indirect taxes, customs
duties, fees, imposts, tariff duties, compensating taxes, wharfage fees and other charges
and restrictions, the provisions of existing laws to the contrary notwithstanding."

Even granting that the national government indeed owns the carriageways and terminal
stations, the exemption would not apply because their beneficial use has been granted to
petitioner, a taxable entity.

Taxation is the rule and exemption is the exception. Any claim for tax exemption is
strictly construed against the claimant.xiii[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.

THIRD DIVISION

[G.R. No. 120082. September 11, 1996]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON.


FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial
Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor, HON.
TOMAS R. OSMEA, and EUSTAQUIO B. CESA, respondents.

DECISION

DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the
decision of 22 March 1995xiv[1] of the Regional Trial Court (RTC) of Cebu City, Branch
20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900, entitled
Mactan Cebu International Airport Authority vs. City of Cebu, and its order of 4 May
1995xv[2]denying the motion to reconsider the decision.

We resolved to give due course to this petition for it raises issues dwelling on the scope
of the taxing power of local government units and the limits of tax exemption privileges
of government-owned and controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as


follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue
of Republic Act No. 6958, mandated to principally undertake the economical, efficient
and effective control, management and supervision of the Mactan International Airport
in the Province of Cebu and the Lahug Airport in Cebu City, x x x and such other
airports as may be established in the Province of Cebu x x x (Sec. 3, RA 6958). It is also
mandated to:

a) encourage, promote and develop international and domestic air traffic in the
Central Visayas and Mindanao regions as a means of making the regions centers of
international trade and tourism, and accelerating the development of the means of
transportation and communication in the country; and,

b) upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions, agencies and
instrumentalities x x x.

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the
Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of
land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474,
109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio
Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in
its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty
taxes. It was also asserted that it is an instrumentality of the government performing
governmental functions, citing Section 133 of the Local Government Code of 1991 which
puts limitations on the taxing powers of local government units:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. --
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

a) xxx

xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioners realty tax account, insisting
that the MCIAA is a government-controlled corporation whose tax exemption privilege
has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code
that took effect on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code. (underscoring supplied)

xxx

Section 234. Exemptions from Real Property Taxes. x x x

(a) xxx

xxx

(e) xxx

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account under protest and thereafter
filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20,
on December 29, 1994. MCIAA basically contended that the taxing powers of local
government units do not extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the same footing as an agency
or instrumentality of the national government by the very nature of its powers and
functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the


government but merely a government-owned corporation performing proprietary
functions. As such, all exemptions previously granted to it were deemed withdrawn by
operation of law, as provided under Sections 193 and 234 of the Local Government Code
when it took effect on January 1, 1992.xvi[3]

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.

In its decision of 22 March 1995,xvii[4] the trial court dismissed the petition in light of
its findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides the
express cancellation and withdrawal of exemption of taxes by government-owned and
controlled corporation per Sections after the effectivity of said Code on January 1, 1992,
to wit: [proceeds to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of
Cebu are exempted from paying realty taxes in view of the exemption granted under RA
6958 to pay the same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that All general and special laws, acts, city
charters, decrees [sic], executive orders, proclamations and administrative regulations,
or part of parts thereof which are inconsistent with any of the provisions of this Code are
hereby repealed or modified accordingly. (/f/, Section 534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption
provided for in RA 6958 creating petitioner had been expressly repealed by the
provisions of the New Local Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective
after January 1, 1992 until the present.

This Courts ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. It is hereby declared the
policy of the State that the territorial and political subdivisions of the State shall enjoy
genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them more effective partners in the
attainment of national goals. Toward this end, the State shall provide for a more
responsive and accountable local government structure instituted through a system of
decentralization whereby local government units shall be given more powers, authority,
responsibilities, and resources. The process of decentralization shall proceed from the
national government to the local government units. x x xxviii[5]

Its motion for reconsideration having been denied by the trial court in its 4 May 1995
order, the petitioner filed the instant petition based on the following assignment of
errors:

I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE


PETITIONER IS VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH
PLACE IT IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF
THE GOVERNMENT.

II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO


PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-
owned or controlled corporation, it is mandated to perform functions in the same
category as an instrumentality of Government. An instrumentality of Government is one
created to perform governmental functions primarily to promote certain aspects of the
economic life of the people.xix[6] Considering its task not merely to efficiently operate
and manage the Mactan-Cebu International Airport, but more importantly, to carry out
the Government policies of promoting and developing the Central Visayas and
Mindanao regions as centers of international trade and tourism, and accelerating the
development of the means of transportation and communication in the country,xx[7]
and that it is an attached agency of the Department of Transportation and
Communication (DOTC),xxi[8] the petitioner may stand in [sic] the same footing as an
agency or instrumentality of the national government. Hence, its tax exemption
privilege under Section 14 of its Charter cannot be considered withdrawn with the
passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133
thereof specifically states that the `taxing powers of local government units shall not
extend to the levy of taxes or fees or charges of any kind on the national government, its
agencies and instrumentalities.

As to the second assigned error, the petitioner contends that being an instrumentality of
the National Government, respondent City of Cebu has no power nor authority to
impose realty taxes upon it in accordance with the aforesaid Section 133 of the LGC, as
explained in Basco vs. Philippine Amusement and Gaming Corporation:xxii[9]

Local governments have no power to tax instrumentalities of the National Government.


PAGCOR is a government owned or controlled corporation with an original charter, PD
1869. All of its shares of stock are owned by the National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (McCulloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local
governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence
of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional
Law, Vol. 2, p. 140)

Otherwise, mere creatures of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using the
power to tax as a tool for regulation (U.S. v. Sanchez, 340 US 42). The power to tax
which was called by Justice Marshall as the power to destroy (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. (underscoring supplied)

It then concludes that the respondent Judge cannot therefore correctly say that the
questioned provisions of the Code do not contain any distinction between a government
corporation performing governmental functions as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said Code
would apply to all government corporations. For it is clear from Section 133, in relation
to Section 234, of the LGC that the legislature meant to exclude instrumentalities of the
national government from the taxing powers of the local government units.

In its comment, respondent City of Cebu alleges that as a local government unit and a
political subdivision, it has the power to impose, levy, assess, and collect taxes within its
jurisdiction. Such power is guaranteed by the Constitutionxxiii[10] and enhanced
further by the LGC. While it may be true that under its Charter the petitioner was
exempt from the payment of realty taxes,xxiv[11] this exemption was withdrawn by
Section 234 of the LGC. In response to the petitioners claim that such exemption was
not repealed because being an instrumentality of the National Government, Section 133
of the LGC prohibits local government units from imposing taxes, fees, or charges of any
kind on it, respondent City of Cebu points out that the petitioner is likewise a
government-owned corporation, and Section 234 thereof does not distinguish between
government-owned or controlled corporations performing governmental and purely
proprietary functions. Respondent City of Cebu urges this Court to apply by analogy its
ruling that the Manila International Airport Authority is a government-owned
corporation,xxv[12] and to reject the application of Basco because it was promulgated . .
. before the enactment and the signing into law of R.A. No. 7160, and was not, therefore,
decided in the light of the spirit and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Nevertheless, effective limitations thereon may be
imposed by the people through their Constitutions.xxvi[13] Our Constitution, for
instance, provides that the rule of taxation shall be uniform and equitable and Congress
shall evolve a progressive system of taxation.xxvii[14] So potent indeed is the power that
it was once opined that the power to tax involves the power to destroy.xxviii[15] Verily,
taxation is a destructive power which interferes with the personal and property rights of
the people and takes from them a portion of their property for the support of the
government. Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer.xxix[16] But since taxes are what we
pay for civilized society,xxx[17] or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus construed
strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.xxxi[18] A claim of exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken.xxxii[19] Elsewise stated, taxation
is the rule, exemption therefrom is the exception.xxxiii[20] However, if the grantee of
the exemption is a political subdivision or instrumentality, the rigid rule of construction
does not apply because the practical effect of the exemption is merely to reduce the
amount of money that has to be handled by the government in the course of its
operations.xxxiv[21]

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may
be exercised by local legislative bodies, no longer merely by virtue of a valid delegation
as before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution.xxxv[22] Under the latter, the exercise of the power may be subject to such
guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government or any of
its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is
the rule and exemption therefrom the exception, the exemption may thus be withdrawn
at the pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the non-impairment
clause of the Constitution.xxxvi[23]

The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the
exercise by local government units of their power to tax, the scope thereof or its
limitations, and the exemptions from taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units as follows:
SEC. 133. Common Limitations on the Taxing Power of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided herein;

(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage
dues, and all other kinds of customs fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned;

(e) Taxes, fees and charges and other impositions upon goods carried into or out of,
or passing through, the territorial jurisdictions of local government units in the guise of
charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any
form whatsoever upon such goods or merchandise;

(f) Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;

(g) Taxes on business enterprises certified to by the Board of Investments as pioneer


or non-pioneer for a period of six (6) and four (4) years, respectively from the date of
registration;

(h) Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar


transactions on goods or services except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code;

(k) Taxes on premiums paid by way of reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof, except, tricycles;

(m) Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-
nine hundred thirty-eight (R.A. No. 6938) otherwise known as the Cooperatives Code of
the Philippines respectively; and

(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL


GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)

Needless to say, the last item (item o) is pertinent to this case. The taxes, fees or charges
referred to are of any kind; hence, they include all of these, unless otherwise provided by
the LGC. The term taxes is well understood so as to need no further elaboration,
especially in light of the above enumeration. The term fees means charges fixed by law
or ordinance for the regulation or inspection of business or activity,xxxvii[24] while
charges are pecuniary liabilities such as rents or fees against persons or
property.xxxviii[25]

Among the taxes enumerated in the LGC is real property tax, which is governed by
Section 232. It reads as follows:

SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality
within the Metropolitan Manila Area may levy an annual ad valorem tax on real
property such as land, building, machinery, and other improvements not hereafter
specifically exempted.

Section 234 of the LGC provides for the exemptions from payment of real property taxes
and withdraws previous exemptions therefrom granted to natural and juridical persons,
including government-owned and controlled corporations, except as provided therein. It
provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

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

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,


mosques, nonprofit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable or educational purposes;

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

(d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including
all government-owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.

These exemptions are based on the ownership, character, and use of the property. Thus:

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of
ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv)
a municipality, (v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like churches,
parsonages or convents appurtenant thereto, mosques, and (iii) non-profit or religious
cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual,
direct and exclusive use to which they are devoted are: (i) all lands, buildings and
improvements which are actually directly and exclusively used for religious, charitable
or educational purposes; (ii) all machineries and equipment actually, directly and
exclusively used by local water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment used for pollution
control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country,
all machinery and equipment for pollution control and environmental protection may
not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to


natural or juridical persons including government-owned or controlled corporations are
withdrawn upon the effectivity of the Code.xxxix[26]

Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:

SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under
such terms and conditions as they may deem necessary.

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of
local government units and the exceptions to such limitations; and (b) the rule on tax
exemptions and the exceptions thereto. The use of exceptions or provisos in these
sections, as shown by the following clauses:

(1) unless otherwise provided herein in the opening paragraph of Section 133;

(2) Unless otherwise provided in this Code in Section 193;

(3) not hereafter specifically exempted in Section 232; and

(4) Except as provided herein in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the
clause unless otherwise provided herein, with the herein to mean, of course, the section,
it should have used the clause unless otherwise provided in this Code. The former
results in absurdity since the section itself enumerates what are beyond the taxing
powers of local government units and, where exceptions were intended, the exceptions
are explicitly indicated in the next. For instance, in item (a) which excepts income taxes
when levied on banks and other financial institutions; item (d) which excepts wharfage
on wharves constructed and maintained by the local government unit concerned; and
item (1) which excepts taxes, fees and charges for the registration and issuance of
licenses or permits for the driving of tricycles. It may also be observed that within the
body itself of the section, there are exceptions which can be found only in other parts of
the LGC, but the section interchangeably uses therein the clause except as otherwise
provided herein as in items (c) and (i), or the clause except as provided in this Code in
item (j). These clauses would be obviously unnecessary or mere surplusages if the
opening clause of the section were Unless otherwise provided in this Code instead of
Unless otherwise provided herein. In any event, even if the latter is used, since under
Section 232 local government units have the power to levy real property tax, except
those exempted therefrom under Section 234, then Section 232 must be deemed to
qualify Section 133.

Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in Section 133, the taxing powers of local government units
cannot extend to the levy of, inter alia, taxes, fees and charges of any kind on the
National Government, its agencies and instrumentalities, and local government units;
however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, real
property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person, as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical


persons, including government-owned and controlled corporations, Section 193 of the
LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the
LGC, except those granted to local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and
unless otherwise provided in the LGC. The latter proviso could refer to Section 234
which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property
taxes are concerned by limiting the retention only to those enumerated therein; all
others not included in the enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as to real property owned by the Republic of the Philippines or any of its
political subdivisions covered by item (a) of the first paragraph of Section 234, the
exemption is withdrawn if the beneficial use of such property has been granted to a
taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of
the LGC, exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided in
the said section, and the petitioner is, undoubtedly, a government-owned corporation, it
necessarily follows that its exemption from such tax granted it in Section 14 of its
Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be
justified if the petitioner can seek refuge under any of the exceptions provided in Section
234, but not under Section 133, as it now asserts, since, as shown above, the said section
is qualified by Sections 232 and 234.

In short, the petitioner can no longer invoke the general rule in Section 133 that the
taxing powers of the local government units cannot extend to the levy of:

(o) taxes, fees or charges of any kind on the National Government, its agencies or
instrumentalities, and local government units.

It must show that the parcels of land in question, which are real property, are any one of
those enumerated in Section 234, either by virtue of ownership, character, or use of the
property. Most likely, it could only be the first, but not under any explicit provision of
the said section, for none exists. In light of the petitioners theory that it is an
instrumentality of the Government, it could only be within the first item of the first
paragraph of the section by expanding the scope of the term Republic of the Philippines
to embrace its instrumentalities and agencies. For expediency, we quote:

(a) real property owned by the Republic of the Philippines, or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioners claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly
mentions the word instrumentalities; and, in the second place, it fails to consider the
fact that the legislature used the phrase National Government, its agencies and
instrumentalities in Section 133(o), but only the phrase Republic of the Philippines or
any of its political subdivisions in Section 234(a).

The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government of the
Republic of the Philippines which the Administrative Code of 1987 defines as the
corporate governmental entity through which the functions of government are exercised
throughout the Philippines, including, save as the contrary appears from the context,
the various arms through which political authority is made affective in the Philippines,
whether pertaining to the autonomous regions, the provincial, city, municipal or
barangay subdivisions or other forms of local government.xl[27] These autonomous
regions, provincial, city, municipal or barangay subdivisions are the political
subdivisions.xli[28]

On the other hand, National Government refers to the entire machinery of the central
government, as distinguished from the different forms of local governments.xlii[29] The
National Government then is composed of the three great departments: the executive,
the legislative and the judicial.xliii[30]

An agency of the Government refers to any of the various units of the Government,
including a department, bureau, office, instrumentality, or government-owned or
controlled corporation, or a local government or a distinct unit therein;xliv[31] while an
instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. This term includes regulatory
agencies, chartered institutions and government-owned and controlled
corporations.xlv[32]

If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said
section to the agencies and instrumentalities of the National Government mentioned in
Section 133(o), then it should have restated the wording of the latter. Yet, it did not.
Moreover, that Congress did not wish to expand the scope of the exemption in Section
234(a) to include real property owned by other instrumentalities or agencies of the
government including government-owned and controlled corporations is further borne
out by the fact that the source of this exemption is Section 40(a) of P.D. No. 464,
otherwise known as The Real Property Tax Code, which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporation so exempt by its
charter: Provided, however, That this exemption shall not apply to real property of the
above-mentioned entities the beneficial use of which has been granted, for consideration
or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-owned or
controlled corporation so exempt by its charter was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, especially in light of the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governmentsxlvi[33] and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-
reliant communities and make them effective partners in the attainment of national
goals.xlvii[34] The power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of local government units for the
delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. It may also be relevant to
recall that the original reasons for the withdrawal of tax exemption privileges granted to
government-owned and controlled corporations and all other units of government were
that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, and there was a need for these entities to
share in the requirements of development, fiscal or otherwise, by paying the taxes and
other charges due from them.xlviii[35]

The crucial issues then to be addressed are: (a) whether the parcels of land in question
belong to the Republic of the Philippines whose beneficial use has been granted to the
petitioner, and (b) whether the petitioner is a taxable person.

Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other properties, movable or immovable,
belonging to or presently administered by the airports, and all assets, powers, rights,
interests and privileges relating on airport works or air operations, including all
equipment which are necessary for the operations of air navigation, aerodrome control
towers, crash, fire, and rescue facilities are hereby transferred to the Authority:
Provided, however, that the operations control of all equipment necessary for the
operation of radio aids to air navigation, airways communication, the approach control
office, and the area control center shall be retained by the Air Transportation Office. No
equipment, however, shall be removed by the Air Transportation Office from Mactan
without the concurrence of the Authority. The Authority may assist in the maintenance
of the Air Transportation Office equipment.

The airports referred to are the Lahug Air Port in Cebu City and the Mactan
International Airport in the Province of Cebu,xlix[36] which belonged to the Republic of
the Philippines, then under the Air Transportation Office (ATO).l[37]
It may be reasonable to assume that the term lands refer to lands in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City
of Cebu seeks to levy on for real property taxes. This section involves a transfer of the
lands, among other things, to the petitioner and not just the transfer of the beneficial
use thereof, with the ownership being retained by the Republic of the Philippines.

This transfer is actually an absolute conveyance of the ownership thereof because the
petitioners authorized capital stock consists of, inter alia, the value of such real estate
owned and/or administered by the airports.li[38] Hence, the petitioner is now the
owner of the land in question and the exception in Section 234(c) of the LGC is
inapplicable.

Moreover, the petitioner cannot claim that it was never a taxable person under its
Charter. It was only exempted from the payment of real property taxes. The grant of
the privilege only in respect of this tax is conclusive proof of the legislative intent to
make it a taxable person subject to all taxes, except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real
property tax, in light of the foregoing disquisitions, it had already become, even if it be
conceded to be an agency or instrumentality of the Government, a taxable person for
such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs.
Philippine Amusement and Gaming Corporationlii[39] is unavailing since it was
decided before the effectivity of the LGC. Besides, nothing can prevent Congress from
decreeing that even instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt its wisdom.

WHEREFORE, the instant petition is DENIED. The challenged decision and order of
the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

EN BANC

G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,


vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE,
respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive Order No.
903, otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by
then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982
amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the runways and buildings ("Airport
Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter
further provides that no portion of the land transferred to MIAA shall be disposed of
through sale or any other mode unless specifically approved by the President of the
Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew
the exemption from real estate tax granted to MIAA under Section 21 of the MIAA
Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real
estate tax imposed by the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the
City of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency
is broken down as follows:

TAX TAXABLE
TAX DUE PENALTY TOTAL
DECLARATION YEAR
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P
624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy
and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport Lands and Buildings should
MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of
OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061.
The OGCC pointed out that Section 206 of the Local Government Code requires persons
exempt from real estate tax to show proof of exemption. The OGCC opined that Section
21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or temporary
restraining order. The petition sought to restrain the City of Parañaque from imposing
real estate tax on, levying against, and auctioning for public sale the Airport Lands and
Buildings. The petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it
beyond the 60-day reglementary period. The Court of Appeals also denied on 27
September 2002 MIAA's motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
review.7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the
public market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall.
The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the
Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The
notices announced the public auction sale of the Airport Lands and Buildings to the
highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building
of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before
this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary
Restraining Order. The motion sought to restrain respondents — the City of Parañaque,
City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of
Parañaque, and the City Assessor of Parañaque ("respondents") — from auctioning the
Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public
auction the Airport Lands and Buildings. Respondents received the TRO on the same
day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or
three hours after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the
TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with
the directive issued during the hearing, MIAA, respondent City of Parañaque, and the
Solicitor General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and Buildings
is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the
Airport Lands and Buildings for the benefit of the general public. Since the Airport
Lands and Buildings are devoted to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and Buildings are thus inalienable
and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from real estate
tax under Section 234 of the Local Government Code because the Airport Lands and
Buildings are owned by the Republic. To justify the exemption, MIAA invokes the
principle that the government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one
person, thing, or act excludes all others. An international airport is not among the
exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from
real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos8 where we held that the Local Government Code has withdrawn the exemption
from real estate tax granted to international airports. Respondents further argue that
since MIAA has already paid some of the real estate tax assessments, it is now estopped
from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of
MIAA are exempt from real estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Parañaque, and all proceedings taken
pursuant to such assessments, are void. In such event, the other issues raised in this
petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax
imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an


instrumentality of the National Government and thus exempt from local taxation.
Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is


not exempt from real estate tax. Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter" in Section 234(e) of the Local
Government Code withdrew the real estate tax exemption of government-owned or
controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt


from real estate tax. However, MIAA is not a government-owned or controlled
corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency


organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly,
or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or
non-stock corporation." MIAA is not organized as a stock or non-stock corporation.
MIAA is not a stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter9
provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the


National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:

(a) The value of fixed assets including airport facilities, runways and equipment
and such other properties, movable and immovable[,] which may be contributed
by the National Government or transferred by it from any of its agencies, the
valuation of which shall be determined jointly with the Department of Budget
and Management and the Commission on Audit on the date of such contribution
or transfer after making due allowances for depreciation and other deductions
taking into account the loans and other liabilities of the Authority at the time of
the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about
seventy percentum (70%) of the unremitted share of the National Government
from 1983 to 1986 to be remitted to the National Treasury as provided for in
Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the
National Government in the Authority. Thereafter, the Government contribution
to the capital of the Authority shall be provided in the General Appropriations
Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital
stock is divided into shares and x x x authorized to distribute to the holders
of such shares dividends x x x." MIAA has capital but it is not divided into shares of
stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock
corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation
must have members. Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized
for charitable, religious, educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA,
a public utility, is organized to operate an international and domestic airport for public
use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA
within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform


efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not


integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through
a charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the


instrumentality does not become a corporation. Unless the government instrumentality
is organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate powers. Thus,
MIAA exercises the governmental powers of eminent domain,12 police authority13 and
the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally


autonomous, the instrumentality remains part of the National Government machinery
although not integrated with the department framework. The MIAA Charter expressly
states that transforming MIAA into a "separate and autonomous body"16 will make its
operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an
agency or instrumentality is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the Philippine Ports
Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized as
stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are
sometimes loosely called government corporate entities. However, they are not
government-owned or controlled corporations in the strict sense as understood under
the Administrative Code, which is the governing law defining the legal relationship and
status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government


Units. – Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units.(Emphasis and
underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the powers of
local governments, local governments may only exercise such power "subject to such
guidelines and limitations as the Congress may provide."18

When local governments invoke the power to tax on national government


instrumentalities, such power is construed strictly against local governments. The rule is
that a tax is never presumed and there must be clear language in the law imposing the
tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax
national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming
the exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality. As this Court declared in Maceda v. Macaraig,
Jr.:

The reason for the rule does not apply in the case of exemptions running to the
benefit of the government itself or its agencies. In such case the practical effect of
an exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non
tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless
a sound and compelling policy requires such transfer of public funds from one
government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to
tax government instrumentalities for the delivery of essential public
services for sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local
governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine Amusements and
Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede,


burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over
local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities
or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez,
340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy"
(Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality
or creation of the very entity which has the inherent power to wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil
Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 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.
(Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated
in the preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public
use or for public service, shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed
by the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by
the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings
are properties of public dominion and thus owned by the State or the Republic of the
Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by
the public for international and domestic travel and transportation. The fact
that the MIAA collects terminal fees and other charges from the public does not remove
the character of the Airport Lands and Buildings as properties for public use. The
operation by the government of a tollway does not change the character of the road as
one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public
who actually use the road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.

The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property of
public dominion as one "intended for public use." Even if the government collects toll
fees, the road is still "intended for public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging of fees, the limitation on the
kind of vehicles that can use the road, the speed restrictions and other conditions for the
use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges
to airlines, constitute the bulk of the income that maintains the operations of MIAA. The
collection of such fees does not change the character of MIAA as an airport for public
use. Such fees are often termed user's tax. This means taxing those among the public
who actually use a public facility instead of taxing all the public including those who
never use the particular public facility. A user's tax is more equitable — a principle of
taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport
of the Philippines for both international and domestic air traffic,"22 are properties of
public dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the
Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are outside the commerce of man. The Court has ruled
repeatedly that properties of public dominion are outside the commerce of man. As
early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces
and in towns comprises the provincial and town roads, the squares, streets,
fountains, and public waters, the promenades, and public works of general
service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council
of Cavite could not in 1907 withdraw or exclude from public use a portion thereof
in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a
portion of said plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, and plazas and streets are
outside of this commerce, as was decided by the supreme court of Spain in its
decision of February 12, 1895, which says: "Communal things that cannot be
sold because they are by their very nature outside of commerce are
those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public


use and to be made available to the public in general. They are outside the
commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency,
town plazas may be occupied temporarily by private individuals, as was done and
as was tolerated by the Municipality of Pozorrubio, when the emergency has
ceased, said temporary occupation or use must also cease, and the town officials
should see to it that the town plazas should ever be kept open to the public and
free from encumbrances or illegal private constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce
of man, cannot be the subject of an auction sale.25

Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy on
execution or auction sale of any property of public dominion is void for being contrary to
public policy. Essential public services will stop if properties of public dominion are
subject to encumbrances, foreclosures and auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the
MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first
withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of
the Public Land Law or Commonwealth Act No. 141, which "remains to this day the
existing general law governing the classification and disposition of lands of the public
domain other than timber and mineral lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and


Natural Resources, the President may designate by proclamation any tract or
tracts of land of the public domain as reservations for the use of the Republic of
the Philippines or of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for quasi-public uses
or purposes when the public interest requires it, including reservations for
highways, rights of way for railroads, hydraulic power sites, irrigation systems,
communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions
of Section eighty-three shall be non-alienable and shall not be subject
to occupation, entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or by proclamation
of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are inalienable in their present
status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use,
their ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and
to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. — (1) The President shall have the power to reserve for
settlement or public use, and for specific public purposes, any of the
lands of the public domain, the use of which is not otherwise directed
by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or
proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are
withdrawn by law or presidential proclamation from public use, they are properties of
public dominion, owned by the Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. — Whenever real property
of the Government is authorized by law to be conveyed, the deed of conveyance
shall be executed in behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly vested by
law in another officer.

(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer
because even its executive head cannot sign the deed of conveyance on behalf of the
Republic. Only the President of the Republic can sign such deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands
and Buildings from the Bureau of Air Transportation of the Department of
Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x x x x

The land where the Airport is presently located as well as the


surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake an
actual survey of the area transferred within one year from the promulgation of
this Executive Order and the corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed through sale or
through any other mode unless specifically approved by the President
of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing
public airport facilities, runways, lands, buildings and other property,
movable or immovable, belonging to the Airport, and all assets, powers, rights,
interests and privileges belonging to the Bureau of Air Transportation
relating to airport works or air operations, including all equipment which are
necessary for the operation of crash fire and rescue facilities, are hereby
transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the


Bureau of Air Transportation and Transitory Provisions. — The Manila
International Airport including the Manila Domestic Airport as a division under
the Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the
Republic receiving cash, promissory notes or even stock since MIAA is not a stock
corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the
Airport Lands and Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the


Philippines for both international and domestic air traffic, is required to provide
standards of airport accommodation and service comparable with the best
airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities,
have to be upgraded to meet the current and future air traffic and other demands
of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the


objectives of providing high standards of accommodation and service
within the context of a financially viable operation, will best be
achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential


Decree No. 1772, the President of the Philippines is given continuing authority to
reorganize the National Government, which authority includes the
creation of new entities, agencies and instrumentalities of the
Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation
to MIAA was not meant to transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely to reorganize a division in the Bureau
of Air Transportation into a separate and autonomous body. The Republic
remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned
solely by the Republic. No party claims any ownership rights over MIAA's assets adverse
to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not
be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines." This only means that the Republic
retained the beneficial ownership of the Airport Lands and Buildings because under
Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing."
Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the
Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands
and Buildings without the Republic paying MIAA any consideration. Under Section 3 of
the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport
Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal
property owned by the Republic of the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of


its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing "[t]axes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The real properties
owned by the Republic are titled either in the name of the Republic itself or in the name
of agencies or instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real property
is transferred to an agency or instrumentality even as the Republic remains the owner of
the real property. Such arrangement does not result in the loss of the tax exemption.
Section 234(a) of the Local Government Code states that real property owned by the
Republic loses its tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government
Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use
of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is subject to real estate tax. In such a
case, MIAA has granted the beneficial use of such land area for a consideration to a
taxable person and therefore such land area is subject to real estate tax. In Lung
Center of the Philippines v. Quezon City, the Court ruled:

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.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section
193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons,
whether natural or juridical" upon the effectivity of the Code. Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise


provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions are hereby withdrawn upon effectivity of
this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues
that since the Local Government Code withdrew the tax exemption of all juridical
persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government


Code that the withdrawn exemptions from realty tax cover not just
GOCCs, but all persons. To repeat, the provisions lay down the explicit
proposition that the withdrawal of realty tax exemption applies to all persons.
The reference to or the inclusion of GOCCs is only clarificatory or illustrative of
the explicit provision.

The term "All persons" encompasses the two classes of persons


recognized under our laws, natural and juridical persons. Obviously,
MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at
all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status — whether MIAA is a juridical person or not. The minority also
insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to
ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government
Code expressly withdrew the tax exemption of all juridical persons "[u]nless
otherwise provided in this Code." Now, Section 133(o) of the Local Government
Code expressly provides otherwise, specifically prohibiting local governments
from imposing any kind of tax on national government instrumentalities. Section 133(o)
states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government


Units. – Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies
and instrumentalities, and local government units. (Emphasis and underscoring
supplied)

By express mandate of the Local Government Code, local governments cannot impose
any kind of tax on national government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the national
government, its agencies and instrumentalities, "[u]nless otherwise provided in this
Code" as stated in the saving clause of Section 133. The saving clause refers to Section
234(a) on the exception to the exemption from real estate tax of real property owned by
the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the three classes of entities specifically
enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and
non-profit hospitals and educational institutions. It would be belaboring the
obvious why the MIAA does not fall within any of the exempt entities under
Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the
Local Government Code. This theory will result in gross absurdities. It will make the
national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of
exempt entities in Section 193. Under this theory, local governments can impose any
kind of local tax, and not only real estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax.
Some of the national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31
Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion


Development Authority,34 Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law
does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all
national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA is
a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of
law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government Code
grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the national government, its agencies
and instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section
234(a) of the Code, which makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of
the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax – The following are exempted
from payment of the real property tax:

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

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate
tax. The exception to this exemption is when the government gives the beneficial use of
the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to
any other tax. The justification for the exception to the exemption is that the real
property, although owned by the Republic, is not devoted to public use or public service
but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the
Local Government Code, the later provisions prevail over Section 133. Thus, the
minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234.


Following an accepted rule of construction, in case of conflict the subsequent
provisions should prevail. Therefore, MIAA, as a juridical person, is subject to
real property taxes, the general exemptions attaching to instrumentalities under
Section 133(o) of the Local Government Code being qualified by Sections 193 and
234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one
hand, and Sections 193 and 234 on the other. No one has urged that there is such a
conflict, much less has any one presenteda persuasive argument that there is such a
conflict. The minority's assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code when Section 193
states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits
the superiority of other provisions of the Local Government Code that limit the exercise
of the taxing power in Section 193. When a provision of law grants a power but
withholds such power on certain matters, there is no conflict between the grant of power
and the withholding of power. The grantee of the power simply cannot exercise the
power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to tax. Section 133 states that the
taxing powers of local governments "shall not extend to the levy" of any kind of tax on
the national government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power. If
the taxing power of local governments in Section 193 prevails over the limitations on
such taxing power in Section 133, then local governments can impose any kind of tax on
the national government, its agencies and instrumentalities — a gross absurdity.

Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant
to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code."
This exception — which is an exception to the exemption of the Republic from real
estate tax imposed by local governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects real property owned by the
Republic, whether titled in the name of the national government, its agencies or
instrumentalities, to real estate tax if the beneficial use of such property is given to a
taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points
out that Section 2 of the Introductory Provisions of the Administrative Code admits that
its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. — Unless the specific words of the text, or the
context as a whole, or a particular statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is
"flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the
Administrative Code. However, this does not automatically mean that the definition in
the Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of a particular
statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the
phrase "government-owned or controlled corporation" differently from the definition in
the Administrative Code. Indeed, there is none. The Local Government Code is silent on
the definition of the phrase "government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase "government-owned or
controlled corporation." The inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled corporation" applies to the
Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates
in a unified document the major structural, functional and procedural principles and
rules of governance." Thus, the Administrative Code is the governing law defining the
status and relationship of government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a different status and
relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled


corporation" should apply only to corporations organized under the Corporation Code,
the general incorporation law, and not to corporations created by special charters. The
minority sees no reason why government corporations with special charters should have
a capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations"


under the Administrative Code refer to those corporations owned by the
government or its instrumentalities which are created not by legislative
enactment, but formed and organized under the Corporation Code through
registration with the Securities and Exchange Commission. In short, these are
GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital
structure for GOCCs whose full ownership is limited by its charter to the State or
Republic. Such GOCCs are not empowered to declare dividends or alienate their
capital shares.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or


controlled corporation" does not distinguish between one incorporated under the
Corporation Code or under a special charter. Where the law does not distinguish, courts
should not distinguish.

Second, Congress has created through special charters several government-owned


corporations organized as stock corporations. Prime examples are the Land Bank of the
Philippines and the Development Bank of the Philippines. The special charter40 of the
Land Bank of the Philippines provides:

SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine
billion pesos, divided into seven hundred and eighty million common shares with
a par value of ten pesos each, which shall be fully subscribed by the Government,
and one hundred and twenty million preferred shares with a par value of ten
pesos each, which shall be issued in accordance with the provisions of Sections
seventy-seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the
Bank shall be Five Billion Pesos to be divided into Fifty Million common shares
with par value of P100 per share. These shares are available for subscription by
the National Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common shares of stock
worth Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the transfer of
assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their


special charters are the Philippine Crop Insurance Corporation,42 Philippine
International Trading Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All these government-
owned corporations organized under special charters as stock corporations are subject
to real estate tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are not registered with the
Securities and Exchange Commission would remove them from the reach of Section 234
of the Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special


charters are those that meet the two conditions prescribed in Section 16, Article XII of
the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that the
government-owned or controlled corporation must meet the test of economic viability.
Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or
controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.
(Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or


controlled corporations" through special charters only if these entities are required to
meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with
special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to government-
owned or controlled corporations that perform economic or commercial activities and
need to compete in the market place. Being essentially economic vehicles of the State for
the common good — meaning for economic development purposes — these government-
owned or controlled corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing


governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that
every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental
or public functions. Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these instrumentalities
perform essential government functions or public services. However, when the
legislature creates through special charters corporations that perform economic or
commercial activities, such entities — known as "government-owned or controlled
corporations" — must meet the test of economic viability because they compete in the
market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of
the Philippines and similar government-owned or controlled corporations, which derive
their income to meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim
upon the taxpayers' money through new equity infusions from the government
and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this
will go into equity infusions to support a few government financial institutions.
And this is all taxpayers' money which could have been relocated to agrarian
reform, to social services like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of meeting the market
test so that they become viable. And so, Madam President, I reiterate, for the
committee's consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR
THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains


in his textbook The 1987 Constitution of the Republic of the Philippines: A
Commentary:

The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common good
and subject to the test of economic viability." The addition includes the ideas that
they must show capacity to function efficiently in business and that they should
not go into activities which the private sector can do better. Moreover, economic
viability is more than financial viability but also includes capability to make profit
and generate benefits not quantifiable in financial terms.46 (Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to
render essential public services regardless of the economic viability of providing such
service. The non-economic viability of rendering such essential public service does not
excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters,


organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that are
usually organized under their special charters as stock corporations, like the Land Bank
of the Philippines and the Development Bank of the Philippines. These are the
government-owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not
create MIAA to compete in the market place. MIAA does not compete in the market
place because there is no competing international airport operated by the private sector.
MIAA performs an essential public service as the primary domestic and international
airport of the Philippines. The operation of an international airport requires the
presence of personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and


departure of passengers, screening out those without visas or travel documents,
or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on


prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures


against the spread of infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of


plant and animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent


the entry of terrorists and the escape of criminals, as well as to secure the airport
premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and


Communications, to authorize aircraft to enter or leave Philippine airspace, as
well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises — such as runway and buildings —
for the government personnel, passengers, and airlines, and to manage the
airport operations.

All these agencies of government perform government functions essential to the


operation of an international airport.

MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every
passenger are regulatory or administrative fees47 and not income from commercial
transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of
the Introductory Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. – x x x x


(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter. x x
x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital structure,
MIAA remains a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code. More importantly, as long as MIAA renders
essential public services, it need not comply with the test of economic viability. Thus,
MIAA is outside the scope of the phrase "government-owned or controlled corporations"
under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-
owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal.
The 1987 Constitution prescribes explicit conditions for the creation of "government-
owned or controlled corporations." The Administrative Code defines what constitutes a
"government-owned or controlled corporation." To belittle this phrase as "clarificatory
or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under


Section 2(13) of the Introductory Provisions of the Administrative Code because it is not
organized as a stock or non-stock corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As
a government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable
entity under the Local Government Code. Such exception applies only if the beneficial
use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use
and thus are properties of public dominion. Properties of public dominion are owned by
the State or the Republic. 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.
(Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very least
intended for public service. Whether intended for public use or public service, the
Airport Lands and Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt
from real estate tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code,
which governs the legal relation and status of government units, agencies and offices
within the entire government machinery, MIAA is a government instrumentality and
not a government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable person
because it is not subject to "[t]axes, fees or charges of any kind" by local governments.
The only exception is when MIAA leases its real property to a "taxable person" as
provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport
Lands and Buildings leased to taxable persons like private parties are subject to real
estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the State or
the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties of
public dominion and owned by the Republic. As properties of public dominion owned by
the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are
expressly exempt from real estate tax under Section 234(a) of the Local Government
Code. This Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of


the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No.
66878. We DECLARE the Airport Lands and Buildings of the Manila International
Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque.
We declare VOID all the real estate tax assessments, including the final notices of real
estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and
Buildings of the Manila International Airport Authority, except for the portions that the
Manila International Airport Authority has leased to private parties. We also declare
VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of
the Manila International Airport Authority.

No costs.

SO ORDERED.

EN BANC
G.R. No. 163072

Present:

MANILA INTERNATIONAL AIRPORT AUTHORITY,


PUNO, C.J.,
Petitioner,
QUISUMBING,

YNARES-SANTIAGO,

CARPIO,

AUSTRIA-MARTINEZ,

CORONA,

CARPIO MORALES,

TINGA,

CHICO-NAZARIO,

VELASCO, JR.,

NACHURA,
- versus -
LEONARDO-DE CASTRO,

BRION, and

PERALTA, JJ.

CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY TRE
Promulgated:
Respondents.

April 2, 2009
x--------------------------------------------------x

DECISION

CARPIO, J.:

This is a petition for review on certiorari1[1] of the Decision2[2] dated 30 October


2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP
No. 67416.

The Facts

Petitioner Manila International Airport Authority (MIAA) operates and


administers the Ninoy Aquino International Airport (NAIA) Complex under Executive
Order No. 903 (EO 903),3[3] otherwise known as the Revised Charter of the Manila
International Airport Authority. EO 903 was issued on 21 July 1983 by then President
Ferdinand E. Marcos. Under Sections 34[4] and 225[5] of EO 903, approximately 600
hectares of land, including the runways, the airport tower, and other airport buildings,
were transferred to MIAA. The NAIA Complex is located along the border between
Pasay City and Paraaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax


Delinquency from the City of Pasay for the taxable years 1992 to 2001. MIAAs real
property tax delinquency for its real properties located in NAIA Complex, Ninoy Aquino
Avenue, Pasay City (NAIA Pasay properties) is tabulated as follows:

TAX DECLA- TAXABLE TAX DUE PENALTY TOTAL


RATION YEAR
A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18
A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98
A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20
A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44
A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85
A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28
A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58
A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36
A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33
A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13
A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00
GRAND TOTAL P642,747,726.20 P373,466,110.13 P1,016,213,836.33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices
of levy and warrants of levy for the NAIA Pasay properties. MIAA received the notices
and warrants of levy on 28 August 2001. Thereafter, the City Mayor of Pasay threatened
to sell at public auction the NAIA Pasay properties if the delinquent real property taxes
remain unpaid.

On 29 October 2001, MIAA filed with the Court of Appeals a petition for
prohibition and injunction with prayer for preliminary injunction or temporary
restraining order. The petition sought to enjoin the City of Pasay from imposing real
property taxes on, levying against, and auctioning for public sale the NAIA Pasay
properties.

On 30 October 2002, the Court of Appeals dismissed the petition and upheld the
power of the City of Pasay to impose and collect realty taxes on the NAIA Pasay
properties. MIAA filed a motion for reconsideration, which the Court of Appeals denied.
Hence, this petition.

The Court of Appeals Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or
the Local Government Code, which took effect on 1 January 1992, withdrew the
exemption from payment of real property taxes granted to natural or juridical persons,
including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under Republic Act No. 6938, non-stock and non-profit
hospitals and educational institutions. Since MIAA is a government-owned corporation,
it follows that its tax exemption under Section 21 of EO 903 has been withdrawn upon
the effectivity of the Local Government Code.
The Issue

The issue raised in this petition is whether the NAIA Pasay properties of MIAA
are exempt from real property tax.

The Courts Ruling

The petition is meritorious.

In ruling that MIAA is not exempt from paying real property tax, the Court of
Appeals cited Sections 193 and 234 of the Local Government Code which read:

SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise


provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code.

SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government owned or controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment
protection.
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural
or juridical, including all government-owned or controlled corporations are
hereby withdrawn upon the effectivity of this Code.

The Court of Appeals held that as a government-owned corporation, MIAAs tax


exemption under Section 21 of EO 903 has already been withdrawn upon the effectivity
of the Local Government Code in 1992.

In Manila International Airport Authority v. Court of Appeals6[6] (2006 MIAA


case), this Court already resolved the issue of whether the airport lands and buildings of
MIAA are exempt from tax under existing laws. The 2006 MIAA case originated from a
petition for prohibition and injunction which MIAA filed with the Court of Appeals,
seeking to restrain the City of Paraaque from imposing real property tax on, levying
against, and auctioning for public sale the airport lands and buildings located in
Paraaque City. The only difference between the 2006 MIAA case and this case is that the
2006 MIAA case involved airport lands and buildings located in Paraaque City while
this case involved airport lands and buildings located in Pasay City. The 2006 MIAA
case and this case raised the same threshold issue: whether the local government can
impose real property tax on the airport lands, consisting mostly of the runways, as well
as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation
under Section 2(13) of the Introductory Provisions of the Administrative
Code because it is not organized as a stock or non-stock corporation. Neither
is MIAA a government-owned or controlled corporation under Section 16,
Article XII of the 1987 Constitution because MIAA is not required to meet
the test of economic viability. MIAA is a government instrumentality vested
with corporate powers and performing essential public services pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. As
a government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government Code. The
exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code.
Such exception applies only if the beneficial use of real property owned by
the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties


devoted to public use and thus are properties of public dominion.
Properties of public dominion are owned by the State or the Republic.
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 State includes airports and


seaports. The Airport Lands and Buildings of MIAA are intended for public
use, and at the very least intended for public service. Whether intended for
public use or public service, the Airport Lands and Buildings are properties
of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax
under Section 234(a) of the Local Government Code.7[7] (Emphasis in the
original)
The definition of instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code of 1987 uses the phrase includes x x x
government-owned or controlled corporations which means that a government
instrumentality may or may not be a government-owned or controlled corporation.
Obviously, the term government instrumentality is broader than the term
government-owned or controlled corporation. Section 2(10) provides:

SEC. 2. General Terms Defined. x x x


(10) Instrumentality refers to any agency of the national Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.

The term government-owned or controlled corporation has a separate definition


under Section 2(13)8[8] of the Introductory Provisions of the Administrative Code of
1987:

SEC. 2. General Terms Defined. x x x

(13) Government-owned or controlled corporation refers to any


agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: Provided, That
government-owned or controlled corporations may further be categorized
by the department of Budget, the Civil Service Commission, and the
Commission on Audit for the purpose of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such
corporations.

The fact that two terms have separate definitions means that while a government
instrumentality may include a government-owned or controlled corporation, there may
be a government instrumentality that will not qualify as a government-owned or
controlled corporation.

A close scrutiny of the definition of government-owned or controlled corporation


in Section 2(13) will show that MIAA would not fall under such definition. MIAA is a
government instrumentality that does not qualify as a government-owned
or controlled corporation. As explained in the 2006 MIAA case:

A government-owned or controlled corporation must be organized


as a stock or non-stock corporation. MIAA is not organized as a stock or
non-stock corporation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or voting
shares. x x x

Section 3 of the Corporation Code defines a stock corporation as


one whose capital stock is divided into shares and x x x authorized to
distribute to the holders of such shares dividends x x x. MIAA has capital
but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.

xxx

MIAA is also not a non-stock corporation because it has no


members. Section 87 of the Corporation Code defines a non-stock
corporation as one where no part of its income is distributable as
dividends to its members, trustees or officers. A non-stock corporation
must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-
stock corporation. Non-stock corporations cannot distribute any part of
their income to their members. Section 11 of the MIAA Charter mandates
MIAA to remit 20% of its annual gross operating income to the National
Treasury. This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock


corporations are organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social,
civil service, or similar purposes, like trade, industry, agriculture and like
chambers. MIAA is not organized for any of these purposes. MIAA, a
public utility, is organized to operate an international and domestic
airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA


does not qualify as a government-owned or controlled corporation. What
then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate


powers to perform efficiently its governmental functions. MIAA is like any
other government instrumentality, the only difference is that MIAA is
vested with corporate powers. x x x

When the law vests in a government instrumentality corporate


powers, the instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police authority and the levying
of fees and charges. At the same time, MIAA exercises all the powers of a
corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.9[9]

Thus, MIAA is not a government-owned or controlled corporation but a


government instrumentality which is exempt from any kind of tax from the local
governments. Indeed, the exercise of the taxing power of local government units is
subject to the limitations enumerated in Section 133 of the Local Government
Code.10[10] Under Section 133(o)11[11] of the Local Government Code, local
government units have no power to tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties.

Furthermore, the airport lands and buildings of MIAA are properties of public
dominion intended for public use, and as such are exempt from real property tax under
Section 234(a) of the Local Government Code. However, under the same provision, if
MIAA leases its real property to a taxable person, the specific property leased becomes
subject to real property tax.12[12] In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are subject to real
property tax by the City of Pasay.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated


30 October 2002 and the Resolution dated 19 March 2004 of the Court of Appeals in
CA-G.R. SP No. 67416. We DECLARE the NAIA Pasay properties of the Manila
International Airport Authority EXEMPT from real property tax imposed by the City of
Pasay. We declare VOID all the real property tax assessments, including the final
notices of real property tax delinquencies, issued by the City of Pasay on the NAIA Pasay
properties of the Manila International Airport Authority, except for the portions that
the Manila International Airport Authority has leased to private parties.

No costs.

SO ORDERED.
[G.R. No. 137377. December 18, 2001]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MARUBENI


CORPORATION, respondent.

DECISION

PUNO, J.:

In this petition for review, the Commissioner of Internal Revenue assails the decision
dated January 15, 1999 of the Court of Appeals in CA-G.R. SP No. 42518 which affirmed
the decision dated July 29, 1996 of the Court of Tax Appeals in CTA Case No. 4109. The
tax court ordered the Commissioner of Internal Revenue to desist from collecting the
1985 deficiency income, branch profit remittance and contractors taxes from Marubeni
Corporation after finding the latter to have properly availed of the tax amnesty under
Executive Orders Nos. 41 and 64, as amended.

Respondent Marubeni Corporation is a foreign corporation organized and existing


under the laws of Japan. It is engaged in general import and export trading, financing
and the construction business. It is duly registered to engage in such business in the
Philippines and maintains a branch office in Manila.

Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a


letter of authority to examine the books of accounts of the Manila branch office of
respondent corporation for the fiscal year ending March 1985. In the course of the
examination, petitioner found respondent to have undeclared income from two (2)
contracts in the Philippines, both of which were completed in 1984. One of the contracts
was with the National Development Company (NDC) in connection with the
construction and installation of a wharf/port complex at the Leyte Industrial
Development Estate in the municipality of Isabel, province of Leyte. The other contract
was with the Philippine Phosphate Fertilizer Corporation (Philphos) for the
construction of an ammonia storage complex also at the Leyte Industrial Development
Estate.

On March 1, 1986, petitioners revenue examiners recommended an assessment for


deficiency income, branch profit remittance, contractors and commercial brokers taxes.
Respondent questioned this assessment in a letter dated June 5, 1986.

On August 27, 1986, respondent corporation received a letter dated August 15, 1986
from petitioner assessing respondent several deficiency taxes. The assessed deficiency
internal revenue taxes, inclusive of surcharge and interest, were as follows:

I. DEFICIENCY INCOME TAX


FY ended March 31, 1985

Undeclared gross income (Philphos and

and NDC construction projects). . . . . . . . . . . . P 967,269,811.14

Less: Cost and expenses (50%) . . . . . . . . . . . . . . . 483,634,905.57

Net undeclared income . . . . . . . . . . . . . . . . . . . . . . . 483,634,905.57

Income tax due thereon . . . . . . . . . . . . . . . . . . . . . . . 169,272,217.00

Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . . 84,636,108.50

20% int. p.a. fr. 7-15-85 to

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 36,675,646.90

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 290,583,972.40

II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX

FY ended March 31, 1985

Undeclared net income from

Philphos and NDC construction projects . . . . . P 483,634,905.57

Less: Income tax thereon . . . . . . . . . . . . . . . . . . . . . 169,272,217.00

Amount subject to Tax . . . . . . . . . . . . . . . . . . . . . . . 314,362,688.57

Tax due thereon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,154,403.00

Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . 23,577,201.50

20% int. p.a. fr. 4-26-85

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 12,305,360.66

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 83,036,965.16

III. DEFICIENCY CONTRACTORS TAX

FY ended March 31, 1985


Undeclared gross receipts/ gross income from

Philphos and NDC construction projects . . . . P 967,269,811.14

Contractors tax due thereon (4%). . . . . . . . . . . . . . . 38,690,792.00

Add: 50% surcharge for non-declaration. . . . . . 19,345,396.00

25% surcharge for late payment . . . . . . . . . 9,672,698.00

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,708,886.00

Add: 20% int. p.a. fr. 4-21-85 to

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 17,854,739.46

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 85,563,625.46

IV. DEFICIENCY COMMERCIAL BROKERS TAX

FY ended March 31, 1985

Undeclared share from commission income

(denominated as subsidy from Home

Office). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,683,114.50

Tax due thereon . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1,628,569.00

Add: 50% surcharge for non-declaration. . . . . . . 814,284.50

25% surcharge for late payment . . . . . . . . . 407,142.25

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,849,995.75

Add: 20% int. p.a. fr. 4-21-85

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 751,539.98

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . P 3,600,535.68

The 50% surcharge was imposed for your clients failure to report for tax purposes the
aforesaid taxable revenues while the 25% surcharge was imposed because of your clients
failure to pay on time the above deficiency percentage taxes.
xxx xxx x x x. liii[1]

Petitioner found that the NDC and Philphos contracts were made on a turn-key basis
and that the gross income from the two projects amounted to P967,269,811.14. Each
contract was for a piece of work and since the projects called for the construction and
installation of facilities in the Philippines, the entire income therefrom constituted
income from Philippine sources, hence, subject to internal revenue taxes. The
assessment letter further stated that the same was petitioners final decision and that if
respondent disagreed with it, respondent may file an appeal with the Court of Tax
Appeals within thirty (30) days from receipt of the assessment.

On September 26, 1986, respondent filed two (2) petitions for review with the Court of
Tax Appeals. The first petition, CTA Case No. 4109, questioned the deficiency income,
branch profit remittance and contractors tax assessments in petitioners assessment
letter. The second, CTA Case No. 4110, questioned the deficiency commercial brokers
assessment in the same letter.

Earlier, on August 2, 1986, Executive Order (E.O.) No. 41liv[2] declaring a one-time
amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. Under this
E.O., a taxpayer who wished to avail of the income tax amnesty should, on or before
October 31, 1986: (a) file a sworn statement declaring his net worth as of December 31,
1985; (b) file a certified true copy of his statement declaring his net worth as of
December 31, 1980 on record with the Bureau of Internal Revenue (BIR), or if no such
record exists, file a statement of said net worth subject to verification by the BIR; and (c)
file a return and pay a tax equivalent to ten per cent (10%) of the increase in net worth
from December 31, 1980 to December 31, 1985.

In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return
dated October 30, 1986 and attached thereto its sworn statement of assets and liabilities
and net worth as of Fiscal Year (FY) 1981 and FY 1986. The return was received by the
BIR on November 3, 1986 and respondent paid the amount of P2,891,273.00 equivalent
to ten percent (10%) of its net worth increase between 1981 and 1986.

The period of the amnesty in E.O. No. 41 was later extended from October 31, 1986 to
December 5, 1986 by E.O. No. 54 dated November 4, 1986.

On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by
Executive Order (E.O.) No. 64. In addition to the income tax amnesty granted by E.O.
No. 41 for the years 1981 to 1985, E.O. No. 64lv[3] included estate and donors taxes
under Title III and the tax on business under Chapter II, Title V of the National Internal
Revenue Code, also covering the years 1981 to 1985. E.O. No. 64 further provided that
the immunities and privileges under E.O. No. 41 were extended to the foregoing tax
liabilities, and the period within which the taxpayer could avail of the amnesty was
extended to December 15, 1986. Those taxpayers who already filed their amnesty return
under E.O. No. 41, as amended, could avail themselves of the benefits, immunities and
privileges under the new E.O. by filing an amended return and paying an additional 5%
on the increase in net worth to cover business, estate and donors tax liabilities.
The period of amnesty under E.O. No. 64 was extended to January 31, 1987 by E.O No.
95 dated December 17, 1986.

On December 15, 1986, respondent filed a supplemental tax amnesty return under the
benefit of E.O. No. 64 and paid a further amount of P1,445,637.00 to the BIR equivalent
to five percent (5%) of the increase of its net worth between 1981 and 1986.

On July 29, 1996, almost ten (10) years after filing of the case, the Court of Tax Appeals
rendered a decision in CTA Case No. 4109. The tax court found that respondent had
properly availed of the tax amnesty under E.O. Nos. 41 and 64 and declared the
deficiency taxes subject of said case as deemed cancelled and withdrawn. The Court of
Tax Appeals disposed of as follows:

WHEREFORE, the respondent Commissioner of Internal Revenue is hereby ORDERED


to DESIST from collecting the 1985 deficiency taxes it had assessed against petitioner
and the same are deemed considered [sic] CANCELLED and WITHDRAWN by reason
of the proper availment by petitioner of the amnesty under Executive Order No. 41, as
amended.lvi[4]

Petitioner challenged the decision of the tax court by filing CA-G.R. SP No. 42518 with
the Court of Appeals.

On January 15, 1999, the Court of Appeals dismissed the petition and affirmed the
decision of the Court of Tax Appeals. Hence, this recourse.

Before us, petitioner raises the following issues:

(1) Whether or not the Court of Appeals erred in affirming the Decision of the Court of
Tax Appeals which ruled that herein respondents deficiency tax liabilities were
extinguished upon respondents availment of tax amnesty under Executive Orders Nos.
41 and 64.

(2) Whether or not respondent is liable to pay the income, branch profit remittance, and
contractors taxes assessed by petitioner.lvii[5]

The main controversy in this case lies in the interpretation of the exception to the
amnesty coverage of E.O. Nos. 41 and 64. There are three (3) types of taxes involved
herein income tax, branch profit remittance tax and contractors tax. These taxes are
covered by the amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however,
that respondent is disqualified from availing of the said amnesties because the latter
falls under the exception in Section 4 (b) of E.O. No. 41.

Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty
granted thereunder, viz:

Sec. 4. Exceptions.The following taxpayers may not avail themselves of the amnesty
herein granted:
a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;

b) Those with income tax cases already filed in Court as of the effectivity
hereof;

c) Those with criminal cases involving violations of the income tax law already filed
in court as of the effectivity hereof;

d) Those that have withholding tax liabilities under the National Internal Revenue
Code, as amended, insofar as the said liabilities are concerned;

e) Those with tax cases pending investigation by the Bureau of Internal Revenue as
of the effectivity hereof as a result of information furnished under Section 316 of the
National Internal Revenue Code, as amended;

f) Those with pending cases involving unexplained or unlawfully acquired wealth


before the Sandiganbayan;

g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and
Transactions) and Chapter Four (Malversation of Public Funds and Property) of the
Revised Penal Code, as amended.

Petitioner argues that at the time respondent filed for income tax amnesty on October
30, 1986, CTA Case No. 4109 had already been filed and was pending before the Court of
Tax Appeals. Respondent therefore fell under the exception in Section 4 (b) of E.O. No.
41.

Petitioners claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and
unambiguous. It excepts from income tax amnesty those taxpayers with income tax
cases already filed in court as of the effectivity hereof. The point of reference is the date
of effectivity of E.O. No. 41. The filing of income tax cases in court must have been
made before and as of the date of effectivity of E.O. No. 41. Thus, for a taxpayer not to be
disqualified under Section 4 (b) there must have been no income tax cases filed in court
against him when E.O. No. 41 took effect. This is regardless of when the taxpayer filed
for income tax amnesty, provided of course he files it on or before the deadline for filing.

E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985
deficiency income, branch profit remittance and contractors tax assessments was filed
by respondent with the Court of Tax Appeals on September 26, 1986. When E.O. No. 41
became effective on August 22, 1986, CTA Case No. 4109 had not yet been filed in court.
Respondent corporation did not fall under the said exception in Section 4 (b), hence,
respondent was not disqualified from availing of the amnesty for income tax under E.O.
No. 41.

The same ruling also applies to the deficiency branch profit remittance tax assessment.
A branch profit remittance tax is defined and imposed in Section 24 (b) (2) (ii), Title II,
Chapter III of the National Internal Revenue Code.lviii[6] In the tax code, this tax falls
under Title II on Income Tax. It is a tax on income. Respondent therefore did not fall
under the exception in Section 4 (b) when it filed for amnesty of its deficiency branch
profit remittance tax assessment.

The difficulty herein is with respect to the contractors tax assessment and respondents
availment of the amnesty under E.O. No. 64. E.O. No. 64 expanded the coverage of E.O.
No. 41 by including estate and donors taxes and tax on business. Estate and donors
taxes fall under Title III of the Tax Code while business taxes fall under Chapter II, Title
V of the same. The contractors tax is provided in Section 205, Chapter II, Title V of the
Tax Code; it is defined and imposed under the title on business taxes, and is therefore a
tax on business.lix[7]

When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to
the coverage of the amnesty for business, estate and donors taxes. Instead, Section 8 of
E.O. No. 64 provided that:

Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to
or inconsistent with this amendatory Executive Order shall remain in full force and
effect.

By virtue of Section 8 as afore-quoted, the provisions of E.O. No. 41 not contrary to or


inconsistent with the amendatory act were reenacted in E.O. No. 64. Thus, Section 4 of
E.O. No. 41 on the exceptions to amnesty coverage also applied to E.O. No. 64. With
respect to Section 4 (b) in particular, this provision excepts from tax amnesty coverage a
taxpayer who has income tax cases already filed in court as of the effectivity hereof. As
to what Executive Order the exception refers to, respondent argues that because of the
words income and hereof, they refer to Executive Order No. 41.lx[8]

In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed
to refer to E.O. No. 41 and its date of effectivity. The general rule is that an amendatory
act operates prospectively.lxi[9] While an amendment is generally construed as
becoming a part of the original act as if it had always been contained therein,lxii[10] it
may not be given a retroactive effect unless it is so provided expressly or by necessary
implication and no vested right or obligations of contract are thereby impaired.lxiii[11]

There is nothing in E.O. No. 64 that provides that it should retroact to the date of
effectivity of E.O. No. 41, the original issuance. Neither is it necessarily implied from
E.O. No. 64 that it or any of its provisions should apply retroactively. Executive Order
No. 64 is a substantive amendment of E.O. No. 41. It does not merely change provisions
in E.O. No. 41. It supplements the original act by adding other taxes not covered in the
first.lxiv[12] It has been held that where a statute amending a tax law is silent as to
whether it operates retroactively, the amendment will not be given a retroactive effect so
as to subject to tax past transactions not subject to tax under the original act.lxv[13] In
an amendatory act, every case of doubt must be resolved against its retroactive
effect.lxvi[14]
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general
pardon or intentional overlooking by the State of its authority to impose penalties on
persons otherwise guilty of evasion or violation of a revenue or tax law.lxvii[15] It
partakes of an absolute forgiveness or waiver by the government of its right to collect
what is due it and to give tax evaders who wish to relent a chance to start with a clean
slate.lxviii[16] A tax amnesty, much like a tax exemption, is never favored nor presumed
in law.lxix[17] If granted, the terms of the amnesty, like that of a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing
authority.lxx[18] For the right of taxation is inherent in government. The State cannot
strip itself of the most essential power of taxation by doubtful words. He who claims an
exemption (or an amnesty) from the common burden must justify his claim by the
clearest grant of organic or state law. It cannot be allowed to exist upon a vague
implication. If a doubt arises as to the intent of the legislature, that doubt must be
resolved in favor of the state.lxxi[19]

In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should
therefore be construed strictly against the taxpayer. The term income tax cases should
be read as to refer to estate and donors taxes and taxes on business while the word
hereof, to E.O. No. 64. Since Executive Order No. 64 took effect on November 17, 1986,
consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivity
referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986.

Respondent filed CTA Case No. 4109 on September 26, 1986. When E.O. No. 64 took
effect on November 17, 1986, CTA Case No. 4109 was already filed and pending in court.
By the time respondent filed its supplementary tax amnesty return on December 15,
1986, respondent already fell under the exception in Section 4 (b) of E.O. Nos. 41 and 64
and was disqualified from availing of the business tax amnesty granted therein.

It is respondents other argument that assuming it did not validly avail of the amnesty
under the two Executive Orders, it is still not liable for the deficiency contractors tax
because the income from the projects came from the Offshore Portion of the contracts.
The two contracts were divided into two parts, i.e., the Onshore Portion and the
Offshore Portion. All materials and equipment in the contract under the Offshore
Portion were manufactured and completed in Japan, not in the Philippines, and are
therefore not subject to Philippine taxes.

Before going into respondents arguments, it is necessary to discuss the background of


the two contracts, examine their pertinent provisions and implementation.

The NDC and Philphos are two government corporations. In 1980, the NDC, as the
corporate investment arm of the Philippine Government, established the Philphos to
engage in the large-scale manufacture of phosphatic fertilizer for the local and foreign
markets.lxxii[20] The Philphos plant complex which was envisioned to be the largest
phosphatic fertilizer operation in Asia, and among the largest in the world, covered an
area of 180 hectares within the 435-hectare Leyte Industrial Development Estate in the
municipality of Isabel, province of Leyte.
In 1982, the NDC opened for public bidding a project to construct and install a modern,
reliable, efficient and integrated wharf/port complex at the Leyte Industrial
Development Estate. The wharf/ port complex was intended to be one of the major
facilities for the industrial plants at the Leyte Industrial Development Estate. It was to
be specifically adapted to the site for the handling of phosphate rock, bagged or bulk
fertilizer products, liquid materials and other products of Philphos, the Philippine
Associated Smelting and Refining Corporation (Pasar),lxxiii[21] and other industrial
plants within the Estate. The bidding was participated in by Marubeni Head Office in
Japan.

Marubeni, Japan pre-qualified and on March 22, 1982, the NDC and respondent
entered into an agreement entitled Turn-Key Contract for Leyte Industrial Estate Port
Development Project Between National Development Company and Marubeni
Corporation.lxxiv[22] The Port Development Project would consist of a wharf, berths,
causeways, mechanical and liquids unloading and loading systems, fuel oil depot,
utilities systems, storage and service buildings, offsite facilities, harbor service vessels,
navigational aid system, fire-fighting system, area lighting, mobile equipment, spare
parts and other related facilities.lxxv[23] The scope of the works under the contract
covered turn-key supply, which included grants of licenses and the transfer of
technology and know-how,lxxvi[24] and:

x x x the design and engineering, supply and delivery, construction, erection and
installation, supervision, direction and control of testing and commissioning of the
Wharf-Port Complex as set forth in Annex I of this Contract, as well as the coordination
of tie-ins at boundaries and schedule of the use of a part or the whole of the Wharf/Port
Complex through the Owner, with the design and construction of other facilities around
the site. The scope of works shall also include any activity, work and supply necessary
for, incidental to or appropriate under present international industrial port practice, for
the timely and successful implementation of the object of this Contract, whether or not
expressly referred to in the abovementioned Annex I.lxxvii[25]

The contract price for the wharf/ port complex was Y12,790,389,000.00 and
P44,327,940.00. In the contract, the price in Japanese currency was broken down into
two portions: (1) the Japanese Yen Portion I; (2) the Japanese Yen Portion II, while the
price in Philippine currency was referred to as the Philippine Pesos Portion. The
Japanese Yen Portions I and II were financed in two (2) ways: (a) by yen credit loan
provided by the Overseas Economic Cooperation Fund (OECF); and (b) by suppliers
credit in favor of Marubeni from the Export-Import Bank of Japan. The OECF is a Fund
under the Ministry of Finance of Japan extended by the Japanese government as
assistance to foreign governments to promote economic development.lxxviii[26] The
OECF extended to the Philippine Government a loan of Y7,560,000,000.00 for the
Leyte Industrial Estate Port Development Project and authorized the NDC to implement
the same.lxxix[27] The other type of financing is an indirect type where the supplier, i.e.,
Marubeni, obtained a loan from the Export-Import Bank of Japan to advance payment
to its sub-contractors.lxxx[28]
Under the financing schemes, the Japanese Yen Portions I and II and the Philippine
Pesos Portion were further broken down and subdivided according to the materials,
equipment and services rendered on the project. The price breakdown and the
corresponding materials, equipment and services were contained in a list attached as
Annex III to the contract.lxxxi[29]

A few months after execution of the NDC contract, Philphos opened for public bidding a
project to construct and install two ammonia storage tanks in Isabel. Like the NDC
contract, it was Marubeni Head Office in Japan that participated in and won the
bidding. Thus, on May 2, 1982, Philphos and respondent corporation entered into an
agreement entitled Turn-Key Contract for Ammonia Storage Complex Between
Philippine Phosphate Fertilizer Corporation and Marubeni Corporation.lxxxii[30] The
object of the contract was to establish and place in operating condition a modern,
reliable, efficient and integrated ammonia storage complex adapted to the site for the
receipt and storage of liquid anhydrous ammonialxxxiii[31]and for the delivery of
ammonia to an integrated fertilizer plant adjacent to the storage complex and to vessels
at the dock.lxxxiv[32] The storage complex was to consist of ammonia storage tanks,
refrigeration system, ship unloading system, transfer pumps, ammonia heating system,
fire-fighting system, area lighting, spare parts, and other related facilities.lxxxv[33] The
scope of the works required for the completion of the ammonia storage complex covered
the supply, including grants of licenses and transfer of technology and know-
how,lxxxvi[34] and:

x x x the design and engineering, supply and delivery, construction, erection and
installation, supervision, direction and control of testing and commissioning of the
Ammonia Storage Complex as set forth in Annex I of this Contract, as well as the
coordination of tie-ins at boundaries and schedule of the use of a part or the whole of
the Ammonia Storage Complex through the Owner with the design and construction of
other facilities at and around the Site. The scope of works shall also include any activity,
work and supply necessary for, incidental to or appropriate under present international
industrial practice, for the timely and successful implementation of the object of this
Contract, whether or not expressly referred to in the abovementioned Annex
I.lxxxvii[35]

The contract price for the project was Y3,255,751,000.00 and P17,406,000.00. Like the
NDC contract, the price was divided into three portions. The price in Japanese currency
was broken down into the Japanese Yen Portion I and Japanese Yen Portion II while the
price in Philippine currency was classified as the Philippine Pesos Portion. Both
Japanese Yen Portions I and II were financed by suppliers credit from the Export-
Import Bank of Japan. The price stated in the three portions were further broken down
into the corresponding materials, equipment and services required for the project and
their individual prices. Like the NDC contract, the breakdown in the Philphos contract is
contained in a list attached to the latter as Annex III.lxxxviii[36]

The division of the price into Japanese Yen Portions I and II and the Philippine Pesos
Portion under the two contracts corresponds to the two parts into which the contracts
were classifiedthe Foreign Offshore Portion and the Philippine Onshore Portion. In both
contracts, the Japanese Yen Portion I corresponds to the Foreign Offshore
Portion.lxxxix[37] Japanese Yen Portion II and the Philippine Pesos Portion correspond
to the Philippine Onshore Portion.xc[38]

Under the Philippine Onshore Portion, respondent does not deny its liability for the
contractors tax on the income from the two projects. In fact respondent claims, which
petitioner has not denied, that the income it derived from the Onshore Portion of the
two projects had been declared for tax purposes and the taxes thereon already paid to
the Philippine government.xci[39] It is with regard to the gross receipts from the
Foreign Offshore Portion of the two contracts that the liabilities involved in the
assessments subject of this case arose. Petitioner argues that since the two agreements
are turn-key,xcii[40] they call for the supply of both materials and services to the client,
they are contracts for a piece of work and are indivisible. The situs of the two projects is
in the Philippines, and the materials provided and services rendered were all done and
completed within the territorial jurisdiction of the Philippines.xciii[41] Accordingly,
respondents entire receipts from the contracts, including its receipts from the Offshore
Portion, constitute income from Philippine sources. The total gross receipts covering
both labor and materials should be subjected to contractors tax in accordance with the
ruling in Commissioner of Internal Revenue v. Engineering Equipment & Supply
Co.xciv[42]

A contractors tax is imposed in the National Internal Revenue Code (NIRC) as follows:

Sec. 205. Contractors, proprietors or operators of dockyards, and others.A contractors


tax of four percent of the gross receipts is hereby imposed on proprietors or operators of
the following business establishments and/or persons engaged in the business of selling
or rendering the following services for a fee or compensation:

(a) General engineering, general building and specialty contractors, as defined


in Republic Act No. 4566;

xxx xxx xxx

(q) Other independent contractors. The term independent contractors includes


persons (juridical or natural) not enumerated above (but not including
individuals subject to the occupation tax under the Local Tax Code) whose
activity consists essentially of the sale of all kinds of services for a fee regardless
of whether or not the performance of the service calls for the exercise or use of
the physical or mental faculties of such contractors or their employees. It does
not include regional or area headquarters established in the Philippines by
multinational corporations, including their alien executives, and which
headquarters do not earn or derive income from the Philippines and which act
as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region.

xxx xxx x x x.xcv[43]


Under the afore-quoted provision, an independent contractor is a person whose activity
consists essentially of the sale of all kinds of services for a fee, regardless of whether or
not the performance of the service calls for the exercise or use of the physical or mental
faculties of such contractors or their employees. The word contractor refers to a person
who, in the pursuit of independent business, undertakes to do a specific job or piece of
work for other persons, using his own means and methods without submitting himself
to control as to the petty details.xcvi[44]

A contractors tax is a tax imposed upon the privilege of engaging in business.xcvii[45] It


is generally in the nature of an excise tax on the exercise of a privilege of selling services
or labor rather than a sale on products;xcviii[46] and is directly collectible from the
person exercising the privilege.xcix[47] Being an excise tax, it can be levied by the taxing
authority only when the acts, privileges or business are done or performed within the
jurisdiction of said authority.c[48] Like property taxes, it cannot be imposed on an
occupation or privilege outside the taxing district.ci[49]

In the case at bar, it is undisputed that respondent was an independent contractor under
the terms of the two subject contracts. Respondent, however, argues that the work
therein were not all performed in the Philippines because some of them were completed
in Japan in accordance with the provisions of the contracts.

An examination of Annex III to the two contracts reveals that the materials and
equipment to be made and the works and services to be performed by respondent are
indeed classified into two. The first part, entitled Breakdown of Japanese Yen Portion I
provides:

Japanese Yen Portion I of the Contract Price has been subdivided according to
discrete portions of materials and equipment which will be shipped to Leyte
as units and lots. This subdivision of price is to be used by owner to verify invoice for
Progress Payments under Article 19.2.1 of the Contract. The agreed subdivision of
Japanese Yen Portion I is as follows:

xxx xxx x x x. cii[50]

The subdivision of Japanese Yen Portion I covers materials and equipment while
Japanese Yen Portion II and the Philippine Pesos Portion enumerate other materials
and equipment and the construction and installation work on the project. In other
words, the supplies for the project are listed under Portion I while labor and other
supplies are listed under Portion II and the Philippine Pesos Portion. Mr. Takeshi Hojo,
then General Manager of the Industrial Plant Section II of the Industrial Plant
Department of Marubeni Corporation in Japan who supervised the implementation of
the two projects, testified that all the machines and equipment listed under Japanese
Yen Portion I in Annex III were manufactured in Japan.ciii[51] The machines and
equipment were designed, engineered and fabricated by Japanese firms sub-contracted
by Marubeni from the list of sub-contractors in the technical appendices to each
contract.civ[52] Marubeni sub-contracted a majority of the equipment and supplies to
Kawasaki Steel Corporation which did the design, fabrication, engineering and
manufacture thereof;cv[53] Yashima & Co. Ltd. which manufactured the mobile
equipment; Bridgestone which provided the rubber fenders of the mobile
equipment;cvi[54] and B.S. Japan for the supply of radio equipment.cvii[55] The
engineering and design works made by Kawasaki Steel Corporation included the lay-out
of the plant facility and calculation of the design in accordance with the specifications
given by respondent.cviii[56] All sub-contractors and manufacturers are Japanese
corporations and are based in Japan and all engineering and design works were
performed in that country.cix[57]

The materials and equipment under Portion I of the NDC Port Project is primarily
composed of two (2) sets of ship unloader and loader; several boats and mobile
equipment.cx[58] The ship unloader unloads bags or bulk products from the ship to the
port while the ship loader loads products from the port to the ship. The unloader and
loader are big steel structures on top of each is a large crane and a compartment for
operation of the crane. Two sets of these equipment were completely manufactured in
Japan according to the specifications of the project. After manufacture, they were rolled
on to a barge and transported to Isabel, Leyte.cxi[59] Upon reaching Isabel, the
unloader and loader were rolled off the barge and pulled to the pier to the spot where
they were installed.cxii[60] Their installation simply consisted of bolting them onto the
pier.cxiii[61]

Like the ship unloader and loader, the three tugboats and a line boat were completely
manufactured in Japan. The boats sailed to Isabel on their own power. The mobile
equipment, consisting of three to four sets of tractors, cranes and dozers, trailers and
forklifts, were also manufactured and completed in Japan. They were loaded on to a
shipping vessel and unloaded at the Isabel Port. These pieces of equipment were all on
wheels and self-propelled. Once unloaded at the port, they were ready to be driven and
perform what they were designed to do.cxiv[62]

In addition to the foregoing, there are other items listed in Japanese Yen Portion I in
Annex III to the NDC contract. These other items consist of supplies and materials for
five (5) berths, two (2) roads, a causeway, a warehouse, a transit shed, an administration
building and a security building. Most of the materials consist of steel sheets, steel pipes,
channels and beams and other steel structures, navigational and communication as well
as electrical equipment. cxv[63]

In connection with the Philphos contract, the major pieces of equipment supplied by
respondent were the ammonia storage tanks and refrigeration units.cxvi[64] The steel
plates for the tank were manufactured and cut in Japan according to drawings and
specifications and then shipped to Isabel. Once there, respondents employees put the
steel plates together to form the storage tank. As to the refrigeration units, they were
completed and assembled in Japan and thereafter shipped to Isabel. The units were
simply installed there.cxvii[65] Annex III to the Philphos contract lists down under the
Japanese Yen Portion I the materials for the ammonia storage tank, incidental
equipment, piping facilities, electrical and instrumental apparatus, foundation material
and spare parts.
All the materials and equipment transported to the Philippines were inspected and
tested in Japan prior to shipment in accordance with the terms of the
contracts.cxviii[66] The inspection was made by representatives of respondent
corporation, of NDC and Philphos. NDC, in fact, contracted the services of a private
consultancy firm to verify the correctness of the tests on the machines and
equipmentcxix[67]while Philphos sent a representative to Japan to inspect the storage
equipment.cxx[68]

The sub-contractors of the materials and equipment under Japanese Yen Portion I were
all paid by respondent in Japan. In his deposition upon oral examination, Kenjiro
Yamakawa, formerly the Assistant General Manager and Manager of the Steel Plant
Marketing Department, Engineering & Construction Division, Kawasaki Steel
Corporation, testified that the equipment and supplies for the two projects provided by
Kawasaki under Japanese Yen Portion I were paid by Marubeni in Japan. Receipts for
such payments were duly issued by Kawasaki in Japanese and English.cxxi[69] Yashima
& Co. Ltd. and B.S. Japan were likewise paid by Marubeni in Japan.cxxii[70]

Between Marubeni and the two Philippine corporations, payments for all materials and
equipment under Japanese Yen Portion I were made to Marubeni by NDC and Philphos
also in Japan. The NDC, through the Philippine National Bank, established letters of
credit in favor of respondent through the Bank of Tokyo. The letters of credit were
financed by letters of commitment issued by the OECF with the Bank of Tokyo. The
Bank of Tokyo, upon respondents submission of pertinent documents, released the
amount in the letters of credit in favor of respondent and credited the amount therein to
respondents account within the same bank.cxxiii[71]

Clearly, the service of design and engineering, supply and delivery, construction,
erection and installation, supervision, direction and control of testing and
commissioning, coordinationcxxiv[72]of the two projects involved two taxing
jurisdictions. These acts occurred in two countries Japan and the Philippines. While the
construction and installation work were completed within the Philippines, the evidence
is clear that some pieces of equipment and supplies were completely designed and
engineered in Japan. The two sets of ship unloader and loader, the boats and mobile
equipment for the NDC project and the ammonia storage tanks and refrigeration units
were made and completed in Japan. They were already finished products when shipped
to the Philippines. The other construction supplies listed under the Offshore Portion
such as the steel sheets, pipes and structures, electrical and instrumental apparatus,
these were not finished products when shipped to the Philippines. They, however, were
likewise fabricated and manufactured by the sub-contractors in Japan. All services for
the design, fabrication, engineering and manufacture of the materials and equipment
under Japanese Yen Portion I were made and completed in Japan. These services were
rendered outside the taxing jurisdiction of the Philippines and are therefore not subject
to contractors tax.

Contrary to petitioners claim, the case of Commissioner of Internal Revenue v.


Engineering Equipment & Supply Cocxxv[73]is not in point. In that case, the Court
found that Engineering Equipment, although an independent contractor, was not
engaged in the manufacture of air conditioning units in the Philippines. Engineering
Equipment designed, supplied and installed centralized air-conditioning systems for
clients who contracted its services. Engineering, however, did not manufacture all the
materials for the air-conditioning system. It imported some items for the system it
designed and installed.cxxvi[74] The issues in that case dealt with services performed
within the local taxing jurisdiction. There was no foreign element involved in the supply
of materials and services.

With the foregoing discussion, it is unnecessary to discuss the other issues raised by the
parties.

IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R. SP No. 42518 is
affirmed.

SO ORDERED.