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

L-38540 April 30, 1987

Additional residence tax on P79,000.00 at P1.00 per every P5,000.00 per year or P75.00 x 4 years................................303.20 25% surcharge for late payment.........................................75.00

REPUBLIC OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS, and NIELSON & COMPANY, INC., respondents. The Solicitor General for petitioner. Quasha, Aspillera, Zafra, Tayag and Ancheta for respondents.

TOTAL AMOUNT DUE............................ P14,449.00 2 Petitioner reiterated its demand upon private respondent for payment of said amount, per letters dated 24 April 1956 (Exhibit D), 19 September 1956 (Exhibit E) and 9 February 1960 (Exhibit F). Private respondent did not contest the assessment in the Court of Tax Appeals. On the theory that the assessment had become final and executory, petitioner filed a complaint for collection of the said amount against private respondent with the Court of First Instance of Manila, where it was docketed as Civil Case No. 42911. However, for failure to serve summons upon private respondent, the complaint was dismissed, without prejudice, in the Court's order dated 30 June 1961. On motion, the order of dismissal was set aside, at the same time giving petitioner sixty (60) days within which to serve summons upon private respondent. For failure anew to serve summons, the Court of First Instance of Manila issued an order dated 4 October 1962 dismissing Civil Case No. 42911 without prejudice. The order of dismissal became final on 5 November 1962. On 15 November 1962, the complaint against private respondent for collection of the same tax was refiled, but the same was erroneously docketed as Civil Case No. 42911, the same case previously dismissed without prejudice. Without correcting this error, another complaint was filed on 26 November 1963, docketed as Civil Case No. 55817, the subject matter of the present appeal. As herein earlier stated, the Court a quo rendered a decision against the private respondent. On appeal to the respondent Court of Appeals, the decision was reversed. Petitioner, Republic of the Philippines, filed a motion for reconsideration which was likewise denied by said Court in a resolution dated 31 May 1974. Hence, this petition, with the following assignment of errors: I

PADILLA, J.: This is a petition for review on certiorari of the decision of the respondent Court of Appeals 1 in CA G.R. No. 37417-R, dated 3 April 1974, reversing the decision of the then Court of First Instance of Manila which ordered private respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late payment, for the years 1949 to 1952, and costs of suit, and of the resolution of the respondent Court, dated 31 May 1974, denying petitioner's motion for reconsideration of said decision of 3 April 1974. In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal Revenue assessed private respondent deficiency taxes for the years 1949 to 1952, totalling P14,449.00, computed as follows: 1-1/2% ad valorem tax on P448,000.00..........................P7,320.00 25% surcharge for late payment......................................1,830.00 Occupation fees for the years 1949 to 1952 at P1.00 per ha. per year on 1, 230 hectares.....................................4,920.00

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE RESPONDENT IN THE

ORDINARY COURSE OF THE MAIL PURSUANT TO SECTION 8, RULE 13 OF THE REVISED RULES OF COURT. II THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT FAILED TO REBUT THE PRESUMPTION THAT THE LETTER ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY DIRECTED AND MAILED WAS RECEIVED IN THE REGULAR COURSE OF THE MAIL AND THAT OFFICIAL DUTY HAS BEEN REGULARLY PERFORMED. III THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED JULY 16, 1955 (EXHIBIT "A") CANNOT BE CONSIDERED AS AN ASSESSMENT, ON THE THEORY THAT THE SAME HAS NOT BEEN RECEIVED BY PRIVATE RESPONDENT, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF THE DEPUTY COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL REVENUE DATED SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN ASSESSMENT WHICH WAS DULY RECEIVED BY PRIVATE RESPONDENT. Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m & v. Rule 131 of the Revised Rules of Court, petitioner claims that the demand letter of 16 July 1955 showed an imprint indicating that the original thereof was released and mailed on 4 August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and that the original letter was not returned to said Bureau; thus, said demand letter must be considered to have been received by the private respondent. 3 According to petitioner, if service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the expiration of five (5) days after mailing. 4 As the letter of demand dated 16 July 1955 was actually mailed to private respondent, there arises the presumption that the letter was received by private respondent in the absence of evidence to the contrary. 5 More so, where private respondent did not offer any evidence, except the self-serving testimony of its witness, that it had not received the original copy of the demand letter dated 16 July 1955. 6 We do not agree with petitioner's above contentions. As correctly observed by the respondent court in its appealed decision, while the contention of petitioner is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, stilt this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Thus: Appellee contends that per Exhibit A, the notice was released and mailed to the appellant by the BIR on Aug. 4, 1955 under the signature of the Chief, Records Section, Office; that since the original thereof was not returned to the appellee, the presumption is that the

appellant received the mailed notice. This is correct, but this being merely a mere disputable presumption, the same is subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was received by the addressee. The appellee, however, argues that since notice was rc-,Ieased and mailed and the fact of its release was admitted by the appellant the admission is proof that he received the mailed notice of assessment. We do not think so. It is true the Court a quo made such a finding of fact, but as pointed out by the appehant in its brief, and as borne out by the records, no such admission was ever made by the appellant in the answer or in any other pleading, or in any declaration, oral or documentary before the trial court. We note that the appellee has not met this challenge, and after a review of the records, we find appeflant's assertion welltaken. 7 Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it can not be assumed that private respondent received said letter. Records, however, show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received by private respondent in accordance with its own admission. 8 The aforesaid letter reads:

Nielson and Company, Inc.

Ayala Boulevard, Manila Gentlemen: In reply to you (sic) letter dated June 1, 1956 relative to your pending internal revenue tax liability involving the amount of P15,649.00 as annual occupation fees, ad valorem and additional residence taxes, surcharges and penalty, originally demanded of you on July 16, 1955, I have the honor to inform you that investigation conducted by an agent of this office show that you and the Hixbar Gold Mining Co., Inc. entered into an agreement in 1938 whereby you were given full exclusive and irrevocable control of all the operations, development, processing and marketing of mineral products from the latter's mines and that au the assessments, taxes and fees of any nature in connection with the said operation, development, proceeding and marketing of these products shall be paid by you. In view thereof, and it appearing that the aforesaid tax liabilities accrued when your contract was in fun force and effect, you are therefore, the party hable for the payment thereof, notwithstanding the alleged contract subsequently entered into by you and the Hixbar Gold Mining Co., Inc. on September 9, 1954. It is therefore, again requested that payment of the aforesaid amount of P15,649.00 be made to the City Treasurer, Manila within five (5) days from your receipt hereof so that this case may be closed. You are further requested to pay the sum of P150.00 as compromise suggested in our letter to you dated February 24, 1955, it appearing that the same has not as yet been paid up to the present. V e r y r e s p e c t f u l

l y y o u r s ,

D e p u t y C o l l e c t o r o f I n t e

r n a l R e v e n u e
9

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-46893 November 12, 1985 REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. FRANCISCO RICARTE, defendant-appellee.

Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, private respondent is now barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits. 10 In Mamburao Lumber Co. vs. Republic, 11 this Court further said: In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. ... ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a quo is hereby reinstated. No costs. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ., concur. Paras, J., took no part.

MAKASIAR, C.J.: The former Court of Appeals, in its resolution dated August 4, 1977, certified this case to this Court on the ground that the issues involved therein are purely questions of law. On March 2, 1959, defendant-appellee Francisco Ricarte filed his income tax return for the year 1958. On April 6, 1959, the Office of the Collector of Internal Revenue made the corresponding assessment and fixed at P222.00 the defendant's income tax liability pursuant to the express provision of Section 51(a) of the National Internal Revenue Code (Commonwealth Act No. 466), then in effect. Defendant paid his income tax in two equal installments of P 111.00 each the first on May 15, 1959 and the second on August 17, 1959. On June 20, 1959, Republic Act No. 2343 took effect amending Commonwealth Act No. 466 including Section 51(a). Under the amendatory act, the taxpayer assesses himself, files his return and pays the tax as shown in his return upon filing thereof. In the year 1961, the Bureau of Internal Revenue, after investigation, found that the defendant had a deficiency of P 1,136.87 in his income tax for 1958. On January 19, 1961, assessment notice No. 17-A-708424-58 for the amount aforestated was issued and, together with the corresponding audit sheet and letter of demand, was mailed to the defendant on January 25, 1961. For failure of defendant to pay his deficiency income tax liability, plaintiff, on January 14, 1966, filed a complaint for collection of unpaid taxes before the City Court of Cebu.

Footnotes

After trial and hearing, the court a quo rendered a decision dated October 29, 1966 dismissing the case on the ground of prescription of action. The trial court reasoned out that the assessment was made by the Bureau of Internal Revenue on April 6, 1959, but the

present case was filed only on January 14, 1966 or more than the prescriptive period of five years as provided for in Section 332(c) of the National Internal Revenue Code. On appeal to the former Court of First Instance of Cebu, the parties entered into a stipulation of facts: 1. That the plaintiff is a political entity with capacity to sue and may be served with processes thru the Revenue Regional Director, Bureau of Internal Revenue, Revenue Region No. 13, Cebu City; while defendant Francisco Ricarte is of legal age, with postal address at 278 South Expressway (formerly at 451-C Tres de Abril Street), Cebu City, where he may be served with summons. 2. That on or about March 2, 1959, defendant, an arrastre contractor, filed his income tax return for the year 1958 showing on the face thereof a net income of P 12,271.26; copy of which is hereto attached as Annex 'A' and made an integral part hereof. 3. That the amount of P 222.00 was assessed on April 6, 1959 per Assessment No. 17-A-708424-58 by the plaintiff as defendant's 1958 income tax liability per return filed by the latter which amount was duly stamped 'Assessed' on defendant's 1958 income tax return. 4. That the aforesaid amount of P222.00 was paid by the defendant in two installments under Official Receipt No. 1671571 dated May 15, 1959 for the amount of P111.00 and under Official Receipt No. 2466278 dated August 17, 1959 for P111.00. 5. That in the verification of defendant's 1958 income tax return by the plaintiff thru the Bureau of Internal Revenue on January 19, 1961, there was found due from him the amount of P l,136.87 as deficiency income tax for said year, computed as follows: Net income per return........................................ P 12,271.28 Add: Personal living expenses................................. 7,800.00 Total amount of income per audit review ................. 20,071.28 Less: Personal and additional exemption................... 7,800.00 Amount of income subject to tax............................ 12,271.28

Amount of tax due ................................................. 1,265.00 Less: Amount of tax already assessed and paid........... 222.00 Deficiency income tax due................................ P 1,043.00 Add: % monthly interest from 6-20-59 to 12-20-60 (Sec. 51 Tax Code, R.A. 2343 & implemented by Gen. Cir. No. V-318)................... 93.87 Total amount of tax due & collective (Def'cy )............. P 1,136.87 6. That on January 19, 1961, Assessment Notice No. 17- A-708424-58 for the aforesaid amount of P l,136.87 together with the letter of demand bearing same date and the audit sheet were issued by the plaintiff thru the Bureau of Internal Revenue and officially mailed and released to the defendant on January 25, 1961, copies of which communications are hereto attached as Annexes 'B', 'C' and 'D', respectively, and made integral parts hereof. 7. That in plaintiff's letter dated January l9, 1961, Annex 'C' hereof, an explanation was made as to how the aforesaid deficiency assessment was brought about. 8. That a call up letter dated September 23, 1964 was sent by the plaintiff to the defendant requesting settlement of his liability under Assessment Notice No. 17-A-708424-58 mentioned in paragraph 6 hereof, copy of which letter is hereto attached as Annex 'E' and made an integral part hereof, which letter was officially mailed and released by the plaintiff thru the Bureau of Internal Revenue on October 13, 1964 per Registry Receipt No. 863. 9. That another letter dated November 15, 1965 calling for payments of the aforesaid amount was again officially mailed and released to the defendant, per Registry Receipt No. 1125, copy of which letter is hereto attached as Annex 'F' and made an integral part hereof. 10. That the abovementioned assessment has not been contested by the defendant before the Court of Tax Appeals.

11. That the same assessment has not been paid until date. 12. That the instant case for collection was filed before the City Court of Cebu City on January 14, 1966" (pp. 46-50, ROA; p. 3, rec.). On September 29, 1968, the former Court of First Instance, on the basis of the stipulation of facts, rendered its decision dismissing herein appellant's complaint. The said court stated that what the Bureau of Internal Revenue sought to collect from the appellee was based on an assessment which the Bureau made under the provisions of a new law, R.A. No. 2343, which was not yet in effect at the time of the filing of appellee's income tax return for 1958; and that the action against the appellee had already prescribed. On October 16, 1968, appellant sought reconsideration of the lower court's decision. The motion was denied on December 14, 1968, hence this appeal, appellant alleging that the lower court erred in holding: ... that the deficiency assessment has no legal standing. ... that the plaintiff's action has prescribed. ... that plaintiff failed to prove service upon defendant of the deficiency assessment dated January 19, 1961 (p. 5, Brief for PlaintiffAppellant; p. 14, rec.). The issues raised in this case may be synthesized as to whether the appellant can still collect the alleged deficiency income tax liability thru judicial proceeding. In holding that the subsequent assessment made by the Bureau of Internal Revenue on January 19, 1961 has no legal basis, the lower court was of the impression that the same was made under the provision of a new law, R.A. No. 2343, which was not yet in effect at the time of the filing of the 1958 income tax return in question. Said court observed that the unamended provision of Section 51(a) of the National Internal Revenue Code which was enforcible when the appellant filed his 1958 income tax return should apply to this case and not that of Section 51(b) of the same Code, as amended by R.A. No. 2343, which went into effect only on June 20, 1959. It may be pointed out that before the amendment of the tax code, Section 51(a) relating to payment and assessment of income tax, prescribed: Sec. 51. Assessment and payment of income tax.-(a) An assessment shall be made by the Collector of Internal Revenue and all persons and corporations subject to tax shall be notified of the amount for which

they are respectively liable on or before the first day of May of each successive year. but as amended by R.A. No. 2343, effective on June 20, 1959, it now reads: Sec. 51. Payment and assessment of income tax.(a) Payment of tax. (1) In general.-The total amount of tax imposed by this Title shall be paid at the time the return is filed but not later than the fifteenth day of April following the close of the calendar year, ... ... xxx xxx xxx (b) Assessment and payment of deficiency tax.After the return is filed the Commissioner of Internal Revenue shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the Commissioner of Internal Revenue. Clearly, before the amendment, the taxpayer files his income tax return and the Collector (now Commissioner) of Internal Revenue assesses the tax due and notifies the taxpayer thereof. On the other hand, under the amendatory act, the taxpayer assesses himself, files his return and is required to pay the tax as shown in his return upon filing thereof. This procedure is commonly known as the "pay-as-you-file" system. In other words, under the old law, the Collector of Internal Revenue was required to assess the tax due, while under R.A. No. 2343 the taxpayer himself computes the tax on the basis of the figures appearing in his income tax return. WE do not agree with the former Court of First Instance of Cebu that the subsequent assessment made on January 19, 1961 was based on the amendatory act. Appellee filed his income tax return for the year 1958 on March 2, 1959 and the same was assessed by the Bureau of Internal Revenue on April 6, 1959. The tax was paid in two installments. The Bureau of Internal Revenue reviewed the said return and found out a deficiency in the assessment it previously made and the income tax paid by the appellee. A notice of assessment was sent to the appellee on January 19, 1961. Such subsequent assessment undertaken by the Bureau of Internal Revenue was based merely on the income tax return filed by the appellee where no assessment has been made by him. As has been said, the amount of tax due was previously computed by the Bureau of Internal Revenue. Finding that it made an error, the Bureau reassessed the income tax return of the appellee; but such reassessment was made pursuant to the old law and not under the amendatory act.

However, We agree with the lower court that the present action was filed after the prescriptive period of five (5) years provided for in Section 332(c) of the National Internal Revenue Code which reads: (c) Where the assessment of any internal revenue tax has been made within the period of limitation above described such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, xxx xxx xxx Appellant asseverates that the present action was filed within the five-year prescriptive period provided for under the abovequoted provision of the tax code; that the subsequent notice of assessment was made and appellee notified thereof on January 19, 1961; that from January 19, 1961 up to the date this case was filed in court on January 14, 1966, only four years, eleven months and twenty-five days had elapsed. Although a subsequent notice of assessment was allegedly made and sent to appellee on January 19, 1961, it was the finding both of the former City Court of Cebu and the defunct Court of First Instance of Cebu that no evidence has been presented by the appellant that the appellee actually received a copy of that assessment notice regarding the alleged deficiency tax. Such finding, being one of fact, can no longer be reviewed by this Court. Even in the stipulation of facts entered into between the parties, there is no stipulation showing that the appellant actually received the subsequent notice of assessment. Thus, the prescriptive period provided for in Section 332(c) of the tax code should be counted from April 6, 1959, the date when the Bureau of Internal Revenue assessed the income tax return of the appellant. From said date until the filing of this case on January 14, 1966, six years and nine months had elapsed. Verily, the action had already prescribed. WHEREFORE THE APPEALED DECISION DATED SEPTEMBER 29, 1968, IS HEREBY AFFIRMED. NO COSTS. SO ORDERED. Abad Santos, Escolin, Cuevas and Alampay,JJ., concur. Aquino (Chairman), J., took no part. Concepcion Jr., is on leave. G.R. No. L-66160 May 21, 1990

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents. Artemio M. Lobrin for private respondent.

PARAS, J.: This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax Appeals in CTA Case No. 2989 reversing the Commissioner of Internal Revenue. In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was received on January 4, 1975, and in a letter dated January 10, 1975 (Exhibit "B"), received by petitioner on January 13, 1975, private respondent protested the assessment. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which was served on private respondent's counsel, Clemente Celso, on November 25, 1976. In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976 (Exhibit "D-1") private respondent reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila and docketed as Civil Case No. 120459 against private

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respondent. Summons (Exhibit "E") in the said collection case was issued to private respondent on December 28, 1978. On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioner's assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed therein as CTA Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing, judgment be rendered holding that it is not liable for the payment of the income tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979 (Rollo, pp. 5053). Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from, assessing against and demanding from petitioner the payment of deficiency income tax, inclusive of 50% surcharge, interest and compromise penalties, in the amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972, respectively, is reversed. Hence, the instant petition. The Second Division of this Court, after the filing of the required pleadings, in a resolution dated January 28, 1985, resolved to give due course to the petition, and directed petitioner therein, to file his brief (Rollo, p. 145). In compliance, petitioner filed his brief on May 10, 1985 (Rollo, p. 151). Respondents, on the other hand, filed their brief on June 6, 1985 (Rollo, p. 156). The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax Appeals has jurisdiction over this case and (b) on the merits, whether or not Union Shipping Corporation acting as a mere "husbanding agent" of Yee Fong Hong Ltd. is liable for payment of taxes on the gross receipts or earnings of the latter. The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the finality of an assessment because it is the most drastic action of all media of enforcing the collection of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment. Among others, petitioner contends that the warrant of distraint and levy was issued after respondent corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's final decision in the disputed assessments (Brief for petitioner, pp. 9 and 12). Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run from receipt of said warrant on November 25, 1976, so that on January

10, 1979 when respondent corporation sought redress from the Tax Court, petitioner's decision has long become final and executory. On this issue, this Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. Specifically, this Court ruled: . . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the basis of this statement indubitably showing that the Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57 SCRA 523, 528, [1974]). There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent's motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the issue in the case at bar, that the reviewable decision of the Bureau of Internal

Revenue is that contained in the letter of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court of Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It was likewise stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity and orderliness in administrative action. Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125. On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent corporation is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows: Coming to the second issue, petitioner contended and was substantiated by satisfactory uncontradicted testimonies of Clemente Celso, Certified Public Accountant, and Rodolfo C. Cabalquinto, President and General Manager, of petitioner that it is actually and legally the husbanding agent of the vessel of Yee Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for and in representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated or procured cargo to be loaded in the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n., July 16, 1980); (2) it never solicited or procured cargo or freight in the Philippines or elsewhere for loading in said vessels of Yee Fong Hong, Ltd. (pp. 21 & 38, ibid.); (3) it had not collected any freight income or receipts for the said Yee Fong Hong, Ltd. (pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or control, actual or constructive, over the funds representing payment by Philippine shippers for cargo loaded on said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner never remitted to Yee Fong Hong, Ltd. any sum of money representing freight incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the freight payments made for cargo loaded in the Philippines for foreign destination were actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon arrival of the goods in the foreign ports. (Rollo, pp. 58-59).

On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's counsel, opined that respondent corporation being merely a husbanding agent is not liable for the payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines (Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66). Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd., a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an individual or corporation like the petitioner in this case, is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67). Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court (Industrial Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal Revenue, et al. (136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for review of the decisions of the Court of Tax Appeals, this Court is generally confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly shown to be unsupported by substantial evidence (Commissioner of Internal Revenue v. Manila Machinery & Supply Company, 135 SCRA 8 [1985]). A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax Appeals. PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of the Court of Tax Appeals is hereby AFFIRMED. SO ORDERED. Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes * Penned by Associate Judge Constante C. Roaquin and concurred in by Presiding Judge Amante Filler. Associate Judge Alex Z. Reyes dissented in a separate opinion.

The Lawphil Project - Arellano Law FoundationRepublic of the Philippines SUPREME COURT Manila

FIRST DIVISION

An exchange of correspondence between the petitioner, on the one hand, and the Commissioner and the Auditor General, on the other, ensued, all on the matter of the petitioner's liability for deficiency franchise tax. The controversy culminated in a revised assessment dated April 29, 1963 (received by the petitioner on May 8, 1963) in the amount of P11,533.53, representing the petitioner's deficiency franchise-tax and surcharges thereon for the period from April 1, 1956 to June 30, 1959. The petitioner then requested a recomputation of the revised assessment in a letter to the Commissioner dated June 6, 1963 (sent by registered mail on June 7, 1963). The Commissioner, however, in a letter dated June 28, 1963 (received by the petitioner on July 16, 1963), denied the request for recomputation. On August 1, 1963 the petitioner appealed to the Court of Tax Appeals. The tax court dismissed the appeal on October 1, 1965 on the ground that the appeal was filed beyond the thirty-day period of appeal provided by section 11 of Republic Act 1125. Hence, the present recourse. The case at bar raises only one issue: whether or not the petitioner's appeal to the Court of Tax Appeals was time-barred. The parties disagree on which letter of the Commissioner embodies the decision or ruling appealable to the tax court. A close reading of the numerous letters exchanged between the petitioner and the Commissioner clearly discloses that the letter of demand issued by the Commissioner on April 29, 1963 and received by the petitioner on May 8, 1963 constitutes the definite determination of the petitioner's deficiency franchise tax liability or the decision on the disputed assessment and, therefore, the decision appealable to the tax court. This letter of April 29, 1963 was in response to the communications of the petitioner, particularly the letter of August 2, 1962 wherein it assailed the 4th Indorsement's data and findings on its deficiency, franchise tax liability computed at 5% (on the ground that its franchise precludes the imposition of a rate higher than the 2% fixed in its legislative franchise), and the letter of April 24, 1963 wherein it again questioned the assessment and requested for a recomputation (on the ground that the Government could make an assessment only for the period from May 29, 1956 to June 30, 1959). Thus, as early as August 2, 1962, the petitioner already disputed the assessment made by the Commissioner. Moreover, the letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the Commissioner on the petitioner's several requests for reconsideration and recomputation. In this letter, the Commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said Commissioner would be constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of the letter, specifically, the statement regarding the resort to legal remedies, unmistakably indicates the final nature of the determination made by the Commissioner of the petitioner's deficiency franchise tax liability.

G.R. No. L-25289 June 28, 1974 SURIGAO ELECTRIC CO., INC., petitioner, vs. THE HONORABLE COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. David G. Nitafan for petitioner. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorney Franciso J. Malate, Jr. for respondents.

CASTRO, J.:p The Court denies the present petition for review of the decision of the Court of Appeals dated October 1, 1965 in its CTA Case No. 1438, which dismissed the appeal filed by the petitioner Surigao Electric Company, Inc. with the tax court on August 1, 1963 on the ground that it was time-barred. In November 1961 the petitioner Surigao Electric Co., Inc., grantee of a legislative electric franchise, received a warrant of distraint and levy to enforce the collection from "Mainit Electric" of a deficiency franchise tax plus surcharge in the total amount of P718.59. In a letter to the Commissioner of Internal Revenue, the petitioner contested this warrant, stating that it did not have a franchise in Mainit, Surigao. Thereafter the Commissioner, by letter dated April 2, 1961, advised the petitioner to take up the matter with the General Auditing Office, enclosing a copy of the 4th Indorsement of the Auditor General dated November 23, 1960. This indorsement indicated that the petitioner's liability for deficiency franchise tax for the period from September 1947 to June 1959 was P21,156.06, excluding surcharge. Subsequently, in a letter to the Auditor General dated August 2, 1962, the petitioner asked for reconsideration of the assessment, admitting liability only for the 2% franchise tax in accordance with its legislative franchise and not at the higher rate of 5% imposed by section 259 of the National Internal Revenue Code, as amended, which latter rate the Auditor General used as basis in computing the petitioner's deficiency franchise tax.

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The foregoing-view accords with settled jurisprudence and this despite the fact that nothing in Republic Act 1125, 1 as amended, even remotely suggests the element truly determinative of the appealability to the Court of Appeals of a ruling of the Commissioner of Internal Revenue. Thus, this Court has considered the following communications sent by the Commissioner to taxpayers as embodying rulings appealable to the tax court: (a) a letter which stated the result of the investigation requested by the taxpayer and the consequent modification of the assessment; 2 (b) letter which denied the request of the taxpayer for the reconsideration cancellation, or withdrawal of the original assessment; 3 (c) a letter which contained a demand on the taxpayer for the payment of the revised or reduced assessment; 4 and (d) a letter which notified the taxpayer of a revision of previous assessments. 5 To sustain the petitioner's contention that the Commissioner's letter of June 28, 1963 denying its request for further amendment of the revised assessment constitutes the ruling appealable to the tax court and that the thirty-day period should, therefore, be counted from July 16, 1963, the day it received the June 28, 1963 letter, would, in effect, leave solely to the petitioner's will the determination of the commencement of the statutory thirty-day period, and place the petitioner and for that matter, any taxpayer in a position, to delay at will and on convenience the finality of a tax assessment. This absurd interpretation espoused by the petitioner would result in grave detriment to the interests of the Government, considering that taxes constitute its life-blood and their prompt and certain availability is an imperative need. 6 The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be counted from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8, 1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the Commissioner its letter of June 6, 1963 requesting for further recomputation of the amount demanded from it) saw the lapse of thirty days. The June 6, 1963 request for further recomputation, partaking of a motion for reconsideration, tolled the running of the thirty-day period from June 7, 1963 (the day the petitioner sent its letter by registered mail) to July 16, 1963 (the day the petitioner received the letter of the Commissioner dated June 28, 1963 turning down its request). The prescriptive period commenced to run again on July 16, 1963. The petitioner filed its petition for review with the tax court on August 1, 1963 after the lapse of an additional sixteen days. The petition for review having been filed beyond the thirty-day period, we rule that the Court of Tax Appeals correctly dismissed the same. The thirty-day period prescribed by section 11 of Republic Act 1125, as amended, within which a taxpayer adversely affected by a decision of the Commissioner of Internal Revenue should file his appeal with the tax court, is a jurisdictional requirement, 7 and the failure of a taxpayer to lodge his appeal within the prescribed period bars his appeal and renders the questioned decision final and executory. 8

Prescinding from all the foregoing, we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the basis of this indicium indubitably showing that the Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action. ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1, 1965 is affirmed, at petitioner's cost. Makalintal, C.J, Makasiar, Esguerra and Muoz Palma, JJ., concur.

Separate Opinions

TEEHANKEE, J., concurring: I concur in the disposition of the case affirming the tax court's dismissal of the appeal on the ground of its having been filed beyond the statutory thirty-day period 1 and in the main opinion's admonition that the internal revenue commissioner (and other officials concerned 2) should clearly and unequivocably state in their letter-decision or ruling that the same constitutes his final determination on the disputed assessment and that the tax-payer's next recourse (if he wishes to avail thereof) is to file an appeal with the tax court "within thirty days after the receipt of such decision or ruling" 3) as provided by law.

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Ordinarily, since petitioner's representation prior to the revised assessment dated April 29, 1963 had resulted in the revision and reduction of the original assessment from P21,156.06 to P11,533.53, petitioner would have been entitled to further request a reconsideration or revision of such revised assessment based on new facts or arguments arising therefrom or calling attention to such facts or arguments, which although not new, might have been wrongly appreciated or disregarded in the revised assessment and the thirty-day period for appeal would be counted only from the receipt of the commissioner's denial dated June 28, 1963 (and received on July 16, 1963). But since it appears that petitioner's request for recomputation dated June 6, 1963 of the revised assessment was but a pro forma request of the revised assessment of April 9, 1963, I concur with the main opinion's affirmance of the dismissal of the appeal on the strength of Filipinas Investment and Finance Corp. vs. Commissioner of Internal Revenue 4 wherein the Court likewise upheld a similar dismissal by the tax court on the ground that the request for reconsideration of the disputed revised assessment was "a mere pro-forma request for reconsideration .... and did not adduce new facts or arguments" and that "a taxpayer may not delay indefinitely a tax assessment by reiterating his original defenses over and over again, without substantial variation."

The Case Before this Court is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Rules of Court, seeking to set aside the August 19, 1998 Decision2 of the Court of Appeals3 (CA) in CA-GR SP No. 46383 and ultimately to affirm the dismissal of CTA Case No. 5211. The dispositive portion of the assailed Decision reads as follows: "WHEREFORE, the assailed decision is REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered REMANDING the case to the CTA for proper disposition."4 The Facts The facts are undisputed. The Court of Appeals quoted the summary of the CTA as follows: "As succinctly summarized by the Court of Tax appeals (CTA for brevity), the antecedent facts are as follows: 'In an investigation conducted on the 1986 books of account of [respondent, petitioner] had the preliminary [finding] that [respondent] incurred a total income tax deficiency of P9,985,392.15, inclusive of increments. Upon protest by [respondent's] counsel, the said preliminary assessment was reduced to the amount of P325,869.44, a breakdown of which follows: Deficiency Income Tax Deficiency Expanded Withholding Tax Total (pp. 187-189, BIR records)' On February 23, 1990, [respondent] received from [petitioner] an assessment letter, dated February 9, 1990, demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to December 31, 1986. (pp. 204 and 205, BIR rec.) P321,022.68 4,846.76 P325,869.44

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 135210 July 11, 2001

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ISABELA CULTURAL CORPORATION, respondent. PANGANIBAN, J.: A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate payment of a tax deficiency assessment previously made, is tantamount to a denial of the taxpayer's request for reconsideration. Such letter amounts to a final decision on a disputed assessment and is thus appealable to the Court of Tax Appeals (CTA).

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In a letter, dated March 22, 1990, filed with the [petitioner's] office on March 23, 1990 (pp. 296-311, BIR rec.), [respondent] requested x x x a reconsideration of the subject assessment. Supplemental to its protest was a letter, dated April 2, 1990, filed with the [petitioner's] office on April 18, 1990 (pp. 224 & 225, BIR rec.), to which x x x were attached certain documents supportive of its protest, as well as a Waiver of Statute of Limitation, dated April 17, 1990, where it was indicated that [petitioner] would only have until April 5, 1991 within which to asses and collect the taxes that may be found due from [respondent] after the re-investigation. On February 9, 1995, [respondent] received from [petitioner] a Final Notice Before Seizure, dated December 22, 1994 (p. 340, BIR rec.). In said letter, [petitioner] demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure on its part would constrain [petitioner] to collect the subject assessment through summary remedies. [Respondent] considered said final notice of seizure as [petitioner's] final decision. Hence, the instant petition for review filed with this Court on March 9, 1995. The CTA having rendered judgment dismissing the petition, [respondent] filed the instant petition anchored on the argument that [petitioner's] issuance of the Final Notice Before Seizure constitutes [its] decision on [respondent's] request for reinvestigation, which the [respondent] may appeal to the CTA."5 Ruling of the Court of Appeals

"Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the CTA."8 The Court's Ruling The Petition is not meritorious. Sole Issue: The Nature of the Final Notice Before Seizure The Final Notice Before Seizure sent by the Bureau of Internal Revenue (BIR) to respondent reads as follows: "On Feb. 9, 1990, [this] Office sent you a letter requesting you to settle the above-captioned assessment. To date, however, despite the lapse of a considerable length of time, we have not been honored with a reply from you. In this connection, we are giving you this LAST OPPORTUNITY to settle the adverted assessment within ten (10) days after receipt hereof. Should you again fail, and refuse to pay, this Office will be constrained to enforce its collection by summary remedies of Warrant of Levy of Road Property, Distraint of Personal Property or Warrant of Garnishment, and/or simultaneous court action. Please give this matter your preferential attention. Very truly yours,

In its Decision, the Court of Appeals reversed the Court of Tax Appeals. The CA considered the final notice sent by petitioner as the latter's decision, which was appealable to the CTA. The appellate court reasoned that the final Notice before seizure had effectively denied petitioner's request for a reconsideration of the commissioner's assessment. The CA relied on the long-settled tax jurisprudence that a demand letter reiterating payment of delinquent taxes amounted to a decision on a disputed assessment. Hence, this recourse.6 Issues In his Memorandum,7 petitioner presents for this Court's consideration a solitary issue:

ISIDRO B. TECSON, JR. Revenue District Officer

By: (Signed) MILAGROS M. ACEVEDO Actg. Chief Revenue Collection Officer"9 Petitioner maintains that this Final Notice was a mere reiteration of the delinquent taxpayer's obligation to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested assessment. Such decision, the

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commissioner contends, must unequivocably indicate that it is the resolution of the taxpayer's request for reconsideration and must likewise state the reason therefor. Respondent, on the other hand, points out that the Final Notice Before Seizure should be considered as a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as petitioner's last act, since failure to comply with it would lead to the distraint and levy of respondent's properties, as indicated therein. We agree with respondent. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefor, and submitting such proof as may be necessary. That letter is considered as the taxpayer's request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for review. Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of internal revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional evidence. However, the CIR's position regarding the disputed assessment must be indicated in the final decision. It is this decision that is properly appealable to the CTA for review. Indisputably, respondent received an assessment letter dated February 9, 1990, stating that it had delinquent taxes due; and it subsequently filed its motion for reconsideration on March 23, 1990. In support of its request for reconsideration, it sent to the CIR additional documents on April 18, 1990. The next communication respondent received was already the Final Notice Before Seizure dated November 10, 1994. In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioner's decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR's final act regarding the request for reconsideration. The very title expressly indicated that it was a finalnotice prior to seizure of property. The letter itself clearly stated that respondent was being given "this LAST OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy. How then could it have been made to believe that its request for reconsideration was still pending determination, despite the actual threat of seizure of its properties? Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. We quote:

"Sec. 228. Protesting an Assessment. x x x Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable."10 In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. In Commissioner of Internal Revenue v. Ayala Securities Corporation, this Court held: "The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the reconsideration or [respondent corporation's] x x x protest o[f] the assessment made by the petitioner, considering that the said letter [was] in itself a reiteration of the demand by the Bureau of Internal Revenue for the settlement of the assessment already made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the disputed assessment, in view of the continued refusal of the respondent corporation to execute the waiver of the period of limitation upon the assessment in question. This being so, the said letter amount[ed] to a decision on a disputed or protested assessment and, there, the court a quo did not err in taking cognizance of this case."11 Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals12 and again in CIR v. Union Shipping Corp.,13 we ruled:

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"x x x. The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the commissioner on the petitioner's several requests for reconsideration and recomputation. In this letter the commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said commissioner would be constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of the letter, specifically the statement regarding the resort to legal remedies, unmistakably indicate[d] the final nature of the determination made by the commissioner of the petitioner's deficiency franchise tax liability." As in CIR v. Union Shipping, petitioner failed to rule on the Motion for Reconsideration filed by private respondent, but simply continued to demand payment of the latter's alleged tax delinquency. Thus, the Court reiterated the dictum that the BIR should always indicate to the taxpayer in clear and unequivocal language what constitutes final action on a disputed assessment. The object of this policy is to avoid repeated requests for reconsideration by the taxpayer, thereby delaying the finality of the assessment and, consequently, the collection of the taxes due. Furthermore, the taxpayer would not be groping in the dark, speculating as to which communication or action of the BIR may be the decision appealable to the tax court.15 In the instant case, the second notice received by private respondent verily indicated its nature that it was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration. Commissioner v. Algue16 is not in point here. In that case, the Warrant of Distraint and Levy, issued to the taxpayer without any categorical ruling on its request for reconsideration, was not deemed equivalent to a denial of the request. Because such request could not in fact be found in its records, the BIR cannot be presumed to have taken it into consideration. The request was considered only when the taxpayer gave a copy of it, duly stamp-received by the BIR. Hence, the Warrant was deemed premature.1wphi1.nt In the present case, petitioner does not deny receipt of private respondent's protest letter. As a matter of fact, it categorically relates the following in its "Statement of Relevant Facts":17 "3. On March 23, 1990, respondent ICC wrote the CIR requesting for a reconsideration of the assessment on the ground that there was an error committed in the computation of interest and that there were expenses which were disallowed (Ibid., pp. 296-311). "4. On April 2, 1990, respondent ICC sent the CIR additional documents in support of its protest/reconsideration. The letter was received by the BIR on April 18, 1990. Respondent ICC further executed a Waiver of Statute of Limitation (dated April 17, 1990) whereby it consented to the BIR to assess and
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collect any taxes that may be discovered in the process of reinvestigation, until April 3, 1991 (Ibid., pp. 296-311). A copy of the waiver is hereto attached as Annex 'C'." Having admitted as a fact private respondent's request for reconsideration, petitioner must have passed upon it prior to the issuance of the Final Notice Before Seizure. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. SO ORDERED. Melo, Vitug, Sandoval-Gutierrez, JJ., concur. Gonzaga-Reyes, on leave. FIRST DIVISION

OCEANIC WIRELESS NETWORK, INC., Petitioner, Present:

G.R. No. 148380

- versus -

DAVIDE, JR., C.J. (Chairman), QUISUMBING, YNARES-SANTIAGO, CARPIO, and AZCUNA, JJ.

COMMISSIONER OF INTERNAL REVENUE, THE COURT OF TAX APPEALS, and THE COURT OF APPEALS,

Promulgated: December 9, 2005 Respondents.

x-----------------------------------------------------------------------------------------x

DECISION AZCUNA, J.:

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This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision of the Court of Appeals dated October 31, 2000, and its Resolution dated May 3, 2001, in Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue docketed as CA-G.R. SP No. 35581, upholding the Decision of the Court of Tax Appeals dismissing the Petition for Review in CTA Case No. 4668 for lack of jurisdiction.

Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988.

Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying

Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National Office to decide and/or act with finality on behalf of the Commissioner of Internal Revenue (CIR) on protests against disputed tax deficiency assessments.

petitioners request for reinvestigation in a letter [1]dated January 24, 1991, thus: Note: Your request for re-investigation has been denied for failure to submit the necessary supporting papers as per endorsement letter from the office of the Special Operation Service dated 12-12-90.

The facts of the case are as follows:

Said letter likewise requested petitioner to pay the total amount of P8,644,998.71 On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total amount of P8,644,998.71, broken down as follows: Kind of Tax Assessment No. Amount P8,381,354.00 3,000.00 Upon petitioners failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment. 29,849.06 12,083.65 ___227,712.00 P8,644,998.71 These were served on petitioner on October 10, 1991 and October 17, 1991, respectively.[2] within ten (10) days from receipt thereof, otherwise the case shall be referred to the Collection Enforcement Division of the BIR National Office for the issuance of a warrant of distraint and levy without further notice.

Deficiency Income Tax FAR-4-1984-88-001130 Penalties for late payment FAR-4-1984-88-001131 of income and failure to file quarterly returns Deficiency Contractors FAR-4-1984-88-001132 Tax Deficiency Fixed Tax FAR-4--88-001133 Deficiency Franchise Tax FAR-484-88-001134 Total --------

On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the collection of the tax assessments. This was docketed as CTA Case No. 4668.

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The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned from the time when the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division was presumably received by petitioner, i.e., within a reasonable time from said date in the regular course of mail pursuant to Section 2(v) of Rule 131 of the Rules of Court.[3]

distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return files upon which a tax is being assessed or collected: Provided, That if the taxpayer inform the Commissioner of any change of address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could located; and when the taxpayer is out of the Philippines. [6] (Underscoring supplied.)

The decision cited Surigao Electric Co., Inc. v. Court of Tax Appeals[4] wherein this Court considered a mere demand letter sent to the taxpayer after his protest of the assessment notice as the final decision of the Commissioner of Internal Revenue on the protest. Hence, the filing of the petition on November 8, 1991 was held clearly beyond the reglementary period.[5] Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991 cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere subordinate and not by the Commissioner himself.[7]

The court a quo likewise stated that the finality of the denial of the protest by petitioner against the tax deficiency assessments was bolstered by the subsequent issuance of the warrants of distraint and/or levy and garnishment to enforce the collection of the deficiency taxes. The issuance was not barred by prescription because the mere filing of the letter of protest by petitioner which was given due course by the Bureau of Internal Revenue suspended the running of the prescription period as expressly provided under the then Section 224 of the Tax Code:

With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court of Appeals contending that there was no final decision to speak of because the Commissioner had yet to make a personal determination as regards the merits of petitioners case.[8]

The Court of Appeals denied the petition in a decision dated October 31, 2000, the dispositive portion of which reads:

SEC. 224. Suspension of Running of the Statute of Limitations. The running of the Statute of Limitations provided in Section 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning

WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED.

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is final is conditioned upon the language used or the tenor of the letter being sent to the Petitioners Motion for Reconsideration was likewise denied in a resolution dated May 3, 2001. We laid down the rule that the Commissioner of Internal Revenue should always Hence, this petition with the following assignment of errors:[9] indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment, thus: I THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER ISSUED BY THE (THEN) ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR NATIONAL OFFICE WAS THE FINAL DECISION OF THE RESPONDENT CIR ON THE DISPUTED ASSESSMENTS, AND HENCE CONSTITUTED THE DECISION APPEALABLE TO THE HONORABLE RESPONDENT CTA; AND, II THE HONORABLE RESPONDENT CA ERRED IN DECLARING THAT THE DENIAL OF THE PROTEST OF THE SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS HAD LONG BECOME FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO INSTITUTE THE APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF THE ACCOUNTS RECEIVABLE/BILLING DIVISION, BIR NATIONAL OFFICE, TO THE HONORABLE RESPONDENT CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT THEREOF. taxpayer.

. . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his statement indubitably showing that the Commissioners communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action.[10]

Thus, the main issue is whether or not a demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory and subject to an appeal to the Court of Tax Appeals.

In this case, the letter of demand dated January 24, 1991, unquestionably We rule in the affirmative. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter constitutes the final action taken by the Bureau of Internal Revenue on petitioners request for reconsideration when it reiterated the tax deficiency assessments due from

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petitioner, and requested its payment. Failure to do so would result in the issuance of a warrant of distraint and levy to enforce its collection without further notice. [11] In addition, the letter contained a notation indicating that petitioners request for reconsideration had been denied for lack of supporting documents.

The demand letter received by petitioner verily signified a character of finality. Therefore, it was tantamount to a rejection of the request for reconsideration. As correctly held by the Court of Tax Appeals, while the denial of the protest was in the form of a demand letter, the notation in the said letter making reference to the protest filed by petitioner clearly shows the intention of the respondent to make it as [his] final

The above conclusion finds support in Commissioner of Internal Revenue v. Ayala Securities Corporation,[12] where we held:

decision.[15]

This now brings us to the crux of the matter as to whether said demand letter indeed The letter of February 18, 1963 (Exh. G), in the view of the Court, is attained finality despite the fact that it was issued and signed by the Chief of the Accounts the assessment made by the petitioner, considering that the said letter in itself a reiteration of the demand by the Bureau of Internal Revenue for the settlement of the assessment already made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the disputed to a decision on a disputed or protested assessment, and, there, the court a quo did not err in taking cognizance of this case. Receivable and Billing Division instead of the BIR Commissioner.

The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC) enumerated in Section 7.

Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals,[13] and in CIR v. Union Shipping Corporation,[14] we held: As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the . . . In this letter, the commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said commissioner would be constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of the letter, specifically the statement regarding the resort to legal remedies, unmistakably the final nature of the determination made by the commissioner of the petitioners deficiency franchise tax liability. Code to any subordinate official with the rank equivalent to a division chief or higher, except the following: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

(b)

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(c)

The power to compromise or abate under Section 204(A) and (B) of this Code, any tax deficiency: Provided, however, that assessments issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept.

Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in this case.[16]

A request for reconsideration must be made within thirty (30) days from the taxpayers receipt of the tax deficiency assessment, otherwise, the decision becomes final, unappealable and therefore, demandable. A tax assessment that has become final, executory and enforceable for failure of the taxpayer to assail the same as provided in Section 228 can no longer be contested, thus:

(d)

It is clear from the above provision that the act of issuance of the demand letter by the Chief of the Accounts Receivable and Billing Division does not fall under any of the exceptions that have been mentioned as non-delegable. SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findingsSuch assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180) - day period; otherwise, the decision shall become final, executory and demandable.

Section 6 of the Code further provides:

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax; Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. . . . (Emphasis supplied)

Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within the reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and denying its request for reconsideration

20

which constituted the final determination by the Bureau of Internal Revenue on petitioners protest. Being a final disposition by said agency, the same would have been a proper subject for appeal to the Court of Tax Appeals.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated October 31, 2000 and its Resolution dated May 3, 2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED. The petition is accordingly DENIEDfor lack of merit.

The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first be disputed by the taxpayer and ruled upon by the Commissioner of Internal Revenue to warrant a decision from which a petition for review may be taken to the Court of Tax Appeals. Where an adverse ruling has been rendered by the Commissioner of Internal Revenue with reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within thirty (30) days after receipt thereof.[17]

SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-17406 November 29, 1965

FINLEY J. GIBBS and DIANE P. GIBBS, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents. Ozaeta, Gibbs & Ozaeta for petitioners. Office of the Solicitor General for respondents. REGALA, J.: This is a petition for review of two resolutions of the Court of Tax Appeals dated June 18, 1960 and August 23, 1960 in CTA Case No. 584, dismissing for lack of jurisdiction the petitioners' claims for refund and tax credit against the respondent Commissioner of Internal Revenue. The facts upon which the respondent court entered the aforementioned resolutions are: On February 6, 1965, the respondent Commissioner of Internal Revenue issued against the petitioners, "Finley J. Gibbs and Diane P. Gibbs, c/o Francisco Collantes, Rm. 301, Cepoc Bldg., Dasmarias, Manila" Deficiency Income Tax Assessment Notice No. AR-5416-55/50 for P16,873.00 for the tax year 1950 with the demand that the said amount should be paid on or before March 15, 1956. On March 14, 1956, Allison J. Gibbs, signing as attorney-in-fact for Finley J. Gibbs, his brother, acknowledged receipt of the above assessment notice and notified the respondent Commissioner that Finley J. Gibbs was then living in Atherton, California, with office at 200 Bush Street, San Francisco 4 and that the latter was notified by him of the said deficiency assessment. In the same letter, Allison J. Gibbs questioned

We agree with the factual findings of the Court of Tax Appeals that the demand letter may be presumed to have been duly directed, mailed and was received by petitioner in the regular course of the mail in the absence of evidence to the contrary. This is in accordance with Section 2(v), Rule 131 of the Rules of Court, and in this case, since the period to appeal has commenced to run from the time the letter of demand was presumably received by petitioner within a reasonable time after January 24, 1991, the period of thirty (30) days to appeal the adverse decision on the request for reconsideration had already lapsed when the petition was filed with the Court of Tax Appeals only on November 8, 1991. Hence, the Court of Tax Appeals properly dismissed the petition as the tax delinquency assessment had long become final and executory.

21

the disallowance of the items which gave rise to the deficiency assessment and requested for a correction of it. On August 26, 1956, however, the respondent Commissioner denied the request. As regards the tax liability of your brother, Mr. Finley J. Gibbs, in the sum of P16,873.00, exclusive of surcharge and interest for the year 1951, please be informed that inasmuch as the facts obtaining in his case are similar in all fours with that of your case, the arguments above are applicable to the case of your said brother. In view of the foregoing, you are hereby requested for the last time to pay the said amount of P12,284.00 exclusive of surcharge and interest, to the City Treasurer, Manila, within ten (10) days from your receipt hereof in order that this case may be closed. You are further requested to urge your brother to pay the abovementioned amount immediately upon your receipt hereof in order that his case may also be closed. Having deemed the above reply of August 28, 1956, as the "final decision" of the respondent Commissioner on the matter, Allison J. Gibbs wrote on October 3, 1956, the following correspondence to the latter: I consider your final decision, dated August 28, 1956, to be contrary to law but to demonstrate my good faith I herewith send you my Check No. 213082 drawn on the Chartered Bank of India, Australia & China payable to you in the sum of P16,873.00 in full payment of your original deficiency assessment No. AR-541655-50. Kindly acknowledge receipt. At the same time, Allison J. Gibbs, demanded refund of the above payment: I demand the immediate refund of this payment for the reasons heretofore given you. Unless refunded on or before the fourth of October I will file a Petition for Review with the Court of Tax Appeals and charge you with my damages of six percent (6%) interest per annum plus attorney's fees of twenty five percent (25%) of the amount involved. (Emphasis supplied, Letter of October 3, 1956.) On October 26, 1956, the respondent Commissioner denied the above demand for refund. With reference to your letters both dated October 3, 1956, requesting the refund of the sums of P12,284.00 and P16,873.00, as alleged erroneous payments of your income tax liability and that of your brother, Finley J. Gibbs, respectively, both for the year 1950, I regret to have to inform you that for reasons stated in our letter dated August 28, 1956, this Office finds no justifiable basis to grant your said request.

The above letter of October 26, 1956, denying the petitioners' claim for refund was admittedly received by the office of Allison J. Gibbs on November 14, 1956. On September 29, 1958, Allison J. Gibbs, signing as counsel for Finley J. Gibbs, wrote another letter addressed to the respondent Commissioner to "reiterate our client's demand for refund of the P16,873.00 he paid on October 3, 1956 on the ground that your deficiency Assessment No. AR-5416-55/50 was illegal ... ." This letter also opined that the previous letter of October 26, 1956, of the respondent Commissioner was not "a ruling on our client's claim for refund of P16,873.00." Finally, this letter likewise asserted certain claims for tax credits arising allegedly from some previous overpayment made by the petitioner to the respondent Commissioner of Internal Revenue. The correspondence closed with the notice that should the demand for refund be uneffected on or before October 1, 1958, a petition for that purpose would be filed with the Court of Tax Appeals. The respondent Commissioner never replied to this letter of September 29, 1958. On October 1, 1958, the petitioners filed with the respondent court a "Petition for Review and Refund of Income Tax with Motion for Suspension of Collection of Additional Taxes," alleging, in the main, its claims for refund and tax credit discussed above. To this petition, the respondent Commissioner filed an Answer on November 10, 1956 to claim, among others, the following special and affirmative defenses: A. That this Honorable Court has no jurisdiction to take judicial cognizance of the petition for review on the ground that the petition for review was filed beyond thirty (30) days from the date of receipt of respondent's decision, dated October 26, 1956, denying the claim for refund as prescribed by Section 11 of Republic Act No. 1125; B. That this Honorable Court has no jurisdiction over the cause of action with respect to the credit of the amounts stated in the petition for review for the reason that the request for credit and the petition for review praying for the credit of said amounts have been filed beyond two (2) years from the dates of payment of the amounts sought to be credited in the petition for review. Acting on a motion dated November 17, 1958 filed by the respondent Commissioner for a preliminary hearing on the question of the lower court's jurisdiction as above contested, the respondent court, after due hearing and reception of evidence, sustained the above objection to its jurisdiction and upheld the respondent Commissioner's claim that the two causes of action asserted by the petitioner were barred by prescription. To this end, the respondent court promulgated two orders: the Resolution of June 18, 1960 dismissing CTA Case No. 584 for lack of jurisdiction and the Resolution of August 23, 1960 dismissing for lack of merit the petitioners' motion for reconsideration filed therefor. These are the two orders sought to be reviewed in the instant petition for review. The petitioners contend that the respondent court erred in ruling that their petition for review was filed outside the 30-day period prescribed by Section 8 of Republic Act No.

22

1125 because (a) there is neither evidence nor record that the petitioners received a copy of the letter of October 26, 1956 denying their claim for refund, and (b) the aforesaid letter of October 26, 1956 is not a denial of their claim for refund. Anent the insistence of the petitioners that they never received a copy of the letter of October 26, 1956 denying their claim for refund, suffice it to say that while they themselves personally might not have received a copy of it, Allison J. Gibbs, as their attorney-in-fact and actually as their counsel, received a copy of the same. Of course, the petitioners maintain that Allison J. Gibbs, at least until September 30, 1957, acted merely as agent or attorney-in-fact of the petitioners and never as their legal counsel. In support of this, it is argued that prior to October 26, 1956, Allison J. Gibbs had explicitly qualified his signature to all his correspondences regarding the disputed assessment as "attorney-in-fact." Furthermore, it is urged that as might be seen on the face of the assessment notice itself, the real legal counsel of the petitioners in the matter of the said assessment was Atty. Francisco Collantes. That Allison J. Gibbs was not merely the agent of the petitioners in the matter under litigation, contrary to all that is alleged above, is demonstrated, however, by the following circumstances obtaining in this case: 1. Allison J. Gibbs acknowledged for the petitioners receipt of the deficiency income tax assessment, formally protested the same in writing, paid the assessment and likewise formally demanded in writing its refund. 2. As far back as 1952, Allison J. Gibbs' Law office had been representing the petitioners as the latter's counsel. 3. Atty. Francisco Collantes, to whom the assessment notice was admittedly addressed, at the time of the said assessment, was a staff lawyer in the firm of Gibbs and Chuidian, of which Allison J. Gibbs was a principal partner. We find all the above as ample evidence of the lawyer-client-relationship of the petitioners herein and Allison J, Gibbs. Besides, it should be recalled that among the charges which Allison J. Gibbs claimed he would collect if his demand for refund for the petitioners were not effected by the respondent Commissioner was "attorney's fees of twenty five percent (25%) of the amount involved." (Letter of October 3, 1956.) How, then, may this statement be reconciled with the present denial that Allison was indeed the petitioners' counsel when he wrote the said letter of October 3, 1956? There can be no question, therefore, that the receipt of the October 26, 1956 letterdecision of the respondent Commissioner by Allison J. Gibbs was receipt of the same by the petitioners, the former being then the latter's legal counsel. In the premises, the respondent court cannot be considered to have erred, therefore, in computing the 30-day

prescriptive period in question from the date the said letter was received by Allison J. Gibbs. On the other hand, the petitioners' claim that the letter of October 26, 1956 was not a denial of their claim for refund is patently unmeritorious. The letter in question clearly stated that "for reasons stated in our letter dated August 28, 1956, this Office finds no justifiable basis to grant your said request." Considering that even Allison J. Gibbs deemed the August 28, 1956 correspondence as the Commissioner's "final decision" on the controversy, it is difficult to see how the petitioners can now argue that the said letter of October 26, 1956, was not a denial of their claim for refund. Parenthetically, it may be observed, that in view of our finding that the respondent court had no jurisdiction over the petition for review because it was filed beyond the 30-day period, hence, there is no need for extensive discussion of the second issue, namely: Whether the withholding tax credits amount to payment for the purpose of determining the two-year period as provided for by Section 306 of the Internal Revenue Code. The petitioners maintain that the respondent court erred in ruling that their claim for tax credit had already expired since it pertained to tax payments made in 1951 and the protest and claim for demand therefor was made only in 1958. The petitioners insist that they could not be deemed to have paid their 1951 tax obligation until February 19, 1957, because they merely contributed to the withholding tax system in 1951 and claimed certain refunds against their contribution at the end of the said tax year and they received notice of the resolution on their claim for such refund only on February 19, 1957. In other words, the petitioners' thesis is to the effect that income tax assessments against which claims for refund have been lodged and which are covered by taxes withheld at the source shall be considered paid, not at the time such tax obligations fall due, but, only when the claims for refund against the assessments are finally resolved by the authorities. By the petitioners' own formulation of their argument Petitioners also respectfully contend that the statute of limitation of two years prescribed in Section 306 of the NIRC does not start to run until respondent Commissioner has acted on the claim for refund or credit by the non-resident taxpayer and so notified the taxpayer because until then the withholding tax cannot be treated as a payment by the alien-resident taxpayer; until then it is a mere deposit held by respondent Commissioner for the account of the nonresident alien taxpayer. This Court cannot subscribe to the petitioners' view. Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the delivery of money but also the performance, in any other manner, of an obligation (id., Art. 1231). A taxpayer, resident or non-resident, who contributes to the withholding tax system, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year

23

concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the two-year prescriptive period under Section 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since, as this Court has previously explained in the case of Gibbs vs. Collector of Internal Revenue, G.R. No. L-13453, February 29, 1960 ... Section 306 of the National Internal Revenue Code should be construed together with Section 11 of Republic Act No. 1125. In fine, a taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must comply with the requirement of both sections, that is, he must file a claim for refund with the Collector of Internal Revenue within 2 years from the date of his payment of the tax, as required by Section 306 of the National Internal Revenue Code, and appeal to the Court of Tax Appeals within 30 days from receipt of the Collector's decision or ruling denying his claim for refund, as required by Section 11 of Republic Act No. 1125. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the twoyear period without awaiting the decision of the Collector. This is so because of the positive requirement of Section 306 and the doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute. (U.S. v. Michel 282 U.S. 656, 51 S. Ct. 284; P. J. Kiener & Co., Ltd., v. David, L-5163, April 22, 1953; College of Oral and Dental Surgery vs. CTA, G.R. No. L-10446, Jan. 28, 1958. Emphasis supplied). WHEREFORE, the instant petition for review is hereby dismissed, with costs against the petitioners. Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., and Zaldivar, JJ.,concur. Barrera, J., is on leave. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-13453 February 29, 1960

ALLISON J. GIBBS and ESTHER K. GIBBS, petitioners, vs. COLLECTOR OF INTERNAL REVENUE and COURT of TAX APPEALS, respondents. Ozaeta, Gibbs and Ozaeta for the petitioners. Office of the Solicitor General Edilberto Barot, Solicitor Felicisimo R. Rosete and Special Atty. Jose G. Azurin for the respondents. BARRERA, J.: From the resolution of respondent Court of Tax Appeals (in C.T.A. Case No. 418) dismissing, for lack of jurisdiction, their petition for review and refund of income taxes paid, petitioners Allison J. Gibbs and Esther K. Gibbs, interposed the present petition for review. On March 14, 1956, petitioners protested the deficiency income tax assessment in the amount of P12,284.00, exclusive of surcharge and interest, for the year 1950, issued against them by the respondent Collector of Internal Revenue, on the ground that said deficiency assessment was based on a disallowance of bad debts and losses claimed in their income tax return for 1950. On August 28, 1956, respondent Collector rejected petitioners' protest and reiterated his demand. On October 3, 1956, petitioners sent a check in the amount of P12,284.00 (Check No. C-643963) to respondent Collector as payment of said deficiency assessment, at the same time demanding the immediate refund of the amount paid. On October 26, 1956, respondent Collector denied the request for refund, and required petitioners to pay the amounts of P1,469.04 and P1,997.26 as surcharge, interest, and compromise penalty. Notice of said denial was received by petitioners on November 14, 1956. On September 27, 1957, petitioners filed with respondent Court a petition for review and refund, with a motion for suspension of collection of penalties. On October 7, 1957, respondent Collector filed a motion to dismiss, on the ground that the petition was filed beyond the 30-day period provided under Section 11, in relation to Section 7, of Republic Act No. 1125, which motion, was opposed by petitioners on October 24, 1957. On December 2, 1957, respondent court dismissed the petition, in a resolution which, in part, reads: Petitioners paid the tax in question on October 3, 1956, at the same time asking for the refund of the same. He received the letter of respondent denying said request for refund on November 14, 1956. Pursuant to Section 11 of Republic Act No. 1125, petitioners had only 30 days from November 14, 1956, or up to

24

December 15, 1956, within which to file their appeal to this Court. However, petitioners appealed from the aforesaid decision of respondent only on September 27, 1957, more than ten (10) months from November 14, 1956. Obviously, the appeal has been filed beyond the 30-day period set by law. Petitioners contend that Section 306 of the Revenue Code provides that judicial proceedings may be instituted for recovery of an internal revenue tax within two years from the date of payment. This was so before the enactment of Republic Act No. 1125 . . .petitioners should have appealed to this Court within 30 days from November 14, 1956, that is, not later than December 15, 1956, pursuant to Section 11 of Republic Act No. 1125. As the appeal was filed on September 27, 1957, we have no jurisdiction to entertain the same. On December 11, 1957, petitioners filed a motion for reconsideration of said order, but the same was denied by respondent court on January 31, 1958. Hence, this petition for review. The only issue to be resolved in this case is whether or not petitioners' appeal (petition for review and refund) from the decision of respondent Collector of Internal Revenue, was filed with respondent Court of Tax Appeals within the statutory period. Section 7 of Republic Act No. 1125, in part, provides: SEC. 7. Jurisdiction.The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; . . . (Emphasis supplied.) And Section 11 of the same Act, in part, states that: SEC. 11. Who may appeal; effect of appeal.Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. . . . (Emphasis supplied.) It is not disputed that petitioners received on November 14, 1956, notice of respondent Collector's decision denying their request for a refund of the deficiency assessment paid by them. Pursuant to the above-quoted provision of Section 11 of Republic Act 1125, they had 30 days from said date within which to file their appeal (petition for review and refund) with respondent court. However, they filed said appeal only on September 27,
1

1957, or more than ten (10) months thereafter, much beyond the aforementioned 30-day period within which to file the same. Consequently, respondent court had acquired no jurisdiction to entertain said appeal and the dismissal of the same was proper. Petitioners, however, contend that although their appeal was filed beyond said 30-day period, respondent court still had jurisdiction over the same, by virtue of the provision of Section 306 of the National Internal Revenue Code,2 which reads: SEC. 306. Recovery of tax erroneously or illegally collected.No suit or proceeding shall be maintained in any court for the recovery of any national internal-revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax penalty, or sum has been paid under protest or duress. It any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty. (Emphasis supplied.) The contention is devoid of any merit. In the case of Johnston Lumber Co., Inc. vs. Court of Tax Appeals, et al.101 Phil., 654; 54 Off. Gaz. [16] 5226, we held: It is the contention of petitioner that the aforequoted provisions cannot stand side by side because, whereas Section 306 of the Tax Code required the filing of a claim before an action in court may be maintained, Republic Act No. 1125 which confers jurisdiction upon the Court of Tax Appeals to take cognizance of appeals from the decisions of the Collector of Internal Revenue does not require any more the filing of said claim but merely provides that said appeal may be filed within 30 days from receipt of such decision or ruling. A careful analysis of the provisions of both enactments would negative the assertion of petitioner. The specific provision of Republic Act No. 1125 regarding appeal (Section 11) was intended to cope with a situation where the taxpayer, upon receipt of a decision or ruling of the Collector of Internal Revenue, elects to appeal to the Court of Tax Appeals instead of paying the tax. For this reason, the latter part of said Section 11, provides that no such appeal would suspend the payment of the tax demanded by the Government, unless for special reasons, the Court of Tax Appeals would deem it fit to restrain said collection. Section 306, of the Tax Code, on the other hand, contemplates of a case wherein the taxpayerpaid the tax, whether under protest or not, and later on decides to go to court for its recovery. We can, therefore, conclude that where payment has already been made and the taxpayer is merely asking for its refund, he must first file with the Collector of Internal Revenue a claim for refund before taking the matter to the Court, as required by Section 306 of the National Internal Revenue Code and that appeals from decisions or rulings of the Collector of Internal

25

Revenue to the Court of Tax Appeals must always be perfected within 30 days after the receipt of the decision or ruling that is being appealed, as required by Section 11 of Republic Act No. 1125. We see no conflict between the aforementioned sections of said laws. (Emphasis supplied.) Under the above ruling, it is clear that Section 306 of the National Internal Revenue Code should be construed together with Section 11 of Republic Act No. 1125. In fine, a taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must comply with the requirements of both sections, that is, he must file a claim for refund with the Collector of Internal Revenue within 2 years from the date of his payment of the tax, as required by said Section 306 of the National Internal Revenue Code, and appeal to the Court of Tax Appeals within 30 days from receipt of the Collector's decision or ruling denying his claim for refund, as required by said Section 11 of Republic Act No. 1125. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector. This is so because of the positive requirement of Section 306 and the doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute.3 In the case of a taxpayer who has not yet paid the tax and who is protesting the assessment made by the Collector of Internal Revenue, he must file his appeal with the Court of Tax Appeals within 30 days from his receipt of the Collector's assessment, as required by said Section 11 of Republic Act No. 1125. Otherwise, his failure to comply with said statutory requirement would bar his appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain or determine the same. We do not find the cases of Collector of Internal Revenue vs. Avelino, et al. (100 Phil., 327; 53 Off. Gaz. 645) and Collector of Internal Revenue vs. Zulueta, et al. (100 Phil., 872; 53 Off. Gaz. [19] 6532) invoked by petitioners applicable to the instant case. The issue presented in both cited cases was whether or not the Court of Tax Appeals may enjoin the Collector of Internal Revenue from collecting through summary administrative methods, the income tax liabilities of Messrs. Avelino and Zulueta, 3 years after the filing of their income tax returns, and not whether their petition for review was seasonably filed with said court, in accordance with Section 11 of Republic Act No. 1125, or Section 306 of the National Internal Revenue Code. Furthermore, the instant case involves a refund of taxes paid, while the cited cases involved the legality of the collection of taxes by summary administrative methods. Appellants, in their supplemental brief, urge two additional grounds for the revocation of respondent court's decision. It is claimed that since the letter-decision dated October 26, 1956 denying their request for refund of the deficiency income tax paid by them, was signed not by the Collector, but merely by the Deputy Collector of Internal Revenue, it could not be considered as a final decision on their said request. They cite as authority, Section 309 of the National Internal Revenue Code reading partly:

SEC. 309. Authority of Collector to make compromise and to refund taxes. The Collector of Internal Revenue may compromise any civil or other case arising under this Code or other law or part of law administered by the Bureau of Internal Revenue, may credit or refund taxes erroneously or illegally received, or penalties imposed without authority, and may remit before payment any tax that appears to be unjustly assessed or excessive. xxx xxx xxx

The authority of the Collector of Internal Revenue to credit or refund taxes or penalties, under this section can only be exercised if the claim for credit or refund is made in writing and filed with him within two years after the payment of the tax or penalty. (Emphasis supplied.) and No. 9 of Paragraph 4, Section 7, as amended, of the Internal Revenue Manual on Audit and Investigation Procedure and General Circular No. V-182, providing: 9. The authority to remit before payment any tax that appears to be unjustly assessed or excessive, or credit or refund taxes erroneously or illegally received under Section 309 of the National Internal Revenue Code shall be exercised exclusively by the Collector of Internal Revenue. (Emphasis supplied.) Appellants contend that under the above-quoted provisions, only the Collector has the authority to deal in refund cases. This is fallacious. In the first place, the cited provisions refer to the authority of the Collector of Internal Revenue to compromise, or to credit or refund taxes erroneously or illegally received, that is, when the action, in a manner of speaking, is against the Government. In such case, the authority is vested exclusively in the Collector himself. The purpose is to assure that no improper compromise, credit, or refund is made to the prejudice of the Government. But in the case before us, the action taken by the Deputy Collector in his letter of October 26, 1956, was precisely to deny the request for refund and demand the payment of the deficiency tax from petitioners. Certainly, this is well within the authority of the Deputy Collector and is final and binding unless revoked by the Collector. The other point raised that the letter of October 26 is not final because in addition to denying the refund it demanded payment of surcharges and interests is, likewise, without merit. The ruling in the case of St. Stephen's Association, et al. vs. Collector of Internal Revenue (104 Phil., 314; 55 Off. Gaz. [13] 2243) cited by petitioners, is inapplicable to the instant case, for there the Collector wrote two letters to the taxpayers, one on April 6, 1955, denying their first request for the withdrawal and cancellation of the assessment, and another on July 11, 1955, denying their second request and stating in its last paragraph: "This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax Appeals within the same period, in accordance with the provisions of Republic Act No. 1125." Undoubtedly, this second letter, and not the first was the final decision of the Collector in that case, because it finally resolved the then

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pending petition for reconsideration filed by the taxpayers. In the instant case, after the letter of October 26, 1956 denying petitioners' request for refund, no further action was taken either by petitioners or the Collector, both parties treating the letter-decision as final. In fact, petitioner's next move was to file their petition for review and refund with respondent court. The Collector, on the other hand, consequent to his understanding that said letter-decision was final, filed his motion to dismiss with respondent court, on the ground that petitioners' petition was filed out of time and, therefore, the court acquired no jurisdiction to entertain the same. Wherefore, finding no error in the decision of the court a quo, the same is hereby affirmed, with costs against the petitioners. So ordered. Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Gutierrez David, JJ., concur.

TMX SALES, INC. and THE COURT OF TAX APPEALS, respondents. F.R. Quiogue for private respondent.

GUTIERREZ, JR., J.: In a case involving corporate quarterly income tax, does the two-year prescriptive period to claim a refund of erroneously collected tax provided for in Section 292 (now Section 230) of the National Internal Revenue Code commence to run from the date the quarterly income tax was paid, as contended by the petitioner, or from the date of filing of the Final Adjustment Return (final payment), as claimed by the private respondent? Section 292 (now Section 230) of the National Internal Revenue Code provides: Sec. 292. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case no such suit or proceeding shall be begun after the expiration of two years from the date of payment of that tax or penalty regardless of any supervening cause that may arise after payment: . . . (Emphasis supplied) The facts of this case are uncontroverted. Private respondent TMX Sales, Inc., a domestic corporation, filed its quarterly income tax return for the first quarter of 1981, declaring an income of P571,174.31, and consequently paying an income tax thereon of P247,010.00 on May 15, 1981. During the subsequent quarters, however, TMX Sales, Inc. suffered losses so that when it filed on April 15, 1982 its Annual Income Tax Return for the year ended December 31, 1981, it declared a gross income of P904,122.00 and total deductions of P7,060,647.00, or a net loss of P6,156,525.00 (CTA Decision, pp. 1-2; Rollo, pp. 45-46).

Footnotes
1

Effective June 16, 1954. Com. Act No. 466, as amended.

U.S. vs. Michel, 282 U.S. 656, 51 S. Ct. 284; P. J. Kiener & Co., Ltd. vs. David, 92 Phil., 945, 49 Off. Gaz. [5] 1852, College of Oral & Dental Surgery vs. Court of Tax Appeals, 102 Phil., 912; 54 Off. Gaz. [29] 7055). Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 83736 January 15, 1992 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

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Thereafter, on July 9, 1982, TMX Sales, Inc. thru its external auditor, SGV & Co. filed with the Appellate Division of the Bureau of Internal Revenue a claim for refund in the amount of P247,010.00 representing overpaid income tax. (Rollo, p. 30) This claim was not acted upon by the Commissioner of Internal Revenue. On March 14, 1984, TMX Sales, Inc. filed a petition for review before the Court of Tax Appeals against the Commissioner of Internal Revenue, praying that the petitioner, as private respondent therein, be ordered to refund to TMX Sales, Inc. the amount of P247,010.00, representing overpaid income tax for the taxable year ended December 31, 1981. In his answer, the Commissioner of Internal Revenue averred that "granting, without admitting, the amount in question is refundable, the petitioner (TMX Sales, Inc.) is already barred from claiming the same considering that more than two (2) years had already elapsed between the payment (May 15, 1981) and the filing of the claim in Court (March 14, 1984). (Sections 292 and 295 of the Tax Code of 1977, as amended)." On April 29, 1988, the Court of Tax Appeals rendered a decision granting the petition of TMX Sales, Inc. and ordering the Commissioner of Internal Revenue to refund the amount claimed. The Tax Court, in granting the petition, viewed the quarterly income tax paid as a portion or installment of the total annual income tax due. Said the Tax Court in its assailed decision: xxx xxx xxx When a tax is paid in installments, the prescriptive period of two years provided in Section 306 (now Section 292) of the Revenue Code should be counted from the date of the final payment or last installment. . . . This rule proceeds from the theory that in contemplation of tax laws, there is no payment until the whole or entire tax liability is completely paid. Thus, a payment of a part or portion thereof, cannot operate to start the commencement of the statute of limitations. In this regard the word "tax" or words "the tax" in statutory provisions comparable to section 306 of our Revenue Code have been uniformly held to refer to the entire tax and not a portion thereof (Clark v. U.S., 69 F. 2d 748; A.S. Kriedner Co. v. U.S., 30 F Supp. 274; Hills v. U.S., 50 F 2d 302, 55 F 2d 1001), and the vocable "payment of tax" within statutes requiring refund claim, refer to the date when all the tax was paid, not when a portion was paid (Braun v. U.S., 8 F supp. 860, 863; Collector of Internal Revenue v. Prieto, 2 SCRA 1007; Commissioner of Internal Revenue v. Palanca, 18 SCRA 496).

Petitioner Commissioner of Internal Revenue is now before this Court seeking a reversal of the above decision. Thru the Solicitor General, he contends that the basis in computing the two-year period of prescription provided for in Section 292 (now Section 230) of the Tax Code, should be May 15, 1981, the date when the quarterly income tax was paid and not April 15, 1982, when the Final Adjustment Return for the year ended December 31, 1981 was filed. He cites the case of Pacific Procon Limited v. Commissioner of Internal Revenue (G.R. No. 68013, November 12, 1984) involving a similar set of facts, wherein this Court in a minute resolution affirmed the Court of Appeals' decision denying the claim for refund of the petitioner therein for being barred by prescription. A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted under the circumstances to lay down a categorical pronouncement on the question as to when the two-year prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in the Pacific Procon case. Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to the other provisions of the Tax Code in order to give effect to legislative intent and to avoid an application of the law which may lead to inconvenience and absurdity. In the case of People vs. Rivera (59 Phil 236 [1933]), this Court stated that statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the general legislative intent that can be discovered from or is unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et al. v. Court of Appeals, et al., 73 SCRA 162 [1976]) Every section, provision or clause of the statute must be expounded by reference to each other in order to arrive at the effect contemplated by the legislature. The intention of the legislator must be ascertained from the whole text of the law and every part of the act is to be taken into view. (Chartered Bank v. Imperial, 48 Phil. 931 [1921]; Lopez v. El Hogar Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation v. City of Cebu, 13 SCRA 449 [1965]). Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section 230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts. All these provisions of the Tax Code should be harmonized with each other.

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Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a refund of a tax erroneously or illegally paid, counted from the tile the tax was paid. But a literal application of this provision in the case at bar which involves quarterly income tax payments may lead to absurdity and inconvenience. Section 85 (now Section 68) provides for the method of computing corporate quarterly income tax which is on a cumulative basis, to wit: Sec. 85. Method of computing corporate quarterly income tax. Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basisfor the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code shall be levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year. (Emphasis supplied) while Section 87 (now Section 69) requires the filing of an adjustment returns and final payment of income tax, thus: Sec. 87. Filing of adjustment returns final payment of income tax. On or before the fifteenth day of April or on or before the fifteenth day of the fourth month following the close of the fiscal year, every taxpayer covered by this Chapter shall file an Adjustment Return covering the total net taxable income of the preceding calendar or fiscal year and if the sum of the quarterly tax payments made during that year is not equal to the tax due on the entire net taxable income of that year the corporation shall either (a) pay the excess tax still due or (b) be refunded the excess amount paid as the case may be. . . . (Emphasis supplied) In the case at bar, the amount of P247,010.00 claimed by private respondent TMX Sales, Inc. based on its Adjustment Return required in Section 87 (now Section 69), is equivalent to the tax paid during the first quarter. A literal application of Section 292 (now Section 230) would thus pose no problem as the two-year prescriptive period reckoned from the time the quarterly income tax was paid can be easily determined. However, if the quarter in which the overpayment is made, cannot be ascertained, then a literal application of Section 292 (Section 230) would lead to absurdity and inconvenience. The following application of Section 85 (now Section 68) clearly illustrates this point: FIRST QUARTER: Gross Income 100,000.00

Less: Deductions 50,000.00 Net Taxable Income 50,000.00 ========= Tax Due & Paid [Sec. 24 NIRC (25%)] 12,500.00 ========= SECOND QUARTER: Gross Income 1st Quarter 100,000.00 2nd Quarter 50,000.00 150,000.00 Less: Deductions 1st Quarter 50,000.00 2nd Quarter 75,000.00 125,000.00 Net Taxable Income 25,000.00 ========= Tax Due Thereon 6,250.00 Less: Tax Paid 1st Quarter 12,500.00 Creditable Income Tax (6,250.00) THIRD QUARTER:

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Gross Income 1st Quarter 100,000.00 2nd Quarter 50,000.00 3rd Quarter 100,000.00 250,000.00 Less: Deductions 1st Quarter 50,000.00 2nd Quarter 75,000.00 3rd Quarter 25,000.00 150,000.00 100,000.00 ========= Tax Due Thereon 25,000.00 Less: Tax Paid 1st Quarter 12,500.00 2nd Quarter 12,500.00 ========= FOURTH QUARTER: (Adjustment Return required in Sec. 87) Gross Income 1st Quarter 100,000.00 2nd Quarter 50,000.00 3rd Quarter 100,000.00 4th Quarter 75,000.00 325,000.00 Less: Deductions 1st Quarter 50,000.00

2nd Quarter 75,000.00 3rd Quarter 25,000.00 4th Quarter 100,000.00 250,000.00 Net Taxable Income 75,000.00 ========= Tax Due Thereon 18,750.00 Less: Tax Paid 1st Quarter 12,500.00 2nd Quarter 3rd Quarter 12,500.00 25,000.00 Creditable Income Tax (to be REFUNDED) (6,250.00) ========= Based on the above hypothetical data appearing in the Final Adjustment Return, the taxpayer is entitled under Section 87 (now Section 69) of the Tax Code to a refund of P6,250.00. If Section 292 (now Section 230) is literally applied, what then is the reckoning date in computing the two-year prescriptive period? Will it be the 1st quarter when the taxpayer paid P12,500.00 or the 3rd quarter when the taxpayer also paid P12,500.00? Obviously, the most reasonable and logical application of the law would be to compute the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code requires that the books of accounts of companies or persons with gross quarterly sales or earnings exceeding Twenty Five Thousand Pesos (P25,000.00) be audited and examined yearly by an independent Certified Public Accountant and their income tax returns be accompanied by certified balance sheets, profit and loss statements, schedules

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listing income producing properties and the corresponding incomes therefrom and other related statements. G.R. No. 76281 September 30, 1991 It is generally recognized that before an accountant can make a certification on the financial statements or render an auditor's opinion, an audit of the books of accounts has to be conducted in accordance with generally accepted auditing standards. Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly, then it is the Final Adjustment Return, where the figures of the gross receipts and deductions have been audited and adjusted, that is truly reflective of the results of the operations of a business enterprise. Thus, it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax. In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section 292) of the National internal Revenue Code should be counted from the date of the final payment. This ruling is reiterated inCommission of Internal Revenue v. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax account was paid on installment, the computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the last installment. In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales, Inc. is not yet barred by prescription. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS, respondents.

FERNAN, C.J.:p The sole issue in this petition for review on certiorari is whether or not petitioner's right to collect deficiency withholding tax at source and sales tax liabilities from private respondent is barred by prescription. The antecedent facts are as follows: Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is a domestic corporation engaged in the manufacture and sale of assorted pharmaceutical and nutritional products. Its accounting period is on a fiscal year basis ending October 31 of every year. By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by then Commissioner of Internal Revenue Misael P. Vera, Revenue Examiner Dante Kabigting conducted an investigation and examination of the books of accounts of Wyeth Suaco. 1 On October 15, 1974, he submitted a report containing the result of his investigation. The report disclosed that Wyeth Suaco was paying royalties to its foreign licensors as well as remuneration for technical services to Wyeth International Laboratories of London. Wyeth Suaco was also found to have declared cash dividends on September 27, 1973 and these were paid on October 31, 1973. However, it allegedly failed to remit withholding tax at source for the fourth (4th) quarter of 1973 on accrued royalties, remuneration for technical services and cash dividends, resulting in a deficiency withholding tax at source in the aggregate amount of P3,178,994.15. 2 Moreover, it was reported that during the periods from November 1, 1972 to December 31, 1972 and January 1, 1973 to October 31, 1973, Wyeth Suaco deducted the cost of nondeductible raw materials, resulting in its alleged failure to pay the correct amount of advance sales tax. There was reportedly also a short payment of advance sales tax in its importation of "Mega Polymycin D" on October 3, 1972. All these resulted in a deficiency sales tax in the amount of P60,855.21 and compromise penalty in the amount of P300.00 or a total amount of P61,155.21. 3

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Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on the aforesaid tax liabilities in two (2) notices dated December 16, 1974 and December 17, 1974. These assessment notices were both received by Wyeth Suaco on December 19, 1974. 4 Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the Bureau of Intemal Revenue two (2) letters dated January 17, 1975 and February 8, 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. Wyeth Suaco argued that it was not liable to pay withholding tax at source on the accrued royalties and dividends because they have yet to be remitted or paid abroad. It claimed that it was not able to remit the balance of fifty percent (50%) of the accrued royalties to its foreign licensors because of Central Bank Circular No. 289 allowing remittance of royalties up to fifty percent (50%) only. With regard to what the Bureau of Internal Revenue claimed as the amount of P2,952,391.00 forming part of the cash dividends declared in 1973, Wyeth Suaco alleged that the same was due its foreign stockholders. Again, Wyeth Suaco was not able to remit these dividends because of the restriction of the Central Bank in a memorandum implementing CB Circular No. 289 dated February 21, 1970. Thus, Wyeth Suaco's contention was that a withholding tax at source on royalties and dividends becomes due and payable only upon their actual payment or remittance. On the matter of the withholding tax at source on remuneration for technical services, Wyeth Suaco insisted that it was up-to-date in remitting the corresponding withholding tax on this income to the Bureau of Internal Revenue. As to the assessed deficiency sales tax, Wyeth Suaco maintained that the difference between its landed cost figure (which is the basis for computing the advancesales tax) and that of the revenue examiner, was due to the use of estimated amounts by the Bureau of Customs and to foreign exchange differential. Wyeth Suaco however, admitted liability with respect to the short payment of advance sales tax in the amount of P1,000.00 on its importation of "Mega Polymycin D." 5 On September 12, 1975, the Commissioner of Internal Revenue asked Wyeth Suaco to avail itself of the compromise settlement under LOI 308. In its answer, Wyeth Suaco manifested its conformity to a 10% compromise provided it be applied only to the basic sales tax, excluding surcharge and interest. As to the deficiency withholding tax at source, Wyeth took exception on the ground that it involves purely a legal question and some of the amounts included in the assessment have already bee paid. On December 10, 1979, petitioner, thru then acting Commissioner of Internal Revenue Ruben B. Ancheta, rendered a decision reducing the assessment of the withholding tax at source for 1973 to P1,973,112.86. However, the amount of P61,155.21 as deficiency sales tax remained the same. 6

Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on January 18, 1980, praying that lpeti tioner be enjoined from enforcing the assessments by reason of prescription and that the assessments be declared null and void for lack of legal and factual basis. 7 On February 7, 1980, petitioner issued a warrant of distrain of personal property and warrant of levy of real property again private respondent to enforce collection of the deficiency taxes. These were served on private respondent on March 12, 1980. 8 However, collection of the deficiency taxes by virtue of warrants of distraint and levy was enjoined by respondent court upon motion of Wyeth Suaco in a resolution dated May 22, 1980. 9 On May 30, 1980, petitioner filed his answer to Wyeth Suaco's petition for review praying, among others, that private respondent be declared liable to pay the amount of P61,155.21 as deficiency sales tax for the periods November 1, 1972 to December 31, 1972 and January 1, 1973 to October 31, 1973, plus 14% annual interest thereon from December 17, 1974 until payment thereof pursuant to Section 183 (now Section 193) of the Tax Code, and the amount of P1,973,112.86 as deficie withholding tax at source for the 4th quarter of 1973 plus 5% surcharge and 14% per annum interest thereon from December 16, 1974 to December 16, 1977, pursuant to Section 51 (e) of the Tax Code of 1977, as amended. 10 On August 29, 1986, the Court of Tax Appeals rendered a decision enjoining the Commissioner of Internal Revenue from collecting the deficiency taxes, the dispositive portion of which reads as follows: WHEREFORE, the decision appealed from is hereby reversed and respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency withholding tax at source for the fourth quarter of 1973 as well as the deficiency sales tax assessed against petitioner (Wyeth Suaco). Without pronouncement as to costs. 11 The basis of the above decision was the finding of the Tax Court that while the assessments for the deficiency taxes were made within the five-year period of limitation, the right of petitioner to collect the same has already prescribed, in accordance with Section 319 (c) of the Tax Code of 1977. The said law provides that an assessment of any internal revenue tax within the five-year period of limitation may be collected by distraint or levy or by a proceeding in court, but only if begun within five (5) years after the assessment of the tax. Hence, this recourse by petitioner. The applicable laws in the instant case are Sections 318 and 319 (c) of the National Internal Revenue Code of 1977 (now Sections 203 and 224 of the National Internal Revenue Code of 1986), to wit:

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SEC. 318. Period of limitation upon assessment and collection Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. ... SEC. 319. Exceptions as to period of limitations of assessment and collection of taxes. xxx xxx xxx (c) Where the assessment of any internal revenue tax has been made within the period of limitation above-prescribed such tax may be collected by distraint or levy by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. (emphasis supplied) The main thrust of petitioner for the allowance of this petition is that the five-year prescriptive period provided by law to mak a collection by distraint or levy or by a proceeding in court has not yet prescribed. Although he admits that more than five (5) years have already lapsed from the time the assessment notices were received by private respondent on December 19, 1974 up to the time the warrants of distraint and levy were served on March 12, 1980, he avers that the running of the prescriptive period was stayed or interrupted when Wyeth Suaco protested the assessments. Petitioner argues that the protest letters sent by SGV & Co. in behalf of Wyeth Suaco dated January 17, 1975 and February 8, 1975, requesting for withdrawal and cancellation of the assessments were actually requests for reinvestigation or reconsideration, which could interrupt the running of the five-year prescriptive period. Wyeth Suaco, on the other hand, maintains the position that it never asked for a reinvestigation nor reconsideration of th assessments. What it requested was the cancellation and with drawal of the assessments for lack of legal and factual basis. Thus, its protest letters dated January 17, 1975 and February 8, 1975 did not suspend or interrupt the running of the five-year prescriptive period. Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. In the case of Commissioner of Internal Revenue vs. Capitol Subdivision, Inc., 12 this Court held:

The period of prescription of action to collect a taxpayer's deficiency income tax assessment is interrupted when the taxpayer request for a review or reconsideration of said assessment, and starts to run again when said request is denied. In another case, this Court stated that the statutory period of limitation for collection may be interrupted if by the taxpayer's repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Goverrument. 13 Also in the case of Cordero vs. Gonda, 14 we held: Partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant." This is the underlying reason behind the rule that the prescriptive period is arrested by the taxpayer's request for reexamination or reinvestigation even if he "has not previously waived it (prescription in writing)". ... (emphasis supplied) Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought reinvestigation or reconsideration of the deficiency tax assessments issued by the Bureau of Internal Revenue. After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was seeking reconsideration of the tax assessments as shown in a letter of James A. Gump, its President and General Manager, dated April 28, 1975, the relevant portion of which is quoted hereunder, to wit: We submit this letter as a follow-up to our protest filed with your office, through our tax advisers, Sycip, Gorres, Velayo & Co., on January 20 and February 10, 1975 regarding alleged deficiency on withholding tax at source of P3,178,994.15 and on percentage tax of P60,855.21, including interest and surcharges, on which we are seeking reconsideration. 15 (emphasis supplied) Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the letters protesting the assessments, the Bureau of Internal Revenue, Manufacturing Audit Division, conducted a review and reinvestigation of the assessments. This fact was admitted by Wyeth Suaco thru its Finance Manager in a letter dated July 1, 1975 addressed to the Chief, Tax Accounts Division. The pertinent portion of said letter reads as follows:

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This will acknowledge receipt of your letter dated May 22, 1975 regarding our alleged income and business tax deficiencies for fiscal year 1972/73. xxx xxx xxx Nevertheless, please be advised that the deficiency tax stated in your letter is what we are protesting on pursuant to the letters we filed with the Bureau of Internal Revenue on January 20, 1975 and on February 10, 1975. xxx xxx xxx As we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division. Pending the outcome of their decision, we regret our inability to make settlement. ... 16(Emphasis supplied) Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use th words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration. By virtue of these letters, the Bureau of Internal Revenue ordered its Manufacturing Audit Division to review the assessment made. Furthermore, private respondent's claim that it did not seek reinvestigation or reconsideration of the assessments is belied by the subsequent correspondence or letters written by its officers, as shown above. These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the record of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final assessment. This final assessment issue by then Acting Commissioner Ruben B. Ancheta was date December 10, 1979 and received by private respondent on January 2, 1980, fixed its tax liability at P1,973,112.86 as deficiency withholding tax at source and P61,155.21 as deficiency sales tax. It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again. Verily, the original assessments dated December 16 and 17, 1974 were both received by Wyeth Suaco on December 19, 1974. However, when Wyeth Suaco protested the assessments and sought its reconsideration in two (2) letters received by the Bureau of Internal Revenue on January 20 and February 10, 1975, the prescriptive period was interrupted. This period started to run again when the Bureau of Internal Revenue served the final assessment to Wyeth Suaco on January 2, 1980. Since the warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, then, only about four (4) months of the five-year prescriptive period was used.

Having resolved the issue of prescription, we now come to the merits of the case. Wyeth Suaco questions the legality of the regulation imposed by the Bureau of Intemal Revenue of requiring a withholding agent or taxpayer to remit the taxes deducted and withheld at source on incomes which have not yet been paid. It maintains the stand that withholding tax at source should only be remitted to the Bureau of Internal Revenue once the incomes subject to withholding tax at source have actually been paid. Thus, private respondent avers that it was not liable to remit the taxes withheld at source on royalties and dividends unless these incomes have been actually paid to its foreign licensors and stockholders. It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. ... It is the lifeblood of the government and so should be collected without unnecessary hindrance ... 17 In line with this principle, the Tax Code, particularly Section 54 (a) [now Section 51 (a)] provides that "the Commissioner of Internal Revenue may, with the approval of the Secretary of Finance, require the withholding agents to pay or deposit the taxes deducted and withheld at more frequent intervals when necessary to protect the interest of the government. The return shall be filed and the payment made within 25 days from the close of each calendar quarter". Presently, Revenue Regulation No. 6-85 effective July 1, 1985, requires the filing of monthly return and payment of taxes withheld at source within (10) days after the end of each month. Moreover, the records show that Wyeth Suaco adopted the accrual method of accounting wherein the effect of transactions and other events on assets and liabilities are recognized and reported in the time periods to which they relate rather than only when cash is received or paid. The "Report of Investigation" submitted by the tax examiner indicated that accrual was the basis of the taxpayer's return. 18 Thus, private respondent recorded accrued royalties and dividends payable as well as the withholding tax at source payable on these incomes. Having deducted and withheld the tax at source and having recorded the withholding tax at source payable in its books of accounts, private respondent was obligated to remit the same to the Bureau of Internal Revenue. With regard to the accuracy of the assessment on deficiency sales tax, we rule that the examiner's assessment should be given full weight and credit, in the absence of proof submitted by Wyeth Suaco to the contrary. This is in line with our ruling in several cases wherein we said that tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. 19 The case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc ., 20 where this Court cited 51 Am. Jur. pp. 620-621, states the principle in detail, thus:

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All presumptions are in favor of the correctness of tax assessments. The good faith of tax assessors and the validity of their actions are presumed. They will be presumed to have taken into consideration all the facts to which their attention was called. No presumption can be indulged that all of the public officials of the State in the various counties who have to do with the assessment of property for taxation will knowingly violate the duties imposed upon them by law. The final assessment issued by the Bureau of Internal Revenue declared the issuance of deficiency sales tax assessments to be legal and valid. It was ascertained that during the investigation, Wyeth Suaco deducted non-deductible raw materials which were not subjected to advance sales tax thereby resulting in its failure to pay the correct amount of sales tax under Section 183, in relation to Section 186 and 186-B of the Tax Code, prior to and after amendment by Presidential Decree No. 69. Wyeth Suaco was not able to refute this by submitting supporting documents. 21 WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories, Inc, is hereby ordered to pay the Bureau of Internal Revenue the amount of P1,973,112.86 as deficiency withholding tax at source, with interest and surcharge in accordance with law, without prejudice to any reduction brought about by payments or remittance made. Wyeth Suaco Laboratories, Inc. is also ordered to pay the Bureau of Internal Revenue the amount of P60,855.21 as deficiency sales tax with interest and surcharge in accordance with law. Costs against private respondent. SO ORDERED.

vs. THE HONORABLE COURT OF APPEALS, THE HONORABLE TIRSO D'C VELASCO, PRESIDING JUDGE, REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 88, FORTUNE TOBACCO CORPORATION, LUCIO TAN, HARRY C. TAN, CARMEN KAO TAN, FLORENCIO SANTOS, SALVADOR MISON, CHUNG POE KEE, ROJAS CHUA, MARIANO TANENGLIAN, JUANITA LEE AND ANTONIO P. ABAYA, respondents. DAGUPAN COMBINED COMMODITIES, INC., TOWNSMAN COMMERCIALS, INC., LANDMARK SALES AND MARKETING INC., CRIMSON CROCKER DISTRIBUTORS, INC., MOUNT MATUTUM MARKETING CORP., FIRST UNION TRADING CORP., CARLSBURG AND SONS, INC., OMAR ALI DISTRIBUTORS, INC., ORIEL AND COMPANY, NEMESIO TAN, QUINTIN CALLEJA, YOLANDA MANALILI, CARLOS CHAN, ROMEO TAN, VICENTE CO, WILLIAM YU, LETICIA LIM, GLORIA LOPEZ, ROBERT TANTAMCO, FELIPE LOY, ROLANDO CHUA, HONORINA TAN, WILLIE TANTAMCO, HENRY WEECHEE, JESUS LIM, TEODORO TAN, ANTONIO APOSTOL, DOMINGO TENG, CANDELARIO LI, ERLINDA CRUZ, CARLOS TUMPALAN, LARRY JOHN SY, ERNESTO ONG, WILFREDO MACROHON, ANTONIO TIU, ROSARIO LESTER, WILFREDO ONG, BONIFACIO CHUA, GO CHING CHUAN, HENRY CHUA, LOPE LIM GUAN, EMILIO TAN, FELIPE TAN SEH CHUAN, ANDRES CO, FELIPE KEE, HENRY GO CO, NARCISO GO, ADOLFO LIM, CO SHU, DANIEL YAO CABIGUN, GABRIELLE. QUINTELA, NELSON TE, EMILLIO GO, EDWIN LEE, CESAR LEDESMA, JR., JAO CHEP SENG, ARNULFO TAN, BENJAMIN T. HONG, PHILIP JAO, JOSE P. YU, AND DAVID R. CORTES, respondents-intervenors.

KAPUNAN, J.:p Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION The pivotal issue in this petition for review is whether or not respondent Court of Appeals in its decision 1 in CA-G.R. SP No. 33599 correctly ruled that the Regional Trial Court of Quezon City (Branch 88) in Civil Case No. Q-94- 18790 did not commit grave abuse of discretion amounting to lack of jurisdiction in issuing four (4) orders directing the issuance of writs of preliminary injunction restraining petitioner prosecutors from continuing with the preliminary injunction of I.S. Nos. 93-508 and 93-584 in the Department of Justice and I.S. No. 93-17942 in the Office of the City Prosecutors of Quezon City wherein private respondents were respondents and denying petitioners' Motion to Dismiss said Civil Case No. 94-18790. 2 In resolving the issue raised in the petition, the Court may be guided by its definition of what constitutes grave abuse of discretion. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility. 3

G.R. No. 119322 June 4, 1996 COMMISSIONER ON INTERNAL REVENUE, SENIOR STATE PROSECUTOR AURORA S. LAGMAN, SENIOR STATE PROSECUTOR BERNELITO R. FERNANDEZ, SENIOR STATE PROSECUTOR HENRICK P. GINGOYON, ROGELIO F. VISTA, STATE PROSECUTOR ALFREDO AGCAOILI, PROSECUTING ATTORNEY EMMANUEL VELASCO, CITY PROSECUTOR CANDIDO V. RIVERA, AND ASSISTANT CITY PROSECUTOR LEOPOLDO E. BARAQUIA, petitioners,

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On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate the tax liabilities of manufacturers engaged in tax evasion scheme, such as selling products through dummy marketing corporations to avoid payment of correct internal revenue tax, to collect from them any tax liabilities discovered from such investigation, and to file the necessary criminal actions against those who may have violated the tax code. The task force was composed of the Commissioner of Internal Revenue as Chairman, a representative of the Department of Justice and a representative of the Executive Secretary. On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum Circular No. 37-93 reclassifying best selling cigarettes bearing the brands "Hope," "More," and "Champion" as cigarettes of foreign brands subject to a higher rate of tax. On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the validity of the reclassification of said brands of cigarettes as violative of its right to due process and equal protection of law. Parenthetically, on September 8, 1993, the Court of Tax Appeals by resolution ruled that the reclassification made by the Commissioner "is of doubtful legality" and enjoined its enforcement. In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the Commissioner assessed against Fortune the total amount of P7,685,942,221.66 representing deficiency income, ad valorem and value-added tax for the year 1992 with the request that the said amount be paid within thirty (30) days upon receipt thereof. 4 Fortune on September 17, 1993 moved for reconsideration of the assessments. On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with the Department of Justice against respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of income tax, ad valorem tax and value-added tax for the year 1992. The complaint alleged, among others, that: In the said income tax return, the taxpayer declared a net taxable income of P183,613,408.00 and an income tax due of P64,264,693.00. Based mainly on documentary evidence submitted by the taxpayer itself, these declarations are false and fraudulent because the correct taxable income of the corporation for the said year is P1,282,959,399.25. This underdeclaration which resulted in the evasion of the amount of P723,773,759.79 as deficiency income tax for the year 1992 is a violation of Section 45 of the Tax Code, penalized under Section 253 in relation to Sections 252(b) and (d) and 253 thereof, thus: . . . xxx xxx xxx

Fortune Tobacco Corporation, through its Vice-President for Finance, Roxas Chua, likewise filed value-added tax returns for the 1st, 2nd, 3rd and 4th quarters of 1992 with the Rev. District Office of Marikina, Metro Manila, declaring therein gross taxable sales, as follows: 1st Qtr. P 2,924,418,055.00 2nd Qtr. 2,980,335,235.00 3rd Qtr. 2,839,519,325.00 4th Qtr. 2,992,386,005.00 However, contrary to what have been reported in the said valueadded tax returns, and based on documentary evidence obtained from the taxpayer, the total actual taxable sales of the corporation for the year 1992 amounted to P16,158,575,035.00 instead of P11,929,322,334.52 as declared by the corporation in the said VAT returns. These fraudulent underdeclarations which resulted in the evasion of value-added taxes in the aggregate amount of P1,169,688,645.63 for the entire year 1992 are violations of Section 110 in relation to Section 100 of the Tax Code, which are likewise penalized under the aforequoted Section 253, in relation to Section 252, thereof. Sections 110 and 100 provide: xxx xxx xxx Furthermore, based on the corporation's VAT returns, the corporation reported its taxable sales for 1992 in the amount of P11,736,658,580. This declaration is likewise false and fraudulent because, based on the daily manufacturer's sworn statements submitted to the BIR by the taxpayer, its total taxable sales during the year 1992 is P16,686,372,295.00. As a result thereof, the corporation was able to evade the payment of ad valorem taxes in the aggregate amount of P5,792,479,816.24 in violation of Section 127 in relation to Section 142, as amended by R.A. 6956, penalized under the aforequoted Section 253, in relation to Section 252, all of the Tax Code. Sections 127 and 142, as amended by R.A. 6956, are quoted as follows: . . . The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice Task Force on revenue cases which found sufficient basis to further investigate the allegations that Fortune, through fraudulent means, evaded payment of income tax, ad valorem tax,

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and value-added tax for the year 1992 thus, depriving the government of revenues in the amount of Seven and One-half (P7.5) Billion Pesos. The fraudulent scheme allegedly adopted by private respondents consisted of making fictitious and simulated sales of Fortune's cigarette products to non-existing individuals and to entities incorporated and existing only for the purpose of such fictitious sales by declaring registered wholesale prices with the BIR lower than Fortune's actual wholesale prices which are required for determination of Fortune's correct income, ad valorem, and value-added tax liabilities. The "ghosts wholesale buyers" then ostensibly sold the products to customers and other wholesalers/retailers at higher wholesale prices determined by Fortune. The tax returns and manufacturer's sworn statements filed by Fortune would then declare the fictitious sales it made to the conduit corporators and non-existing individual buyers as its gross sales. 5 On September 8, 1993, the Department of Justice Task Force issued a subpoena directing private respondents to submit their counter-affidavits not later than September 20, 1993. 6 Instead of filing their counter-affidavits, the private respondents on October 15, 1993 filed a Verified Motion to Dismiss; Alternatively Motion to Suspend, 7 based principally on the following grounds: 1. The complaint of petitioner Commissioner follows a pattern of prosecution against private respondents in violation of their right to due process and equal protection of the law. 2. Petitioner Commissioner and the Court of Tax Appeals have still to determine Fortune's tax liability for 1992 in question; without any tax liability, there can be no tax evasion. 3. Exclusive jurisdiction to determine tax liability is vested in the Court of Tax Appeals; therefore, the DOJ is without jurisdiction to conduct preliminary investigation. 4. The complaint of petitioner Commissioner is not supported by any evidence to serve as adequate basis for the issuance of subpoena to private respondents and to put them to their defense. At the scheduled preliminary investigation on October 15, 1993, private respondents were asked by the panel of prosecutors to inform it of the aspects of the Verified Motion to Dismiss which counsel for private respondents did so briefly. Counsel for the Commissioner of Internal Revenue asked for fifteen (15) days within which to file a reply in writing to private respondents' Verified Motion to Dismiss. Thereupon, the panel of

prosecutors declared a recess. Upon reconvening, the panel of prosecutors denied the motion to dismiss and treated the same as private respondents' counter-affidavits. 8 On October 20, 1993, private respondents filed a motion for reconsideration of the order of October 15, 1993. 9On October 21, 1993, private respondents filed a motion to require the submission by the Bureau of Internal Revenue of certain documents in further support of their Verified Motion to Dismiss. Among the documents sought to be produced are the "Daily Manufacturer's Sworn Statements" which according to petitioner Commissioner in her complaint were submitted by Fortune to the BIR and which were the basis of her conclusion that Fortune's tax declarations were false and fraudulent. Fortune claimed that without the "Daily Manufacturer's Sworn Statements," there is no evidence to support the complaint, hence, warranting its outright dismissal. On October 26, 1993, private respondents moved for the inhibition of the State prosecutors assigned to the case for alleged lack of impartiality. 10 Private respondents also sought the production of the "Daily Manufacturer's Sworn Statements" submitted by certain cigarette companies similarly situated as Fortune but were not proceeded against, thus, private respondents charged that Fortune and its officers were being singled out for criminal prosecution which is discriminatory and in violation of the equal protection clause of the Constitution. On December 20, 1993, the panel of prosecutors issued an Omnibus Order 11 denying private respondents' motion for reconsideration, motion for suspension of investigation, motion to inhibit the State Prosecutors, and motion to require submission by the BIR of certain documents to further support private respondents' motion to dismiss. On January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction with the Regional Trial Court, Branch 88, Quezon City, docketed as Q-94-18790, praying that the complaint of the Commissioner of Internal Revenue and the orders of the prosecutors in I.S. No. 93-508 be dismissed or set aside, alternatively, the proceedings on the preliminary investigation be suspended pending final determination by the Commissioner of Fortune's motion for reconsideration/ reinvestigation of the August 13, 1993 assessment of the taxes due. 12 On January 17, 1994, petitioners filed a motion to dismiss the petition 13 on the grounds that (a) the trial court is bereft of jurisdiction to enjoin a criminal prosecution under preliminary investigation; (b) a criminal prosecution for tax fraud can proceed independently of criminal or administrative action; (c) there is no prejudicial question to justify suspension of the preliminary investigation; (d) private respondents' rights to due process was not violated; and (e) selective prosecution is not a valid defense in this jurisdiction. On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary injunction in the petition, private respondents offered in evidence their verified petition for certiorari and prohibition and its annexes. Petitioners responded by praying that their

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motion to dismiss the petition for certiorari and prohibition be considered as their opposition to private respondents' application for the issuance of a writ of preliminary injunction. On January 25, 1994, the trial court issued an order granting the prayer for the issuance of a preliminary injunction. 14 The trial court rationalized its order in this wise: a) It is private respondents' claim that the ad valorem tax for the year 1992 was levied, assessed and collected by the BIR under Section 142(c) of the Tax Code on the basis of the "manufacturer's registered wholesale price" duly approved by the BIR. Fortune's taxable sales for 1992 was in the amount of P11,736,658,580.00. b) On the other hand, it is petitioners' contention that Fortune's declaration was false and fraudulent because, based on its daily manufacturer's sworn statements submitted to the BIR, its taxable sales in 1992 were P16,686,372,295.00, as a result of which, Fortune was able to evade the payment of ad valorem tax in the aggregate amount of P5,792,479,816.24. c) At the hearing for preliminary investigation, the "Daily Manufacturer's Sworn Statements" which, according to petitioners, were submitted to the BIR by private respondents and made the basis of petitioner Commissioner's complaint that the total taxable sales of Fortune in 1992 amounted to P16,686,372, 295.00 were not produced as part of the evidence for petitioners. In fact, private respondents had filed a motion to require petitioner Commissioner to submit the aforesaid daily manufacturer's sworn statements before the DOJ panel of prosecutors to show that Fortune's actual taxable sales totaled P16,686,373,295.00, but the motion was denied. d) There is nothing on record in the preliminary investigation before the panel of investigators which supports the allegation that Fortune made a fraudulent declaration of its 1992 taxable sales. e) Since, as alleged by private respondents, the ad valorem tax for the year 1992 should be based on the "manufacturer's registered wholesale price" while, as claimed by petitioners, the ad valorem taxes should be based on the wholesale price at which the manufacturer sold the cigarettes, which is a legal issue as admitted by a BIR lawyer during the hearing for preliminary injunction, the correct interpretation of the law involved, which is Section 142(c) of the Tax Code, constitutes a prejudicial question which must first be resolved before criminal proceedings for tax evasion may be pursued. In other words, the BIR must first make a final determination, which it has not, of

Fortune's tax liability relative to its 1992 ad valorem, value-added and income taxes before the taxpayer can be made liable for tax evasion. f) There was a precipitate issuance by the panel of prosecutors of subpoenas to private respondents, on the very day following the filing of the complaint with the DOJ consisting of about 600 pages, and the precipitate denial by the panel of prosecutors, after a recess of about twenty (20) minutes, of private respondents' motion to dismiss, consisting of one hundred and thirty five (135) pages. g) Private respondents had been especially targeted by the government for prosecution. Prior to the filing of the complaint in I.S. No. 93-508, petitioner Commissioner issued Revenue Memorandum Circular No. 37-93 reclassifying Fortune's best selling cigarettes, namely "Hope," "More," and "Champion" as cigarettes bearing a foreign brand, thereby imposing upon them a higher rate of tax that would price them out of the market. h) While in petitioner Commissioner's letter of August 13, 1993, she gave Fortune a period of thirty (30) days from receipt thereof within which to pay the alleged tax deficiency assessments, she filed the criminal complaint for tax evasion before the period lapsed. i) Based on the foregoing, the criminal complaint against private respondents was filed prematurely and in violation of their constitutional right to equal protection of the laws. On January 26, 1994, private respondents filed with the trial court a Motion to Admit Supplemental Petition and sought the issuance of a writ of preliminary injunction to enjoin the State Prosecutors from continuing with the preliminary investigation filed by them against private respondents with the Quezon City Prosecutor's Office, docketed as I.S. 9317942, for alleged fraudulent tax evasion, committed by private respondents for the taxable year 1990. Private respondents averred in their motion that no supporting documents or copies of the complaint were attached to the subpoena in I.S. 93-17942; that the subpoena violates private respondents' constitutional right to due process, equal protection and presumption of innocence; that I.S. 93-17942 is substantially the same as I.S. 93-508; that no tax assessment has been issued by the Commission of Internal Revenue and considering that taxes paid have not been challenged, no tax liability exists; and that since Assistant City Prosecutor Baraquia was a former classmate of Presidential Legal Counsel Antonio T. Carpio, the former cannot conduct the preliminary investigation in an impartial manner. On January 28, 1994, private respondents filed with the trial court a second supplemental petition, 15 also seeking to stay the preliminary investigation in I.S. 93-584, which was the

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third complaint filed against private respondents with the DOJ for alleged fraudulent tax evasion for the taxable year 1991. On January 31, 1994, the lower court admitted the two (2) supplemental petitions and issued a temporary restraining order in I.S. 93-17942 and I.S. 93-584. 16 Also, on the same day, petitioners filed an Urgent Motion for Immediate Resolution of petitioners' motion to dismiss. On February 7, 1994, the trial court issued an order denying petitioners' motion to dismiss private respondents' petition seeking to stay preliminary investigation in I.S. 93-508, ruling that the issue of whether Sec. 127(b) of the National Tax Revenue Code should be the basis of private respondents' tax liability as contended by the Bureau of Internal Revenue, or whether it is Section 142(c) of the same Code that applies, as argued by herein private respondents, should first be settled before any complaint for fraudulent tax evasion can be initiated. 17 On February 14, 1994, the trial court issued an order granting private respondents' petition for a supplemental writ of preliminary injunction, likewise enjoining the preliminary investigation of the two (2) other complaints filed with the Quezon City Prosecutor's Office and the DOJ for fraudulent tax evasion, I.S. 93-17942 and I.S. 93-584, for alleged tax evasion for the taxable years 1990 and 1991 respectively. 18 In granting the supplemental writ, the trial court stated that the two other complaints are the same as in I.S. 93-508, except that the former refer to the taxable years 1990 and 1991. On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer for preliminary injunction before this Court. However, the petition was referred to the Court of Appeals for disposition by virtue of its original concurrent jurisdiction over the petition. On December 19, 1994, the Court of Appeals in CA-G.R No. SP-33599 rendered a decision denying the petition. The Court of Appeals ruled that the trial court committed no grave abuse of discretion in ordering the issuance of writs of preliminary injunction and in denying petitioners' motion to dismiss. In upholding the reasons and conclusions given by the trial court in its orders for the issuance of the questioned writs, the Court of Appeals said in part: In making such conclusion the respondent Court must have understood from herein petitioner Commissioner's letter-complaint of 14 pages (pp. 477-490, rollo of this case) and the joint affidavit of eight revenue officers of 17 pages attached thereto (pp. 491-507, supra) and its annexes (pp. 508-1077, supra), that the charge against herein respondents is for tax evasion for non-payment by herein respondent Fortune of the correct amounts of income tax, ad valorem tax and value added tax, not necessarily "fraudulent tax evasion." Hence, the need for previous assessment of the correct amount by herein petitioner Commissioner before herein respondents may be charged

criminally.Certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a Court acts within its jurisdictions, any alleged error committed in the exercise of its jurisdiction, will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari (Santos, Jr. vs. Court of Appeals, 152 SCRA 378; Gold City Integrated Port Services, Inc. vs. Intermediate Appellate Court, 171 SCRA 579). The questioned orders issued after hearing (Annexes A, B, C and D, petition) being but interlocutory, review thereof by this Court is inappropriate until final judgment is rendered, absent a showing of grave abuse of discretion on the part of the issuing court (See Van Dorn vs. Romillo, 139 SCRA 139, 141; Newsweek, Inc. vs. IAC, 171, 177; Mendoza vs. Court of Appeals, 201 SCRA 343, 352). The factual and legal issues involved in the main case still before the respondent Court are best resolved after trial. Petitioners, therefore, instead of resorting to this petition for certiorari and prohibition should have filed an answer to the petition as ordained in Section 4, Rule 16, in connection with Rule 11 of the Revised Rules of Court, interposing as defense or defenses the objection or objections raised in their motion to dismiss, then proceed to trial in order that thereafter the case may be decided on the merits by the respondent Court. In case of an adverse decision, they may appeal therefrom by which the entire record of the case would be elevated for review (See Mendoza vs. Court of Appeals, supra). Therefore, certiorari and prohibition resorted to by herein petitioners will not lie in view of the remedy open to them. Thus, the resulting delay in the final disposition of the case before the respondent Court would not have been incurred. Grave abuse of discretion as a ground for issuance of writs of certiorari and prohibition implies capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility, amounting to an evasion of positive duty or to a virtual refusal to perform the duty enjoined, or to act at all in contemplation of law (Confederation of Citizens Labor Union vs. NLRC, 60 SCRA 84; Bustamante vs. Commission on Audit, 216 SCRA 134). For such writs to lie, there must be capricious, arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil law and common law traditions (Young vs. Sulit, 162 SCRA 659, 664; FCC vs. IAC, 166 SCRA 155; Purefoods Corp. vs. NLRC, 171 SCRA 45). Certiorari and prohibition are remedies narrow in scope and inflexible in character. They are not general utility tools in the legal workshop (Vda. de Guia vs. Veloso, 158 SCRA 340, 344). Their function is but limited to

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correction of defects of jurisdiction solely, not to be used for any other purpose (Garcia vs. Ranada, 166 SCRA 9), such as to cure errors in. proceedings or to correct erroneous conclusions of law or fact (Gold City Integrated Ports Services vs. IAC, 171 SCRA 579). Due regard for the foregoing teachings enunciated in the decisions cited can not bring about a decision other than what has been reached herein. Needless to say, the case before the respondent court involving those against herein respondents for alleged non-payment of the correct amounts due as income tax, ad valorem tax and value added tax for the years 1990, 1991 and 1992 (Civil Case No. Q-94-18790) is not ended by this decision. The respondent Court is still to try the case and decide it on the merits. All that is decided here is but the validity of the orders of the respondent Court granting herein respondents' application for preliminary injunction and denying herein petitioners' motion to dismiss. If upon the facts established after trial and the applicable law, dissolution of the writ of preliminary injunction allowed to be issued by the respondent Court is called for and a judgment favorable to herein petitioners is demanded, the respondent Court is duty bound to render judgment accordingly. WHEREFORE, the instant petition for certiorari and prohibition with application for issuance of restraining order and writ of preliminary injunction is DISMISSED. Costs de oficio. 19 Their motion for reconsideration having been denied by respondent appellate court on February 23, 1995, petitioners filed the present petition for review based on the following grounds: THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN HOLDING THAT: I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY THE SUSPENSION OF THE PRELIMINARY INVESTIGATION. II. PRIVATE RESPONDENTS' RIGHTS TO DUE PROCESS, EQUAL PROTECTION AND PRESUMPTION OF INNOCENCE WERE VIOLATED; ON THE CONTRARY, THE STATE ITSELF WAS DEPRIVED OF DUE PROCESS. III. THE ADMISSION OF PRIVATE RESPONDENTS' SUPPLEMENTAL PETITIONS WERE PROPER.

IV. THERE WAS SELECTIVE PROSECUTION. V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS BASED ON JURISDICTIONAL GROUNDS. VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A DECISION ON THE MERITS OF THE PETITION BEFORE THE LOWER COURT. 20 The petition is bereft of merit. In essence, the complaints in I.S. Nos. 93-508, 93-584 and 93-17942 charged private respondents with fraudulent tax evasion or wilfully attempting to evade or defeat payment of income tax, ad valorem tax and value-added tax for the year 1992, as well as for the years 1990-1991. The pertinent provisions of law involved are Sections 127(b) and 142(c) of the National Internal Revenue Code which state: Sec. 127. . . . (b) Determination of gross selling price of goods subject to ad valorem tax. -- Unless otherwise provided, the price, excluding the value-added tax, at which the goods are sold at wholesale in the place of production or through their sales agents to the public shall constitute the gross selling price. If the manufacturer also sells or allows such goods to be sold at wholesale price in another establishment of which he is the owner or in the profits at which he has an interest, the wholesale price in such establishment shall constitute the gross selling price. Should such price be less than the costs of manufacture plus expenses incurred until the goods are finally sold, then a proportionate margin of profit, not less than 10% of such manufacturing costs and expenses, shall be added to constitute the gross selling price. Sec. 142. . . . (c) Cigarettes packed in twenties. -- There shall be levied, assessed and collected on cigarettes packed in twenties an ad valorem tax at the rates prescribed below based on the manufacturer's registered wholesale price. xxx xxx xxx

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Private respondents contend that per Fortune's VAT returns, correct taxable sales for 1992 was in the amount of P11,736,658,580.00 which was the "manufacturer's registered wholesale price" in accordance with Section 142(c) of the Tax Code and paid the amount of P4,805,254,523 as ad valorem tax. On the other hand, petitioners allege, as specifically worded in the complaint in I.S. No. 93508, that "based on the daily manufacturer's sworn statements submitted to the BIR by the Taxpayer (Fortune's) total taxable sales during the year 1992 is P16,686,372,295.00," as result of which Fortune "was able to evade the payment of ad valorem taxes in the aggregate amount of P5,792,479,816.24 . . ." Petitioners now argue that Section 127(b) lays down the rule that in determining the gross selling price of goods subject to ad valorem tax, it is the price, excluding the value-added tax, at which the goods are sold at wholesale price in the place of production or through their sales agents to the public. The registered wholesale price shall then be used for computing the ad valorem tax which is imposable upon removal of the taxable goods from the place of production. However, petitioners claim that Fortune used the "manufacturer's registered wholesale price" in selling the goods to alleged fictitious individuals and dummy corporations for the purpose of evading the payment of the correct ad valorem tax. There can be no question that under Section 127(b), the ad valorem tax should be based on the correct price excluding the value-added tax, at which goods are sold at wholesale in the place of production. It is significant to note that among the goods subject to ad valorem tax, the law -- specifically Section 142(c) -- requires that the corresponding tax on cigarettes shall be levied, assessed and collected at the rates based on the "manufacturer's registered wholesale price." Why does the wholesale price need to be registered and what is the purpose of the registration? The reason is self-evident, which is to ensure the payment of the correct taxes by the manufacturers of cigarettes through close supervision, monitoring and checking of the business operations of the cigarette companies. As pointed out by private respondents, no industry is as intensely supervised by the BIR and also by the National Tobacco Administration (NTA). Thus, the purchase and use of raw materials are subject to prior authorization and approval by the NTA. Importations of bobbins or cigarette paper, the manufacture, sale, and utilization of the same, are subject to BIR supervision and approval. 21 Moreover, as pointed to by private respondents, for purposes of closer supervision by the BIR over the production of cigarettes, Revenue Enforcement Officers are detailed on a 24hour basis in the premises of the manufacturer to secure production and removal of finished products. Composite Mobile Teams conduct counter-security on the business operations as well as the performance of the Revenue Enforcement Officers detailed thereat. Every transfer of any raw material is not allowed unless, in addition to the required permits, accompanied by Revenue Enforcement Officer. For the purpose of determining the "Manufacturer's Registered Wholesale Price" a cigarette manufacturer is required to file a Manufacturer's Declaration (BIR Form No. 31.03) for each brand of

cigarette manufactured, stating: a) Materials, b) Labor; c) Overhead; d) Tax Burden and the Wholesale Price by Case. The data submitted therewith is verified by the Revenue Officers and approved by the Commission of Internal Revenue. Any change in the manufacturer's registered wholesale price of any brand cannot be effected without submitting the corresponding Sworn Manufacturer's Declaration and verified by the Revenue Officer and approved by the Commissioner on Internal Revenue. 22 The amount of ad valorem tax payments together with the Payment Order and Confirmation Receipt Nos. must be indicated in the sales and delivery invoices and together with the Manufacturer's Sworn Declarations on (a) the quantity of raw materials used during the day's operations; (b) the total quantity produced according to brand; and (c) the corresponding quantity removed during the day, the corresponding wholesale price thereof, and the VAT paid thereon must be presented to the corresponding BIR representative for authentication before removal. Thus, as observed by the trial court in its order of January 25, 1994 granting private respondents' prayer for the issuance of a writ of preliminary injunction, Fortune's registered wholesale price (was) duly approved by the BIR, which fact is not disputed by petitioners. 23 Now, if every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortune's premises, and considering that the Manufacturer's Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR and, further, since the manufacturer's wholesale price was duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, or approximates "the price, excluding the value-added tax, at which the goods are sold at wholesale in the place production," otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that private respondents made fraudulent returns or wilfully attempted to evade payment of taxes due. "Wilful" means "premeditated; malicious; done with intent, or with bad motive or purpose, or with indifference to the natural consequence . . ." 24 "Fraud" in its general sense, "is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage taken of another. 25 Fraud cannot be presumed. If there was fraud or wilful attempt to evade payment of ad valorem taxes by private respondents through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortune's production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence, of BIR personnel's malfeasance. In the very least, there is the presumption that the BIR personnel performed their duties in the regular course in ensuing the correct taxes were paid by Fortune. 26

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It is the opinion of both the trial court and respondent Court of Appeals, that before Fortune and the other private respondents could be prosecuted for tax evasion under Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad valorem and value-added taxes were due from Fortune for the year 1992 should first be established. Fortune received form the Commissioner of Internal Revenue the deficiency assessment notices in the total amount of P7,685,942,221.06 on August 24, 1993. However, under Section 229 of the Tax Code, the taxpayer has the right to move for reconsideration of the assessment issued by the Commissioner of Internal Revenue within thirty (30) days from receipt of the assessment; and if the motion for reconsideration is denied, it may appeal to the Court of Appeals within thirty (30) days from receipt of the Commissioner's decision. Here, Fortune received the Commissioner's assessment notice dated August 13, 1993 on August 24, 1993 asking for the payment of the deficiency taxes. Within thirty (30) days from receipt thereof, Fortune moved for reconsideration. The Commissioner has not resolved the request for reconsideration up to the present. We share with the view of both the trial court and court of Appeals that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that private respondents have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. In plain words, before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax code, the fact that a tax is due must first be proved. Suppose the Commissioner eventually resolves Fortune's motion for reconsideration of the assessments by pronouncing that the taxpayer is not liable for any deficiency assessment, then, the criminal complaints filed against private respondents will have no leg to stand on. In view of the foregoing reasons, we cannot subscribe to the petitioners' thesis citing Ungad v. Cusi, 27 that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution. Reading Ungad carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.:28 "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat apart or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima facieshowing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungad because of the taxpayer's failure to declare in his income tax return "his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be

placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungad and the case at bar. This brings us to the erroneous disquisition that private respondents' recourse to the trial court by way of special civil action of certiorari and prohibition was improper because: a) the proceedings before the state prosecutors (preliminary injunction) were far from terminated -- private respondents were merely subpoenaed and asked to submit counter affidavits, matters that they should have appealed to the Secretary of Justice; b) it is only after the submission of private respondents' counter affidavits that the prosecutors will determine whether or not there is enough evidence to file in court criminal charges for fraudulent tax evasion against private respondents; and c) the proper procedure is to allow the prosecutors to conduct and finish the preliminary investigation and to render a resolution, after which the aggrieved party can appeal the resolution to the Secretary of Justice. We disagree. As a general rule, criminal prosecutions cannot be enjoined. However, there are recognized exceptions which, as summarized in Brocka v. Enrile 29 are: a. To afford adequate protection to the constitutional rights of the accused (Hernandez vs. Albano, et al., L-19272, January 25, 1967, 19 SCRA 95); b. When necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs. Albano, supra; Fortun vs. Labang, et al., L38383, May 27, 1981, 104 SCRA 607); c. When there is a prejudicial question which is sub judice (De Leon vs. Mabanag, 70 Phil 202); d. When the acts of the officer are without or in excess of authority (Planas vs. Gil, 67 Phil 62); e. Where the prosecution is under an invalid law, ordinance or regulation (Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389); f. When double jeopardy is clearly apparent (Sangalang vs. People and Alvendia, 109 Phil. 1140);

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g. Where the court had no jurisdiction over the offense (Lopez vs. City Judge, L-25795, October 29, 1966, 18 SCRA 616); h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760, March 25, 1960); i. Where the charges are manifestly false and motivated by the lust for vengeance (Recto vs. Castelo, 18 L.J. [1953], cited in Rano vs. Alvenia, CA-G.R. No. 30720-R, October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-60033, April 4, 1984, 128 SCRA 577); and j. When there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied (Salonga vs. Pane, et al., L-59524, February 18, 1985, 134 SCRA 438). In issuing the questioned orders granting the issuance of a writ of preliminary injunction, the trial court believed that said orders were warranted to afford private respondents adequate protection of their constitutional rights, particularly in reference to presumption of innocence, due process and equal protection of the laws. The trial court also found merit in private respondents' contention that preliminary injunction should be issued to avoid oppression and because the acts of the state prosecutors were without or in excess of authority and for the reason that there was a prejudicial question. Contrary to petitioners' submission, preliminary investigation may be enjoined where exceptional circumstances so warrant. In Hernandez v. Albano 30 and Fortun v. Labang, 31 injunction was issued to enjoin a preliminary investigation. In the case at bar, private respondents filed a motion to dismiss the complaint against them before the prosecution and alternatively, to suspend the preliminary investigation on the grounds cited hereinbefore, one of which is that the complaint of the Commissioner is not supported by any evidence to serve as adequate basis for the issuance of the subpoena to them and put them to their defense. Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious and oppressive prosecution and to protect him from an open and public accusation of crime, from the trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive trials. 32 Thus, the pertinent provisions of Rule 112 of the Rules of Court state: Sec. 3. Procedure. -- Except as provided for in Section 7 hereof, no complaint or information for an offense cognizable by the Regional Trial Court shall be filed without a preliminary investigation having been first conducted in the following manner:

(a) The complaint shall state the known address of the respondent and be accompanied by affidavits of the complainant and his witnesses as well as other supporting documents, in such number of copies as there are respondents, plus two (2) copies for the official file. The said affidavits shall be sworn to before any fiscal, state prosecutor or government official authorized to administer oath, or, in their absence or unavailability, a notary public, who must certify that he personally examined the affiants and that he is satisfied that they voluntarily executed and understood their affidavits. (b) Within ten (10) days after the filing of the complaint, the investigating officer shall either dismiss the same if he finds no ground to continue with the inquiry, or issue a subpoena to the respondent, attaching thereto a copy of the complaint, affidavits and other supporting documents. Within ten (10) days from receipt thereof, the respondent shall submit counter-affidavits and other supporting documents. He shall have the right to examine all other evidence submitted by the complainant. (c) Such counter-affidavits and other supporting evidence submitted by the respondent shall also be sworn to and certified as prescribed in paragraph (a) hereof and copies thereof shall be furnished by him to the complainant. (d) If the respondent cannot be subpoenaed, or if subpoenaed, does not submit counter-affidavits within the ten (10) day period, the investigating officer shall base his resolution on the evidence presented by the complainant. (e) If the investigating officer believes that there are matters to be clarified, he may set a hearing to propound clarificatory questions to the parties or their witnesses, during which the parties shall be afforded an opportunity to be present but without the right to examine or cross-examine. If the parties so desire, they may submit questions to the investigating officer which the latter may propound to the parties or witnesses concerned. (f) Thereafter, the investigation shall be deemed concluded, and the investigating officer shall resolve the case within ten (10) days therefrom. Upon the evidence thus adduced, the investigating officer shall determine whether or not there is sufficient ground to hold the respondent for trial. As found by the Court of Appeals, there was obvious haste by which the subpoena was issued to private respondents, just the day after the complaint was filed, hence, without

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the investigating prosecutors being afforded material time to examine and study the voluminous documents appended to the complaint for them to determine if preliminary investigation should be conducted. The Court of Appeals further added that the precipitate haste in the issuance of the subpoena justified private respondents' misgivings regarding the objectivity and neutrality of the prosecutors in the conduct of the preliminary investigation and so, the appellate court concluded, the grant of preliminary investigation by the trial court to afford adequate protection to private respondents' constitutional rights and to avoid oppression does not constitute grave abuse of discretion amounting to lack of jurisdiction. The complaint filed by the Commissioner on Internal Revenue states itself that the primary evidence establishing the falsity of the declared taxable sales in 1992 in the amount of P11,736,658,580.00 were the "daily Manufacturer's Sworn Statements" submitted by the taxpayer which would show that the total taxable sales in 1992 are in the amount of P16,686,372,295.00. However, the Commissioner did not present the "Daily Manufacturer's Sworn Statements" supposedly submitted to the BIR by the taxpayer, prompting private respondents to move for their production in order to verify the basis of petitioners' computation. Still, the Commissioner failed to produce the declarations. In Borja v. Moreno, 33 it was held that the act of the investigator in proceeding with the hearing without first acting on respondents' motion to dismiss is a manifest disregard of the requirement of due process. Implicit in the opinion of the trial court and the Court of Appeals is that, if upon the examination of the complaint, it was clear that there was no ground to continue, with the inquiry, the investigating prosecutor was duty bound to dismiss the case. On this point, the trial court stressed that the prosecutor conducting the preliminary investigation should have allowed the production of the "Daily Manufacturer's Sworn Statements" submitted by Fortune without which there was no valid basis for the allegation that private respondents wilfully attempted to evade payment of the correct taxes. The prosecutors should also have produced the "Daily Manufacturer's Sworn Statements" by other cigarette companies, as sought by private respondents, to show that these companies which had paid the ad valorem taxes on the same basis and in the same manner as Fortune were not similarly criminally charged. But the investigating prosecutors denied private respondents' motion, thus, indicating that only Fortune was singled out for prosecution. The trial court and the Court of Appeals maintained that at that stage of the preliminary investigation, where the complaint and the accompanying affidavits and supporting documents did not show any violation of the Tax Code providing penal sanctions, the prosecutors should have dismissed the complaint outright because of total lack of evidence, instead of requiring private respondents to submit their counter affidavits under Section 3(b) of Rule 112. We believe that the trial court in issuing its questioned orders, which are interlocutory in nature, committed no grave abuse of discretion amounting to lack of jurisdiction. There are factual and legal bases for the assailed orders. On the other hand, the burden is upon the petitioners to demonstrate that the questioned orders constitute a whimsical and capricious exercise of judgment, which they have not. For certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its

jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. 34 Consequently, the Regional Trial Court acted correctly and judiciously, and as demanded by the facts and the law, in issuing the orders granting the writs of preliminary injunction, in denying petitioners' motion to dismiss and in admitting the supplemental petitions. What petitioners should have done was to file an answer to the petition filed in the trial court, proceed to the hearing and appeal the decision of the court if adverse to them. WHEREFORE, the instant petition is hereby DISMISSED. SO ORDERED. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 119761 August 29, 1996 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION,respondents.

VITUG, J.:p The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of Tax Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue." The facts, by and large, are not in dispute. Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes.

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On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates: BRAND AD VALOREM TAX RATE E.O. 22 and E.O. 273 RA 6956 06-23-86 07-25-87 06-18-90 07-01-86 01-01-88 07-05-90 Hope Luxury M. 100's Sec. 142, (c), (2) 40% 45% Hope Luxury M. King Sec. 142, (c), (2) 40% 45% More Premium M. 100's Sec. 142, (c), (2) 40% 45% More Premium International Sec. 142, (c), (2) 40% 45% Champion Int'l. M. 100's Sec. 142, (c), (2) 40% 45% Champion M. 100's Sec. 142, (c), (2) 40% 45% Champion M. King Sec. 142, (c), last par. 15% 20% Champion Lights Sec. 142, (c), last par. 15% 20% 5 A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows: Sec. 142. Cigars and Cigarettes. xxx xxx xxx

(c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher: (1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack. (2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack. xxx xxx xxx When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied) About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed: REPUBLIKA NG PILIPINAS KAGAWARAN NG PANANALAPI KAWANIHAN NG RENTAS INTERNAS

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REVENUE MEMORANDUM CIRCULAR NO. 37-93 SUBJECT: Reclassification of Cigarettes Subject to Excise Tax TO: All Internal Revenue Officers and Others Concerned. In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are locally manufactured are appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the previous rulings on the matter. Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. . . ." "HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds,

USA. "Champion" is registered in the said directory as being manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland. Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made." In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes. Any ruling inconsistent herewith is revoked or modified accordingly.

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C H A T O C o m m i s s i o n e r On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested for a review, reconsideration and recall of RMC 3793. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8 On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged: WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other

locally manufactured cigarettes and taxed at 45% or 20% as the case may be. Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis. Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93. SO ORDERED. 9 In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration. The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and resolution. In the instant petition, the Solicitor General argues: That I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE. II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY. III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993. IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE" AND "CHAMPION" CIGARETTES.

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V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING "HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654. VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10 In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes. The Court must sustain both the appellate court and the tax court. Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers. Let us first distinguish between two kinds of administrative issuances a legislative rule and aninterpretative rule. In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the Court expressed: . . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof . In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides: Public Participation. If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon. (3) In case of opposition, the rules on contested cases shall be observed. In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing. 12 It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

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RMC NO. 10-86 Effectivity of Internal Revenue Rules and Regulations It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on "due process of law" and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code). In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances: (1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations. (2) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed. Due notice of the said issuances may be fairly presumed only after the following procedures have been taken; xxx xxx xxx (5) Strict compliance with the foregoing procedures is enjoined. 13 Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above requirements before giving effect to its questioned circular.

Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation. Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate 15 and the tax must operate with the same force and effect in every place where the subject may be found. Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands have not been similarly included within the scope of the circular, such as 1. Locally manufactured by ALHAMBRA INDUSTRIES, INC. (a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea (Exhibit "R") 2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY (a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan (Exhibit "S") (b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit "T") 3. Locally manufactured by LA PERLA INDUSTRIES, INC. (a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U") (b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit "V-1") 4. Locally manufactured by MIGHTY CORPORATION

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(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U-1") 5. Locally manufactured by STERLING TOBACCO CORPORATION (a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and Williamson, USA (Exhibit "U-3") (b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh; Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-4"). 17 The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways and Means of the House of Representatives; viz: THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have specific information on other tobacco manufacturers. Now, there are other brands which are similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate to you all these brands, which are also listed in the World Tobacco Directory . . . Why were these brand not reclassified at 55 if your want to give a level playing filed to foreign manufacturers? MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular that was supposed to come after RMC No. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all these brands that you mentioned at 55 percent except that at that time, when we had to come up with this, we were forced to study the brands of Hope, More and Champion because we were given documents that would indicate the that these brands were actually being claimed or patented in other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find the rationale there. And we really found based on our own interpretation that the only test that is given by that existing law would be registration in the World Tobacco Directory. So we came out with this proposed revenue memorandum circular which we forwarded to the Secretary of Finance except that at that point in time, we went by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that on locally manufactured cigarettes which are currently classified and taxed at 55

percent. So we were saying that when this law took effect in July 3 and if we are going to come up with this revenue circular thereafter, then I think our action would really be subject to question but we feel that . . . Memorandum Circular Number 37-93 would really cover even similarly situated brands. And in fact, it was really because of the study, the short time that we were given to study the matter that we could not include all the rest of the other brands that would have been really classified as foreign brand if we went by the law itself. I am sure that by the reading of the law, you would without that ruling by Commissioner Tan they would really have been included in the definition or in the classification of foregoing brands. These brands that you referred to or just read to us and in fact just for your information, we really came out with a proposed revenue memorandum circular for those brands. (Emphasis supplied) (Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3). xxx xxx xxx MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt that we . . . I wanted to come up with a more extensive coverage and precisely why I asked that revenue memorandum circular that would cover all those similarly situated would be prepared but because of the lack of time and I came out with a study of RA 7654, it would not have been possible to really come up with the reclassification or the proper classification of all brands that are listed there. . .(emphasis supplied) (Exhibit "FF-2d," page IX-1) xxx xxx xxx HON. DIAZ. But did you not consider that there are similarly situated? MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum Circular No. 37-93, the other brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the lack of time, the period that was allotted to us to come up with the right actions on the matter, we were really caught by the July 3 deadline. But in fact, We have already prepared a revenue memorandum circular clarifying with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes which would include all the other brands that were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit "FF-2-d," par. IX-4). 18

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All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance. WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of T Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

given a period of thirty (30) days from receipt hereof to file her answer. Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of Appeals denying reconsideration. The Facts As found by the Court of Appeals, the undisputed facts of the case are as follows: It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively. On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671 .00. Private respondents PRDC, et.al. filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability. On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint filed by the Commissioner of Internal Revenue (BIR) against them.1wphi1.nt In a letter dated May 17, 1995, the CIR denied the urgent request for reconsideration/reinvestigation of the private respondents on the ground that no formal assessment of the has as yet been issued by the Commissioner. Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271 on July 21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA has no jurisdiction over the subject matter of the petition, as there was no formal assessment issued against the petitioners. The CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to file an answer within thirty (30) days from receipt of

G.R. No. 128315 June 29, 1999 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO, respondents.

PANGANIBAN, J.: An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals. Statement of the Case Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying for the nullification of the October 30, 1996 Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively affirmed the January 25, 1996 Resolution 3of the Court of Tax Appeals 4 CTA Case No. 5271. The CTA disposed as follows: WHEREFORE, finding [the herein petitioner's] "Motion to Dismiss" as UNMERITORIOUS, the same is hereby DENIED. [The CIR] is hereby

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said resolution. The CIR received the resolution on January 31, 1996 but did not file an answer nor did she move to reconsider the resolution. Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that: Respondent Court of Tax Appeals acted with grave abuse of discretion and without jurisdiction in considering the affidavit/report of the revenue officer and the indorsement of said report to the secretary of justice as assessment which may be appealed to the Court of Tax Appeals; Respondent Court Tax Appeals acted with grave abuse of discretion in considering the denial by petitioner of private respondents' Motion for Reconsideration as [a] final decision which may be appealed to the Court of Tax Appeals. In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated: We agree with petitioners' contentions, that the criminal complaint for tax evasion is the assessment issued, and that the letter denial of May 17, 1995 is the decision properly appealable to [u]s. Respondent's ground of denial, therefore, that there was no formal assessment issued, is untenable. It is the Court's honest belief, that the criminal case for tax evasion is already anassessment. The complaint, more particularly, the Joint Affidavit of Revenue Examiners Lagmay and Savellano attached thereto, contains the details of the assessment like the kind and amount of tax due, and the period covered: Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to exclusive appellate jurisdiction of this Court, do not, make any mention of "formal assessment." The law merely states, that this Court has exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue on disputed assessments, and other matters arising under the National Internal Revenue Code, other law or part administered by the Bureau of Internal Revenue Code.

As far as this Court is concerned, the amount and kind of tax due, and the period covered, are sufficient details needed for an "assessment." These details are more than complete, compared to the following definitions of the term as quoted hereunder. Thus: Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387, 163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446). The word assessment when used in connection with taxation, may have more than one meaning. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay. More commonly, the word "assessment" means the official valuation of a taxpayer's property for purpose of taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. (Ibid. p. 445) From the above, it can be gleaned that an assessment simply states how much tax is due from a taxpayer. Thus, based on these definitions, the details of the tax as given in the Joint Affidavit of respondent's examiners, which was attached to the tax evasion complaint, more than suffice to qualify as an assessment. Therefore, this assessment having been disputed by petitioners, and there being a denial of their letter disputing such assessment, this Court unquestionably acquired jurisdiction over the instant petition for review. 6 As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition. Hence, this recourse to this Court. 7 Ruling of the Court of Appeals The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that the Criminal Complaint for tax evasion filed by the Commissioner of Internal Revenue with the Department of Justice constituted an "assessment" of the tax due, and that the said assessment could be the subject of a protest. By definition, an assessment is simply the statement of the details and the amount of tax due from a taxpayer. Based on this definition, the details of the tax contained in the BIR examiners' Joint Affidavit, 8 which was attached to the criminal Complaint, constituted an assessment. Since the assailed Order of the CTA was merely interlocutory and devoid of grave abuse of discretion, a petition for certiorari did not lie. Issues Petitioners submit for the consideration of this Court following issues:

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(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. (3) Whether or not the CTA can take cognizance of the case in the absence of an assessment. 9 In the main, the Court will resolve whether the revenue officers' Affidavit-Report, which was attached to criminal revenue Complaint filed the Department of Justice, constituted an assessment that could be questioned before the Court of Tax Appeals. The Court's Ruling The petition is meritorious. Main Issue: Assessment Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal assessment of private respondents' tax liabilities. This position is based on Section 205 of the National Internal Revenue Code 10 (NIRC), which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment. Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection of taxes, but merely a notice that the amount stated therein is due as tax and that the taxpayer is required to pay the same. Thus, qualifying as an assessment was the BIR examiners' Joint Affidavit, which contained the details of the supposed taxes due from respondent for taxable years ending 1987 and 1988, and which was attached to the tax evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private respondents' request for reinvestigation of the disputed assessment is properly appealable to the CTA. We agree with petitioner. Neither the NIRC nor the regulations governing the protest of assessments 11 provide a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers.

True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rates as may be prescribed by rules and regulations, is to be collected form the date prescribed for its payment until the full payment. 12 The issuance of an assessment is vital in determining, the period of limitation regarding its proper issuance and the period within which to protest it. Section 203 13 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, 14 on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 15of the same law states that said assessment may be protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. 16 In the present case, the revenue officers' Affidavit merely contained a computation of respondents' tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. Respondents maintain that an assessment, in relation to taxation, is simply understood' to mean: A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.17 Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls. 18 Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso factomake it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for

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tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof. The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax evasion charges filed, not of an assessment, as shown thus: This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and Development Corporation and for the same to be referred to the Appellate Division in order to give my client the opportunity of a fair and objective hearing. 19 Additional Issues: Assessment Not Necessary Before Filing of Criminal Complaint Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, 20 petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. Private respondents insist that Section 222 should be read in relation to Section 255 of the NLRC, 21 which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule.

Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code. WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs. SO ORDERED. Vitug, Purisima and Gonzaga-Reyes, JJ., concur. Romero, J., abroad on official business. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-15113 January 28, 1961

ANTONIO MEDINA, petitioner, vs. COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS respondents. Eusebio D. Morales for petitioner. Office of the Solicitor General for respondents. REYES, J.B.L. J.:

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Petition to review a decision of the Court of Tax Appeals upholding a tax assessment of the Collector of Internal Revenue except with respect to the imposition of so-called compromise penalties, which were set aside. The records show that on or about May 20, 1944, petitioning taxpayer Antonio Medina married Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later, however, petitioner acquired forest, concessions in the municipalities of San Mariano and Palanan in the Province of Isabela. From 1946 to 1948, the logs cut and removed by the petitioner from his concessions were sold to different persons in Manila through his agent, Mariano Osorio. Some time in 1949, Antonia R. Medina, petitioner's wife, started to engage in business as a lumber dealer, and up to around 1952, petitioner sold to her almost all the logs produced in his San Mariano, concession. Mrs. Medina, In turn, sold in Manila the logs bought from her husband through the same agent, Mariano Osorio. The proceeds were, upon instructions from petitioner, either received by Osorio for petitioner or deposited by said agent in petitioner's current account with the Philippine National Bank. On the thesis that the sales made by petitioner to his wife were null and void pursuant to the provisions of Article 1490 of the Civil Code of the Philippines (formerly, Art. 1458, Civil Code of 1889), the Collector considered the sales made by Mrs. Medina as the petitioner's original sales taxable under Section 186 of the National Internal Revenue Code and, therefore, imposed a tax assessment on petitioner, calling for the payment of P4,553.54 as deficiency sales taxes and surcharges from 1949 to 1952. This same assessment of September 26, 1953 sought also the collection of another sum of P643.94 as deficiency sales tax and surcharge based on petitioner's quarterly returns from 1946 to 1952. On November 30, 1953, petitioner protested the assessment; however, respondent Collector insisted on his demand. On July 9, 1954, petitioner filed a petition for reconsideration revealing for the first time the existence of an alleged premarital agreement of complete separation of properties between him and his wife, and contending that the assessment for the years 1946 to 1952 had already prescribed. After one hearing, the Conference Staff of the Bureau of Internal Revenue eliminated the 50% fraud penalty and held that the taxes assessed against him before 1948 had already prescribed. Based on these findings, the Collector issued a modified assessment, demanding the payment of only P3,325.68, computed as follows: 5% tax due on P7,209.83 -1949 5% tax due on 16,945.55 - 1950 5% tax due on 16,874.52 - 1951 5% tax due on 11,009.94 - 1952 TOTAL sales tax due P 360.49 847.28 843.75 550.50 P2,602.0

25% Surcharge thereon Short taxes per quarterly returns, 3rd quarter, 1950 25% Surcharge thereon TOTAL AMOUNT due & collectible

650.51 58.52 14.63 P3,325.68

Petitioner again requested for reconsideration, but respondent Collector, in his letter of April 4, 1955, denied the same. Petitioner appealed to the Court of Tax Appeals, which rendered judgment as aforesaid. The Court's decision was based on two main findings, namely, (a) that there was no premarital agreement of absolute separation of property between the Medina spouse; and (b) assuming that there was such an agreement, the sales in question made by petitioner to his wife were fictitious, simulated, and not bona fide. In his petition for review to this Court, petitioner raises several assignments of error revolving around the central issue of whether or not the sales made by the petitioner to his wife could be considered as his original taxable sales under the provisions of Section 186 of the National Internal Revenue Code. Relying mainly on testimonial evidence that before their marriage, he and his wife executed and recorded a prenuptial agreement for a regime of complete separation of property, and that all trace of the document was lost on account of the war, petitioner imputes lack of basis for the tax court's factual finding that no agreement of complete separation of property was ever executed by and between the spouses before their marriage. We do not think so. Aside from the material inconsistencies in the testimony of petitioner's witnesses pointed out by the trial court, the circumstantial evidence is against petitioner's claim. Thus, it appears that at the time of the marriage between petitioner and his wife, they neither had any property nor business of their own, as to have really urged them to enter into the supposed property agreement. Secondly, the testimony that the separation of property agreement was recorded in the Registry of Property three months before the marriage, is patently absurd, since such a prenuptial agreement could not be effective before marriage is celebrated, and would automatically be cancelled if the union was called off. How then could it be accepted for recording prior to the marriage? In the third place, despite their insistence on the existence of the ante nuptial contract, the couple, strangely enough, did not act in accordance with its alleged covenants. Quite the contrary, it was proved that even during their taxable years, the ownership, usufruct, and administration of their properties and business were in the husband. And even when the wife was engaged in lumber dealing, and she and her husband contracted sales with each other as aforestated, the proceeds she derived from her alleged subsequent disposition of the logs incidentally, by and through the same agent of her husband, Mariano Osorio were either received by Osorio for the petitioner or deposited by said agent in petitioner's current account with the Philippine National Bank. Fourth, although petitioner, a lawyer by profession, already knew, after he was

55

informed by the Collector on or about September of 1953, that the primary reason why the sales of logs to his wife could not be considered as the original taxable sales was because of the express prohibition found in Article 1490 of the Civil Code of sales between spouses married under a community system; yet it was not until July of 1954 that he alleged, for the first time, the existence of the supposed property separation agreement. Finally, the Day Book of the Register of Deeds on which the agreement would have been entered, had it really been registered as petitioner insists, and which book was among those saved from the ravages of the war, did not show that the document in question was among those recorded therein. We have already ruled that when the credibility of witnesses is the one at issue, the trial court's judgment as to their degree of credence deserves serious consideration by this Court (Collector vs. Bautista, et al., G.R. Nos. L-12250 & L-12259, May 27, 1959). This is all the more true in this case because not every copy of the supposed agreement, particularly the one that was said to have been filed with the Clerk of Court of Isabela, was accounted for as lost; so that, applying the "best evidence rule", the court did right in giving little or no credence to the secondary evidence to prove the due execution and contents of the alleged document (see Comments on the Rules of Court, Moran, 1957 Ed., Vol. 3, pp. 10.12). The foregoing findings notwithstanding, the petitioner argues that the prohibition to sell expressed under Article 1490 of the Civil Code has no application to the sales made by said petitioner to his wife, because said transactions are contemplated and allowed by the provisions of Articles 7 and 10 of the Code of Commerce. But said provisions merely state, under certain conditions, a presumption that the wife is authorized to engage in business and for the incidents that flow therefrom when she so engages therein. But the transactions permitted are those entered into with strangers, and do not constitute exceptions to the prohibitory provisions of Article 1490 against sales between spouses. Petitioner's contention that the respondent Collector can not assail the questioned sales, he being a stranger to said transactions, is likewise untenable. The government, as correctly pointed out by the Tax Court, is always an interested party to all matters involving taxable transactions and, needless to say, qualified to question their validity or legitimacy whenever necessary to block tax evasion. Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs. Cantollas, 70 Phil. 55; Uy Coque vs. Sioca 45 Phil. 43). Being void transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that considered as the taxable sales those made by the wife through the spouses' common agent, Mariano Osorio. In upholding that stand, the Court below committed no error. It is also the petitioner's contention that the lower court erred in using illegally seized documentary evidence against him. But even assuming arguendo the truth of petitioner's charge regarding the seizure, it is now settled in this jurisdiction that illegally obtained

documents and papers are admissible in evidence, if they are found to be competent and relevant to the case (see Wong & Lee vs. Collector of Internal Revenue, G.R. No. L-10155, August 30, 1958). In fairness to the Collector, however, it should be stated that petitioner's imputation is vehemently denied by him, and relying on Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions of Revenue Regulations No. V-1 and citing this Court's ruling in U.S. vs. Aviado, 38 Phil. 10, the Collector maintains that he and other internal revenue officers and agents could require the production of books of accounts and other records from a taxpayer. Having arrived at the foregoing conclusion, it becomes unnecessary to discuss the other issues raised, which are but premised on the assumption that a premarital agreement of total separation of property existed between the petitioner and his wife. WHEREFORE, the decision appealed from is affirmed, with costs against the petitioner. Padilla, Bautista Angelo, Labrador, Barrera, Gutierrez David and Dizon, JJ., concur.

Separate Opinions CONCEPCION, J., concurring: I concur in the result. I do not share the view that documents and papers illegally obtained are admissible in evidence, if competent and relevant to the case. In this connection, I believe in the soundness of the following observations of the Supreme Court of the United States in Weeks v. United States (232 US 383, 58 L. ed. 652, 34 S. Ct. 341):1 The effect of the Fourth Amendment is to put the courts of the United States and Federal officials, in the exercise of their power and authority, under limitations and restraints as to the exercise of such power and authority, an to forever secure the people, their persons, houses, papers, and effects against all unreasonable searches and seizures under the guise of law. This protection reaches all alike, whether accused of crime or not, and the duty of giving to it force and effect is obligatory upon all entrusted under our Federal system with the enforcement of the laws. The tendency of those who execute the criminal laws of the country to obtain conviction by means of unlawful seizures and enforced confessions, the latter often obtained after subjecting accused persons to unwarranted practices destructive of rights secured by the Federal Constitution, should find no sanction in the judgments of the courts which are charged at all times with the support of the Constitution and to which people of all conditions have a right to appeal for the maintenance of such fundamental rights.

56

xxx

xxx

xxx COMMISSIONER OF INTERNAL REVENUE, Promulgated: March 5, 2012

If letters and private documents can thus be seized and held and used in evidence, against a citizen accused of an offense, the protection of the Fourth. Amendment declaring his right to be secured against such searches and seizures is of no value, and, so far as those thus placed are concerned well be stricken from the Constitution. The efforts of the courts and their officials to bring the guilty to punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great principles established by years of endeavor and suffering which have resulted in their embodiment in the fundamental law of the land." as applied and amplified in Elkins v. United States (June 27, 1960), 4 L. ed. 1669.

Respondent. x----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Footnotes
1

Court

seeking
[2]

the

reversal

of

the

Decision[1]dated

October

25,

2005

and

See also Silverthorne Lumber Co. v. United States, 251 US 385, 64 L. ed. 319, 40 Ct. 182, 24 ALR 1426; Gouled v. United States, 255 US 298, 65 L. ed. 647, 41 S. Ct. 261; Amos v. United States, 255 US 313, 65 L. ed. 654, 41 S. Ct. 266; Agello v. United States, 269 US 20, 70 L. ed. 145, 46 S. Ct. 4, 51 ALR 409; Go Bart Importing Co. v. United States, 282 US 344, 75 L. ed. 374, 51 S. Ct. 153; Grau v. United States, 287 US 124, 77 L. ed. 212, 53 S. Ct. 38; McDonald v. United States, 335 US 451, 93 L. ed. 153, 69 S. Ct. 191; United States, v. Jeffers 342 US 48, 96 L. ed. 59, 72 S. Ct 93.

Resolution

dated January 20, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 58061

which set aside the Decision[3] dated January 4, 2000 and Resolution[4] dated March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5777 and declared Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be final, executory and demandable. The facts, as culled from the records, are as follows:

The Lawphil Project - Arellano Law Foundation Republic of the Philippines Supreme Court Manila

On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 0000047-93-407[5] against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount ofP753,266.56.

Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by THIRD DIVISION LASCONA LAND CO., INC., Petitioner, G.R. No. 171251 Present: xxxx - versus VELASCO, JR., J., Chairperson, PERALTA, ABAD, VILLARAMA, JR.,* and MENDOZA, JJ. Subject: LASCONA LAND CO., INC. 1993 Deficiency Income Tax Madam, Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati City, in his Letter[6] dated March 3, 1999, which reads, thus:

57

Anent the 1993 tax case of subject taxpayer, please be informed that while we agree with the arguments advanced in your letter protest, we regret, however, that we cannot give due course to your request to cancel or set aside the assessment notice issued to your client for the reason that the case was not elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of Section 228 of the Tax Code.By virtue thereof, the said assessment notice has become final, executory and demandable. In view of the foregoing, please advise your client to pay its 1993 deficiency income tax liability in the amount of P753,266.56. x x x x (Emphasis ours)

If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period; otherwise, the assessment shall become final, executory and demandable.

On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit.[8] The CTA held that Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out that the former spoke of an assessment becoming final, executory and demandable by reason of the inaction by the Commissioner, while the

On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final and executory.

latter referred to decisions becoming final, executory and demandable should the taxpayer adversely affected by the decision fail to appeal before the CTA within the prescribed period. Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must prevail over the revenue regulations.

The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the lapse of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code (NIRC) resulted to the finality of the assessment.

Dissatisfied, the CIR filed an appeal before the CA.[9]

In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIR's petition and set aside the Decision datedJanuary 4, 2000 of the CTA and its

On January 4, 2000, the CTA, in its Decision,[7] nullified the subject assessment. It held that in cases of inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options for the taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty (180)-day period, or (2) wait until the Commissioner decides on his protest before he elevates the case.

Resolution dated March 3, 2000. It further declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final, executory and demandable.

Lascona moved for reconsideration, but was denied for lack of merit.

Thus, the instant petition, raising the following issues: The CIR moved for reconsideration. It argued that in declaring the subject assessment as final, executory and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99 dated September 6, 1999 which reads, thus: I THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX APPEALS WHICH IT RECENTLY PROMULGATED, RULED THAT AN

58

APPEAL FROM THE INACTION OF RESPONDENT COMMISSIONER IS NOT MANDATORY. II THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE ASSESSMENT HAS BECOME FINAL AND DEMANDABLE BECAUSE, ALLEGEDLY, THE WORD DECISION IN THE LAST PARAGRAPH OF SECTION 228 CANNOT BE STRICTLY CONSTRUED AS REFERRING ONLY TO THE DECISION PER SE OF THE COMMISSIONER, BUT SHOULD ALSO BE CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS BEEN PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY THE COMMISSIONER.[10]

Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of the inaction of the Commissioner on the protested assessment, to wit: SEC. 228. Protesting of Assessment. x x x xxxx Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable. (Emphasis supplied).

In a nutshell, the core issue to be resolved is: Whether the subject assessment has become final, executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC.

Petitioner Lascona, invoking Section 3,[11] Rule 4 of the Revised Rules of the Court of Tax Appeals, maintains that in case of inaction by the CIR on the protested assessment, it has the option to either: (1) appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment even beyond the 180-day period in which case, the taxpayer may appeal such final decision within 30 days from the receipt of the said decision. Corollarily, petitioner posits that when the Commissioner failed to act on its protest within the 180day period, it had the option to await for the final decision of the Commissioner on the protest, which it did.

Respondent, however, insists that in case of the inaction by the Commissioner on the protested assessment within the 180-day reglementary period, petitioner should have appealed the inaction to the CTA. Respondent maintains that due to Lascona's failure to file an appeal with the CTA after the lapse of the 180-day period, the assessment became final and executory.

The petition is meritorious.

We do not agree.

In RCBC v. CIR,[12] the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a

59

taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.[13]

This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of Tax Appeals,[14] to wit:

Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code; (Emphasis ours)

SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case;

In arguing that the assessment became final and executory by the sole reason that petitioner failed to appeal the inaction of the Commissioner within 30 days after the 180day reglementary period, respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of the 180-day period. This is incorrect.

As early as the case of CIR v. Villa,[15] it was already established that the word "decisions" in paragraph 1, Section 7 of Republic Act No. 1125, quoted above, has been interpreted to mean the decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments. Definitely, said word does not signify the assessment itself. We quote what this Court said aptly in a previous case: In the first place, we believe the respondent court erred in holding that the assessment in question is the respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the respondent court must be counted from its receipt of said assessment. Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must decide, and the taxpayer can appeal to the Court of

60

Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment, . . . [16]

Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the protested assessment. It is imperative that the taxpayers are informed of

Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the protested assessment.

its action in order that the taxpayer should then at least be able to take recourse to the tax court at the opportune time. As correctly pointed out by the tax court: x x x to adopt the interpretation of the respondent will not only sanction inefficiency, but will likewise condone the Bureau's inaction. This is especially true in the instant case when despite the fact that respondent found petitioner's arguments to be in order, the assessment will become final, executory and demandable for petitioner's failure to appeal before us within the thirty (30) day period.[19]

It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment, while we reiterate the taxpayer has two options, either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision, these options are mutually exclusive and resort to one bars the application of the other.

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is thereforenecessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.[20] Thus, even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.[21]

Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the 180-day period fixed by law for the
[17]

WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and the Resolution dated January 20, 2006 of the Court of Appeals in CA-G.R. SP No. 58061 are REVERSED and SET ASIDE. Accordingly, the Decision dated January 4, 2000 of the Court of Tax Appeals in C.T.A. Case No. 5777 and its Resolu LUCAS ADAMSON VS. COURT OF APPEALS- DEFICIENCY TAX ASSESSMENT

Commissioner

of

Internal

Revenue

to

act

on

the

disputed

assessments.

Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA,
[18]

after its receipt of the Letter

dated March 3, 1999 on March 12, 1999, the appeal was FACTS:

timely made as it was filed within 30 days after receipt of the copy of the decision.

61

A deficiency tax assessment was issued against Petitioners relating to their payment of capital gains tax and VAT on their sale of shares of stock and parcels of land. Subsequent to the preliminary conference, the CIR filed with the Department of Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately ruled that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax.

discrepancy in the computation of the capital gains taxes due from the transactions. The Tax Code is clear that the remedies may proceed simultaneously.

(3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision of the Commissioner, or in cases of inaction within the prescribed period. Since in the cases at bar, the Commissioner has not issued an assessment of the tax liability of the Petitioners, the CTA has no jurisdiction.

ISSUES: (1) Dis the CIR issue an assessment? (2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax assessment? (3) Does the CTA have jurisdiction on the case? G.R. No. 162852 HELD: (1) NO. The recommendation letter of the Commissioner cannot be considered a formal assessment as (a) it was not addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner. It was only an affidavit of DECISION the computation of the alleged liabilities and thus merely served as prima facie basis for filing criminal informations. FIRST DIVISION December 16, 2004 epublic of the Philippines SUPREME COURT Manila

PHILIPPINE JOURNALISTS, INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

(2) YES. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment considering that upon investigation of the examiners of the BIR, there was a preliminary finding of gross

YNARES-SANTIAGO, J.: This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the Decision1 of the Court of Appeals dated August 5, 2003,2 which ordered petitioner to pay the assessed tax liability of P111,291,214.46 and the Resolution3 dated March 31, 2004 which denied the Motion for Reconsideration.

62

The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31, 1994 which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of P10,247,384.00. On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of Authority No. 871204 for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine petitioners books of account and other accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994. From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty in the following amounts: Value Added Tax Income Tax Withholding Tax Total P 229,527.90 125,002,892.95 2,748,012.35 P 127,980,433.20

Value Added Tax Expanded Withholding Tax Total

184,299.20 2,363,220.38 P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S. Panganiban to the petitioner to pay the assessment within ten (10) days from receipt of the letter. On November 10, 1999, a Final Notice Before Seizure8 was issued by the same deputy commissioner giving the petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final notice on November 24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the tax liability of P111,291,214.46 was reached and requested an extension of thirty (30) days from receipt of the clarification within which to reply.9 The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show receipt of Tax Assessment/Demand No. 33-1-000757-94.10 Petitioner also contested that the assessment had no factual and legal basis. On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-04611 signed by Deputy Commissioner Romeo Panganiban for the BIR was received by the petitioner. Petitioner filed a Petition for Review12 with the Court of Tax Appeals (CTA) which was amended on May 12, 2000. Petitioner complains: (a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint and/or levy was without factual and legal bases as its issuance was premature; (c) that the assessment, having been made beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the warrant without being given the opportunity to dispute the same violates its right to due process; and (e) that the grave prejudice that will be sustained if the warrant is enforced is enough basis for the issuance of the writ of preliminary injunction. On May 14, 2002, the CTA rendered its decision,13 to wit: As to whether or not the assessment notices were received by the petitioner, this Court rules in the affirmative. To disprove petitioners allegation of non-receipt of the aforesaid assessment notices, respondent presented a certification issued by the Post Master of the Central Post Office, Manila to the effect that Registered Letter No. 76134 sent by the BIR, Region No. 6, Manila on December 15, 1998 addressed to Phil. Journalists, Inc. at Journal Bldg., Railroad St., Manila was duly delivered to and received by a certain Alfonso Sanchez, Jr. (Authorized Representative) on January 8, 1999. Respondent also showed proof that in claiming Registered Letter No. 76134, Mr. Sanchez presented three identification cards, one of which is his company ID with herein petitioner.

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to send a representative to an informal conference on September 15, 1997 for an opportunity to object and present documentary evidence relative to the proposed assessment. On September 22, 1997, petitioners Comptroller, Lorenza Tolentino, executed a "Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC)".5 The document "waive[d] the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed] to the assessment and collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation".6 On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and finding that petitioner had deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the investigation. Thus, BIR Revenue Region No. 6, Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-000757-947 on December 9, 1998 stating the following deficiency taxes, inclusive of interest and compromise penalty: Income Tax P108,743,694.88

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 However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on the petitioner is another question. Since the subject assessments were issued beyond the three-year prescriptive period, it becomes imperative on our part to rule first on the validity of the waiver allegedly executed on September 22, 1997, for if this court finds the same to be ineffective, then the assessments must necessarily fail. After carefully examining the questioned Waiver of the Statute of Limitations, this Court considers the same to be without any binding effect on the petitioner for the following reasons: The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO No. 20-90, the phrase indicating the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription should be filled up Secondly, the waiver failed to state the date of acceptance by the Bureau which under the aforequoted RMO should likewise be indicated Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO No. 20-90, the waiver must be executed in three (3) copies, the second copy of which is for the taxpayer. It is likewise required that the fact of receipt by the taxpayer of his/her file copy be indicated in the original copy. Again, respondent failed to comply. It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers. The said RMO even provides that the procedures found therein should be strictly followed, under pain of being administratively dealt with should non-compliance result to prescription of the right to assess/collect Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering from legal infirmities, rendering the same invalid and ineffective, the Court finds Assessment/Demand No. 33-1-000757-94 issued on December 5, 1998 to be time-barred. Consequently, the Warrant of Distraint and/or Levy issued pursuant thereto is considered null and void.

WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, the deficiency income, value-added and expanded withholding tax assessments issued by the respondent against the petitioner on December 9, 1998, in the total amount of P111,291,214.46 for the year 1994 are hereby declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise, Warrant of Distraint and/or Levy No. 33-06-046 is hereby declared NULL and VOID. SO ORDERED.14 After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the CTA in a Resolution dated August 2, 2002, an appeal was filed with the Court of Appeals on August 12, 2002. In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA, to wit: The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the proper remedy. Only decisions of the BIR, denying the request for reconsideration or reinvestigation may be appealed to the CTA. Mere assessment notices which have become final after the lapse of the thirty (30)day reglementary period are not appealable. Thus, the CTA should not have entertained the petition at all. [T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following reasons: (1) it does not indicate a definite expiration date; (2) it does not state the date of acceptance by the BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a copy of the waiver. These grounds are merely formal in nature. The date of acceptance by the BIR does not categorically appear in the document but it states at the bottom page that the BIR "accepted and agreed to:", followed by the signature of the BIRs authorized representative. Although the date of acceptance was not stated, the document was dated 22 September 1997. This date could reasonably be understood as the same date of acceptance by the BIR since a different date was not otherwise indicated. As to the allegation that Phil. Journalists was not furnished a copy of the waiver, this requirement appears ridiculous. Phil. Journalists, through its comptroller, Lorenza Tolentino, signed the waiver. Why would it need a copy of the document it knowingly executed when the reason why copies are furnished to a party is to notify it of the existence of a document, event or proceeding? As regards the need for a definite expiration date, this is the biggest flaw of the decision. The period of prescription for the assessment of taxes may be

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extended provided that the extension be made in writing and that it be made prior to the expiration of the period of prescription. These are the requirements for a valid extension of the prescriptive period. To these requirements provided by law, the memorandum order adds that the length of the extension be specified by indicating its expiration date. This requirement could be reasonably construed from the rule on extension of the prescriptive period. But this requirement does not apply in the instant case because what we have here is not an extension of the prescriptive period but a waiver thereof. These are two (2) very different things. What Phil. Journalists executed was a renunciation of its right to invoke the defense of prescription. This is a valid waiver. When one waives the prescriptive period, it is no longer necessary to indicate the length of the extension of the prescriptive period since the person waiving may no longer use this defense. WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are hereby SET ASIDE. Respondent Phil. Journalists is ordered [to] pay its assessed tax liability of P111,291,214.46. SO ORDERED.15

The Honorable Court of Appeals gravely erred when it ruled that the assessment notices became final and unappealable. The assessment issued is void and legally non-existent because the BIR has no power to issue an assessment beyond the three-year prescriptive period where there is no valid and binding waiver of the statute of limitation. IV. The Honorable Court of Appeals gravely erred when it held that the assessment in question has became final and executory due to the failure of the Petitioner to protest the same. Respondent had no power to issue an assessment beyond the three year period under the mandatory provisions of Section 203 of the NIRC. Such assessment should be held void and non-existent, otherwise, Section 203, an expression of a public policy, would be rendered useless and nugatory. Besides, such right to assess cannot be validly granted after three years since it would arise from a violation of the mandatory provisions of Section 203 and would go against the vested right of the Petitioner to claim prescription of assessment. V.

Petitioners Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence, this appeal on the following assignment of errors: I. The Honorable Court of Appeals committed grave error in ruling that it is outside the jurisdiction of the Court of Tax Appeals to entertain the Petition for Review filed by the herein Petitioner at the CTA despite the fact that such case inevitably rests upon the validity of the issuance by the BIR of warrants of distraint and levy contrary to the provisions of Section 7(1) of Republic Act No. 1125. II. The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of the statute of limitations without stating the legal justification for such conclusion. Such ruling totally disregarded the mandatory requirements of Section 222(b) of the Tax Code and its implementing regulation, RMO No. 20-90 which are substantive in nature. The RMO provides that violation thereof subjects the erring officer to administrative sanction. This directive shows that the RMO is not merely cover forms. III.

The Honorable Court of Appeals committed grave error when it HELD valid a defective waiver by considering the latter a waiver of the right to invoke the defense of prescription rather than an extension of the three year period of prescription (to make an assessment) as provided under Section 222 in relation to Section 203 of the Tax Code, an interpretation that is contrary to law, existing jurisprudence and outside of the purpose and intent for which they were enacted.16 We find merit in the appeal. The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court of Appeals ruled that only decisions of the BIR denying a request for reconsideration or reinvestigation may be appealed to the CTA. Since the petitioner did not file a request for reinvestigation or reconsideration within thirty (30) days, the assessment notices became final and unappealable. The petitioner now argue that the case was brought to the CTA because the warrant of distraint or levy was illegally issued and that no assessment was issued because it was based on an invalid waiver of the statutes of limitations. We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides for the jurisdiction of that special court:

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SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue; (Emphasis supplied). The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected. This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed assessment or a claim for refund. In Pantoja v. David,17 we upheld the jurisdiction of the CTA to act on a petition to invalidate and annul the distraint orders of the Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals,18 the decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by the BIR, was upheld by this Court. The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The Court of Appeals held that the requirements and procedures laid down in the RMO are only formal in nature and did not invalidate the waiver that was signed even if the requirements were not strictly observed. The NIRC, under Sections 203 and 222,19 provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.20Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. As was held in Republic of the Phils. v. Ablaza:21 The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine

the latters real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.(Emphasis supplied) RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection of taxes. A cursory reading of the Order supports petitioners argument that the RMO must be strictly followed, thus: In the execution of said waiver, the following procedures should be followed: 1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concernedbut there should be no deviation from such form. The phrase "but not after __________ 19___" should be filled up 2. Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated 3. The following revenue officials are authorized to sign the waiver. A. In the National Office 3. Commissioner For tax cases involving more than P1M

B. In the Regional Offices 1. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount.

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5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. (Emphasis supplied)22 A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed.23 The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.24 RMO No. 20-90 explains the rationale of a waiver: ... The phrase "but not after _________ 19___" should be filled up. This indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period. (Emphasis supplied) As found by the CTA, the Waiver of Statute of Limitations, signed by petitioners comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioners waiver became unlimited in time, violating Section 222(b) of the NIRC. The waiver is also defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 2090. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer. This case involves taxes amounting to more than One Million Pesos (P1,000,000.00) and executed almost seven months before the expiration of the three-year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR. The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers that were not signed by the Commissioner but were argued to have been given implied consent by the BIR. We invalidated the subject waivers and ruled:

Petitioners submission is inaccurate The Court of Appeals itself also passed upon the validity of the waivers executed by Carnation, observing thus: We cannot go along with the petitioners theory. Section 319 of the Tax Code earlier quoted is clear and explicit that the waiver of the fiveyear26 prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner as required by law. We agree with the CTA in holding "these waivers to be invalid and without any binding effect on petitioner (Carnation) for the reason that there was no consent by the respondent (Commissioner of Internal Revenue)." For sure, no such written agreement concerning the said three waivers exists between the petitioner and private respondent Carnation. What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for its binding effect the concurrence of the Commissioner of Internal Revenue. On this basis neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such an agreement is a mere formality because it is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement.27 (Emphasis supplied) The other defect noted in this case is the date of acceptance which makes it difficult to fix with certainty if the waiver was actually agreed before the expiration of the three-year prescriptive period. The Court of Appeals held that the date of the execution of the waiver on September 22, 1997 could reasonably be understood as the same date of acceptance by the BIR. Petitioner points out however that Revenue District Officer Sarmiento could not have accepted the waiver yet because she was not the Revenue District Officer of RDO No. 33 on such date. Ms. Sarmientos transfer and assignment to RDO No. 33 was

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only signed by the BIR Commissioner on January 16, 1998 as shown by the Revenue Travel Assignment Order No. 14-98.28 The Court of Tax Appeals noted in its decision that it is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials normally have to conduct first an inventory of their pending papers and property responsibilities."29 Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver must be executed in three copies with the second copy for the taxpayer. The Court of Appeals did not think this was important because the petitioner need not have a copy of the document it knowingly executed. It stated that the reason copies are furnished is for a party to be notified of the existence of a document, event or proceeding. The flaw in the appellate courts reasoning stems from its assumption that the waiver is a unilateral act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioners comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement. The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null and void for having been issued pursuant to an invalid assessment. WHEREFORE, premises considered, the instant petition for review is GRANTED. The Decision of the Court of Appeals dated August 5, 2003 and its Resolution dated March 31, 2004 are REVERSED and SET ASIDE. The Decision of the Court of Tax Appeals in CTA Case No. 6108 dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046 null and void, is REINSTATED. SO ORDERED. Davide, Jr., C.J. (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

THIRD DIVISION G.R. No. 138485 September 10, 2001

DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. VITUG,, J.: Before the Court is a petition for review seeking to set aside the decision of 24 February 1999 of the Court of Appeals, as well as its resolution of 27 Apri11999, in CA-G.R. SP No. 34156, which has reversed that of the Court of Tax Appeals in CTA Case No.4956, entitled "Jose V. Feria, in his capacity as Executor of the Estate of Jose San Agustin versus Commissioner of Internal Revenue." The tax court's decision has modified the deficiency assessment of the Commission of Internal Revenue for surcharge, interests and other penalties imposed against the estate of the late Jose San Agustin. The facts of the case narrated by the appellate court would appear, by and large, to be uncontroverted; thus viz: "Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all his estate to his widow, and naming retired Justice Jose Y. Feria as Executor thereof. "Probate proceedings were instituted on August 22, 1990, in the Regional Trial Court (RTC) of Makati, Branch 139, docketed as Sp. Proc. No. M-2554. Pursuantly, notice of decedent's death was sent to the Commissioner of Internal Revenue on August 30, 1990.1wphi1.nt "On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an extension of two years for the payment of the tax, inasmuch as the decedent's widow ( did) not personally have sufficient funds, and that the payment (would) have to come from the estate. "In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under Sections 248 and 249 of the National Internal Revenue Code, as amended.

Republic of the Philippines SUPREME COURT Manila

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"In the probate proceedings, on October 11, 1990 the RTC allowed the will and appointed Jose Feria as Executor of the estate. On December 5, 1990, the executor submitted to the probate court an inventory of the estate with a motion for authority to withdraw funds for the payment of the estate tax. Such authority was granted by the probate court on March 5, 1991 .Thereafter, on March 8, 1991 , the executor paid the estate tax in the amount of P1,676,432 as reported in the Tax Return filed with the BIR. This was well within the six (6) months extension period granted by the BIR. "On September 23, 1991, the widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment Notice from the BIR, dated August 29, 1991, showing a deficiency estate tax of P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00. "On October 1, 1991, within the ten-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof, but, requesting that the surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the extension period. "On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand in the pre- assessment notice and requesting payment on or before thirty (30) days upon receipt thereof. "In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc. "On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount of P538,509.50 through its Receivable Accounts Billing Division. "The request for reconsideration was not acted upon until January 21, 1993, when the executor received a letter, dated September 21, 1992, signed by the Commissioner, stating that there is no legal justification for the waiver of the interests, surcharge and compromise penalty in this case, and requiring full payment of P438,040.38 representing such charges within ten (10) days from receipt thereof.

"In view thereof, the respondent estate paid the amount of P438,040.38 under protest on January 25, 1993. "On February 18, 1993, a Petition for Review was filed by the executor with the CT A with the prayer that the Commissioner's letter/decision, dated September 21, 1992 be reversed and that a refund of the amount of P438,040.38 be ordered . "The Commissioner opposed the said petition, alleging that the CTA's jurisdiction was not properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National Internal Revenue Code. Moreover, there is no statutory basis for the refund of the deficiency surcharges, interests and penalties charged by the Commissioner upon the estate of the decedent. "Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated April 21, 1994, modifying the CIR's assessment for surcharge, interests and other penalties from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for which reason the CTA ordered the reimbursement to the respondent estate the balance of P423,577.64, to wit: "WHEREFORE, respondent's deficiency assessment for surcharge, interests, and other penalties is hereby modified and since petitioner has clearly paid the full amount of P438,040.38, respondent is hereby ordered to refund to the Estate of Jose San Agustin the overpayment amounting to P423,577.64."1 On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the Commissioner of Internal Revenue to the Court of Appeals. There, the petition for review raised the following issues: "1. Whether respondent Tax Court has jurisdiction to take cognizance of the case considering the failure of private respondent to comply with the mandatory requirements of Sections 204 and 230 of the National Internal Revenue Code. "2. Whether or not respondent Tax Court was correct in ordering the refund to the Estate of Jose San Agustin the reduced amount of P423,577.64 as alleged overpaid surcharge, interests and compromise penalty imposed on the basic deficiency estate tax of P538,509.50 due on the transmission of the said Estate to the sole heir in 1990."2

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In its decision of 24 February 1999, the Court of Appeals granted the petition of the Commissioner of Internal Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject matter and that, accordingly, its decision was null and void. Hence, the instant petition where petitioner submits that "1. The filing of a claim for refund [is] not essential before the filing of the petition for review. "2. The imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is not in accord with the law and therefore illegal."3 The Court finds the petition partly meritorious. The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue.4 The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent Collector (now Commissioner) of Internal Revenue set up several defenses, one of which was that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the petition for lack of jurisdiction. On appeal to this Court, the tax court's ruling was reversed; the Court held: "We agree with petitioner that Section 7 of Republic Act No.1125, creating the Court of Tax Appeals, in providing for appeals from '(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue allows an appeal from a decision of the Collector in cases involving' disputed assessments' as distinguished from cases involving' refunds of internal revenue taxes, fees or other charges, x x'; that the present action involves a disputed assessment'; because from the time petitioner received assessments Nos. 17-EC00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review with the Court a quo, only to forestall

the sale of his properties that had been placed under distraint by the respondent Collector since December 4, 1957. To hold that the taxpayer has now lost the right to appeal from the ruling on, the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the ! disposition of the case, for the Collector (now Commissioner) would cer1ainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not be interpreted as to result in absurdities."5 The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's appeal to it. On the second issue, the National Internal Revenue Code, relative to the imposition of surcharges, interests, and penalties, provides thusly: "Sec. 248. Civil Penalties. "(a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25% ) of the amount due, in the following cases: "(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or "(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or "(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or "(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment." "Sec.249. Interest. "(A) In General. -There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate

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as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. "(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. "(C) Delinquency Interest. -In case of failure to pay: "(1) The amount of the tax due on any return to be filed, or "(2) The amount of the tax due for which no return is required, or "(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax. "(D) Interest on Extended Payment. -If any person required to pay the tax is qualified and elects to pay the tax on installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid." It would appear that, as early as 23 September 1991, the estate already received a preassessment notice indicating a deficiency estate tax of P538,509.50. Within the ten-day period given in the pre-assessment notice, respondent Commissioner received a letter from petitioner expressing the latter's readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that sum from the estate but requesting that the surcharge, interests and penalties be waived. On 04 October 1991, however, petitioner received from the Commissioner notice insisting payment of the tax due on or before the lapse of thirty (30) days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until 19 December 1991.6 The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of twenty

percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. The computation of interest by the Court of Tax Appeals "Deficiency estate tax P538,509.50 = P13,462.74"7 conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment until it is paid. The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed on petitioner, a compromise being, by its nature, mutual in essence. The payment made under protest by petitioner could only signify that there was no agreement that had effectively been reached between the parties. Regrettably for petitioner, the need for an authority from the probate court in the payment of the deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that can negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions. In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or a total of P148,090.00. WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge, interest and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37 and interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38. No costs. SO ORDERED.1wphi1.nt Melo, Panganiban, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur x Interest Rate 20% per annum x Terms 11/2 mo./12 mos (11/04/91 to 12/19/91)

Footnotes

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 167146 October 31, 2006

7333, dated 14 April 1994, for deficiency income tax in the total amount of P118,271,672.00.3 On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes and Manalastas Law Offices, filed a formal protest letter against Assessment Notice No. 000688-80-7333. Respondent filed another protest letter on 23 May 1994, through another counsel Siguion Reyna Montecillo & Ongsiako Law Offices. In both letters, respondent requested for the cancellation of the tax assessment, which they alleged was invalid for lack of factual and legal basis.4 On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8 October 2002 denying the respondents protest against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto.5 On 15 November 2002, respondent filed a Petition for Review with the CTA. After due notice and hearing, the CTA rendered a Decision in favor of respondent on 9 June 2004.6 The CTA ruled on the primary issue of prescription and found it unnecessary to decide the issues on the validity and propriety of the assessment. It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the assessed deficiency income tax.7 Thus, since more than three years had lapsed from the time Assessment Notice No. 000688-80-7333 was issued in 1994, the CIRs right to collect the same has prescribed in conformity with Section 269 of the National Internal Revenue Code of 19778(Tax Code of 1977). The dispositive portion of this decision reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner. Accordingly, respondents Final Decision dated October 8, 2002 is hereby REVERSED and SET ASIDE and respondent is hereby ORDERED to WITHDRAW and CANCEL Assessment Notice No. 000688-80-7333 issued against the petitioner for its 1990 income tax deficiency because respondents right to collect the same has prescribed.9 The CIR moved for reconsideration of the aforesaid Decision but was denied by the CTA in a Resolution dated 22 September 2004.10 Thereafter, the CIR filed a Petition for Review with the CTA en banc, questioning the aforesaid Decision and Resolution. In its en banc Decision, the CTA affirmed the Decision and Resolution in CTA Case No. 6568. The dispositive part reads: WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED for lack of merit. Accordingly, the assailed Decision and Resolution in CTA Case No. 6568 are hereby AFFIRMED in toto.11 Hence, this Petition for Review on Certiorari raising the following grounds:

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.

DECISION

CHICO-NAZARIO, J.: This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set aside the en bancDecision of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22 February 2005,1 ordering the petitioner to withdraw and cancel Assessment Notice No. 000688-80-7333 issued against respondent Philippine Global Communication, Inc. for its 1990 income tax deficiency. The CTA, in its assailed en banc Decision, affirmed the Decision of the First Division of the CTA dated 9 June 20042 and its Resolution dated 22 September 2004 in C.T.A. Case No. 6568. Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondents 1990 income tax liability. On 22 April 1992, the BIR sent a letter to respondent requesting the latter to present for examination certain records and documents, but respondent failed to present any document. On 21 April 1994, respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax in the amount of P118,271,672.00, inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the following day, 22 April 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-

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THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED REVERSIBLE ERROR IN AFFIRMING THE ASSAILED DECISION AND RESOLUTION IN CTA CASE NO. 6568 DECLARING THAT THE RIGHT OF THE GOVERNMENT TO COLLECT THE DEFICIENCY INCOME TAX FROM RESPONDENT FOR THE YEAR 1990 HAS PRESCRIBED A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN RESPONDENT FILED TWO LETTERS OF PROTEST DISPUTING IN DETAIL THE DEFICIENCY ASSESSMENT IN QUESTION AND REQUESTING THE CANCELLATION OF SAID ASSESSMENT. THE TWO LETTERS OF PROTEST ARE, BY NATURE, REQUESTS FOR REINVESTIGATION OF THE DISPUTED ASSESSMENT. B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE GRANTED BY THE BUREAU OF INTERNAL REVENUE.12 This Court finds no merit in this Petition. The main issue in this case is whether or not CIRs right to collect respondents alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977, which reads: Section 269. Exceptions as to the period of limitation of assessment and collection of taxes. x x x xxxx c. Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax.13 However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all.14 In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission. If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings.15 The three-year period for collection of the

assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.16 The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. The provisions on prescription in the assessment and collection of national internal revenue taxes became law upon the recommendation of the tax commissioner of the Philippines. The report submitted by the tax commission clearly states that these provisions on prescription should be enacted to benefit and protect taxpayers: Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322).17 In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers. In these cases, the Court further illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,18 Justice Montemayor, in his dissenting opinion, identified the potential loss to the taxpayer if the assessment and collection of taxes are not promptly made. Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court x x x. It would surely be prejudicial to the interest of the taxpayer for the Government collecting agency to unduly delay the assessment and the collection because by

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the time the collecting agency finally gets around to making the assessment or making the collection, the taxpayer may then have lost his papers and books to support his claim and contest that of the Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer eventually has to pay . In Republic of the Philippines v. Ablaza,19 this Court emphatically explained that the statute of limitations of actions for the collection of taxes is justified by the need to protect lawabiding citizens from possible harassment: The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest, peaceful, law-abiding citizens. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law. And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue,20 this Court, in confirming these earlier rulings, pronounced that: Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. Thus, in Commissioner of Internal Revenue v. B.F. Goodrich,21 this Court affirmed that the law on prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed. The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 271 thereof which reads:

Section 224. Suspension of running of statute. The running of the statute of limitation provided in Sections 268 and 269 on the making of assessments and the beginning of distraint or levy or a proceeding in court for collection in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected x x x. (Emphasis supplied.) Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. More importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any new evidence. Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation, and distinguishes one from the other in this manner: Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation specifying the following particulars: xxxx For the purpose of protest herein (a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b) Request for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and

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is granted by the CIR. The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of Internal Revenue22 explaining why a request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax: Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIRs allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. This much was admitted in the Decision dated 8 October 2002 issued by then CIR Guillermo Payarno, Jr. In the said conference-hearing, Revenue Officer Alameda basically testified that Philcom, despite repeated demands, failed to submit documentary evidences in support of its claimed deductible expenses. Hence, except for the item of interest expense which was disallowed for being not ordinary and necessary, the rest of the claimed expenses were disallowed for non-withholding. In the same token, Revenue Officer Escober testified that upon his assignment to conduct the re-investigation, he immediately requested the taxpayer to present various accounting records for the year 1990, in addition to other documents in relation to the disallowed items (p.171). This was followed by other requests for submission of documents (pp.199 &217) but these were not heeded by the taxpayer. Essentially, he stated that Philcom did not cooperate in his reinvestigation of the case. In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji, emphasized that it was denied due process because of the issuance of the Pre-Assessment Notice and the Assessment Notice on successive dates. x x x Counsel for the taxpayer even questioned the propriety of the conferencehearing inasmuch as the only question to resolved (sic) is the legality of the issuance of the assessment. On the disallowed items, Philcom thru counsel manifested that it has no intention to present documents and/or evidences allegedly because of the pending legal question on the validity of the assessment.23 Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for reconsideration and a request for reinvestigation, there have been cases wherein these two terms were used interchangeably. But upon closer examination, these cases all involved a reinvestigation that was requested by the taxpayer and granted by the BIR.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,24 the Court weighed the considerable time spent by the BIR to actually conduct the reinvestigations requested by the taxpayer in deciding that the prescription period was suspended during this time. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription. Although the Court used the term "requests for reconsideration" in reference to the letters sent by the taxpayer in the case of Querol v. Collector of Internal Revenue,25 it took into account the reinvestigation conducted soon after these letters were received and the revised assessment that resulted from the reinvestigations. It is true that the Collector revised the original assessment on February 9, 1955; and appellant avers that this revision was invalid in that it was not made within the five-year prescriptive period provided by law (Collector vs. Pineda, 112 Phil. 321). But that fact is that the revised assessment was merely a result of petitioner Querols requests for reconsideration of the original assessment, contained in his letters of December 14, 1951 and May 25, 1953. The records of the Bureau of Internal Revenue show that after receiving the letters, the Bureau conducted a reinvestigation of petitioners tax liabilities, and, in fact, sent a tax examiner to San Fernando, La Union, for that purpose; that because of the examiners report, the Bureau revised the original assessment, x x x. In other words, the reconsideration was granted in part, and the original assessment was altered. Consequently, the period between the petition for reconsideration and the revised assessment should be subtracted from the total prescriptive period (Republic vs. Ablaza, 108 Phil 1105). The Court, in Republic v. Lopez,26 even gave a detailed accounting of the time the BIR spent for each reinvestigation in order to deduct it from the five-year period set at that time in the statute of limitations: It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed by Section 332(c) of the Internal Revenue Code within which the Government may sue to collect an assessed tax is to be computed from the last revised assessment resulting from a reinvestigation asked for by the taxpayer and (2) that where a taxpayer demands a reinvestigation, the time employed in reinvestigating should be deducted from the total period of limitation. xxxx

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The first reinvestigation was granted, and a reduced assessment issued on 29 May 1954, from which date the Government had five years for bringing an action to collect. The second reinvestigation was asked on 16 January 1956, and lasted until it was decided on 22 April 1960, or a period of 4 years, 3 months, and 6 days, during which the limitation period was interrupted. The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of Internal Revenue v. Sison,27"that where a taxpayer demands a reinvestigation, the time employed in reinvestigating should be deducted from the total period of limitation." Finally, in Republic v. Arcache,28 the Court enumerated the reasons why the taxpayer is barred from invoking the defense of prescription, one of which was that, "In the first place, it appears obvious that the delay in the collection of his 1946 tax liability was due to his own repeated requests for reinvestigation and similarly repeated requests for extension of time to pay." In this case, the BIR admitted that there was no new or additional evidence presented. Considering that the BIR issued its Preliminary Assessment Notice on 13 April 1994 and its Formal Assessment Notice on 14 April 1994, just one day before the three-year prescription period for issuing the assessment expired on 15 April 1994, it had ample time to make a factually and legally well-founded assessment. Added to the fact that the Final Decision that the CIR issued on 8 October 2002 merely affirmed its earlier findings, whatever examination that the BIR may have conducted cannot possibly outlast the entire three-year prescriptive period provided by law to collect the assessed tax, not to mention the eight years it actually took the BIR to decide the respondents protest. The factual and legal issues involved in the assessment are relatively simple, that is, whether certain income tax deductions should be disallowed, mostly for failure to pay withholding taxes. Thus, there is no reason to suspend the running of the statute of limitations in this case. The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable.29 On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament that the law on the statute of limitations seeks to prevent.

The Court, in sustaining for the first time the suspension of the running of the statute of limitations in cases where the taxpayer requested for a reinvestigation, gave this justification: A taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. xxxx This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is fundamental and unquestioned. He who prevents a thing from being done may not avail himself of the nonperformance which he himself occasioned, for the law says to him in effect "this is your own act, and therefore you are not damnified." (R.H. Stearns Co. v. U.S., 78 L. ed., 647). (Emphasis supplied.)30 This rationale is not applicable to the present case where the respondent did nothing to prevent the BIR from collecting the tax. It did not present to the BIR any new evidence for its re-evaluation. At the earliest opportunity, respondent insisted that the assessment was invalid and made clear to the BIR its refusal to produce documents that the BIR requested. On the other hand, the BIR also communicated to the respondent its unwavering stance that its assessment is correct. Given that both parties were at a deadlock, the next logical step would have been for the BIR to issue a Decision denying the respondents protest and to initiate proceedings for the collection of the assessed tax and, thus, allow the respondent, should it so choose, to contest the assessment before the CTA. Postponing the collection for eight long years could not possibly make the taxpayer feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. There was no legal, or even a moral, obligation preventing the CIR from collecting the assessed tax. In a similar case, Cordero v. Conda,31 the Court did not suspend the running of the prescription period where the acts of the taxpayer did not prevent the government from collecting the tax. The government also urges that partial payment is "acknowledgement of the tax obligation", hence a "waiver on the defense of prescription." But partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant." Which, as stated in Collector v. Suyoc Consolidated Mining Co., et al., L-11527, November 25, 1958, is the underlying reason behind the rule that prescriptive period is arrested by the taxpayers

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request for reexamination or reinvestigation even if "he has not previously waived it [prescription] in writing." The Court reminds us, in the case of Commissioner of Internal Revenue v. Algue, Inc., the need to balance the conflicting interests of the government and the taxpayers.
32

Callejo, Sr., Chico-Nazario, and

of Nachura, JJ. COMMISSIONER OF INTERNAL REVENUE, Respondent. April 24, 2007 Promulgated:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interest of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of common good, may be achieved. Thus, the three-year statute of limitations on the collection of an assessed tax provided under Section 269(c) of the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be given effect. In providing for exceptions to such rule in Section 271, the law strictly limits the suspension of the running of the prescription period to, among other instances, protests wherein the taxpayer requests for a reinvestigation. In this case, where the taxpayer merely filed two protest letters requesting for a reconsideration, and where the BIR could not have conducted a reinvestigation because no new or additional evidence was submitted, the running of statute of limitations cannot be interrupted. The tax which is the subject of the Decision issued by the CIR on 8 October 2002 affirming the Formal Assessment issued on 14 April 1994 can no longer be the subject of any proceeding for its collection. Consequently, the right of the government to collect the alleged deficiency tax is barred by prescription. IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed en banc Decision of the CTA in CTA EB No. 37 dated 22 February 2005, cancelling Assessment Notice No. 000688-80-7333 issued against Philippine Global Communication, Inc. for its 1990 income tax deficiency for the reason that it is barred by prescription, is hereby AFFIRMED. No costs. SO ORDERED. THIRD DIVISION

x ---------------------------------------------------------------------------------------- x

RESOLUTION

YNARES-SANTIAGO, J.:

For resolution is petitioners Motion for Reconsideration of our Decision [1] dated June 16, 2006 affirming the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioners Petition for Relief from Judgment and Motion for Reconsideration, respectively.

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

G.R. No. 168498 Present: Ynares-Santiago, J. (Chairperson), Austria-Martinez, Petitioner reiterates its claim that its former counsels failure to file petition for review with the Court of Tax Appeals within the period set by Section 228 of the National

- versus -

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Internal Revenue Code of 1997 (NIRC) was excusable and raised the following issues for resolution: Other than the issue of prescription, which is raised herein for the first time, the issues presented are a mere rehash of petitioners previous arguments, all of A. which have been considered and found without merit in our Decision dated June 16, 2006. THE DENIAL OF PETITIONERS PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE DENIAL OF SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS OF THIS HONORABLE COURT BECAUSE THE ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED A FACT NOT DENIED BY THE RESPONDENT IN ITS ANSWER.

Petitioner maintains that its counsels neglect in not filing the petition for review within the reglementary period was excusable. It alleges that the counsels secretary misplaced the Resolution hence the counsel was not aware of its issuance and that it had become final and executory.

B.

CONTRARY TO THIS HONORABLE COURTS DECISION, AND FOLLOWING THE LASCONA DECISION, AS WELL AS THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR REVIEW BEFORE THE COURT OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD JURISDICTION OVER THE CASE.

We are not persuaded.

In our Decision, we held that: C. Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of petitioners counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment, thereby putting no end to litigation. Negligence to be excusable must be one which ordinary diligence and prudence could not have guarded against and by reason of which the rights of an aggrieved party have probably been impaired. Petitioners former counsels omission could hardly be characterized as excusable, much less unavoidable.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS AND GROSS ONSHORE TAX, PETITIONER IN THE INTEREST OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE COURT OF TAX APPEALS.[2]

Petitioners motion for reconsideration is denied for lack of merit.

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The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive promptly judicial notices and pleadings intended for them. Apparently, petitioners counsel was not only remiss in complying with this admonition but he also failed to check periodically, as an act of prudence and diligence, the status of the pending case before the CTA Second Division. The fact that counsel allegedly had not renewed the employment of his secretary, thereby making the latter no longer attentive or focused on her work, did not relieve him of his responsibilities to his client. It is a problem personal to him which should not in any manner interfere with his professional commitments.[3]

Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise.[4] Also, petitioners failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Governments right to assess.[5]

The Court of Tax Appeals is a court of special jurisdiction and can only take Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened considering that it was allegedly not accorded its day in court when the Court of Tax Appeals dismissed its petition for review for late filing. It claims that rules of procedure are intended to help secure, not override, substantial justice. Sec. 7. Jurisdiction. The CTA shall exercise: Petitioners arguments fail to persuade us. (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; cognizance of such matters as are clearly within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 1125, otherwise known as the Law Creating the Court of Tax Appeals, provides:

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005: If indeed there was negligence, this is obviously on the part of petitioners own counsel whose prudence in handling the case fell short of that required under the circumstances. He was well aware of the motion filed by the respondent for the Court to resolve first the issue of this Courts jurisdiction on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where both counsels were present and at said hearing the motion was submitted for resolution. Petitioners counsel apparently did not show enthusiasm in the case he was handling as he should have been vigilant of the outcome of said motion and be prepared for the necessary action to take whatever the outcome may have been. Such kind of negligence cannot support petitioners claim for relief from judgment.

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Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals[6] state: RULE 4 Jurisdiction of the Court xxxx SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such

final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code; xxxx

RULE 8 Procedure in Civil Cases xxxx SECTION 3. Who May Appeal; Period to File Petition. (a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which to file

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an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same.[7]

there is yet no final decision on the disputed assessment because of the Commissioners inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion for reconsideration. Although the same was raised in the

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other.

petition for review, it was dismissed for late filing. No motion for reconsideration was filed hence the disputed assessment became final, demandable and executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for relief from judgment. However, it failed to raise the issue of prescription therein. After its petition for relief from judgment was denied by the Court of Tax Appeals for lack of merit, petitioner filed a petition for review before this Court without raising the issue of prescription. It is only in the instant motion for reconsideration that petitioner raised the issue of prescription which is not allowed. The rule is well-settled that points of law,

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed assessment became final, demandable and executory.

theories, issues and arguments not adequately brought to the attention of the lower court need not be considered by the reviewing court as they cannot be raised for the first time on appeal,[8] much more in a motion for reconsideration as in this case, because this would be offensive to the basic rules of fair play, justice and due process. [9] This last ditch effort to shift to a new theory and raise a new matter in the hope of a favorable result is a pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioners motion for reconsideration Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that Republic of the Philippines SUPREME COURT Manila SO ORDERED. is DENIED.

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SECOND DIVISION G.R. No. 174942 March 7, 2008

(page 240, BIR Records). Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank. Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994. On August 9, 2002, respondent issued a final decision on petitioners protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the same as closed and terminated. On the other hand, the deficiency DST assessment in the amount ofP24,587,174.63 was reiterated and the petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner received a copy of the said decision on January 15, 2003. Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court. On August 31, 2004, the Court rendered a Decision denying the petitioners Petition for Review, the dispositive portion of which is quoted hereunder: IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit. Accordingly, petitioner is ORDERED to PAY the respondent the amount of P24,587,174.63 representing deficiency documentary stamp tax for the period 1982-1986, plus 20% interest starting February 14, 2003 until the amount is fully paid pursuant to Section 249 of the Tax Code. SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust Company), petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION TINGA, J.: The Bank of the Philippine Islands (BPI) seeks a review of the Decision1dated 15 August 2006 and the Resolution2dated 5 October 2006, both of the Court of Tax Appeals (CTA or tax court), which ruled that BPI is liable for the deficiency documentary stamp tax (DST) on its cabled instructions to its foreign correspondent bank and that prescription had not yet set in against the government. The following undisputed facts are culled from the CTA decision: Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly created and existing under the laws of the Republic of the Philippines with principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City. Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment notice (PAN) dated November 26, 1986. Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN. On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63, respectively, for the years 1982 to 1986. On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner filed a supplemental protest. On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on the Swap Transactions with the then Central Bank

On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned Decision which was denied for lack of merit in a Resolution dated February 14, 2005. On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to File Petition for Review praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005. Petitioners motion was granted in a Resolution dated March 16, 2005. On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review, advancing the following assignment of errors. I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF THE WAIVER DULY AND VALIDLY AGREED UPON BY THE PARTIES AND EFFECTIVE UNTIL DECEMBER 31, 1994;

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II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF ALLEGED DEFICIENCY TAXHAS NOT PRESCRIBED. III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT DID NOT VIOLATE PROCEDURAL DUE PROCESS IN THE ISSUANCE OF ASSESSMENT NOTICE RELATIVE TO DOCUMENTARY STAMP DEFICIENCY. IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH 1987 MEMORANDUM OF THE LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR COMMISISONER VESTS NO RIGHTS TO PETITIONER. V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR DOCUMENTARY STAMP TAX ON SWAP LOANS TRANSACTIONS FROM 1982 TO 1986.3 The CTA synthesized the foregoing issues into whether the collection of the deficiency DST is barred by prescription and whether BPI is liable for DST on its SWAP loan transactions. On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.,4(Wyeth Suaco case), ruled that BPIs protest and supplemental protest should be considered requests for reinvestigation which tolled the prescriptive period provided by law to collect a tax deficiency by distraint, levy, or court proceeding. It further held, as regards the second issue, that BPIs cabled instructions to its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank, the same to be credited to the account of the Central Bank, are in the nature of a telegraphic transfer subject to DST under Section 195 of the Tax Code. In its Petition for Review5 dated 24 November 2006, BPI argues that the governments right to collect the DST had already prescribed because the Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPIs request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than thirteen (13) years, that the CIR acted on the request for reinvestigation, warranting the conclusion that prescription had already set in. It further claims that the CIR was not precluded from collecting the deficiency within three (3) years from the time the notice of assessment was issued on 7 April 1989, or even until the expiration on 31 December 1994 of the last waiver of the statute of limitations signed by BPI. Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject to DST because the National Internal Revenue Code of 1977 (Tax Code of 1977) does not contain a specific provision that cabled instructions on SWAP transactions are subject to DST.

The Office of the Solicitor General (OSG) filed a Comment6 dated 1 June 2007, on behalf of the CIR, asserting that the prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR. Such action was allegedly communicated to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP transactions in support of its request for reinvestigation. Thus, it was only upon BPIs receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect commenced to run again. The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et al.7(Suyoccase) in support of its argument that BPI is already estopped from raising the defense of prescription in view of its repeated requests for reinvestigation which allegedly induced the CIR to delay the collection of the assessed tax. In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case on two points: first, it never induced the CIR to postpone tax collection; second, its request for reinvestigation was not categorically acted upon by the CIR within the three-year collection period after assessment. BPI maintains that it did not receive any communication from the CIR in reply to its protest letters. We grant the petition. Section 3189 of the Tax Code of 1977 provides: Sec. 318. Period of limitation upon assessment and collection.Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700.10 Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.11

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As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency. In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPIs filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section 32012 of the Tax Code of 1977, which states: Sec. 320. Suspension of running of statute.The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied) The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR. In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said: In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence,

which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949 In Republic of the Philippines v. Acebedo, this Court similarly found that x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. "D"), but there was follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. [Emphasis in the original]14 The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation. There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation, as he considered BPIs letters of protest to be. In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that he had granted the request for reinvestigation. His consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period was tolled by BPIs request for reinvestigation, without any assertion that the same had been granted or at least acted upon.15 In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The records of the case showed that as a result of these protest letters, the BIR Manufacturing Audit Division conducted a review and reinvestigation of the assessments. The records further showed that the company, thru its finance manager, communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing review and consideration of its protest. As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis for the tax courts ruling that the filing of the request for reinvestigation tolled the running of the prescriptive period for collecting the tax deficiency.

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Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90.16 At any rate, the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest. We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and reconsideration were filed by Suyoc Consolidated Mining Company purporting to question the correctness of tax assessments against it. As a result, the Collector of Internal Revenue refrained from collecting the tax by distraint, levy or court proceeding in order to give the company every opportunity to prove its claim. The Collector also conducted several reinvestigations which eventually led to a reduced assessment. The company, however, filed a petition with the CTA claiming that the right of the government to collect the tax had already prescribed. When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its own action, the government was induced to delay the collection of taxes to make the company feel that the demand was not unreasonable or that no harassment or injustice was meant by the government. In this case, BPIs letters of protest and submission of additional documents pertaining to its SWAP transactions, which were never even acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the collection of the deficiency DST. The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the governments right to collect the deficiency. As this Court declared in Republic of the Philippines v. Ablaza:17 The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.18

Given the prescription of the governments claim, we no longer deem it necessary to pass upon the validity of the assessment. WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15 August 2006 and its Resolution dated 5 October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs. SO ORDERED. Carpio, Acting Chairperson, Carpio-Morales, Azcuna*, Velasco, Jr., JJ., concur.

FIRST DIVISION

COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 166387

Petitioner, Present:

PUNO, C.J., Chairperson , CARPIO, -versusCORONA, AZCUNA and LEONARDO-DE CASTRO, JJ.

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ENRON SUBIC POWER Revenue, through a preliminary five-day letter,[3] informed it of a proposed assessment of CORPORATION, Respondent. Promulgated: an alleged P2,880,817.25 deficiency income tax.[4] Enron disputed the proposed deficiency assessment in its first protest letter.[5]

January 19, 2009 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x On May 26, 1999, Enron received from the CIR a formal assessment notice[6] requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment.[7] RESOLUTION CORONA, J.: Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of Section 228 of the National Internal Revenue In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue (CIR) assails the November 24, 2004 decision [1] of the Court of Appeals (CA) annulling the formal assessment notice issued by the CIR against respondent Enron Subic Power Corporation (Enron) for failure to state the legal and factual bases for such assessment. Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport enterprise,[2] filed its annual income tax return for the year 1996 on April 12, 1997. It indicated a net loss of P7,684,948. Subsequently, the Bureau of Internal In a decision dated September 12, 2001, the CTA granted Enrons petition and ordered the cancellation of its deficiency tax assessment for the year 1996. The CTA reasoned that the assessment notice sent to Enron failed to comply with the requirements of a valid written notice under Section 228 of the NIRC and RR No. 12-99. Code (NIRC), as amended,[8] and Section 3.1.4 of Revenue Regulations (RR) No. 12-99[9] by not providing the legal and factual bases of the assessment. Enron likewise questioned the substantive validity of the assessment.[10]

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The CIRs motion for reconsideration of the CTA decision was denied in a resolu tion dated November 12, 2001.

The CIR errs in insisting that the notice of assessment in question complied with the requirements of the NIRC and RR No. 12-99.

A notice of assessment is: The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the audit working papers did not substantially comply with Section 228 of the NIRC and RR No. 12-99 because they failed to show the applicability of the cited law to the facts of the assessment. The CIR filed a motion for reconsideration but this was deemed abandoned when he filed a motion for extension to file a petition for review in this Court. [A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without merit. The Notice of Assessment shall inform the [t]axpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course. The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the notice of assessment shall be void. (emphasis supplied)[12]

The CIR now argues that respondent was informed of the legal and factual bases of the deficiency assessment against it. Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made. Otherwise, the assessment is We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In Compagnie Financiere Sucres et Denrees v. CIR,
[11]

void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue regulation reads:

we held:

We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set aside the conclusion reached by an agency, like the CTA, especially if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority on its part, which is not present here.

3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by personal delivery. xxx (emphasis supplied)

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assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessment was based. It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. The use of the word shall in these legal provisions indicates the mandatory nature of the requirements laid down therein. We note the CTAs findings: In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise penalty due thereon. The Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and facts on which the subject assessment is based. [The CIR] did not bother to explain how it arrived at such an assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with by Enron.[13] We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the CIRs duties in correctly assessing a taxpayer.[15] The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order Both the CTA and the CA concluded that the deficiency tax assessment merely required by law, does not necessarily mean that Enron was informed of the law and facts itemized the deductions disallowed and included these in the gross income. It also on which the deficiency tax assessment was made. imposed the preferential rate of 5% on some items categorized by Enron as costs. The legal and factual bases were, however, not indicated. The law requires that the legal and factual bases of the assessment be stated in The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During the pre-assessment stage, the CIR advised Enrons representative of the tax deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day letter and furnished Enron a copy of the audit working paper[14] allegedly showing in detail the legal and factual bases of the the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged factual bases in the advice, preliminary letter and audit working papers did not suffice. There was no going around the mandate of the law that

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EN BANC the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. G.R. No. 117577 December 1, 1995 ALEJANDRO B. TY AND MVR PICTURE TUBE, INC., petitioners, vs. THE HON. AURELIO C. TRAMPE, in his capacity as Judge of the Regional Trial Court of Pasig, Metro Manila, THE HON. SECRETARY OF FINANCE, THE MUNICIPAL ASSESSOR OF PASIG AND THE MUNICIPAL TREASURER OF PASIG, respondents.

We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made.[16] Such amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process.[17] In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void. We reiterate our ruling in Reyes v. Almanzor, et al.:[18]

PANGANIBAN, J.: ARE THE INCREASED REAL ESTATE TAXES imposed by and being collected in the Municipality (now City) of Pasig, effective from the year 1994, valid an legal? This is the question brought before this Court for resolution. The Parties Petitioner Alejandro B. Ty is a resident of and registered owner of lands and buildings in the Municipality (now City) of Pasig, while petitioner MVR Picture Tube, Inc. is a corporation duly organized and existing under Philippine laws and is likewise a registered owner of lands and buildings in said Municipality 1 . Respondent Aurelio C. Trampe is being sued in his capacity as presiding judge of Branch 163. Regional Trial Court of the National Capital Judicial Region, sitting in Pasig, whose Decision dated 14 July 1994 and Order dated 30 September 1994 in Special Civil Action No. 629 (entitled "Alejandro B. Ty and MVR Picture Tube, Inc. vs. The Hon. Secretary of Finance. et al.") are sought to be set aside. Respondent Secretary of Finance is impleaded as the government officer who approved the Schedule of Market Values used as basis for the new tax assessments being enforced by respondents Municipal Assessor and Municipal Treasurer of Pasig and the legality of which is being questioned in this petition 2 . The Antecedent Facts

Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself.

WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of the Court of Appeals is AFFIRMED.

Republic of the Philippines SUPREME COURT Manila

On 06 January 1994, respondent Assessor sent a notice of assessment respecting certain real properties of petitioners located in Pasig, Metro Manila. In a letter dated 18 March 1994, petitioners through counsel "request(ed) the Municipal Assessor to reconsider the subject assessments" 3 .

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Not satisfied, petitioners on 29 March 1994 filed with the Regional Trial Court of the National Capital Judicial Region, Branch 163, presided over by respondent Judge, a Petition for Prohibition with prayer for a restraining order and/or writ of preliminary injunction to declare null and void the new tax assessments and to enjoin the collection of real estate taxes based on said assessments. In a Decision 4 dated 14 July 1994, respondent Judge denied the petition "for lack of merit" in the following disposition. WHEREFORE, foregoing premises considered, petitioners' prayer to declare unconstitutional the schedule of market values as prepared by the Municipal Assessor of Pasig, Metro Manila, and to enjoin permanently the Municipal Treasurer of Pasig, Metro Manila, from collecting the real property taxes based thereof (sic) is hereby DENIED for lack of merit. Cost (sic) de oficio. Subsequently, petitioners' Motion for Reconsideration was also denied by respondent Judge in an Order 5 dated 30 September 1994. Rebuffed by said Decision and Order, petitioners filed this present Petition for Review directly before this Court, raising pure questions of law and assigning the following errors: The Court a quo gravely erred in holding that Presidential Decree No. 921 was expressly repealed by R.A. 7160 and that said presidential decree including its Implementing Rules (P.D. 464) went down to the statutes' graveyard together with the other decision(s) of the Supreme Court affecting the same. The Court a quo while holding that the new tax assessments have tremendously increased ranging from 418.8% to 570%, gravely erred in blaming petitioners for their failure to exhaust administrative remedies provided for by law. The Court a quo blatantly erred in not declaring the confiscatory and oppressive nature of the assessments as illegal. void ab initio and unconstitutional constituting a deprivation of property without due process of law. 6 In a resolution dated 21 November 1994, this Court, without giving due course to the petition, required respondents to comment thereon. Respondents Municipal Treasurer and Municipal Assessor, through counsel, filed their Comment on 19 December 1994, and respondent Secretary of Finance, through the Solicitor General, submitted his on 11 May 1995. Petitioners filed their Reply to the Comment of respondent Assessor and Treasurer 06 January 1995, and their Reply to that of the respondent Secretary on 18 May 1995. After careful deliberation on the above pleadings, the Court resolved to give due course to the petition, and, inasmuch as the issues are relatively simple, the Court dispensed with

requiring the parties to submit further memoranda and instead decided to consider the respondents' respective Comments as their answers and memoranda. Thus the case is now considered submitted for resolution. The Issues The issues brought by the parties for decision by this Court are: 1. Whether Republic Act No. 7160, otherwise known as the Local Government Code of 1991, repealed the provisions of Presidential Decree No. 921; 2. Whether petitioners are required to exhaust administrative remedies prior to seeking judicial relief; and 3. Whether the new tax assessments are oppressive and confiscatory, and therefore unconstitutional. In disposing of the above issues against petitioners, the court a quo ruled that the schedule of market values and the assessments based thereon prepared solely by respondent assessor are valid and legal, they having been prepared in accordance with the provisions of the Local Government Code of 1991 (R.A. 7160). It held also that said Code had effectively repealed the previous law on the matter, P.D. 921, which required, in the preparation of said schedule, joint action by all the city and municipal assessors in the Metropolitan Manila area. The lower court also faulted petitioners with failure to exhaust administrative remedies provided under Sections 226 and 252 of R.A. 7160. Finally, it found the questioned assessments consistent with the "tremendously increased . . . price of real estate anywhere in the country." 7 Stated the court: This Court is inclined to agree with the view of defendants that R.A. 7160 in its repealing clause provide (sic) that Presidential Decree Nos. . . . 464 . . . are hereby repealed and rendered of no force and effect. Hence said presidential decrees including their implementing rules went down to the statutes' graveyard together with the decisions of the Supreme Court on cases effecting (sic) the same. This Court is also in accord with respondents (sic) view that petitioners failed to avail of either Section 226 of R.A. 7160, that is by appealing the assessment of their properties to the Board of Assessment Appeal within sixty 160) days from the date of receipt of the written Notice of Assessment, and if it is true that petitioner (sic) as alleged in their pleadings was not afforded the opportunity to appeal to the board of

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assessment appeal, then they could have availed of the provisions of Section 252, of the same R.A. 7160 by paying the real estate tax under protest. Because of petitioners (sic) failure to avail of either Sections 226 or 252 of R.A. 7160, they failed to exhaust administratives (sic) remedies provided for by law before bringing the case to Court. (Buayan Cattle Co., Inc. vs. Quintillan, 128 SCRA 276). Therefore the filing of this case before this Court is premature, the same not falling under the exception because the issue involved is not a question of law but of fact (Valmonte vs. Belmonte, Jr., 170 SCRA 256). Petitioners also alleged that the New Tax Assessments are not only oppressive and confiscatory but also destructive in view of the tremendous increase in its valuation, from P855,360.00 to P4,121,280.00 a marked increase of 418.8% of one of its properties, while the other, from P857,600.00 to P4,374,410.00, an increased (sic) of 510%. This Court agree (sic) with petitioners (sic) observation, but the reality (sic) the price of real property anywhere in the country tremendously increased. This is shown in the Real Estate Monitor of Economic Incorporated (copy attached with the memorandum of respondents). For example real properties in Pasig in 1991 located at the Ortigas Commercial Complex command (sic) a price of P42,000.00 per square meter which price is supported by a case filed before this Court (civil case no. 64506, Jesus Fajardo, et al. vs. Ortigas and Co.) for Recovery (sic) of agents (sic) commission. The property subject of the sale which was also located at the Ortigas Commercial Complex at Pasig, Metro Manila was sold to a Taiwanese at P42,000.00 per square meter. It is therefore not surprising that the assessment of real properties in Pasig has increased tremendously. Had petitioners first exhausted administrative remedies they would have realized the fact that prices of real estate has (sic) tremendously increased and would have known the reason/reasons why. 8 In its Order dated 30 September 1994 denying the Motion for Reconsideration, the court a quo ruled: This Court despite petitioners' exhaustive and thorough research and discussion of the point in issue, is still inclined to sustain the view that P.D. 921 was impliedly repealed by R.A. 7160. P.D. 921 to the mind of this Court is an implementing law of P.D. 464, Sections 3, 6, 9, 12 and 13 of said P.D. provide how certain provisions of P.D. 464 shall be implemented. Since P.D. 464 was expressly repealed by R.A. 7160. P.D. 921 must necessarily be considered repealed, otherwise, what should Sections 3, 6, 9, 12 and 13 of P.D. 921 implement? And, had the law makers intended to have said P.D. 921 remain valid and enforceable

they would have provided so in R.A. 7160. Since there is none, P.D. 921 must be considered repealed. 9 Re: The First Issue: Repeal of P.D. 921? To resolve the first issue, it is necessary to revisit the following provisions of law: 1. Section 15 of P.D. No. 464, promulgated on 20 May 1974, otherwise known as the Peal Property Tax Code: Sec. 15. Preparation of Schedule of Values. Before any general revision of property assessments is made, as provided in this Code, there shall be prepared for the province or city a Schedule of Market Value for the different classes of real property therein situated in such form and detail as shall be prescribed by the Secretary of Finance. Said schedule, together with an abstract of the data (on) which it is based, shall be submitted to the Secretary of Finance for review not later than the thirty-first day of December immediately preceding the calendar year the general revision of assessments shall be undertaken. The Secretary of Finance shall have ninety days from the date of receipt within which to review said schedule to determine whether it conforms with the provisions of this Code. 2. Subsequently, on 12 April 1976, P.D. 921 was promulgated, which in Section 9 thereof, states: Sec. 9. Preparation of Schedule of Values for Real Property within the Metropolitan Area. The Schedule of Values that will serve as the basis for the appraisal and assessment for taxation purposes of real properties located within the Metropolitan Area shall be prepared jointly by the City Assessors of the Districts created under Section one hereof, with the City Assessor of Manila acting as Chairman, in accordance with the pertinent provisions of Presidential Decree No. 464, as amended, otherwise known as the Real Property Tax Code, and the implementing rules and regulations thereof issued by the Secretary of Finance. 3. Section One of P.D. 921, referred to above, provides:

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Sec. 1. Division of Metropolitan Manila into Local Treasury and Assessment Districts. For purposes of effective fiscal management, Metropolitan Manila is hereby divided into the following Local Treasury and Assessment Districts: First District Manila Second District Quezon City, Pasig, Marikina, Mandaluyong and San Juan Third District Caloocan City, Malabon, Navotas and Valenzuela Fourth District Pasay City, Makati, Paranaque, Muntinlupa, Las Pias, Pateros and Taguig Manila, Quezon City, Caloocan City and Pasay City shall be the respective Centers of the aforesaid Treasury and Assessment Districts. 4. On 01 January 1992, Republic Act No. 7160, otherwise known as the Local Government Code of 1991, took effect. Section 212 of said law is quoted as follows: Sec. 212. Preparation of Schedule of Fair Market Values. Before any general revision of property assessment is made pursuant to the provisions of this Title, there shall be prepared a schedule of fair market values by the provincial, city and the municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. The schedule of fair market values shall be published in a newspaper of general circulation in the province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two other conspicuous public place therein. 5. The repealing clause of R.A. 7160 found in the Section 534 thereof is hereby reproduced as follows: Sec. 534. Repealing Clause.

(c) . . . ; and Presidential Decree Nos. 381, 436, 464, 477, 626, 632, 752, and 1136 are hereby repealed and rendered of no force and effect. xxx xxx xxx (f) All general and special laws, acts, city charter, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. (emphasis supplied) It is obvious from the above provisions of R.A 7160, specifically Sec. 534, that P.D. 921 was NOT EXPRESSLY repealed by said statute. Thus, the question is: Was P.D. 921 IMPLIEDLY repealed by R.A. 7160? Petitioners contend that, contrary to the aforequoted Decision of the lower court, "whether the assessment is made before or after the effectivity of R.A. 7160, the observance of, and compliance with, the explicit requirement of P.D. 921 is strict and mandatory either" because P.D. 921 was not impliedly repealed by R.A. 7160 and is therefore still the applicable statute, or because the Supreme Court, in three related cases 10 promulgated on 16 December 1993 after the Local Government Code of 1991 already took effect ruled that a schedule of market values and the corresponding assessments based thereon "prepared solely by the city assessor . . . failed to comply with the explicit requirement (of collegial and joint action by all the assessors in the Metropolitan Manila area under P.D. 921) . . . and are on that account illegal and void." On the other hand, respondents aver that Section 9 of P.D. 921 and Section 212 of R.A. 7160 are clearly and unequivocally incompatible because they dwell on the same subject matter, namely, the preparation of a schedule of values for real property within the Metropolitan Manila Area. Under P.D. 921, the schedule shall be preparedjointly by the city assessors of the District, while, under R.A. 7160, such schedule shall be prepared "by the provincial, city and municipal assessors of the municipalities within the Metropolitan Manila area . . . ". Furthermore, they claim that "Section 9 (of P.D. 921) merely supplement(ed) Section 15 of P.D. 464 in so far as the preparation of the schedule of values in Metro Manila (is concerned)." Thus, "with the express repeal of P.D. 464 . . . P.D. 921 . . .can not therefore exist independently on its own." They also argue that although the aforecited Supreme Court decision was promulgated after R.A. 7160 took effect, "the assessment of the Municipal Assessors in those three (3) cited cases were assessed in 1990 prior to the effectivity of the Code." Hence, the doctrine in said cases cannot be applied to those prepared in 1994 under R.A. 7160. We rule for petitioners.

(a) . . . (b) . . . R.A. 7160 has a repealing provision (Section 534) and, if the intention of the legislature was to abrogate P.D. 921, it would have included it in such repealing clause, as it did in

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expressly rendering of no force and effect several other presidential decrees. Hence, any repeal or modification of P.D. 921 can only be possible under par. (f) of said Section 534, as follows: (f) All general and special laws, acts, city charter, decrees, executive orders, proclamations and administrative regulations, part or parts thereof which are inconsistent with any of the provisions of the Code are hereby repealed or modified accordingly. The foregoing partakes of the nature of a general repealing provision. It is a basic rule of statutory construction that repeals by implication are not favored. An implied repeal will not be allowed unless it is convincingly and unambiguously demonstrated that the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist. This is based on the rationale that the will of the legislature cannot be overturned by the judicial function of construction and interpretation. Courts cannot take the place of Congress in repealing statutes. Their function is to try to harmonize, as much as possible, seeming conflicts in the laws and resolve doubts in favor of their validity and co-existence. In Villegas v. Subido, 11 the issue raised before the Court was whether the Decentralization Act had the effect of repealing what was specifically ordained in the Charter of the City of Manila. Under the Charter, it was provided in its Section 22 that "The President of the Philippines with the consent of the Commission on Appointments shall appoint . . . the City Treasurer and his Assistant." Under the Decentralization Act, it was provided that "All other employees, except teachers paid out of provincial, city or municipal general funds and other local funds shall . . . be appointed by the provincial governor, city or municipal mayor upon recommendation of the head of office concerned." The Court, in holding that there was no implied repeal in this case 12 , said: . . . It has been the constant holding of this Court that repeals by implication are not favored and will not be so declared unless it be manifest that the legislature so intended. Such a doctrine goes as far back as United States v. Reyes, a 1908 decision (10 Phil. 423, Cf. U.S. v. Academia, 10 Phil. 431 [1908]). It is necessary then before such a repeal is deemed to exist that it be shown that the statutes or statutory provisions deal with the same subject matter and that the latter be inconsistent with the former. (Cf. Calderon v. Provincia del Santisimo Rosario, 28 Phil. 164 [1914]). There must be a showing of repugnancy clear and convincing in character. The language used in the latter statute must be such as to render it irreconcilable with what has been formerly enacted. An inconsistency that falls short of that standard does not suffice. What is needed is a manifest indication of the legislative purpose to repeal. [Citing numerous cases]

More specifically, a subsequent statute, general in character as to its terms and application, is not to be construed as repealing a special or specific enactment, unless the legislative purpose to do so is manifest. This is so even if the provisions of the latter are sufficiently comprehensive to include what was set forth in the special act. This principle has likewise been consistently applied in decisions of the Court from Manila Railroad Co. v. Rafferty (40 Phil 224), decided as far back as 1919. A citation from an opinion of Justice Tuason is illuminating. Thus: "From another angle the presumption against repeal is stronger. A special law is not regarded as having been amended or repealed by a general law unless the intent to repeal or alter is manifest. Generalia specialibus non derogant. An this is true although the terms of the general act are broad enough to include the matter in the special statute. . . . At any rate, in the event harmony between provisions of this type in the same law or in two laws is impossible, the specific provision controls unless the statute, considered in its entirety, indicates a contrary intention upon the part of the legislature. . . . A general law is one which embraces a class of subjects or places and does not omit any subject or place naturally belonging to such class, while a special act is one which relates to particular persons or things of a class." (citing Valera v. Tuason, 80 Phil. 823, 827-828 [1948].) In the relatively recent case of Mecano vs. Commission on Audit 13 , the Court en banc had occasion to reiterate and to reinforce the rule against implied repeals, as follows: Repeal by implication proceeds on the premise that where a statute of later date clearly reveals an intention on the part of the legislature to abrogate a prior act on the subject, that intention must be given effect. Hence, before there can be a repeal, there must be a clear showing on the part of the law maker that the intent in enacting the new law was to abrogate the old one. The intention to repeal must be clear and manifest; otherwise, at least, as a general rule, the later act is to be construed as a continuation of, and not a substitute for, the first act and will continue so far as the two acts are the same from the time of the first enactment. There are two categories of repeal by implication. The first is where provisions in the two acts on the same subject matter are in an irreconcilable conflict, the later act to the extent of the conflict constitutes an implied repeal of the earlier one. The second is if the later act covers the whole subject of the earlier one and is clearly intended as a substitute, it will operate to repeal the earlier law.

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Implied repeal by irreconcilable inconsistency take place when the two statutes cover the same subject matter; they are so clearly inconsistent and incompatible with each other that they cannot be reconciled or harmonized; and both cannot be given effect, that is that one law cannot be enforced without nullifying the other. In the same vein, but in different words, this Court ruled in Gordon vs. Veridiano 14 : Courts of justice, when confronted with apparently conflicting statutes, should endeavor to reconcile the same instead of declaring outright the invalidity of one as against the other. Such alacrity should be avoided. The wise policy is for the judge to harmonize them if this is possible, bearing in mind that they are equally the handiwork of the same legislature, and so give effect to both while at the same time also according due respect to a coordinate department of the government. It is this policy the Court will apply in arriving at the interpretation of the laws above-cited and the conclusions that should follow therefrom. In the instant case, and using the Courts' standard for implied repeal in Mecano, we compared the two laws. Presidential Decree No. 921 was promulgated on 12 April 1976, with the aim of, inter alia, evolving "a progressive revenue raising program that will not unduly burden the tax payers . . . " 15 in Metropolitan Manila. Hence, it provided for the "administration of local financial services in Metropolitan Manila" only, and for this purpose, divided the area into four Local Treasury and Assessment Districts, regulated the duties and functions of the treasurers and assessors in the cities and municipalities in said area and spelled out the process of assessing, imposing and distributing the proceeds of real estate taxes therein. Upon the other hand, Republic Act No. 7160, otherwise "known and cited as the Local 'Government Code of 1991'" 16 took effect on 01 January 1992 17. It declared "genuine and meaningful local autonomy" as a policy of the state. Such policy was meant to decentralize government "powers, authority, responsibilities and resources" from the national government to the local government units "to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals." 18 In the formulation and implementation of policies and measures on local autonomy, ''(l)ocal government units may group themselves, consolidate or coordinate their efforts, services and resources for purposes commonly beneficial to them." 19 From the above, it is clear that the two laws are not co-extensive and mutually inclusive in their scope and purpose. While R.A. 7160 covers almost all governmental functions delegated to local government units all over the country, P.D. 921 embraces only the Metropolitan Manila area and is limited to the administration of financial services therein, especially the assessment and collection of real estate (and some other local) taxes.

Coming down to specifics, Sec. 9 of P.D. 921 requires that the schedule of values of real properties in the Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created therein: while Sec. 212 of R.A. 7160 states that the schedule shall be prepared "by the provincial, city and municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. . . ." It is obvious that harmony in these provisions is not only possible, but in fact desirable, necessary and consistent with the legislative intent and policy. By reading together and harmonizing these two provisions, we arrive at the following steps in the preparation of the said schedule, as follows: 1. The assessor in each municipality or city in the Metropolitan Manila area shall prepare his/her proposed schedule of values, in accordance with Sec. 212, R.A. 7160. 2. Then, the Local Treasury and Assessment District shall meet, per Sec. 9, P.D. 921. In the instant case, that district shall be composed of the assessors in Quezon City, Pasig, Marikina, Mandaluyong and San Juan, pursuant to Sec. 1 of said P.D. In this meeting, the different assessors shall compare their individual assessments, discuss and thereafter jointly agree and produce a schedule of values for their district, taking into account the preamble of said P.D. that they should evolve "a progressive revenue raising program that will not unduly burden the taxpayers". 3. The schedule jointly agreed upon by the assessors shall then be published in a newspaper of general circulation and submitted to the sanggunian concerned for enactment by ordinance, per Sec. 212, R.A. 7160. By this harmonization, both the preamble of P.D. 921 decreeing that the real estate taxes shall "not unduly burden the taxpayer" and the "operative principle of decentralization" provided under Sec. 3, R.A. 7160 encouraging local government units to "consolidate or coordinate their efforts, services and resources" shall be fulfilled. Indeed the essence of joint local action for common good so cherished in the Local Government Code finds concrete expression in this harmonization. How about respondents' claim that, with the express repeal of P.D. 464, P.D. 921 being merely a "supplement" of said P.D. cannot "exist independently on its own"? Quite the contrary is true. By harmonizing P.D. 921 with R.A. 7160, we have just demonstrated that it can exist outside of P.D. 464, as a support, supplement and extension of R.A. 7160, which for this purpose, has replaced P.D. 464.

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Since it is now clear that P.D. 921 is still good law, it is equally clear that this Court's ruling in the Mathay/Javier/Puyat-Reyes cases (supra) is still the prevailing and applicable doctrine. And, applying the said ruling in the present case, it is likewise clear that the schedule of values prepared solely by the respondent municipal assessor is illegal and void. Re: The Second Issue: Exhaustion of Administrative Remedies We now come to the second issue. The provisions of Sections 226 and 252 of R.A. 7160 being material to this issue, are set forth below: Sec. 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. Sec. 252. Payment under Protest. (a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt. (b) The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned. (c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability. (d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title Two, Book II of this Code.

Respondents argue that this case is premature because petitioners neither appealed the questioned assessments on their properties to the Board of Assessment Appeal, pursuant to Sec. 226, nor paid the taxes under protest, per Sec. 252. We do not agree. Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. 20 In the present case, the parties, even during the proceedings in the lower court on 11 April 1994, already agreed "that the issues in the petition are legal" 21 , and thus, no evidence was presented in said court. In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160 provides in Sec. 229 (b) that "(t)he proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts . . . ." It follows that appeals to this Board may be fruitful only where questions of fact are involved. Again, the protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. In the case at bench however, the petitioners are questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase. Finally, it will be noted that in the consolidated cases of Mathay/Javier/Puyat-Reyes cited earlier, the Supreme Court referred the petitions (which similarly questioned the schedules of market values prepared solely by the respective assessors in the local government units concerned) to the Board of Assessment Appeal, not for the latter, to exercise its appellate jurisdiction, but rather to act only as a fact-finding commission. Said the Court 22 thru Chief Justice Andres R. Narvasa: On November 5, 1991, the Court issued a Resolution clarifying its earlier one of May 16, 1991. It pointed out that the authority of the Central Board of Assessment Appeals "to take cognizance of the factual issues raised in these two cases by virtue of the referral by this Court in the exercise of its extraordinary or certiorari jurisdiction should not be confused with its appellate jurisdiction over appealed assessment cases under Section 36 of P.D. 464 otherwise known as the Real Property Tax Code. The Board is not acting in its appellate jurisdiction in the instant cases but rather, it is acting as a Court-appointed factfinding commission to assist the Court in resolving the factual issues raised in G.R. Nos. 97618 and 97760."

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In other words, the Court gave due course to the petitions therein in spite of the fact that the petitioners had not, apriori, exhausted administrative remedies by filing an appeal before said Board. Because there were factual issues raised in the Mathay, et al. cases, the Supreme Court constituted the Central Board of Assessment Appeals as a fact-finding body to assist the Court in resolving said factual issues. But in the instant proceedings, there are no such factual issues. Therefore, there is no reason to require petitioners to exhaust the administrative remedies provided in R.A. 7160, nor to mandate a referral by this Court to said Board. Re: The Third Issue: Constitutionality of the Assessments Having already definitively disposed of the case through the resolution of the foregoing two issues, we find no more need to pass upon the third. It is axiomatic that the constitutionality of a law, regulation, ordinance or act will not be resolved by courts if the controversy can be, as in this case it has been, settled on other grounds. In the recent case of Macasiano vs. National Housing Authority 23 , this Court declared: It is a rule firmly entrenched in our jurisprudence that the constitutionality of an act of the legislature will not be determined by the courts unless that question is properly raised and presented in appropriate cases and is necessary to a determination of the case, i.e., the issue of constitutionality must be the very lis mota presented. To reiterate, the essential requisites for a successful judicial inquiry into the constitutionality of a law are: (a) the existence of an actual case or controversy involving a conflict of legal rights susceptible of judicial determination, (b) the constitutional question must be raised by a proper party, (c) the constitutional question must be raised at the earliest opportunity, and (d) the resolution of the constitutional question must be necessary to the decision of the case. (emphasis supplied) The aforequoted decision in Macasiano merely reiterated the ruling in Laurel vs. Garcia 24, where this Court held: The Court does not ordinarily pass upon constitutional questions unless these questions are properly raised in appropriate cases and their resolution is necessary for the determination of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a constitutional question although properly presented by the record if the case can be disposed of on some other ground such as the application of a statute or general law (Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312 U.S. 496 [1941]). 25 (emphasis supplied)

In view of the foregoing ruling, the question may be asked: what happens to real estate tax payments already made prior to its promulgation and finality? Under the law 26 , "the taxpayer may file a written claim for refund or credit for taxes and interests . . . ." Finally, this Tribunal would be remiss in its duty as guardian of the judicial branch if we let pass unnoticed the ease by which the respondent Judge consigned "to the statutes' graveyard" a legislative enactment "together with the (three) decisions of the Supreme Court" promulgated jointly and unanimously en banc. An elementary regard for the sacredness of laws and the stability of judicial doctrines laid down by superior authority should have constrained him to be more circumspect in rendering his decision and to spell out carefully and precisely the reasons for his decision to invalidate such acts, instead of imperiously decreeing an implied repeal. He knows or should have known the legal precedents against implied repeals. Respondent Judge, in his decision, did not even make an attempt to try to reconcile or harmonize the laws involved. Instead, he just unceremoniously swept them and this Court's decisions into the dustbin of "judicial history." In his future acts and decisions, he is admonished to be more judicious in setting aside established laws, doctrines and precedents. WHEREFORE, judgment is hereby rendered REVERSING and SETTING ASIDE the questioned Decision and Order of respondent Judge, DECLARING as null and void the questioned Schedule of Market Values for properties in Pasig City prepared by respondent Assessor, as well as the corresponding assessments and real estate tax increases based thereon; and ENJOINING the respondent Treasurer from collecting the real estate tax increases made on the basis of said Schedule and assessments. No costs. SO ORDERED. Narvasa, C.J., Feliciano, Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Francisco and Hermosisima, Jr., JJ., concur. Footnotes Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 156252 June 27, 2006

COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, vs. CITY OF MANILA, LIBERTY M. TOLEDO City Treasurer and JOSEPH SANTIAGO Chief, Licensing Division, Respondents.

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DECISION CHICO-NAZARIO, J.:

After a judicious scrutiny of the records of this case, in the light of the pertinent provisions of the Local Government Code of 1991, this Department finds for the petitioner. The Local Government Code of 1991 provides:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Order1 of the Regional Trial Court (RTC) of Manila, Branch 21, dated 8 May 2002, dismissing petitioners Petition for Injunction, and the Order2 dated 5 December 2002, denying petitioners Motion for Reconsideration. Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling beverages and maintains a sales office located in the City of Manila. On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988, otherwise known as "Revised Revenue Code of the City of Manila" repealing Tax Ordinance No. 7794 entitled, "Revenue Code of the City of Manila." Tax Ordinance No. 7988 amended certain sections of Tax Ordinance No. 7794 by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila, including herein petitioner. Aggrieved by said tax ordinance, petitioner filed a Petition3 before the Department of Justice (DOJ), against the City of Manila and its Sangguniang Panlungsod, invoking Section 1874 of the Local Government Code of 1991 (Republic Act No. 7160). Said Petition questions the constitutionality or legality of Section 21 of Tax Ordinance No. 7988. According to petitioner: Section 21 of the Old Revenue Code of the City of Manila (Ordinance No. 7794, as amended) was reproduced verbatim as Section 21 under the new Ordinance except for the last paragraph thereof which reads: "PROVIDED, that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof", which was deleted; that said deletion would, in effect, impose additional business tax on businesses, including herein petitioner, that are already subject to business tax under the other sections, specifically Sec. 14, of the New Revenue Code of the City of Manila, which imposition, petitioner claims, "is beyond or exceeds the limitation on the taxing power of the City of Manila under Sec. 143 (h) of the LGC of 1991; and that deletion is a palpable and manifest violation of the Local Government Code of 1991, and the clear mandate of Article X, Sec. 5 of the 1987 Constitution, hence Section 21 is "illegal and unconstitutional." On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a Resolution declaring Tax Ordinance No. 7988 null and void and without legal effect, the pertinent portions of which read:

"Section 188. Publication of Tax Ordinances and Revenue Measures. Within ten (10) days after their approval, certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation; Provided, however, that in provinces, cities, and municipalities where there are no newspapers or local circulations the same may be posted in at least two (2) conspicuous and publicly accessible places." (R.A. No. 7160) (stress supplied) Upon the other hand, the Rules and Regulations Implementing the Local Government Code of 1991, insofar as pertinent, mandates: "Art. 277. Publication of Tax Ordinances and Revenue Measures. (a) within ten (10) days after their approval, certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation provided that in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places. If the tax ordinances or revenue measure contains penal provisions as authorized under Art. 279 of this Rule, the gist of such tax ordinance or revenue measure shall be published in a newspaper of general circulation within the province, posting of such ordinance or measure shall be made in accessible and conspicuous public places in all municipalities and cities of the province to which the sanggunian enacting the ordinance or revenue measure belongs. xxx xxx xxx." (emphasis ours) It is clear from the above-quoted provisions of R.A. No. 7160 and its implementing rules that the requirement of publication is MANDATORY and leaves no choice. The use of the word "shall" in both provisions is imperative, operating to impose a duty that may be enforced (Soco v. Militante, 123 SCRA 160, 167; Modern Coach Corp. v. Faver 173 SE 2d 497, 499). Its essence is simply to inform the people and the entities who may likely be affected, of the existence of the tax measure. It bears emphasis, that, strict observance of the said procedural requirement is the only safeguard against any unjust and unreasonable exercise of the taxing powers by ensuring that the taxpayers are notified through

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publication of the existence of the measure, and are therefore able to voice out their views or objections to the said measure. For, after all, taxes are obligatory exactions or enforced contributions corollary to taking of property. xxxx In the case at bar, respondents, by its failure to file their comments and present documentary evidence to show that the mandatory requirement of law on publication, among other things, has been met, may be deemed to have waived its right to controvert or dispute the documentary evidence submitted by petitioner which indubitably show that subject tax ordinance was published only once, i.e., on the May 22, 2000 issue of the Philippine Post. Clearly, therefore, herein respondents failed to satisfy the requirement that said ordinance shall be published for three (3) consecutive days as required by law. xxxx In view of the foregoing, we find it unnecessary to pass upon the other issues raised by the petitioner. WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City of Manila is hereby declared NULL and VOID and WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of the Local Government Code of 1991 and its implementing rules and regulations.5 The City of Manila failed to file a Motion for Reconsideration nor lodge an appeal of said Resolution, thus, said Resolution of the DOJ Secretary declaring Tax Ordinance No. 7988 null and void has lapsed into finality. On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of Local Government Finance (BLGF) requesting in behalf of his client, Singer Sewing Machine Company, an opinion on whether the Office of the City Treasurer of Manila has the right to enforce Tax Ordinance No. 7988 despite the Resolution, dated 17 August 2000, of the DOJ Secretary. Acting on said letter, the BLGF Executive Director issued an Indorsement on 20 November 2000 ordering the City Treasurer of Manila to "cease and desist" from enforcing Tax Ordinance No. 7988. According to the BLGF: In the attached Resolution dated August 17, 2000 of the Department of Justice, it is stated that "x x x Ordinance No. 7988 of the City of Manila is hereby declared NULL AND VOID AND WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of the Local Government Code of 1991 and its implementing rules and regulations." xxxx

In view thereof, that Office is hereby instructed to cease and desist from implementing the aforementioned Manila Tax Ordinance No. 7988, inviting attention to Section 190 of the Local Government Code (LGC) of 1991, quoted hereunder: "Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and Revenue Measures.- The enforcement of any tax ordinance or revenue measures after due notice of the disapproval or suspension thereof shall be sufficient ground to administrative disciplinary action against the local officials and employees responsible therefore." Be guided accordingly.6 Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null and void and the directive of the BLGF that respondents cease and desist from enforcing said tax ordinance, respondents continued to assess petitioner business tax for the year 2001 based on the tax rates prescribed under Tax Ordinance No. 7988. Thus, petitioner filed a Complaint with the RTC of Manila, Branch 21, on 17 January 2001, praying that respondents be enjoined from implementing the aforementioned tax ordinance. On 28 November 2001, the RTC of Manila, Branch 21, rendered a Decision in favor of petitioner, the decretal portion of which states: The defendants did not follow the procedure in the enactment of Tax Ordinance No. 7988. The Court agrees with plaintiffs contention that the ordinance should first be published for three (3) consecutive days in a newspaper of local circulation aside from the posting of the same in at least four (4) conspicuous public places. xxxx WHEREFORE, premises considered, judgment is hereby rendered declaring the injunction permanent. Defendants are enjoined from implementing Tax Ordinance No. 7988. The bond posted by the plaintiff is hereby CANCELLED.7 During the pendency of the said case, the City Mayor of Manila approved on 22 February 2001 Tax Ordinance No. 8011 entitled, "An Ordinance Amending Certain Sections of Ordinance No. 7988." Said tax ordinance was again challenged by petitioner before the DOJ through a Petition questioning the legality of the aforementioned tax ordinance on the grounds that (1) said tax ordinance amends a tax ordinance previously declared null and void and without legal effect by the DOJ; and (2) said tax ordinance was likewise not published upon its approval in accordance with Section 188 of the Local Government Code of 1991. On 5 July 2001, then DOJ Secretary Hernando Perez issued a Resolution declaring Tax Ordinance No. 8011 null and void and legally not existing. According to the DOJ Secretary:

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After a careful examination/evaluation of the records of this case and applying the pertinent provisions of the Local Government Code of 1991, this Department finds the instant petition of Coca-Cola Bottlers, Philippines, Inc. meritorious. It bears stress, at the outset, that the subject ordinance was passed and approved by the respondents principally to amend Ordinance No. 7988 which was earlier nullified by this Department in its Resolution Dated August 17, 2000, also at the instance of the herein petitioner. x x x xxxx x x x [T]he only logical conclusion, therefore, is that Ordinance No. 8011, subject herein, is also null and void, it being a mere amendatory ordinance of Ordinance No. 7988 which, as earlier stated, had been nullified by this Department. An invalid or unconstitutional law or ordinance does not, in legal contemplation, exist (Manila Motors Co., Inc. vs. Flores, 99 Phil. 738). Where a statute which has been amended is invalid, nothing, in effect, has been amended. As held in People vs. Lim, 108 Phil. 1091: "If an order or law sought to be amended is invalid, then it does not legally exist. There would be no occasion or need to amend it; x x x" (at p. 1097) Instead of amending Ordinance No. 7988, herein respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist. xxxx WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared NULL and VOID and LEGALLY NOT EXISTING.8 Respondents Motion for Reconsideration of the Resolution of the DOJ was subsequently denied in a Resolution,9dated 12 March 2002. The City of Manila appealed the DOJ Resolution, dated 12 March 2002, denying its Motion for Reconsideration of the Resolution nullifying Tax Ordinance No. 8011 before the RTC of Manila, Branch 17, but the same was dismissed for lack of jurisdiction in an Order, dated 2 December 2002. According to the trial court: From whatever angle the recourse of herein petitioners was viewed, either from the standpoint of Section 1, Rule 43, or Section 1 and the last sentence of the second paragraph of Section 4, Rule 65 of the 1997 Rules of Civil Procedure, the conclusion was

inevitable that petitioners remedial measure from dispositions of the Secretary of Justice should have been ventilated before the next judicial plane. x x x Accordingly, by reason of the foregoing premises, Civil Case No. 02-103372 for "Certiorari" is DISMISSED. Consequently, respondents appealed the foregoing Order, dated 2 December 2002, via a Petition for Review on Certiorari to the Supreme Court docketed as G.R. No. 157490. However, said appeal was dismissed in our Resolution, dated 23 June 2003, the dispositive of which reads: Pursuant to Rule 45 and other related provisions of the 1997 Rules of Civil Procedure as amended governing appeals by certiorari to the Supreme Court, only petitions which are accompanied by or which comply strictly with the requirements specified therein shall be entertained. On the basis thereof, the Court resolves to DENY the instant petition for review on certiorari of the orders of the Regional Trial Court, Manila, Branch 17 dated December 2, 2002 and March 7, 2003 for the late filing as the petition was filed beyond the reglementary period of fifteen (15) days fixed in Sec. 2, Rule 45 in relation to Sec. 5(a), Rule 56. The omnibus motion of petitioners for reconsideration of the resolution of April 23, 2003 which denied the motion for an extension of time to file a petition is DENIED for lack of merit. Respondents Motion for Reconsideration was subsequently denied in a Resolution, dated 11 August 2003, in which the Court resolved as follows: Acting on the motion of petitioners for reconsideration of the resolution of June 23, 2003 which denied the petition for review on certiorari and considering that there is no compelling reason to warrant a modification of this Courts resolution, the Court resolves to DENY reconsideration with FINALITY. Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of Manila filed a Motion for Reconsideration with the RTC of Manila, Branch 21, of its Decision, dated 28 November 2001, which the court a quo granted in the herein assailed Order dated 8 May 2002, the full text of which reads: Considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila) has already been amended by Ordinance No. 8011 entitled "An Ordinance Amending Certain Sections of Ordinance No. 7988" approved by the City Mayor of Manila on February 22, 2001, let the above-entitled case be as it is hereby DISMISSED. Without pronouncement as to costs."10

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Petitioners Motion for Reconsideration of the abovequoted Order was denied by the trial court in the second challenged Order, dated 5 December 2002; hence the instant Petition. The case at bar revolves around the sole pivotal issue of whether or not Tax Ordinance No. 7988 is null and void and of no legal effect. However, respondents, in their Comment and Memorandum, raise the procedural issue of whether or not the instant Petition has complied with the requirements of the 1997 Rules on Civil Procedure; thus, the Court resolves to first pass upon this issue before tackling the substantial matters involved in this case. Respondents insist that the instant Petition raises questions of fact that are proscribed under Rule 45 of the 1997 Rules of Civil Procedure which states that Petitions for Certiorari before the Supreme Court shall raise only questions of law. We do not agree. There is a question of fact when doubt or controversy arises as to the truth or falsity of the alleged facts, when there is no dispute as to fact, the question of whether or not the conclusion drawn therefrom is correct is a question of law.11 A thorough reading of the Petition will reveal that petitioner does not present an issue in which we are called to rule on the truth or falsity of any fact alleged in the case. Furthermore, the resolution of whether or not the court a quo erred in dismissing petitioners case in light of the enactment of Tax Ordinance No. 8011, allegedly amending Tax Ordinance No. 7988, does not necessitate an incursion into the facts attending the case. Contrarily, it is respondents who actually raise questions of fact before us. While accusing petitioner of raising questions of fact, respondents, in the same breath, proceeded to allege that the RTC of Manila, Branch 21, in its Decision, dated 28 November 2001, failed to take into account the evidence presented by respondents allegedly proving that Tax Ordinance No. 7988 was published for four times in a newspaper of general circulation in accordance with the requirements of law. A determination of whether or not the trial court erred in concluding that Tax Ordinance No. 7988 was indeed published for four times in a newspaper of general circulation would clearly involve a calibration of the probative value of the evidence presented by respondents to prove such allegation. Therefore, said issue is a question of fact which this Court, not being a trier of facts, will decline to pass upon. Respondents also point out that the Petition was not properly verified and certified because Nelson Empalmado, the Vice President for Tax and Financial Services of Coca-Cola Bottlers Philippines, Inc. who verified the subject Petition was not duly authorized to file said Petition. Respondents assert that nowhere in the attached Secretarys Certificate can it be found the authority of Nelson Empalmado to institute the instant Petition. Thus, there being a lack of proper verification, respondents contend that the Petition must be treated as a mere scrap of paper, which has no legal effect as declared in Section 4, Rule 7 of the 1997 Rules of Civil Procedure. An inspection of the Secretarys Certificate attached to the petition will show that Nelson Empalmado is not among those designated as representative to prosecute claims in

behalf of Coca-Cola Bottlers Philippines, Inc. However, it would seem that the authority of Mr. Empalmado to file the instant Petition emanated from a Special Power of Attorney signed by Ramon V. Lapez, Jr., Associate Legal Counsel/Assistant Corporate Secretary of Coca-Cola Bottlers Philippines, Inc. and one of those named in the Secretarys Certificate as authorized to file a Petition in behalf of the corporation. A careful perusal of said Secretarys Certificate will further reveal that the persons authorized therein to represent petitioner corporation in any suit are also empowered to designate and appoint any individual as attorney-in-fact of the corporation for the prosecution of any suit. Accordingly, by virtue of the Special Power of Attorney executed by Ramon V. Lapez, Jr. authorizing Nelson Emplamado to file a Petition before the Supreme Court, the instant Petition has been properly verified, in accordance with the 1997 Rules of Civil Procedure. Having disposed of the procedural issues raised by respondents, We now come to the pivotal issue in this petition. It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to respondents failure to satisfy the requirement that said ordinance be published for three consecutive days as required by law. Neither is there quibbling on the fact that the said Order of the DOJ was never appealed by the City of Manila, thus, it had attained finality after the lapse of the period to appeal. Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax measures as mandated by Section 188 of the Local Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was published only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the unmistakable directive of the Local Government Code of 1991. Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002, went on to dismiss petitioners case on the force of the enactment of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "[I]nstead of amending Ordinance No. 7988, [herein] respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality by virtue of the dismissal with finality by this Court of respondents Petition for Review on Certiorari in G.R. No. 157490 assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its Order, dated 11 August 2003.

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Based on the foregoing, this Court must reverse the Order of the RTC of Manila, Branch 21, dismissing petitioners case as there is no basis in law for such dismissal. The amending law, having been declared as null and void, in legal contemplation, therefore, does not exist. Furthermore, even if Tax Ordinance No. 8011 was not declared null and void, the trial court should not have dismissed the case on the reason that said tax ordinance had already amended Tax Ordinance No. 7988. As held by this Court in the case of People v. Lim,12 if an order or law sought to be amended is invalid, then it does not legally exist, there should be no occasion or need to amend it.13 WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Orders of the RTC of Manila, Branch 21, dated 8 May 2002 and 5 December 2002, respectively, are hereby REVERSED and SET ASIDE. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR: CHICO-NAZARIO, J.:

Promulgated:

August 4, 2009 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

THIRD DIVISION

THE CITY OF MANILA,LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF MANILA and JOSEPHSANTIAGO, in his capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OFMANILA, Petitioners,

G.R. No. 181845

This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure seeking to review and reverse the Decision[1] dated 18 January 2008 and Present: Resolution[2] dated 18 February 2008 of the Court of Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for YNARES-SANTIAGO, J., Chairperson, CHICO-NAZARIO, VELASCO, JR., NACHURA, and PERALTA, JJ. Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago); and affirmed the Resolutions dated 24 May 2007,[3] 8 June 2007,[4] and 26 July 2007,[5] of the CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of petitioners in said case for being filed out of time. In its questioned Resolution, the CTA en banc denied the Motion for Reconsideration of petitioners.

- versus -

COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.

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Petitioner City of Manila is a public corporation empowered to collect and assess business taxes, revenue fees, and permit fees, through its officers,

businesses and articles of commerce subject to excise, value-added or percentage taxes under the National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed: (A) On persons who sell goods and services in the course of trade or business; and those who import goods whether for business or otherwise; as provided for in Sections 100 to 103 of the NIRC as administered and determined by the Bureau of Internal Revenue pursuant to the pertinent provisions of the said Code. xxxx (D) Excisable goods subject to VAT (1) Distilled spirits (2) Wines xxxx (8) Coal and coke (9) Fermented liquor, brewers wholesale price, excluding the ad valorem tax xxxx PROVIDED, that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof.

petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of the Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling beverages, and which maintains a sales office in the City of Manila.

The case stemmed from the following facts:

Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only under Section 14 of Tax Ordinance No. 7794,[6] being expressly exempted from the business tax under Section 21 of the same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:

Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby imposed a graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with any of the following schedule: xxxx over P6,500,000.00 up to P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1% in excess of P6,500,000.00 xxxx Section 21. Tax on Businesses Subject to the Excise, ValueAdded or Percentage Taxes under the NIRC. On any of the following

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No. 7988,[7] amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found therein, which stated that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof. Petitioner Cityof Manila approved only after a year, on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance No. 7988.

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Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila[8] (Coca-Cola case) for the following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of the provisions of the Local Government Code (LGC) of 1991 and its implementing rules and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did not legally exist.

Order[10] dated 16 November 2006, granted the Motion for Reconsideration of respondent, decreed the cancellation and withdrawal of the assessment against the latter, and barred petitioners from further imposing/assessing local business taxes against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in conformity with the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were declared null and void. The Motion for Reconsideration of petitioners was denied by the RTC in an Order [11] dated 4 April

However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest, in the total amount of P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a protest with petitioner Toledo on the ground that the said assessment amounted to double taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No.

2007. Petitioners received a copy of the4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order of the same court, on 20 April 2007.

On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition for Review, praying for a 15-day extension or until 20 May 2007 within which to file their Petition. The Motion for Extension of petitioners was docketed as C.T.A. AC No. 31, raffled to the CTA First Division.

8011. Petitioner Toledo did not respond to the protest of respondent.

Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an action for the cancellation of the assessment against respondent for business taxes, which was docketed as Civil Case No. 03-107088.

Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for Extension of Time to File a Petition for Review, praying for another 10-day extension, or until 30 May 2007, within which to file their Petition.

On 14 July 2006, the RTC rendered a Decision[9] dismissing Civil Case No. 03107088. The RTC ruled that the business taxes imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No. 7988, as amended, were not of the same kind or character; therefore, there was no double taxation. The RTC, though, in an

On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing C.T.A. AC No. 31 for failure of petitioners to timely file their Petition for Review on 20 May 2007.

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Hence, the present Petition, where petitioners raise the following issues: Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their Petition for Review therewith on 30 May 2007 via registered mail. On 8 June 2007, the CTA First Division issued another Resolution, reiterating the dismissal of the Petition for Review of petitioners. I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH THE REGLEMENTARY PERIOD TO TIMELY APPEAL THE CASE FOR REVIEW BEFORE THE [CTA DIVISION].

II. Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8 June 2007, but their motion was denied by the CTA First Division in a Resolution dated 26 July 2007. The CTA First Division reasoned that the Petition for Review of petitioners was not only filed out of time -- it also failed to comply with the provisions of Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised Rules of the CTA. III.

WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER [COCA-COLA CASE] IS DOCTRINAL AND CONTROLLING IN THE INSTANT CASE.

WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS TAXES UNDER [SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO. 7794, AS AMENDED].

IV. Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as C.T.A. EB No. 307, arguing that the CTA First Division erred in dismissing their Petition for Review in C.T.A. AC No. 31 for being filed out of time, without considering the merits of their Petition.

WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794, AS AMENDED] CONSTITUTES DOUBLE TAXATION.

Petitioners assert that Section 1, Rule 7[12] of the Revised Rules of the CTA refers to certain provisions of the Rules of Court, such as Rule 42 of the latter, and makes them The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review of petitioners and affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007 of the CTA First Division. The CTA en banc similarly denied the Motion for Reconsideration of petitioners in a Resolution dated 18 February 2008. applicable to the tax court. Petitioners then cannot be faulted in relying on the provisions of Section 1, Rule 42[13] of the Rules of Court as regards the period for filing a Petition for Review with the CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15day period, reckoned from receipt of the adverse decision of the trial court, within which to file a Petition for Review with the Court of Appeals. The same rule allows an additional 15-day period within which to file such a Petition; and, only for the most compelling

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reasons, another extension period not to exceed 15 days. Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order of the same court. On 4 May 2007, believing that they only had 15 days to file a Petition for Review with the CTA in division, petitioners moved for a 15-day extension, or until 20 May 2007, within which to file said Petition. Prior to the lapse of their first extension period, or on 18 May 2007, petitioners again moved for a 10-day extension, or until 30 May 2007, within which to file their Petition for Review. Thus, when petitioners filed their Petition for Review with the CTA First Division on 30 May 2007, the same was filed well within the reglementary period for doing so.

Ordinance No. 8011 is not the lis mota herein. The Coca-Cola case is not doctrinal and cannot be considered as the law of the case.

Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011, Tax Ordinance No. 7794 remains a valid piece of local legislation. The nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 does not effectively bar petitioners from imposing local business taxes upon respondent under Sections 14 and 21 of Tax Ordinance No. 7794, as they were read prior to their being amended by the foregoing null and void tax ordinances.

Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8
[14]

Petitioners finally maintain that imposing upon respondent local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute direct double taxation. Section 143 of the LGC gives municipal, as well as city governments, the power to impose business taxes, to wit:

of the Revised Rules of the CTA governs the period for filing a Petition for Review

with the CTA in division, still, their Petition for Review was filed within the reglementary period. Petitioners call attention to the fact that prior to the lapse of the 30-day period for filing a Petition for Review under Section 3(a), Rule 8 of the Revised Rules of the CTA, they had already moved for a 10-day extension, or until 30 May 2007, within which to file their Petition. Petitioners claim that there was sufficient justification in equity for the grant of the 10-day extension they requested, as the primordial consideration should be the substantive, and not the procedural, aspect of the case. Moreover, Section 3(a), Rule 8 of the Revised Rules of the CTA, is silent as to whether the 30-day period for filing a Petition for Review with the CTA in division may be extended or not.

SECTION 143. Tax on Business. The municipality may impose taxes on the following businesses: (a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule: xxxx (b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance with the following schedule:

Petitioners also contend that the Coca-Cola case is not determinative of the issues in the present case because the issue of nullity of Tax Ordinance No. 7988 and Tax

xxxx

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(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section: xxxx Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities, and Thirty thousand pesos (P30,000) or less, in the case of municipalities. (e) On contractors and other independent contractors, in accordance with the following schedule: xxxx (f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium. (g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding Fifty pesos (P50.00) per peddler annually. (h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax:Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

pursuant to Section 143(a) of the LGC. On the other hand, the local business tax under Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and services in the course of trade or business, and those importing goods for business or otherwise, who, pursuant to Section 143(h) of the LGC, are subject to excise tax, value-added tax (VAT), or percentage tax under the National Internal Revenue Code (NIRC). Thus, there can be no double taxation when respondent is being taxed under both Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being taxed as a manufacturer; while under the second, it is being taxed as a person selling goods in the course of trade or business subject to excise, VAT, or percentage tax.

The Court first addresses the issue raised by petitioners concerning the period within which to file with the CTA a Petition for Review from an adverse decision or ruling of the RTC.

The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review is specifically governed by Section 11 of Republic Act No. 9282, [15] and Section 3(a), Rule 8 of the Revised Rules of the CTA.

Section 11 of Republic Act No. 9282 provides:

Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce,

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or

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the Regional Trial Courts may file an Appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or ruling of the RTC to the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days from receipt of said adverse decision or ruling of the RTC.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. x x x. (Emphasis supplied.)

It is also true that the same provisions are silent as to whether such 30-day period can be extended or not. However, Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 42[16] of the Revised Rules of Civil Procedure provides that the Petition for Review of an adverse judgment or final order of the RTC must be filed with the Court of Appeals within: (1) the original 15-day period from receipt of the judgment or final order to be appealed; (2) an

Section 3(a), Rule 8 of the Revised Rules of the CTA states:

extended period of 15 days from the lapse of the original period; and (3) only for the most compelling reasons, another extended period not to exceed 15 days from the lapse of the first extended period.

SEC 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. x x x. (Emphasis supplied.)

Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days.

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day period within which to file the Petition for Review with the CTA may, indeed, be extended, thus:

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extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of fifteen (15) days for the movant to file a Petition for Review, upon Motion, and payment of the full amount of the docket fees. A further extension of fifteen (15) days may be granted on compelling reasons in accordance with the provision of Section 1, Rule 42 of the 1997 Rules of Civil Procedure x x x.[17] reality, only the first Motion for Extension of petitioners. The CTA First Division should have granted the same, as it was sanctioned by the rules of procedure. In fact, petitioners were only praying for a 10-day extension, five days less than the 15-day extended period allowed by the rules. Thus, when petitioners filed via registered mail their Petition for Review in C.T.A. AC No. 31 on 30 May 2007, they were able to comply with the reglementary period for filing such a petition.

In this case, the CTA First Division did indeed err in finding that petitioners failed to file their Petition for Review in C.T.A. AC No. 31 within the reglementary period.

Nevertheless, there were other reasons for which the CTA First Division dismissed the Petition for Review of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. The Court sustains the CTA First Division in this regard.

From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order, petitioners had 30 days, or until 20 May 2007, within which to file their Petition for Review with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007 grounded on their belief that the reglementary period for filing their Petition for Review with the CTA was to expire on 5 May 2007, thus, compelling them to seek an extension of 15 days, or until 20 May 2007, to file said Petition was unnecessary and superfluous. Even without said Motion for Extension, petitioners could file their Petition for Review until 20 May 2007, as it was still within the 30-day reglementary period provided for under Section 11 of Republic Act No. 9282; and implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA. SEC. 4. Number of copies. The parties shall file eleven signed copies of every paper for cases before the Court en banc and six signed copies for cases before a Division of the Court in addition to the signed original copy, except as otherwise directed by the Court. Papers to be filed in more than one case shall include one additional copy for each additional case. (Emphasis supplied.) Section 4, Rule 5 of the Revised Rules of the CTA requires that:

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30-day reglementary period on 20 May 2007, in which they prayed for another

Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:

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SEC. 2. Petition for review; contents. The petition for review shall contain allegations showing the jurisdiction of the Court, a concise statement of the complete facts and a summary statement of the issues involved in the case, as well as the reasons relied upon for the review of the challenged decision. The petition shall be verified and must contain a certification against forum shopping as provided in Section 3, Rule 46 of the Rules of Court. A clearly legible duplicate original or certified true copy of the decision appealed from shall be attached to the petition. (Emphasis supplied.)

consequence of such non-compliance, Section 3, Rule 42 of the Rules of Court may be applied suppletorily, as allowed by Section 1, Rule 7 of the Revised Rules of the CTA. Section 3, Rule 42 of the Rules of Court reads:

The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised Rules of the CTA, which provides:

SEC. 3. Effect of failure to comply with requirements. The failure of the petitioner to comply with any of the foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for costs, proof of service of the petition, and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof. (Emphasis supplied.)

SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals, exception. The procedure in the Court en bancor in Divisions in original or in appealed cases shall be the same as those in petitions for review and appeals before the Court of Appeals pursuant to the applicable provisions of Rules 42, 43, 44, and 46 of the Rules of Court, except as otherwise provided for in these Rules. (Emphasis supplied.)

True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088, but a closer examination of the stamp on said documents reveals that they were prepared and certified only on 14 August 2007, about two months and a half after the filing of the Petition for Review by petitioners.

Petitioners never offered an explanation for their non-compliance with Section 4 As found by the CTA First Division and affirmed by the CTA en banc, the Petition for Review filed by petitioners via registered mail on 30 May 2007 consisted only of one copy and all the attachments thereto, including the Decision dated 14 July 2006; and that the assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088 were mere machine copies. Evidently, petitioners did not comply at all with the requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of the Revised Rules of the CTA. Although the Revised Rules of the CTA do not provide for the of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. Hence, although the Court had, in previous instances, relaxed the application of rules of procedure, it cannot do so in this case for lack of any justification.

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Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31 should have been given due course by the CTA First Division, it is still dismissible for lack of merit. Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 by petitionerCity of Manila, petitioners subjected and assessed respondent only for the local business tax under Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear and Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant case. The pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void, which this Court resolved in the affirmative. Tax Ordinance No. 7988 was declared by the Secretary of the Department of Justice (DOJ) as null and void and without legal effect due to the failure of herein petitioner City of Manila to satisfy the requirement under the law that said ordinance be published for three consecutive days. Petitioner City of Manila never appealed said declaration of the DOJ Secretary; thus, it attained finality after the lapse of the period for appeal of the same. The passage of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988, did not cure the defects of the latter, which, in any way, did not legally exist. unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that all registered business in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof. The aforementioned tax referred to in said proviso refers to local business tax. Stated differently, Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local business tax imposed by said section, businesses that are already paying such tax under other sections of the same tax ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as amended.

The Court easily infers from the foregoing circumstances that petitioners By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void and without any legal effect. Therefore, respondent cannot be taxed and assessed under the amendatory laws--Tax Ordinance No. 7988 and Tax Ordinance No. 8011. themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from the local business tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local business tax under said section. Yet, with the pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent could still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read, without the amendment by the null and void tax ordinances. Tax Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back in effect. Accordingly, respondent should not have been subjected to the local business

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tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000, given its exemption therefrom since it was already paying the local business tax under Section 14 of the same ordinance.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment. Said exempting proviso was precisely included in said section so as to avoid double taxation.

longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are not otherwise specified in preceding paragraphs. In the same way, businesses such as respondents, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under

Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the same person twice by the same jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as direct duplicate taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by thesame taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.[18]

Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC]. WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby DENIED. No costs.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business.

G.R. No. L-30745 January 18, 1978 PHILIPPINE MATCH CO., LTD., plaintiff-appellant, vs. THE CITY OF CEBU and JESUS E. ZABATE, Acting City Treasurer, defendants-appellees. Pelaez, Pelaez & Pelaez for appellant. Nazario Pacquiao, Metudio P. Belarmino & Ceferino Jomuad for appellees.

AQUINO, J.:

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This case is about the legality of the tax collected by the City of Cebu on sales of matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to customers outside of the City. Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and also approved by the provincial board) is "an ordinance imposing a quarterly tax on gross sales or receipts of merchants, dealers, importers and manufacturers of any commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter. Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold" in that city, "shall be considered as sales" in the city and shall be taxable. Thus, it would seem that under the tax ordinance sales of matches consummated outside of the city are taxable as long as the matches sold are taken from the company's stock stored in Cebu City. The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It ships cases or cartons of matches from Manila to its branch office in Cebu City for storage, sale and distribution within the territories and districts under its Cebu branch or the whole VisayasMindanao region. Cebu City itself is just one of the eleven districts under the company's Cebu City branch office. The company does not question the tax on the matches of matches consummated in Cebu City, meaning matches sold and delivered within the city. It assails the legality of the tax which the city treasurer collected on out-of- town deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city; (2) transfers of matches to newsmen assigned to different agencies outside of the city and (3) shipments of matches to provincial customers pursuant to salesmen's instructions. The company paid under protest to the city t the sum of P12,844.61 as one percent sales tax on those three classes of out-of-town deliveries of matches for the second quarter of 1961 to the second quarter of 1963. In paying the tax the company accomplished the verified forms furnished by the city treasurers office. It submitted a statement indicating the four kinds of transactions enumerated above, the total sales, and a summary of the deliveries to the different agencies, as well as the invoice numbers, names of customers, the value of the sales, the transfers of matches to salesmen outside of Cebu City, and the computation of taxes.

Sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city refer to orders for matches made in the city by the company's customers, by means of personal or phone calls, for which sales invoices are issued, and then the matches are shipped from the bodega in the city, where the matches had been stored, to the place of business or residences of the customers outside of the city, duly covered by bills of lading The matches are used and consumed outside of the city. Transfers of matches to salesmen assigned to different agencies outside of the city embrace equipments of matches from the branch office in the city to the salesmen (provided with panel cars) assigned within the province of Cebu and in the different districts in the Visayas and Mindanao under the jurisdiction or supervision of the Cebu City branch office. The shipments are covered by bills of lading. No sales invoices whatever are issued. The matches received by the salesmen constitute their direct cash accountability to the company. The salesmen sell the matches within their respective territories. They issue cash sales invoices and remit the proceeds of the sales to the company's Cebu branch office. The value of the unsold matches constitutes their stock liability. The matches are used and consumed outside of the city. Shipments of matches to provincial customers pursuant to newsmens instructions embrace orders, by letter or telegram sent to the branch office by the company's salesmen assigned outside of the city. The matches are shipped from the company's bodega in the city to the customers residing outside of the city. The salesmen issue the sales invoices. The proceeds of the sale, for which the salesmen are accountable are remitted to the branch office. As in the first and seconds of transactions abovementioned, the matches are consumed and used outside of the city. The company in its letter of April 15, 1961 to the city treasurer sought the refund of the sales tax paid for out-of-town deliveries of matches. It invoked Shell Company of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines Sur, 105 Phil. 1263. In that case sales of oil and petroleum products effected outside the territorial limits of Sipocot, were held not to be subject to the tax imposed by an ordinance of that municipality. The city treasurer denied the request. His stand is that under section 9 of the ordinance all out-of-town deliveries of latches stored in the city are subject to the sales tax imposed by the ordinance. On August 12, 1963 the company filed the complaint herein, praying that the ordinance be d void insofar as it taxed the deliveries of matches outside of Cebu City, that the city be ordered to refund to the company the said sum of P12,844.61 as excess sales tax paid, and that the city treasurer be ordered to pay damages. After hearing, the trial court sustained the tax on the sales of matches booked and paid for in Cebu City although the matches were shipped directly to customers outside of the city. The lower court held that the said sales were consummated in Cebu City because

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delivery to the carrier in the city is deemed to be a delivery to the customers outside of the city. But the trial court invalidated the tax on transfers of matches to salesmen assigned to different agencies outside of the city and on shipments of matches to provincial customers pursuant to the instructions of the newsmen It ordered the defendants to refund to the plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town deliveries with legal rate of interest from the respective dates of payment. The trial court characterized the tax on the other two transactions as a "storage tax" and not a sales tax. It assumed that the sales were consummated outside of the city and, hence, beyond the city's taxing power. The city did not appeal from that decision. The company appealed from that portion of the decision upholding the tax on sales of matches to customers outside of the city but which sales were booked and paid for in Cebu City, and also from the dismissal of its claim for damages against the city treasurer. The issue is whether the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but the matches were delivered to customers outside of the City. We hold that the appeal is devoid of merit bemuse the city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the company's branch office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs. Yangco, 38 Phil. 602). A different interpretation would defeat the tax ordinance in question or encourage tax evasion through the simple expedient of arranging for the delivery of the matches at the out. skirts of the city through the purchase were effected and paid for in the company's branch office in the city. The municipal board of Cebu City is empowered "to provide for the levy and collection of taxes for general and purposes in accordance with law" (Sec. 17[a], Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of Cebu city). The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, L-31156, February 27, 1976, 69 SCRA 460), which took effect on June 19, 1959 and which provides: SEC. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal

districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities,. municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National International Revenue Code; Provided, however, That no city, municipality or municipal districts may levy or impose any of the following: (here follows an enumeration of internal revenue taxes) xxx xxx xxx * Note that the prohibition against the imposition of percentage taxes (formerly provided for in section 1 of Commonwealth Act No. 472) refers to municipalities and municipal districts but not to chartered cities. (See Local Tax Code, P.D. No. 231. Marinduque Iron Mines Agents, Inc. vs. Municipal Council of Hinabangan Samar, 120 Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of Ormoc City, L-23794, February 17, 1968, 22 SCRA 603). Note further that the taxing power of cities, municipalities and municipal districts may be used (1) "upon any person engaged in any occupation or business, or exercising any privilege" therein; (2) for services rendered by those political subdivisions or rendered in connection with any business, profession or occupation being conducted therein, and (3) to levy, for public purposes, just and uniform taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo, 117 Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City). Applying that jurisdictional test to the instant case, it is at once obvious that sales of matches to customers outside oil Cebu City, which sales were booked and paid for in the company's branch office in the city, are subject to the city's taxing power. The instant case is easily distinguishable from the Shell Company case where the price of the oil sold was paid outside of the municipality of Sipocot, the entity imposing the tax.

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On the other hand, the ruling in Municipality of Jose Panganiban, Province of Camarines Norte vs. Shell Company of the Philippines, Ltd., L-18349, July 30, 1966, 17 SCRA 778 that the place of delivery determines the taxable situs of the property to be taxed cannot properly be invoked in this case. Republic Act No. 1435, the law which enabled the Municipality of Jose Panganiban to levy the sales tax involved in that case, specifies that the tax may be levied upon oils "distributed within the limits of the city or municipality", meaning the place where the oils were delivered. That feature of the Jose Panganiban case distinguished it from this case. The sales in the instant case were in the city and the matches sold were stored in the city. The fact that the matches were delivered to customers, whose places of business were outside of the city, would not place those sales beyond the city's taxing power. Those sales formed part of the merchandising business being assigned on by the company in the city. In essence, they are the same as sales of matches fully consummated in the city. Furthermore, because the sellers place of business is in Cebu City, it cannot be sensibly argued that such sales should be considered as transactions subject to the taxing power of the political subdivisions where the customers resided and accepted delivery of the matches sold. The company in its second assignment of error contends that the trial court erred in not ordering defendant acting city treasurer to pay exemplary damages of P20,000 and attorney's fees. The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil Code. It is argued that the city treasurer refused and neglected without just cause to perform his duty and to act with justice and good faith. The company faults the city treasurer for not following the opinion of the city fiscals, as legal adviser of the city, that all out-of-town deliveries of matches are not subject to sales tax because such transactions were effected outside of the city's territorial limits. In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance in question he was simply complying with his duty as collector of taxes (Sec. 50, Revised Charter of Cebu City). Moreover, he had no choice but to enforce the ordinance because according to section 357 of the Revised Manual of Instruction to Treasurer's "a tax ordinance win be enforced in accordance with its provisions" until d illegal or void by a competent court, or otherwise revoked by the council or board from which it originated. Furthermore, the Secretary of Finance had reminded the city treasurer that a tax ordinance approved by the provincial board is operative and must be enforced without prejudice to the right of any affected taxpayer to assail its legality in the judicial forum. The fiscals opinion on the legality of an ordinance is merely advisory and has no binding effect.

Article 27 of the Civil Code provides that "any person suffering material or moral lose because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken." Article 27 presupposes that the refuse or omission of a public official is attributable to malice or inexcusable negligence. In this case, it cannot be said that the city treasurer acted wilfully or was grossly t in not refunding to the plaintiff the taxes which it paid under protest on out-of-town sales of matches. The record clearly reveals that the city treasurer honestly believed that he was justified under section 9 of the tax ordinance in collecting the sales tax on out-of-town deliveries, considering that the company's branch office was located in Cebu City and that all out-oftown purchase order for matches were filled up by the branch office and the sales were duly reported to it. The city treasurer acted within the scope of his authority and in consonance with his bona fide interpretation of the tax ordinance. The fact that his action was not completely sustained by the courts would not him liable for We have upheld his act of taxing sales of matches booked and paid for in the city. "As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y liable to one injured in consequence of an act performed within the scope of his official authority, and in the line of his official duty." "Where an officer is invested with discretion and is empowered to exercise his judgment in matters brought before him. he is sometimes called a quasi-judicial officer, and when so acting he is usually given immunity from liability to persons who may be injured as the result or an erroneous or mistaken decision, however erroneous his judgment may be. provided the acts complained of are done within the scope of the officer's authority and without malice, or corruption." (63 Am Jur 2nd 798, 799 cited in Philippine Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241). It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith that would entitle an aggrieved party to an award for damages (Cabungcal vs. Cordovan 120 Phil. 667, 572-3). That salutary in addition to moral temperate, liquidated or compensatory damages (Art. 2229, Civil Code). Attorney's fees are being claimed herein as actual damages. We find that it would not be just and equitable to award attorney's fees in this case against the City of Cebu and its (See Art. 2208, Civil Code). WHEREFORE, the trial court's judgment is affirmed. No costs. SO ORDERED. Fernando (Chairman), Antonio and Concepcion, Jr., JJ., concur.

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Santos, J., is on leave.

this franchise or earnings thereof" was subsequently withdrawn by R.A. No. 7160 (Local Government Code of 1991), which at the same time gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The Local Government Code (LGC) took effect on January 1, 1992. The pertinent provisions of the LGC state: Sec. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. . . . Republic of the Philippines SUPREME COURT Manila EN BANC Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides: Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventyfive percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City. Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe)2 and Smart Information Technologies, Inc. (Smart)3 franchises which contained "in lieu of all taxes" provisos. In 1995, it enacted R.A. No. 7925 (Public Telecommunications Policy of the Philippines), 23 of which provides that "Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso factobecome part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises." The law took effect on March 16, 1995. In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro Exchange, it was required to pay the local franchise tax for the first to the fourth quarter of 1999 which then had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what it had paid as local franchise tax for the year 1997 and for the first to the third quarters of 1998.

Separate Opinions

BARREDO, J., concurring:

G.R. No. 143867

March 25, 2003

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs. CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of Davao,respondents. RESOLUTION MENDOZA, J.: Petitioner seeks a reconsideration of the decision of the Second Division in this case. Because the decision bears directly on issues involved in other cases brought by petitioner before other Divisions of the Court, the motion for reconsideration was referred to the Court en banc for resolution.1 The parties were heard in oral arguments by the Court en banc on January 21, 2003 and were later granted time to submit their memoranda. Upon the filing of the last memorandum by the City of Davao on February 10, 2003, the motion was deemed submitted for resolution. To provide perspective, it will be helpful to restate the basic facts. Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to R.A. No. 7082 amending its charter, Act. No. 3436. The exemption from "all taxes on

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For this reason, it filed a petition in the Regional Trial Court of Davao. However, its petition was dismissed and its claim for exemption under R.A. No. 7925 was denied. The trial court ruled that the LGC had withdrawn tax exemptions previously enjoyed by persons and entities and authorized local government units to impose a tax on businesses enjoying franchises within their territorial jurisdictions, notwithstanding the grant of tax exemption to them. Petitioner, therefore, brought this appeal. In its decision of August 22, 2001, this Court, through its Second Division, held that R.A. No. 7925, 23 cannot be so interpreted as granting petitioner exemption from local taxes because the word "exemption," taking into consideration the context of the law, does not mean "tax exemption." Hence this motion for reconsideration. The question is whether, by virtue of R.A. No. 7925, 23, PLDT is again entitled to exemption from the payment of local franchise tax in view of the grant of tax exemption to Globe and Smart. Petitioner contends that because their existing franchises contain "in lieu of all taxes" clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by clear and unequivocal provision of law "expressed in a language too plain to be mistaken."4 If, as PLDT contends, the word "exemption" in R.A. No. 7925 means "tax exemption" and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, "clear and unequivocal" way of communicating the legislative intent. But the best refutation of PLDTs claim that R.A. No. 7925, 23 grants tax exemption is the fact that after its enactment on March 16, 1995, Congress granted several franchises containing both an "equality clause" similar to 23 and an "in lieu of all taxes" clause. If the equality clause automatically extends the tax exemption of franchises with "in lieu of all taxes" clauses, there would be no need in the same statute for the "in lieu of all taxes" clause in order to extend its tax exemption to other franchises not containing such clause. For example, the franchise of Island Country Telecommunications, Inc., granted under R.A. No. 7939 and which took effect on March 22, 1995, contains the following provisions: Sec. 8. Equality Clause. If any subsequent franchise for telecommunications service is awarded or granted by the Congress of the Philippines with terms, privileges and conditions more favorable and beneficial than those contained in this Act, then the same privileges or advantages shall ipso facto accrue to the herein grantee and be deemed part of this Act. Sec. 10. Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate, buildings and personal property exclusive of this franchise, as other persons or telecommunications entities are now or hereafter may be required by law to pay. In addition hereto, the grantee, its successors or assigns,

shall pay a franchise tax equivalent to three percent (3%) of all gross receipts transacted under this franchise, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof; Provided, That the grantee shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code. The grantee shall file the return with and pay the taxes due thereon to the Commissioner of Internal Revenue or his duly authorized representatives in accordance with the National Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue. (Emphasis added) Similar provisions ("in lieu of all taxes" and equality clauses) are also found in the franchises of Cruz Telephone Company, Inc.,5 Isla Cellular Communications, Inc.,6 and Islatel Corporation.7 We shall now turn to the other points raised in the motion for reconsideration of PLDT. First. Petitioner contends that the legislative intent to promote the development of the telecommunications industry is evident in the use of words as "development," "growth," and "financial viability," and that the way to achieve this purpose is to grant tax exemption or exclusion to franchises belonging in this industry. Furthermore, by using the words "advantage," "favor," "privilege," "exemption," and "immunity" and the terms "ipso facto," "immediately," and "unconditionally," Congress intended to automatically extend whatever tax exemption or tax exclusion has been granted to the holder of a franchise enacted after the LGC to the holder of a franchise enacted prior thereto, such as PLDT. The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing, and operations of all public telecommunications entities and thus to level the playing field in the telecommunications industry. An intent to grant tax exemption cannot even be discerned from the law. The records of Congress are bereft of any discussion or even mention of tax exemption. To the contrary, what the Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which became R.A. No. 7925, were "equal access clauses" in interconnection agreements, not tax exemptions. He said: There is also a need to promote a level playing field in the telecommunications industry. New entities must be granted protection against dominant carriers through the encouragement of equitable access charges and equal access clauses in interconnection agreements and the strict policing of predatory pricing by dominant carriers. Equal access should be granted to all operators connecting into the interexchange network. There should be no discrimination against any carrier in terms of priorities and/or quality of service.8 Nor does the term "exemption" in 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, R.A. No. 7925, 17 provides: "The

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Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates or tariffs." Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment.9 Second. PLDT says that the policy of the law is to promote healthy competition in the telecommunications industry.10 According to PLDT, the LGC did not repeal the "in lieu of all taxes" provision in its franchise but only excluded from it local taxes, such as the local franchise tax. However, some franchises, like those of Globe and Smart, which contain "in lieu of all taxes" provisions were subsequently granted by Congress, with the result that the holders of franchises granted prior to January 1, 1992, when the LGC took effect, had to pay local franchise tax in view of the withdrawal of their local tax exemption. It is argued that it is this disparate situation which R.A. No. 7925, 23 seeks to rectify. One can speak of healthy competition only between equals. For this reason, the law seeks to break up monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting to new telecommunications entities protection against dominant carriers through equitable access charges and equal access clauses in interconnection agreements and through the strict policing of predatory pricing by dominant carriers.11 Interconnection among carriers is made mandatory to prevent a dominant carrier from delaying the establishment of connection with a new entrant and to deter the former from imposing excessive access charges. 12 That is also the reason there are franchises13 granted by Congress after the effectivity of R.A. No. 7925 which do not contain the "in lieu of all taxes" clause, just as there are franchises, also granted after March 16, 1995, which contain such exemption from other taxes.14 If, by virtue of 23, the tax exemption granted under existing franchises or thereafter granted is deemed applicable to previously granted franchises (i.e., franchises granted before the effectivity of R.A. No. 7925 on March 16, 1995), then those franchises granted after March 16, 1995, which do not contain the "in lieu of all taxes" clause, are not entitled to tax exemption. The "in lieu of all taxes" provision in the franchises of Globe and Smart, which are relatively new entrants in the telecommunications industry, cannot thus be deemed applicable to PLDT, which had virtual monopoly in the telephone service in the country for a long time,15 without defeating the very policy of leveling the playing field of which PLDT speaks. Third. Petitioner argues that the rule of strict construction of tax exemptions does not apply to this case because the "in lieu of all taxes" provision in its franchise is more a tax exclusion than a tax exemption. Rather, the applicable rule should be that tax laws are to be construed most strongly against the government and in favor of the taxpayer. This is contrary to the uniform course of decisions16 of this Court which consider "in lieu of all taxes" provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be interpreted strictly against the taxpayer and in favor of the

taxing authority applies. Along with the police power and eminent domain, taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly construed in favor of the state. A state cannot be stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language.17 Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected.18Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions.19 Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. To construe otherwise the "in lieu of all taxes" provision invoked is to be inconsistent with the theory that R.A. No. 7925, 23 grants tax exemption because of a similar grant to Globe and Smart. Petitioner cites Cagayan Electric Power & Light Co., Inc. v. Commissioner of Internal Revenue20 in support of its argument that a "tax exemption" is restored by a subsequent law re-enacting the "tax exemption." It contends that by virtue of R.A. No. 7925, its tax exemption or exclusion was restored by the grant of tax exemptions to Globe and Smart. Cagayan Electric Power & Light Co., Inc., however, is not in point. For there, the reenactment of the exemption was made in an amendment to the charter of Cagayan Electric Power and Light Co. Indeed, petitioners justification for its claim of tax exemption rests on a strained interpretation of R.A. No. 7925, 23. For petitioners claim for exemption is not based on an amendment to its charter but on a circuitous reasoning involving inquiry into the grant of tax exemption to other telecommunications companies and the lack of such grant to others,21 when Congress could more clearly and directly have granted tax exemption to all franchise holders or amend the charter of PLDT to again exempt it from tax if this had been its purpose. The fact is that after petitioners tax exemption by R.A. No. 7082 had been withdrawn by the LGC,22 no amendment to re-enact its previous tax exemption has been made by Congress. Considering that the taxing power of local government units under R.A. No. 7160 is clear and is ordained by the Constitution, petitioner has the heavy burden of justifying its claim by a clear grant of exemption.23 Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken.24 They cannot be extended by mere implication or inference. Thus, it was held in Home Insurance & Trust Co. v. Tennessee25 that a law giving a corporation all the "powers, rights reservations, restrictions, and liabilities" of another company does not give an exemption from taxation which the latter may possess. In Rochester R. Co. v. Rochester,26 the U.S. Supreme Court, after reviewing cases

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involving the effect of the transfer to one company of the powers and privileges of another in conferring a tax exemption possessed by the latter, held that a statute authorizing or directing the grant or transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity. Thus: We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary, that a statute authorizing or directing the grant or transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity. We, therefore, conclude that the words "the estate, property, rights, privileges, and franchises" did not embrace within their meaning the immunity from the burden of paving enjoyed by the Brighton Railroad Company. Nor is there anything in this, or any other statute, which tends to show that the legislature used the words with any larger meaning than they would have standing alone. The meaning is not enlarged, as faintly suggested, by the expression in the statute that they are to be held by the successor "fully and entirely, and without change and diminution," words of unnecessary emphasis, without which all included in "estate, property, rights, privileges, and franchises" would pass, and with which nothing more could pass. On the contrary, it appears, as clearly as it did in the Phoenix Fire Insurance Company Case, that the legislature intended to use the words "rights, franchises, and privileges" in the restricted sense. . . .27 Fourth. It is next contended that, in any event, a special law prevails over a general law and that the franchise of petitioner giving it tax exemption, being a special law, should prevail over the LGC, giving local governments taxing power, as the latter is a general law. Petitioner further argues that as between two laws on the same subject matter which are irreconcilably inconsistent, that which is passed later prevails as it is the latest expression of legislative will. This proposition flies in the face of settled jurisprudence. In City Government of San Pablo, Laguna v. Reyes,28this Court held that the phrase "in lieu of all taxes" found in special franchises should give way to the peremptory language of 193 of the LGC specifically providing for the withdrawal of such exemption privileges. Thus, the rule that a special law must prevail over the provisions of a later general law does not apply as the legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is apparent from the express provisions of 137 and 193 of the LGC. As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has already explained in the decision under reconsideration that no inconsistency exists and that the rule that the later law is the latest expression of the legislature does not apply. The matter need not be further discussed.

In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioners exemption from local taxes has been restored is a contemporaneous construction of 23 and, as such, it is entitled to great weight. The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals, which is a special court created for the purpose of reviewing tax cases, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation and other related matters.29 Thus, the rule that the "Court will not set aside conclusions rendered by the CTA, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority"30cannot apply in the case of BLGF. WHEREFORE, the motion for reconsideration is DENIED and this denial is final. SO ORDERED. Davide, Jr., C.J., Quisumbing, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, JJ., concur. Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, and Austria-Martinez, JJ., join the dissent of J. Puno. Puno, J., please see dissent. Vitug, J., I concur; a statute effectively limiting the constitutionally-delegated tax powers of LGUs can only be done in a clear and express manner. Panganiban, J., no part. Same reason given in original decision. Carpio, J., see separate opinion.

Dissenting Opinion PUNO, J.: The sole issue in the case at bar is whether petitioner Philippine Long Distance Telephone Company, Inc. (PLDT) is liable to pay the franchise tax imposed by the City of Davao. The issue can be resolved only by untangling the different laws dealing with local government and the telecommunications industry. It is thus necessary to first lay down these laws. On January 1, 1992, the Local Government Code took effect. The Code pertinently provides:

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"Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. . . Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptionsor 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." In accord with this Code, the City of Davao enacted Ordinance No. 519, Series of 1992. It provides: "Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on business enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City." On March 19, 1992, Congress enacted Republic Act No. 7229 entitled "An Act approving the merger between Globe Mackay Cable and Radio Corporation and Clavecilla Radio System and the consequent transfer of the franchise of Clavecilla Radio System granted under Republic Act No. 402, as amended, to Globe Mackay Cable and Radio Corporation, extending the life of said franchise and repealing certain sections of RA No. 402, as amended." Section 3 thereof provides: "Sec. 3. Section 9 of the same Act is hereby amended to read as follows: Sec. 9. . . (b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national from which the grantee is hereby expressly exempted, effective from the date of the approval of R.A. No.1618. . ." Section 5 provides: "Sec. 5. Section twenty of the same Act is hereby amended to read as follows:

Sec. 20. This franchise shall not be interpreted to mean an exclusive grant of the privileges herein provided for, however, in the event of any competing individual, partnership, or corporation, receiving from the Congress of the Philippines a similar permit or franchise more favorable than those herein granted or tending to place the herein grantee at any disadvantage, then such term or terms, shall ipso facto become part of the terms hereof, and shall operate equally in favor of the grantee as in the case of said competing individual, partnership or corporation." On March 27, 1992, Congress enacted Republic Act No. 7294 entitled "An Act granting Smart Information Technologies, Inc. (SMART) a franchise to establish, maintain, lease and operate integrated telecommunications/computer/electronic services, and stations throughout the Philippines for public domestic and international communications, and for other purposes." Section 9 of the Act provides: "Section 9. Tax provisions.- The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof. . ." On March 16, 1995, Republic Act No. 7925 entitled "Public Telecommunications Policy" was enacted. Section 23 of the Act states: "Section 23. Equality of Treatment in the Telecommunications Industry.- Any advantage, favor, privilege, exemption, or immunity granted under existing franchise, or may hereafter be granted, shall ipso factobecome part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, that the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise." It also appears that after 1995, Congress enacted laws granting franchises to other telecommunications companies. Some of these franchises contain the "in lieu of all taxes" clause as well as the "equality clause." The others, however, did not.1 On the basis of these laws, petitioner PLDT wrote to the City Treasurer of Davao protesting the assessment of the local franchise tax amounting to P3,681,985.75 for the year 1999. It likewise claimed exemption from the payment of said franchise tax on the basis of the opinion of the Bureau of Local Government Finance (BLGF). The opinion holds that petitioner is exempt from payment of franchise and business taxes imposable by

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local government units upon the effectivity of Republic Act No. 7925 on March 16, 1995. The protest was denied by the City Treasurer of Davao. Petitioner challenged the denial in Branch 13 of the RTC of Davao but was unsuccessful. The trial court ruled that the Local Government Code had withdrawn the tax exemption previously granted to petitioner PLDT. Petitioner thus filed a petition for review on certiorari with this Court. On August 22, 2001, the Second Division of this Court denied the petition. It held: (1) petitioners claim of tax exemption is based on strained inferences; (b) the claim would result in absurd consequences; (c) the word "exemption" in RA No, 7925, sec. 23 does not mean "tax exemption"; and (d) there can be no reliance on the alleged expertise of the BLGF for the issue involves the interpretation of a law. Petitioner contends in its Motion for Reconsideration, viz: "A. THE ABSURD CONSEQUENCES REFERRED TO BY THE COURT AS ALLEGEDLY RESULTING FROM PETITIONERS POSITION(,) HAVE NO BASIS IN FACT AND IN LAW; IN ANY CASE, FOR THE COURT TO SAY THAT PETITIONERS POSITION WOULD RESULT IN ABSURD CONSEQUENCES, IS TO QUESTION, UNDER THE GUISE OF INTERPRETATION, THE WISDOM OF THE POLICY BEHIND REPUBLIC ACT NO. 7925. B. THE PROVISIONS OF SECTION 23 OF REPUBLIC ACT NO. 7925 ARE CLEAR AND NEED NO INTERPRETATION; ASSUMING THERE IS A NECESSITY FOR INTERPRETATION, THE RULING OF THE BUREAU OF LOCAL GOVERNMENT FINANCE, WHICH IS A CONTEMPORANEOUS CONSTRUCTION OF SECTION 23 AND IS THEREFORE ENTITLED TO GREAT WEIGHT, SHOULD BE CONSIDERED BY THE COURT. C. SECTION 23 OF REPUBLIC ACT NO. 7925 CLEARLY GRANTS A TAX EXEMPTION OR TAX EXCLUSION TO PETITIONER. D. THE AUTHORITIES ON STRICT CONSTRUCTION CITED BY THE COURT HAVE NO APPLICATION IN THIS CASE. E. THE IN LIEU OF ALL TAXES PROVISION IN PETITIONERS FRANCHISE WAS DEEMED RESTORED WITH REGARD TO LOCAL TAXES BY SECTION 23 OF REPUBLIC ACT NO. 7925 IN RELATION TO THE FRANCHISES OF GLOBE TELECOM, INC. AND SMART COMMUNICATIONS, INC. F. THE COURT FAILED TO CONSIDER THE OTHER ARGUMENTS OF PETITIONER." Petitioners Motion for Reconsideration was elevated to the Court en banc considering its significance and as similar cases are pending decision in its other divisions.

The majority will now deny petitioners motion for reconsideration. It holds that section 23 of Republic Act No. 7925 mandating equality of treatment in the telecommunications industry and relied upon by the petitioner is not "clear and unequivocal." Again, I quote section 23, viz: "Sec. 23. Equality of Treatment in the Telecommunications Industry - Any advantage, favor, privilege, exemption, or immunity granted under existing franchise or may hereafter be granted, shall ipso factobecome part of previously granted telecommunications franchise and shall be accorded immediately andunconditionally to the grantees of such franchises . . ." I cannot understand what is unclear in section 23. Favor, privilege, exemption and immunity are ordinary words without any mystic meaning. The provision states without any flourish that if any favor, privilege, exemption or immunity is granted in the franchise of any telecommunications company, it will be deemed granted to other telecommunications companies with prior franchises. The grant is unequivocal for the provision directs that it is "ipso facto," and should be "immediately and unconditionally." The language of the law cannot be more limpid, indeed, the work of a worthy wordsmith. Next, the majority holds that "x x x the best refutation of PLDTs claim that RA No. 7925, section 23 grants tax exemption is the fact that after its enactment on March 16, 1995, Congress granted several franchises containing both an equality clause similar to section 23 and an in lieu of all taxes clause."2 It cites the laws granting franchises to the Island Country Telecommunications, Inc., Cruz Telephone Company, Inc., ISLA Cellular Communications, Inc., and Islatel Corporation.3 I agree that all these subsequent laws should be considered and not only the laws granting exemptions to Smart and Globe. With due respect, however, I have great difficulty following the flow of the logic of the majority. To my mind, the reiteration of the "equality clause" as well as the "in lieu of all taxes clause" in the telecommunications franchises granted by Congress after March 16, 1995 fortifies the claim for exemption of the petitioner. The reiteration of the clauses shows that Congress never wavered in its touchstone policy of equalizing the status of our companies in the telecommunications industry. To be sure, Congress need not reiterate the "equality clause" and the "in lieu of all taxes clause" in these subsequent telecommunications franchises for without it, Republic Act No. 7925, section 23 could still be availed of by them. The reiteration is simply a stubborn stress on the importance of equality in the entire telecommunications industry but the majority inexplicably reads it as denying the rule of equality to the petitioner. By treating alikes as unalike, the majority is violating the equal protection clause of the Constitution. Further to its stance that the law is vague, the majority parleys the proposition that "an intent to grant tax exemption cannot even be discerned from the law." It quotes the sponsorship speech of Rep. Jerome B. Paras of H.B. No. 14028, viz:4

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"There is also a need to promote a level playing field in the telecommunications industry. New entities must be granted protection against dominant carriers through the encouragement of equitable access charges and equal access clauses in interconnection agreements and the strict policing of predatory pricing by dominant carriers. Equal access should be granted to all operators connecting into the inter-exchange network. There should he no discrimination against any carrier in terms of priorities and/or equality of service." Again, I do not see how this one-paragraph observation of Congressman Paras can serve as a crutch to support the majority ruling. Congressman Paras merely clarified that the aim of the law is to promote a level playing field in the telecommunications industry. And, doubtless, one way of leveling the playing field is by granting equal access to all operators connecting into the inter-exchange network. But this is not all that has to be done to level the playing field. There are other acts and practices that distort the playing field in the telecommunications industry and they were addressed by Congress. One destructive practice that can really dislevel the playing field is the imposition of discriminatory tax. Precisely to eliminate these practices, Congress enacted section 23 decreeing for equality of treatment of all companies in the telecommunications industry. By one sweep, it did away with the grant of unequal favors to telecommunication companies, which is anathema to fair competition in deregulated industries. More untenable is the majority ruling that "exemption" in section 23 does not refer to tax exemption but "exemptions from certain regulations and requirements imposed by the National Telecommunications Commission" like for instance, exemption from securing permits for every import equipment. The ruling is not based on any clear cut provision of law but is a mere surmise. It is all too easy for the law to define exemption as the majority interprets it but the law did not. I submit that the majority reading of the word "exemption" collides with the basic rule in statutory construction that the meaning of a word should be understood in light of the cluster of words to which it is associated. The word "exemption" is clustered with the words "advantage, favor, privilege and immunity." Its most natural meaning is that it refers, to and at least includes, tax exemption. Petitioner has also called our attention to what would result from the majority decision under reconsideration - "x x x the result is that while the holders of franchise granted prior to January 1, 1992 when the LGC took effect, had to pay local franchise tax in view of the withdrawal of their local tax exemption, those whose franchises were granted after January 1, 1992, because of the in lieu of all taxes provisions contained therein, were exempted from such local tax."5 The disparate treatment, petitioner contends, will not promote healthy competition in the telecommunications industry. The majority, however, dismisses petitioners fear by holding: "One can speak of healthy competition only between equals. For this reason, the law seeks to break up monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting to new

telecommunications entities protection against dominant carriers through equitable access charges and equal access clauses in interconnection agreements and through the strict policing of predatory pricing by dominant carriers. Interconnection among carriers is made mandatory to prevent a dominant carrier from delaying the establishment of connection with a new entrant and to deter the former from imposing excessive access charges. "That is also the reason there are franchises granted by Congress after the effectivity of R.A. No. 7925 which do not contain the in lieu of all taxes clause, just as there are franchises, also granted after March 16, 1995, which contain such exemption from other taxes. If, by virtue of section 23, the tax exemption granted under existing franchises or thereafter granted is deemed applicable to previously granted franchises (i.e., franchises granted before the effectivity of R.A. No. 7925 on March 16, 1995), then those franchises granted after March 16, 1995, which do not contain the in lieu of all taxes clause, are not entitled to tax exemption. The in lieu of all taxes provision in the Franchises of Globe and Smart, which are relatively new entrants in the telecommunications industry, cannot thus be deemed applicable to PLDT, which had virtual monopoly in the telephone service in the country for a long time, without defeating the very policy of leveling the playing field of which PLDT speaks."6 Again, I am unable to agree with the majority. With due respect, the majority fails to grasp the processes of deregulation followed in the telecommunications industry. The key move to take before deregulating is to break up the monopoly or oligopoly in control of the industry. For with a monopoly or oligopoly enjoying a stranglehold on the industry, the market forces cannot have a free play and prices in the industry will be dictated by the lucre of commerce. For this reason. petitioner PLDTs monopoly had to be broken. Among others, the law made interconnection among carriers mandatory and provided for equitable access charges and equal access clauses in interconnection agreements. With this provision, the law busted the biggest barrier to the effective entry of new players in the telecommunications industry. The next step in deregulation is to level the playing field. The mechanism for leveling the playing field is installed in section 23 of the law which requires equality of treatment in the telecommunications industry. In no uncertain terms, it orders that "any advantage, favor, privilege, exemption, or immunity granted under existing franchise, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises xxx." A level playing field is indispensable to prevent predatory pricing on the part of any player in the industry. Without a level playing field, competition will be unfair and prices in the industry will not be determined by market forces but by unregulated greed. Inexplicably, the majority would deny to petitioner PLDT the right to a level playing field. Its reasons are tenuous to say the least. Its prime reason is that petitioner PLDT had enjoyed virtual monopoly in the telephone service in the country for a long time.7 The monopoly status of petitioner PLDT is past and should be viewed in its propel historical perspective. In the early years of our economic history, monopolies in certain industries had to be allowed. They have to be entertained in industries which are high-risk, capital intensive and indispensable to

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economic growth. No company will risk venture capital in these industries unless they are accorded favored treatment, usually a monopoly status, for a certain time. Even then, administrative mechanisms were put in place to regulate their activities especially their pricing policies to protect the interest of the consuming public. Indeed, a great part of the United States would still be a wilderness if it did not allow monopolies in its railroad and telecommunications industries. We adopted this proven strategy and allowed monopolies in some of our industries like electric power, transportation and telecommunications. It is in line with this strategy that Congress granted to petitioner PLDT a monopoly status for a certain time. No company would then invest in our telecommunications industry but petitioner PLDT did, assumed the risk and undeniably played a vital role in our economic development which cannot be dismissed as insignificant. For this reason, our Constitution does not ban monopolies as evil per se for they are not. It appears that a misappreciation of the past dominant role of petitioner PLDT in our telecommunications industry has poisoned the position of the majority. The majority thinks that if it orders equal tax treatment to petitioner vis--vis the other companies in the telecommunications industry, there will be inequality because there is no parity between them in terms of resources. Following this thought, the majority again surmises that the strategy of Congress to achieve equality in the industry is to grant exemptions on a case to case basis. Thus, it holds that "that is xxx the reason there are franchises granted by Congress after the effectivity of R.A. No. 7925 which do not contain the in lieu of all taxes clause, just as there are franchises, also granted after March 16, 1995, which contain such exemption from other taxes."8 Footnote no. 13 of the majority decision cites a list of telecommunications companies whose franchises do not contain the "in lieu of all taxes" clause while footnote no. 14 cites the companies whose franchises contain the said clause. A cursory glance at the companies in footnote no. 13 will, however, show that they are not the giant-type which will explain why their franchises do not contain the "in lieu of all taxes" clause. Similarly, there appears in footnote no. 14 big companies yet their franchises contain the aforesaid clause. Significantly, the majority does not cite the legislative proceedings of the laws granting these franchises to support its ruling that the grant or non-grant of the "in lieu of all taxes" clause in the franchises of the companies involved is part of the strategy of Congress to equalize them and level the playing field in the telecommunications industry. The ruling is an ex-cathedra pronouncement unsupported by any footnote. Again, I submit the view that section 23 granted equal tax treatment to all telecommunications companies and to stress again, this was done only after breaking up the monopoly in the industry. Today, petitioner PLDT no longer controls the industry and there is no reason to treat it unequally from other companies. The inclusion of the "in lieu of all taxes" clause in some franchises simply reiterates section 23 of Republic Act No. 7925. The non-inclusion of the clause in other franchises does not mean its non-grant for the exemption can be claimed under section 23 of Republic Act 7925 which still stands for it has not been repealed by any subsequent law. By insisting that petitioner cannot claim its tax exemption because of its prior dominant status, the majority is substituting its own concept of equality from that of section 23, and it is restructuring the level playing field designed by the legislature. It is not our business to construct the law hut to construe it for we are not another chamber of Congress.

I vote to grant the Motion for Reconsideration. THIRD DIVISION

[G.R. No. 152492. October 16, 2003]

PALMA

DEVELOPMENT CORPORATION, petitioner, MALANGAS, ZAMBOANGA DEL SUR,respondent. DECISION

vs. MUNICIPALITY

OF

PANGANIBAN, J.: In accordance with the Local Government Code of 1991, a municipal ordinance imposing fees on goods that pass through the issuing municipalitys territory is null and void.

The Case The Petition for Review[1] before us assails the August 31, 2001 Decision[2] and the February 6, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 56477. The dispositive portion of the challenged Decision reads as follows: UPON THE VIEW WE TAKE OF THIS CASE, THUS, the assailed Decision is VACATED and SET ASIDE, and this case is ordered REMANDED to the court a quo for the reception of evidence of the parties on the matter or point delineated in the final sentence above-stated.[4] The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The facts are undisputed. Petitioner Palma Development Corporation is engaged in milling and selling rice and corn to wholesalers inZamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur as transshipment point for its goods. The

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port, as well as the surrounding roads leading to it, belong to and are maintained by the Municipality of Malangas, Zamboanga del Sur. On January 16, 1994, the municipality passed Municipal Revenue Code No. 09, Series of 1993, which was subsequently approved by theSangguniang Panlalawigan of Zamboanga del Sur in Resolution No. 1330 dated August 4, 1994. Section 5G.01 of the ordinance reads: Section 5G.01. Imposition of fees. There shall be collected service fee for its use of the municipal road[s] or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality in the following schedule: a) Vehicles and Equipment: 1. Automatic per unit 2. Ford Fiera 3. Trucks xxx rate of fee P10.00 P10.00 P10.00 xxx xxx

court likewise ordered that the opinions of the Departments of Finance and of Justice be sought. As these opinions were still unavailable as of October 17, 1996, petitioners counsel filed, without objection from respondent, a Manifestation seeking the submission of the case for the RTCs decision on a pure question of law. In due time, the trial court rendered its November 13, 1996 Decision declaring the entire Municipal Revenue Code No. 09 as ultra vires and, hence, null and void.

Ruling of the Court of Appeals

The CA held that local government units already had revenue-raising powers as provided for under Sections 153 and 155 of RA No. 7160. It ruled as well that within the purview of these provisions -- and therefore valid -- is Section 5G.01, which provides for a service fee for the use of the municipal road or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality. However, since both parties had submitted the case to the trial court for decision on a pure question of law without a full-blown trial on the merits, the CA could not determine whether the facts of the case were within the ambit of the aforecited sections of RA No. 7160. The appellate court ruled that petitioner still had to adduce evidence to substantiate its allegations that the assailed ordinance had imposed fees on the movement of goods within the Municipality of Malangas in the guise of a toll fee for the use of municipal roads and a service fee for police surveillance. Thus, the CA held that the absence of such evidence necessitated the remand of the case to the trial court. Hence, this Petition.[6]

b) Other Goods, Construction Material products: 1. Bamboo craft 2. Bangus/Kilo xxx 41. Rice and corn grits/sack P20.00 0.30 xxx 0.50[5] xxx

Issues

Petitioner raises the following issues for our consideration: 1. Whether or not the Court of Appeals erred when it ordered that the extant case be remanded to the lower court for reception of evidence. 2. Whether or not the Court of Appeals erred when it ruled that a full blown trial on the merits is necessary and that plaintiff-appellee, now petitioner, has to adduce evidence to substantiate its thesis that the assailed municipal ordinance, in fact, imposes fees on the movement of goods within the jurisdiction of the defendant and that this imposition is merely in the guise of a toll fee for the use of municipal roads and service fee for police surveillance.

Accordingly, the service fees imposed by Section 5G.01 of the ordinance was paid by petitioner under protest. It contended that under Republic Act No. 7160, otherwise known as the Local Government Code of 1991, municipal governments did not have the authority to tax goods and vehicles that passed through their jurisdictions. Thereafter, before the Regional Trial Court (RTC) of Pagadian City, petitioner filed against the Municipality ofMalangas on November 20, 1995, an action for declaratory relief assailing the validity of Section 5G.01 of the municipal ordinance. On the premise that the case involved the validity of a municipal ordinance, the RTC directed respondent to secure the opinion of the Office of the Solicitor General. The trial

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3. Whether or not the Court of Appeals erred when it did not rule that the questioned municipal ordinance is contrary to the provisions of R.A. No. 7160 or the Local Government Code of the Philippines.[7] In brief, the issues boil down to the following: 1) whether Section 5G.01 of Municipal Revenue Code No. 09 is valid; and 2) whether the remand of the case to the trial court is necessary.

xxx

xxx

xxx

The Courts Ruling

Section 155. Toll Fees or Charges. -- The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older. When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use. Respondent claims that there is no proof that the P0.50 fee for every sack of rice or corn is a fraudulent legislation enacted to subvert the limitation imposed by Section 133(e) of RA No. 7160. Moreover, it argues that allowing petitioner to use its roads without paying the P0.50 fee for every sack of rice or corn would contravene the principle of unjust enrichment. By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees -- as well as all other taxes or charges in any form whatsoever -on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e). Under Section 131(y) of RA No. 7160, wharfage is defined as a fee assessed against the cargo of a vessel engaged in foreign or domestic trade based on quantity, weight, or measure received and/or discharged by vessel. It is apparent that a wharfage does not lose its basic character by being labeled as a service fee for police surveillance on all goods. Unpersuasive is the contention of respondent that petitioner would unjustly be enriched at the formers expense. Though the rules thereon apply equally well to the government,[9] for unjust enrichment to be deemed present, two conditions must generally concur: (a) a person is unjustly benefited, and (b) such benefit is derived at anothers expense or damage.[10] In the instant case, the benefits from the use of the municipal roads and the wharf were not unjustly derived by petitioner. Those benefits resulted from the infrastructure that the municipality was mandated by law to provide.[11] There is no unjust enrichment

The Petition is meritorious.

First Issue: Validity of the Imposed Fees

Petitioner argues that while respondent has the power to tax or impose fees on vehicles using its roads, it cannot tax the goods that are transported by the vehicles. The provision of the ordinance imposing a service fee for police surveillance on goods is allegedly contrary to Section 133(e) of RA No. 7160, which reads: 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: xxx xxx xxx

e) Taxes, fees and charges and other impositions upon goods carried into and 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; On the other hand, respondent maintains that the subject fees are intended for services rendered, the use of municipal roads and police surveillance. The fees are supposedly not covered by the prohibited impositions under Section 133(e) of RA No. 7160.[8] It further contends that it was empowered by the express mandate of Sections 153 and 155 of RA No. 7160 to enact Section 5G.01 of the ordinance. The pertinent provisions of this statute read as follows: Section 153. Service Fees and Charges. -- Local government units may impose and collect such reasonable fees and charges for services rendered.

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where the one receiving the benefit has a legal right or entitlement thereto, or when there is no causal relation between ones enrichment and the others impoverishment.[12]

When public safety and welfare so requires, the Sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use. x x x As we see it, the disputed municipal ordinance, which provides for a service fee for the use of the municipal road or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality, seems to fall within the compass of the above cited provisions of R.A. No. 7160. As elsewhere indicated, the parties in this case, nonetheless, chose to submit the issue to the Trial Court on a pure question of law, without a fullblown trial on the merits: consequently, we are not prepared to say, at this juncture, that the facts of the case inevitably call for the application, and/or that these make out a clearcut case within the ambit and purview, of the aforecited section. The plaintiff, thus, has to adduce evidence to substantiate its thesis that the assailed municipal ordinance, in fact, imposes fees on the movement of goods within the jurisdiction of the defendant, and that this imposition is merely in the guise of a toll fee for the use of municipal roads and service fee for police surveillance. Competent evidence upon this score must, thus, be presented.[14] We note that Section 5G.01 imposes two types of service fees: 1) one for the use of the municipal roads and 2) another for police surveillanceon all goods and equipment sheltered in the premises of the wharf. The amount of service fees, however, is based on the type of vehicle that passes through the road and the type of goods being transported. While both parties admit that the service fees imposed are for the use of the municipal roads, petitioner maintains that the service fee for police surveillance on goods harbored on the wharf is in the guise of a wharfage,[15] a prohibited imposition under Section 133(e) of RA No. 7160. Thus, the CA held that the case should be remanded to the trial court in order to resolve this factual dispute. The appellate court noted that under Section 155 of RA No. 7160, municipalities apparently now have the power to impose fees for the use of municipal roads. Nevertheless, a remand is still unnecessary even if the service fee charged against the goods are for police surveillance, because Section 133(e) of RA No. 7160 expressly prohibits the imposition of all other taxes, fees or charges in any form whatsoever upon the merchandise or goods that pass through the territorial jurisdiction of local government units. It is therefore immaterial to the instant case whether the service fee on the goods is for police surveillance or not, since the subject provision of the revenue ordinance is invalid. Reception of further evidence to establish this fact would not legalize the imposition of such fee in any way. Furthermore, neither party disputes any of the other material facts of the case. From their respective Briefs before the CA and their Memoranda before this Court, they do not dispute the fact that petitioner, from its principal place of business, transports

Second Issue: Remand of the Case

Petitioner asserts that the remand of the case to the trial court for further reception of evidence is unnecessary, because the facts are undisputed by both parties. It has already been clearly established, without need for further evidence, that petitioner transports rice and corn on board trucks that pass through the municipal roads leading to the wharf. Under protest, it paid the service fees, a fact that respondent has readily admitted without qualification. Respondent, on the other hand, is silent on the issue of the remand of the case to the trial court. The former merely defends the validity of the ordinance, arguing neither for nor against the remand. We rule against the remand. Not only is it frowned upon by the Rules of Court; [13] it is also unnecessary on the basis of the facts established by the admissions of the parties. Besides, the fact sought to be established with the reception of additional evidence is irrelevant to the due settlement of the case. The pertinent portion of the assailed CA Decision reads: To be stressed is the fact that local government units now have the following common revenue raising powers under the Local Government Code: Section 153. Service Fees and Charges. -- Local government units may impose and collect such reasonable fees and charges for services rendered. xxx xxx xxx

Section 155. Toll Fees or Charges. -- The Sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older.

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rice and corn on board trucks bound for respondents wharf. The trucks traverse the municipal roads en route to the wharf, where the sacks of rice and corn are manually loaded into marine vessels bound for Zamboanga City. Likewise undisputed is the fact that respondent imposed and collected fees under the ordinance from petitioner. The former admits that it has been collecting, in addition to the fees on vehicles, P0.50 for every sack of rice or corn that the latter has been shipping through the wharf. [16] The foregoing allegations are formal judicial admissions that are conclusive upon the parties making them. They require no further proof in accordance with Section 4 of Rule 129 of the Rules of Court, which reads: SEC. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. Judicial admissions made by parties in the pleadings, in the course of the trial, or in other proceedings in the same case are conclusive. No further evidence is required to prove them. Moreover, they cannot be contradicted unless it is shown that they have been made through palpable mistake, or that they have not been made at all.[17] WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are hereby SET ASIDE. The imposition of a service fee for police surveillance on all goods harbored or sheltered in the premises of the municipal port of Malangas under Sec. 5G.01 of the Malangas Municipal Revenue Code No. 09, series of 1993, is declared NULL AND VOID for being violative of Republic Act No. 7160. SO ORDERED. Puno, (Chairman), Sandoval-Gutierrez and Carpio-Morales, JJ., concur. Corona, J., on leave.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., Petitioner,

G.R. No. 151899

Present:

PANGANIBAN, J., Chairman SANDOVAL-GUTIERREZ, CORONA, - versus CARPIO MORALES, and GARCIA, JJ.

PROVINCE OF LAGUNA and MANUEL E. LEYCANO, JR., in his capacity as the Provincial Treasurer of the Province of Laguna, Respondents.

Promulgated:

[1] [2]

August 16, 2005 Rollo, pp. 18-33. Id., pp. 35-40. Penned by Justice Renato C. Dacudao, with the concurrence of Justices Romeo J. Callejo Sr. (Division chairman and now a member of this Court) and PerlitaJ. Tria Tirona (member). Id., p. 42. CA Decision, p. 6; rollo, p. 40. THIRD DIVISION DECISION x----------------------------------------------------------------------------------x

[3] [4]

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GARCIA, J.:

7082,[5] Section 12 of which embodies the so-called in-lieu-of-all taxes clause, whereunder PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be in lieu of all taxes. More specifically, the provision pertinently reads:

Twice, this Court has denied the earlier plea of petitioner Philippine Long Distance Company, Inc. (PLDT) to be adjudged exempt from the payment of franchise tax assessed against it by local government units. The first was in the 2001 case of PLDT vs. City of Davao[1] and the second, in the very recent case of PLDT vs. City of Bacolod, et al.[2].Indeed, no less than the Court en banc, in its Resolution of March 25, 2003[3], denied PLDTs motion for reconsideration in Davao. In both cases, the Court in effect ruled that the desired relief is not legally feasible. SEC. 12. xxx In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: xxx (Italics ours).

No less than PLDTs third, albeit this time involving the Province of Laguna, the instant similar petition for review oncertiorari under Rule 45 of the Rules of Court seeks the reversal of the decision dated 28 November 2001[4] of the Regional Trial Court at Laguna, dismissing PLDTs petition in its Civil Case No. SC-3953, an action for refund of franchise tax. Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as the Local Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof, grants provinces and other local government units the power to impose local franchise tax on businesses enjoying a franchise, thus: Except for inconsequential factual details which understandably vary from the first two (2) PLDT cases, the legal landscape is practically the same:

SEC. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty

PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to percent (50%) of one percent (1%) of the gross annual receipts for the render local and international telecommunications services. On August 24, 1991, the preceding calendar year based on the incoming receipt, or realized, terms and conditions of its franchise were consolidated under Republic Act No. within its territorial jurisdiction.

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On January 28, 1998, PLDT, in compliance with the aforementioned Ordinance, paid the Province of Laguna its local franchise tax liability for the year 1998 in the amount By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons, whether natural or juridicial, save those expressly mentioned therein, were withdrawn, necessarily including those taxes from which PLDT is exempted under the in lieu-of-all taxes clause in its charter. We quote Section 193: Prior thereto, Congress, aiming to level the playing field among of One Million Eighty-One Thousand Two Hundred Twelve and 10/100 Pesos (P1,081,212.10).

telecommunication companies, enacted Republic Act No. 7925, otherwise known as 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, nonstock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of the service authorized by the franchise. the Public Telecommunications Policy Act of the Philippines, which took effect on March 16, 1995. To achieve the legislative intent, Section 23 thereof, also known as the mostfavored treatment clause, provides for an equality of treatment in the

telecommunications industry, to wit:

Invoking its authority under Section 137, supra, of the Local Government Code, the Province of Laguna, through its local legislative assembly, enacted Provincial Ordinance No. 01-92, made effective January 1, 1993, imposing a franchise tax upon all businesses enjoying a franchise, PLDT included.

Then, on June 2, 1998, the Department of Finance, thru its Bureau of Local Government Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date of the Public Telecommunications Policy Act of the Philippines,[6] PLDT, among other telecommunication companies, became exempt from local franchise tax. Pertinently, the BLGF ruling reads:

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It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a franchise to install, operate and maintain a telephone system throughout the Philippine Islands was approved on August 3, 1991. Section 12 of said franchise, likewise contains the in lieu of all taxes proviso.

from January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the most favored clause provision of RA 7025 [sic].

On

the

basis

of

the

aforequoted

ruling,

PLDT

refused

to

pay

the Province of Laguna its local franchise tax liability for 1999. And, on December 22, In this connection, Section 23 of RA 7929, quoted hereunder, which was approved on March 1, 1995 provides for the equality of treatment in the telecommunications industry: With no refund having been made, PLDT instituted with the Regional Trial Court xxx xxx xxx at Laguna a petition therefor against the Province and its Provincial Treasurer, which petition was thereat docketed as Civil Case No. SC-3953. On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995. WHEREFORE, the petition is denied. Petitioner PLDT is not exempt from paying local franchise and business taxes to the Respondent Province. Refund is denied. For failure to substantiate the claim for exemplary damages and attorneys fees, the same is likewise denied. SO ORDERED. franchise and business taxes imposable by LGUs under Sections 137 and 143, respectively of the LGC [Local Government Code], upon the Hence, this recourse by PLDT, faulting the trial court, as follows: effectivity of RA 7925 on March 16, 1995. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts realized 5.01.a. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS FRANCHISE (REPUBLIC ACT NO.7082), AS AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM In its decision of November 28, 2001, the trial court denied PLDTs petition, thus: 1999, it even filed with the Office of the Provincial Treasurer a written claim for refund of the amount it paid as local franchise tax for 1998.

Accordingly, PLDT shall be exempt from the payment of

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INC., (GLOBE) (REPUBLIC ACT NO. 7229) AND SMART COMMUNICATIONS, INC. (SMART) (REPUBLIC ACT NO.7294), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT PROVINCE. 5.01.b. THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH ALLOWS RESPONDENT PROVINCE TO IMPOSE THE FRANCHISE TAX, AND SECTION 193 THEREOF, WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE IN THIS CASE. 5.01.c. THE LOWER COURT ERRED IN APPLYING PRINCIPLES OF STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE DISFAVORED AND IN HOLDING THAT SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT) DOES NOT SUPPORT PETITIONERS POSITION IN THIS CASE. 5.01.d. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE. 5.01.e. THE LOWER COURT ERRED IN NOT GRANTING PETITIONERS CLAIM FOR TAX REFUND. 5.01.f. BELOW. THE LOWER COURT ERRED IN DENYING THE PETITION

which have been adequately addressed and passed upon by this Court in its decisions therein as well as in its en banc Resolution in Davao.

In PLDT vs. City of Davao, and again in PLDT vs. City of Bacolod, et al., this Court has interpreted Section 23 of Rep. Act No. 7925. There, we ruled that Section 23 does not operate to exempt PLDT from the payment of franchise tax. We quote what we have said in Davao and reiterated in Bacolod. In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that 23 of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter of 1998.[9] The Court explains further: To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:

We note, quite interestingly, that except for the particular local government units involved in the earlier case ofPLDT vs. City of Davao[7] and the very recent case of PLDT vs. City of Bacolod, et al.,[8] the arguments presently advanced by petitioner on the issues raised herein are but a mere reiteration if not repetition of the very same arguments it has already raised in the two (2) earlier PLDT cases. For sure, the errors presently assigned are substantially the same as those in Davao and in Bacolod, all of

. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right. . . As was said by the Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550), The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims an exemption from the common burden must justify his claim by the clearest grant of organic or statute

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law. Other utterances equally or more emphatic come readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held to have been surrendered, unless the intention to surrender is manifested by words too plain to be mistaken. In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said that the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. In Erie Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of the most essential power of taxation by doubtful words. It cannot, by ambiguous language, be deprived of this highest attribute of sovereignty. In Tennessee vs. Whitworth (117U.S., 129, 136), it was said: In all cases of this kind the question is as to the intent of the legislature, the presumption always being against any surrender of the taxing power. In Farrington vs. Tennessee and County of Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: . . . When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.

consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order. xxx xxx xxx

R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of 23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. xxx xxx xxx

What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to this case: When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported. In this case, the word exemption in 23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on 23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes.

As before, PLDT argues that because Smart Communications, Inc. (SMART) and Globe Telecom (GLOBE) under whose respective franchises granted after the effectivity of the Local Government Code, are exempt from franchise tax, it follows that petitioner is likewise exempt from the franchise tax sought to be collected by the Province of Laguna, on the reasoning that the grant of tax exemption to SMART and GLOBE ipso facto applies to PLDT, consistent with the most-favored-treatment clause found in

The fact is that the term exemption in 23 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is different from the one actually intended. A general provision may actually have a limited application if read together with other provisions. Hence, a

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Section 23 of the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925).

Again, there is nothing novel in petitioners contention. For sure, in Davao, this Court even adverted to PLDTs similar argument therein, thus: Finally, it [PLDT] argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it,

xxx. The records of Congress are bereft of any discussion or even mention of tax exemption. To the contrary, what the Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which became R.A. No. 7925, were equal access clauses in interconnection agreements, not tax exemptions. He said:

which argument this Court rejected in said case in the following wise: The acceptance of petitioners theory would result in absurd consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1/2% [sic] ) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioners theory would require that, to level the playing field, any advantage, favor, privilege, exemption, or immunity granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to level the playing field so to speak. This could not have been the intent of Congress in enacting Section 23 of Rep. Act 7925. Petitioners theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption or immunity to all telecommunications entities.

There is also a need to promote a level playing field in the telecommunications industry. New entities must be granted protection against dominant carriers through the encouragement of equitable access charges and equal access clauses in interconnection agreements and the strict policing of predatory pricing by dominant carriers. Equal access should be granted to all operators connecting into the interexchange network. There should be no discrimination against any carrier in terms of priorities and/or quality of services. Nor does the term exemption in 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, R.A. No. 7925, 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates or tariffs. Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment.[11]

PLDTs third assigned error has likewise been squarely addressed in the same en banc Resolution, when the Court rejected PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax exemption but to tax exclusion and hence, the strictissimi juris rule does not apply. The en banc explains that these two terms actually

On PLDTs motion for reconsideration in Davao, the Court added in its en banc Resolution of March 25, 2003,[10]that even as it is a state policy to promote a level playing field in the communications industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption but only to exemption from certain regulations and requirements imposed by the National Telecommunications Commission:

mean the same thing, such that the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions: Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion. Exemption is an

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immunity or privilege; it is freedom from a charge or burden to which others are subjected. Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions. Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. To construe otherwise the in lieu of all taxes provision invoked is to be inconsistent with the theory that R.A. No. 7925, 23 grants tax exemption because of a similar grant to Globe and Smart.[12]

been extensively addressed and adequately passed upon by this Court in its decisions in said two (2) PLDT cases, and noting that the instant recourse has not raised any new fresh issue to warrant a second look, it, too, must have to fall. WHEREFORE, and on the basis of our consistent ruling in PLDT vs. City of Davao and PLDT vs. City of Bacolod, et al., the petition is DENIED and the assailed decision of the trial court AFFIRMED.

With treble costs against petitioner. As in Davao, PLDT presently faults the trial court for not giving weight to the ruling of the BLGF which, to petitioners mind, is an administrative agency with technical expertise and mastery over the specialized matters assigned to it. Again, to quote from our ruling in Davao: SO ORDERED.

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.[13]

CANCIO C. GARCIA THIRD DIVISION SMART COMMUNICATIONS, INC., Petitioner, G.R. No. 155491 Present: YNARES-SANTIAGO, J., Chairperson, CHICO-NAZARIO, NACHURA, LEONARDO-DE CASTRO,* and BERSAMIN,** JJ.

- versus -

With the reality that the arguments presently advanced by petitioner are but a mere reiteration if not a virtual repetition of the very same arguments it has already raised in Davao and in Bacolod, all of which arguments and submissions have

THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG PANLUNSOD OF DAVAO CITY, Respondents .

Promulgated: July 21, 2009

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x------------------------------------------------------------------------------------x

RESOLUTION NACHURA, J.:

Before the Court is a Motion for Reconsideration[1] filed by Smart Communications, Inc. (Smart) of the Decision[2] of the Court dated September 16, 2008, denying its appeal of the Decision and Order of the Regional Trial Court (RTC) of Davao City, dated July 19, 2002 and September 26, 2002, respectively.

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Briefly, the factual antecedents are as follows:

On February 18, 2002, Smart filed a special civil action for declaratory relief[3] for the ascertainment of its rights and obligations under the Tax Code of the City of Davao, which imposes a franchise tax on businesses enjoying a franchise within the territorial jurisdiction of Davao. Smart avers that its telecenter in Davao City is exempt from payment of franchise tax to the City.

On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for reconsideration, which was denied by the trial court in an Order dated September 26, 2002. Smart filed an appeal before this Court, but the same was denied in a decision dated September 16, 2008. Hence, the instant motion for reconsideration raising the following grounds: (1) the in lieu of all taxes clause in Smarts franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of strict construction against tax exemptions is not applicable; (2) the in lieu of all taxes clause is not rendered ineffective by the Expanded VAT Law; (3) Section 23 of Republic Act No. 7925[4] (RA 7925) includes a tax exemption; and (4) the imposition of a local franchise tax on Smart would violate the constitutional prohibition against impairment of the obligation of contracts.

Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smarts legislative franchise contains the contentious in lieu of all taxes clause. The Section reads:

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Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. xxx[5]

order to claim exemption from the payment of local franchise tax. Digitel claimed, just like the petitioner in this case, that it was exempt from the payment of any other taxes except the national franchise and income taxes. Digitel alleged that Smart was exempted from the payment of local franchise tax. However, it failed to substantiate its allegation, and, thus, the Court denied Digitels claim for exemption from provincial franchise tax. Cited was the ruling of the Court in PLDT v. City of Davao,[10] wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held that in approving Section 23 of RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities. Section 23 cannot be considered as having amended PLDTs franchise so as to entitle it to exemption from

Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause, contains the word exemption, viz.: SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of the service authorized by the franchise.[6]

the imposition of local franchise taxes. The Court further held that tax exemptions are highly disfavored and that a tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even in the instances when it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The Court also clarified the meaning of the word exemption in Section 23 of RA 7925: that the word exemption as used in the statute refers or pertains merely to an exemption from regulatory or reporting requirements of the Department of Transportation and Communication or the National Transmission Corporation and not to an exemption from the grantees tax liability.

A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and the interpretation of the word exemption found in Section 23 of RA 7925 is imperative in order to resolve this issue once and for all. In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna,[11] PLDT was a holder of a legislative franchise under Act No. 3436, as amended. On August 24, 1991, the terms and conditions of its franchise were consolidated under Republic Act No. In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of 7082, Section 12 of which embodies the so-called "in-lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be "in lieu of all taxes." The issue that the Court had to

Pangasinan,[7] Digitel used as an argument the in lieu of all taxes clauses/provisos found in the legislative franchises of Globe,[8] Smart and Bell,[9] vis--vis Section 23 of RA 7925, in

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resolve was whether PLDT was liable to pay franchise tax to the Province of Laguna in view of the in lieu of all taxes clause in its franchise and Section 23 of RA 7925. The power to tax by local government units emanates from Section 5, Article X of the Constitution which empowers them to create their own sources of revenues and to Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, the Court held that Section 23 of RA 7925 could not be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes. levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide. The imposition of local franchise tax is not inconsistent with the advent of the VAT, which renders functus officio the franchise tax paid to the national government. VAT inures to the benefit of the national government, while a local franchise tax is a revenue of the local government unit.

In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of Davao[12] and PLDT v. City of Bacolod,[13] in denying the claim for exemption from the payment of local franchise tax.

WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.

THIRD DIVISION In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. The in lieu of all taxes clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority. YNARES-SANTIAGO, J., - versus Republic Act No. 7716, otherwise known as the Expanded VAT Law, did not remove or abolish the payment of local franchise tax. It merely replaced the national franchise tax that was previously paid by telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT in accordance with Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax by cities or municipaties. NACHURA, and THE CITY OF DAVAO, represented herein by its Mayor HON. RODRIGO R. DUTERTE, and the SANGGUNIANG PANLUNGSOD Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, SMART COMMUNICATIONS, INC., Petitioner, Present: G.R. No. 155491

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OFDAVAO CITY, Respondents.

REYES, JJ.

the Decision[1] dated July 19, 2002 of the Regional Trial Court (RTC) and its Order [2] dated September 26, 2002 in Sp. Civil Case No. 28,976-2002.

Promulgated:

September 16, 2008 x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Smart Communications, Inc. (Smart) against the City of Davao, represented by its Mayor, Hon. Rodrigo R. Duterte, and the Sangguniang Panlungsod of Davao City, to annul

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The Facts

On March 2, 2002, respondents filed their Answer[8] in which they contested the tax exemption claimed by Smart. They invoked the power granted by the Constitution to local government units to create their own sources of revenue.[9]

On February 18, 2002, Smart filed a special civil action for declaratory relief[3] under Rule 63 of the Rules of Court, for the ascertainment of its rights and obligations under the Tax Code of the City of Davao,[4] particularly Section 1, Article 10 thereof, the pertinent portion of which reads: On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved in the case, the RTC issued an order requiring the parties to submit their respective memoranda and, thereafter, the case would be deemed submitted for resolution.[10] Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.

On July 19, 2002, the RTC rendered its Decision[11] denying the petition. The trial court noted that the ambiguity of the in lieu of all taxes provision in R.A. No. 7294, on whether it covers both national and local taxes, must be resolved against the taxpayer. [12] The RTC ratiocinated that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority and, thus, those who assert a tax exemption

Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No. 7294[5] subsequent to R.A. No. 7160 shows the clear legislative intent to exempt it from the provisions of R.A. 7160;[6] (b) Section 137 of R.A. No. 7160 can only apply to exemptions already existing at the time of its effectivity and not to future exemptions; (c) the power of the City of Davao to impose a franchise tax is subject to statutory limitations such as the in lieu of all taxes clause found in Section 9 of R.A. No. 7294; and (d) the imposition of franchise tax by the City of Davao would amount to a violation of the constitutional provision against impairment of contracts.[7]

must justify it with words too plain to be mistaken and too categorical not to be misinterpreted.[13] On the issue of violation of the non-impairment clause of the Constitution, the trial court cited Mactan Cebu International Airport Authority v. Marcos,[14] and declared that the citys power to tax is based not merely on a valid delegation of legislative power but on the direct authority granted to it by the fundamental law. It added that while such power may be subject to restrictions or conditions imposed by Congress, any such legislated limitation must be consistent with the basic policy of local autonomy.[15]

Smart filed a motion for reconsideration which was denied by the trial court in an Order[16] dated September 26, 2002.

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Thus, the instant case.

[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE CONSTRUED STRICTLY AGAINST THE TAXPAYER.

Smart assigns the following errors:

[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7294), WHICH CONTAINS THE IN LIEU OF ALL TAXES CLAUSE, AND WHICH IS A SPECIAL LAW ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, THE PUBLIC TELECOMMUNICATIONS POLICY ACT, TAKING INTO ACCOUNT THE FRANCHISE OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO. 7229), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, THEREBY PROVIDING AN ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS FRANCHISE IS A GENERAL LAW AND DID NOT REPEAL RELEVANT PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL GOVERNMENT CODE, WHICH ACCORDING TO THE COURT IS A SPECIAL LAW.

[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.

[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX, AND SECTION 193 OF THE CODE, WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.

[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION OF THE LOCAL FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT OF CONTRACTS.

[i.] BELOW.[17] [d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137 AND 193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS ENACTMENT BUT NOT TO FUTURE EXEMPTIONS.

THE LOWER COURT ERRED IN DENYING THE PETITION

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The Issue

Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.

In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed by the City of Davao.

The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue. (Emphasis supplied.)

The Ruling of the Court

We rule in the affirmative.

Smart alleges that the in lieu of all taxes clause in Section 9 of its franchise exempts it from all taxes, both local and national, except the national franchise tax (now VAT), income tax, and real property tax.[18]

I.

Prospective Effect of R.A. No. 7160

On January 1, 1992, two months ahead of Smarts franchise, the Local Government On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect. Section 9 thereof, quoted hereunder, is at the heart of the present controversy: Code (R.A. No. 7160) took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the local government units; while Section 193 thereof provided for the withdrawal of tax exemption privileges granted prior to the issuance of R.A. No. 7160 except for those expressly mentioned therein, viz.: Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of' this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue

Section 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

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In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereon, as provided herein.

with Smarts contention on this matter. The withdrawal of tax exemptions or incentives provided in R.A. No. 7160 can only affect those franchises granted prior to the effectivity of the law. The intention of the legislature to remove all tax exemptions or incentives granted prior to the said law is evident in the language of Section 193 of R.A. No. 7160. No interpretation is necessary.

Section 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

II.

The in lieu of all taxes Clause in R.A. No. 7294

The in lieu of all taxes clause in Smarts franchise is put in issue before the Court. In The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. order to ascertain its meaning, consistent with fundamentals of statutory construction, all the words in the statute must be considered. The grant of tax exemption by R.A. No. 7294 is not to be interpreted from a consideration of a single portion or of isolated words or clauses, but from a general view of the act as a whole. Every part of the statute must be construed with reference to the context.[19]

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 RA No. 6938, nonstock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied.)

Smart is of the view that the only taxes it may be made to bear under its franchise are the national franchise tax (now VAT), income tax, and real property tax.[20] It claims exemption from the local franchise tax because the in lieu of taxes clause in its franchise does not distinguish between national and local taxes. [21]

We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No. 7160, because its franchise was granted after the effectivity of the said law. We agree local taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise or earnings thereof. R.A.

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No 7294 does not expressly provide what kind of taxes Smart is exempted from. It is not clear whether the in lieu of all taxes provision in the franchise of Smart would include exemption from local or national taxation. What is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. But whether the franchise tax exemption would include exemption from exactions by both the local and the national government is not unequivocal. [T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than income tax, imposed under the National Internal Revenue Code. The "in lieu of all taxes" clause does not apply to local taxes. The proviso in the first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal Revenue Code." Also, the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code." Moreover, the same paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue." Nothing is mentioned in Section 9 about local taxes. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes" clause does not apply to income tax.

The uncertainty in the in lieu of all taxes clause in R.A. No. 7294 on whether Smart is exempted from both local and national franchise tax must be construed strictly against Smart which claims the exemption. Smart has the burden of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt from all kinds of franchise taxes whether local or national. However, Smart failed in this regard.

Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority.[22]They can only be given force when the grant is clear and categorical.[23] The surrender of the power to tax, when claimed, must be clearly shown by a language that will admit of no reasonable construction consistent with the reservation of the power. If the intention of the legislature is open to doubt, then the intention of the legislature must be resolved in favor of the State.[24]

If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes. Congress could have used the language in Section 9(b) of Clavecilla's old franchise, as follows:

x x x in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, x x x. (Emphasis supplied).

In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all taxes clause applies only to national internal revenue taxes and not to local taxes. As appropriately pointed out in the separate opinion of Justice Antonio T. Carpio in a similar case[25] involving a demand for exemption from local franchise taxes: However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu of all taxes" clause only in reference to national internal revenue taxes. The only interpretation, under the rule on strict construction of tax exemptions, is that the "in lieu of all

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taxes" clause in Smart's franchise refers only to national and not to local taxes.

It should be noted that the in lieu of all taxes clause in R.A. No. 7294 has become functus officio with the abolition of the franchise tax on telecommunications companies.[26] As admitted by Smart in its pleadings, it is no longer paying the 3% franchise tax mandated in its franchise. Currently, Smart along with other telecommunications companies pays the uniform 10% value-added tax.[27]

or keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land, air, and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code;services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. x x x.[29]

The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the sale or exchange of services. [28] R.A. No. 7716, as amended by the Expanded Value Added Tax Law (R.A. No. 8241), the pertinent portion of which is hereunder quoted, amended Section 9 of R.A. No. 7294: R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special laws relative to the rate of franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules and regulations, or parts thereof which are SEC. 102. Value-added tax on sale of services and use or lease of properties. (a) Rate and base of tax. There shall be levied assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. inconsistent with it.[30] In effect, the in lieu of all taxes clause in R.A. No. 7294 was rendered ineffective by the advent of the VAT Law.[31]

The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators

However, the franchise tax that the City of Davao may impose must comply with Sections 137 and 151 of R.A. No. 7160. Thus, the local franchise tax that may be imposed by the City must not exceed 50% of 1% of the gross annual receipts for the preceding calendar year based on the income on receipts realized within the territorial jurisdiction of Davao.

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III.

Opinion of the Bureau of Local Government Finance (BLGF)

In support of its argument that the in lieu of all taxes clause is to be construed as an exemption from local franchise taxes, Smart submits the opinion of the Department of Finance, through the BLGF, dated August 13, 1998 and February 24, 1998, regarding the franchises of Smart and Globe, respectively.[32] Smart presents the same arguments as the Philippine Long Distance Telephone Company in the previous cases already decided by this Court.
[33]

Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its duty. It does enjoy this presumption, but this has nothing to do with the question in this case. This case does not concern the regularity of performance of the BLGF in the exercise of its duties, but the correctness of its interpretation of a provision of law.[34]

IV.

Tax Exclusion/Tax Exemption

As previously held by the Court, the findings of the BLGF are not conclusive

on the courts: Smart gives another perspective of the in lieu of all taxes clause in Section 9 of [T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of petitioner and in effect restored its exemptions from local taxes. Petitioner contends that courts should not set aside conclusions reached by the BLGF because its function is precisely the study of local tax problems and it has necessarily developed an expertise on the subject. R.A. No. 7294 in order to avoid the payment of local franchise tax. It says that, viewed from another angle, the in lieu of all taxes clause partakes of the nature of a tax exclusion and not a tax exemption. A tax exemption means that the taxpayer does not pay any tax at all. Smart pays VAT, income tax, and real property tax. Thus, what it enjoys is more accurately a tax exclusion.[35]

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.

However, as previously held by the Court, both in their nature and effect, there is no essential difference between a tax exemption and a tax exclusion. An exemption is an immunity or a privilege; it is the freedom from a charge or burden to which others are subjected. An exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions. An exclusion is, thus, also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that a tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions.[36]

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V.

Section 23 of R.A. No. 7925 (b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, effective from the date of the approval of Republic Act Numbered Sixteen hundred eighteen.[39]

To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act (R.A. No. 7925):

SECTION 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchise and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise. (Emphasis supplied.)

We find no reason to disturb the previous pronouncements of this Court regarding the interpretation of Section 23 of R.A. No. 7925. As aptly explained in the en banc decision of this Court in Philippine Long Distance Telephone Company, Inc. v. City of Davao,[40] and recently in Digital Telecommunications Philippines, Inc. (Digitel)

v. Province of Pangasinan,[41] Congress, in approving Section 23 of R.A. No. 7925, did not intend it to operate as a blanket tax exemption to all telecommunications entities. [42] The In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with the franchise of Globe (R.A. No. 7227),[37] which was enacted on March 19, 1992. language of Section 23 of R.A. No. 7925 and the proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by R.A. No. 7160.[43] The term exemption in Section 23 of R.A. No. 7925 does not mean tax Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the most favored treatment clause or the equality clause, the provision in the franchise of Globe exempting it from local taxes is automatically incorporated in the franchise of Smart.[38]Smart posits that, since the franchise of Globe contains a provision exempting it from municipal or local franchise tax, this provision should also benefit Smart by virtue of Section 23 of R.A. No. 7925. The provision in Globes franchise invoked by Smart reads: Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly stated that it will be liable for one and one-half per centum of all gross receipts from business transacted under the franchise, in lieu of any and all taxes of any exemption. The term refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission.[44]

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kind, nature, or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national, from which the grantee is hereby expressly exempted.[45] The grant of exemption from municipal, provincial, or national is clear and categorical that aside from the franchise tax collected by virtue of R.A. No. 7229, no other franchise tax may be collected from Globe regardless of who the taxing power is. No such provision is found in the franchise of Smart; the kind of tax from which it is exempted is not clearly specified.

As previously explained by the Court, the stance of Smart would lead to absurd consequences.

The acceptance of petitioner's theory would result in absurd consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1%) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioner's theory would require that, to level the playing field, any "advantage, favor, privilege, exemption, or immunity" granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to "level the playing field" so to speak. This could not have been the intent of Congress in enacting 23 of Rep. Act 7925. Petitioner's theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption, or immunity to all telecommunications entities.[46]

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VI.

Non-impairment Clause of the Constitution

Another argument of Smart is that the imposition of the local franchise tax by the City of Davao would violate the constitutional prohibition against impairment of contracts. The franchise, according to petitioner, is in the nature of a contract between the government and Smart.[47]

However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine Constitution. As previously discussed, the franchise of Smart does not expressly provide for exemption from local taxes. Absent the express provision on such exemption under the franchise, we are constrained to rule against it. The in lieu of all taxes clause in Section 9 of R.A. No. 7294 leaves much room for interpretation. Due to this ambiguity in the law, the doubt must be resolved against the grant of tax exemption.

Moreover, Smarts franchise was granted with the express condition that it is subject to amendment, alteration, or repeal.[48] As held in Tolentino v. Secretary of Finance: [49]

It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society.

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In truth, the Contract Clause has never been thought as a limitation on the exercise of the States power of taxation save only where a tax exemption has been granted for a valid consideration. x x x.

both of obvious significance. The first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax protests made by local government treasurers, pursuant to the Local Government Code. The second is whether a local government unit can, under the Local Government Code, impel a condominium corporation to pay business taxes.[1]

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against While we agree with the City Treasurers position on the first issue, there petitioner. ultimately is sufficient justification for the Court to overlook what is essentially a procedural error. We uphold respondents on the second issue. Indeed, there are SECOND DIVISION disturbing aspects in both procedure and substance that attend the attempts by the City LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI CITY, Petitioner, G.R. No. 154993 Present: PUNO, J., Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ. The facts, as culled from the record, follow. BA LEPANTO CONDOMINUM Promulgated: CORPORATION, Respondent. October 25, 2005 x-------------------------------------------------------------------x Act,[2] which owns and holds title to the common and limited common areas of the BADECISION TINGA, J.: Lepanto Condominium (the Condominium), situated in Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two novel questions: one procedural, the other substantive, yet its members for operating expenses, capital expenditures on the common areas, and of Makati to flex its taxing muscle. Considering that the tax imposition now in question has utterly no basis in law, judicial relief is imperative. There are fewer indisputable causes for the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim, and not on law.

- versus -

Respondent BA-Lepanto Condominium Corporation (the Corporation) is a duly organized condominium corporation constituted in accordance with the Condominium

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other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium.

It was submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the

On 15 December 1998, the Corporation received a Notice of Assessment dated 14 Condominium was located. Neither was the Corporation authorized, under its articles of December 1998 signed by the City Treasurer. The Notice of Assessment stated that the incorporation or by-laws to engage in profit-making activities. The assessments it did Corporation is liable to pay the correct city business taxes, fees and charges, computed as totaling P1,601,013.77 for the years 1995 to 1997.
[3]

collect from the unit owners were for capital expenditures and operating expenses. [5]

The Notice of Assessment was silent

as to the statutory basis of the business taxes assessed.

Through counsel, the Corporation responded with a written tax protest dated 12 The protest was rejected by the City Treasurer in a letter dated 4 March 1999. February 1999, addressed to the City Treasurer. It was evident in the protest that the She insisted that the collection of dues from the unit owners was effected primarily to Corporation was perplexed on the statutory basis of the tax assessment. sustain and maintain the expenses of the common areas, with the end in view [sic] of With due respect, we submit that the Assessment has no basis as the Corporation is not liable for business taxes and surcharges and interest thereon, under the Makati [Revenue] Code or even under the [Local Government] Code. The Makati [Revenue] Code and the [Local Government] Code do not contain any provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or operators of any business not specified in the said code. We submit, however, that this is not applicable to the Corporation as the Corporation is not an owner or operator of any business in the contemplation of the Makati [Revenue] Code and even the [Local Government] Code.[4] getting full appreciative living values [sic] for the individual condominium occupants and to command better marketable [sic] prices for those occupants who would in the future sell their respective units.[6] Thus, she concluded since the chances of getting higher prices for well-managed common areas of any condominium are better and more effective that condominiums with poor [sic] managed common areas, the corporation activity is a profit venture making [sic].[7]

From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati.[8] On 1 March 2000, the Makati RTC Branch 57 rendered

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, business is defined as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.

a Decision[9] dismissing the appeal for lack of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:

Herein appellant, to defray the improvements and beautification of the common areas, collect [sic] assessments from its members. Its end

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view is to get appreciate living rules for the unit owners [sic], to give an impression to outsides [sic] of the quality of service the condominium offers, so as to allow present owners to command better prices in the event of sale.[10]

held that the very statutory concept of a condominium corporation showed that it was not a juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium.[19]

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of business under Section 13(b) of the Local Government Code, and thus subject to local business taxation.[11]

The Court of Appeals likewise cited provisions from the Corporatio ns Amended Articles of Incorporation and Amended By-Laws that, to its estimation, established that the Corporation was not engaged in business and the assessment collected from unit owners limited to those necessary to defray the expenses in the maintenance of the common

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright[12] on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under Rule 42.[13] However, the Corporation pointed out in its Motion for Reconsideration that under Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the local treasurer is to appeal the denial with the court of

areas and management the condominium.[20]

Upon denial of her Motion for Reconsideration,[21] the City Treasurer elevated the present Petition for Review under Rule 45. It is argued that the Corporation is engaged in

competent jurisdiction.[14] Persuaded by this contention, the Court of Appeals reinstated business, for the dues collected from the different unit owners is utilized towards the the petition.[15] beautification and maintenance of the Condominium, resulting in full appreciative living values for the condominium units which would command better market prices should they be sold in the future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or profit earned by the business, but the privilege On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered to engage in business. The fact that the the Decision[16] now assailed before this Court. The appellate court reversed the RTC and Corporation is empowered to acquire, own, hold, enjoy, lease, operate and maintain, and declared that the Corporation was not liable to pay business taxes to the City of to convey sell, transfer or otherwise dispose of real or personal property allegedly Makati.[17] In doing so, the Court of Appeals delved into jurisprudential definitions of profit,
[18]

qualifies as incident to the fact of [the Corporations] act of engaging in business.[22]

and concluded that the Corporation was not engaged in profit. For one, it was

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The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took cognizance of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to have become final and executory.

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in character. This is the first time that the position has been presented to the court for adjudication. Still, this argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus,[25] where the Court proffered the following distinction between original jurisdiction and appellate jurisdiction: Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a

First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises original jurisdiction or appellate jurisdiction. The question assumes a measure of importance to this petition, for the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become final and executory by reason of the failure of the Corporation to file a notice of appeal.[23]

Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review.[26]

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall within that courts original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local

There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored on the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is to appeal with the court of competent jurisdiction.[24] Apparently though, the Local Government Code does not elaborate on how such appeal should be undertaken.

government official.

The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),[27] ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial agencies, instrumentalities,

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boards or commission, by explicitly using the phrase appellate jurisdiction.[28] The power to create or characterize jurisdiction of courts belongs to the legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in the executive branches of government. Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases original decided or resolved by them in the exercise of their originally or appellate jurisdiction. Moreover, the provision also states that the review is triggered by filing a petition for review under a procedure Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial entities. Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity of that law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant, but from implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere implications,[30] and this settled rule would be needlessly emasculated should we declare that the Corporations position is correct in law. analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure.[29]

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA).

Be that as it may, characteristic of all procedural rules is adherence to the precept that they should not be enforced blindly, especially if mechanical application would defeat the higher ends that animates our civil procedurethe just, speedy and inexpensive disposition of every action and proceeding.[31] Indeed, we have repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless take cognizance of petitions raised on an erroneous mode of appeal and instead treat these petitions in the manner as they should have appropriately been filed.[32] The Court of Appeals could very well have treated the Corporations petition for review as an ordinary appeal.

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Moreover, we recognize that the Corporations error in elevating the RTC decision for review via Rule 42 actually worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court of Appeals to refuse cognizance over a petition for review under Rule 42 than it would have over an ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an ordinary appeal prior to the transmission of the case records are when the appeal was taken out of time or when the docket fees were not paid.[33] On the other hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to the petition for review, it must first make a prima facie finding that the lower court has committed an error that would warrant the reversal or modification of the decision under review.[34] There is no similar requirement of a prima facie determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time.[35] The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy.[36] These guidelines and limitations as provided by Congress are in main contained in the Local Government Code of 1991 (the Code), which provides for comprehensive instances when and how local government units may impose taxes. The significant limitations are enumerated primarily in Section 133 of the Code, which include among others, a prohibition on the imposition of income taxes except when levied on banks and other financial institutions.[37] None of the other general limitations under Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having its petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41. This was not an error that worked to the prejudice of the City Treasurer. The most well-known mode of local government taxation is perhaps the real property tax, which is governed by Title II, Book II of the Code, and which bears no application in this case. A different set of provisions, found under Title I of Book II, governs other taxes We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on condominium corporations. imposable by local government units, including business taxes. Under Section 151 of the Code, cities such as Makati are authorized to levy the same taxes fees and charges as provinces and municipalities. It is in Article II, Title II, Book II of the Code, governing We begin with an overview of the power of a local government unit to impose business taxes. municipal taxes, where the provisions on business taxation relevant to this petition may be found.[38] Section 133 find application to the case at bar.

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Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; those engaged in the export or commerce of essential commodities; contractors and other independent contractors; banks and financial institutions; and peddlers engaged in the sale of any merchandise or article of commerce. Moreover, the local sanggunian is also authorized to impose taxes on any other businesses not otherwise specified under Section 143 which the sanggunianconcerned may deem proper to tax.

lathe machine shops; management consultants not subject to professional tax; medical and dental laboratories; mercantile agencies; messsengerial services; operators of shoe shine stands; painting shops; perma press establishments; rent-a-plant services; polo players; school for and/or horse-back riding academy; real estate appraisers; real estate brokerages; photostatic, white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles and/or tricycles, furniture, shoes, watches, household appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard for repairing ships for others; shops for shearing animals; silkscreen or T-shirt printing shops; stables; travel agencies; vaciador shops; veterinary clinics; video rentals and/or coverage services; dancing schools/speed reading/EDP; nursery, vocational and other schools not regulated by the Department of Education, Culture and Sports, (DECS), day care centers; etc.[39]

The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code (Revenue Code), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of this writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific as to the particular businesses which are covered by business taxes. To give a sample of the specified businesses under the Revenue Code which are not enumerated under the Local Government Code, we cite Section 3A.02(f) of the Code, which levies a gross receipt tax : (f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of this Code, and on owners or operators of business establishments rendering or offering services such as: advertising agencies; animal hospitals; assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders; booking officers for film exchange; booking offices for transportation on commission basis; breeding of game cocks and other sporting animals belonging to others; business management services; collecting agencies; escort services; feasibility studies; consultancy services; garages; garbage disposal contractors; gold and silversmith shops; inspection services for incoming and outgoing cargoes; interior decorating services; janitorial services; job placement or recruitment agencies; landscaping contractors;

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and operators[40], real estate dealers, and lessors of real estate[41] to business taxes.

Should the comprehensive listing not prove encompassing enough, there is also a catch-all provision similar to that under the Local Government Code. This is found in Section 3A.02(m) of the Revenue Code, which provides:

(m) On owners or operators of any business not specified above shall pay the tax at the rate of two percent (2%) for 1993, two and one-half percent (2 %) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter of the gross receipts during the preceding year.[42]

The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to make the Corporation liable for business taxes. Even at this point, there already stands a problem with the City Treasurers cause of action.

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the power of local government units to impose local taxes is exercised through the Our careful examination of the record reveals a highly disconcerting fact. At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner. We have examined all of the pleadings submitted by the City Treasurer in all the antecedent judicial proceedings, as well as in this present petition, and also the communications by the City Treasurer to the Corporation which form part of the record. Nowhere therein is there any citation made by the City Treasurer of any provision of the Revenue Code which would serve as the legal authority for the collection of business taxes from condominiums in Makati. Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the former provision, may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under the provision, the listing, while it does not include condominium-related enterprises, ends with the abbreviation etc., or et cetera. appropriate ordinance enacted by thesanggunian, and not by the Local Government Code alone.[44] What determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body.

Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment. There may have been prima facie compliance with the requirement under Section 195. However in this case, the Revenue Code provides multiple provisions on business taxes, and at varying rates. Hence, we could appreciate the Corporations confusion, as expressed in its protest, as to the exact legal basis for the tax.[43] Reference to the local tax ordinance is vital, for

We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin hallmarks of the words et cetera. Certainly, we cannot be disposed to uphold any tax imposition that derives its authority from enigmatic and uncertain words such as et cetera. Yet we cannot even say with definiteness whether the tax imposed on the Corporation in this case is based on et cetera, or on Section 3A.02(m), or on any other provision of the Revenue Code. Assuming that the assessment made on the Corporation is on a provision other than Section 3A.02(m), the main legal issue takes on a different complexion. For example, if it is based on et cetera under Section 3A.02(f), we would have to examine whether the Corporation faces analogous comparison with the other businesses listed under that provision.

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Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that prevents this Court from ruling that there has been a due process violation on account of the City Treasurers failure to disclose on paper the statutory basis of the taxthat the Corporation itself does not allege injury arising from such failure on the part of the City Treasurer.

allows local government units to impose local taxes on businesses other than those specified under the provision. Moreover, even those business activities specifically named in Section 143 are themselves susceptible to broad interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature.

It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall within the definition of business as provided in the We do not know why the Corporation chose not to put this issue into litigation, Local Government Code. And to hold that they do is to ignore the very statutory nature of though we can ultimately presume that no injury was sustained because the City Treasurer a condominium corporation. failed to cite the specific statutory basis of the tax. What is essential though is that the local treasurer be required to explain to the taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved. The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise known as the Condominium Act. Under the law, a condominium is an interest in real property consisting of a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the In this case, the Corporation seems confident enough in litigating despite the land on which it is located and in other common areas of the building.[46] To enable the failure of the City Treasurer to admit on what exact provision of the Revenue Code the tax orderly administration over these common areas which are jointly owned by the various liability ensued. This is perhaps because the Corporation has anchored its central argument unit owners, the Condominium Act permits the creation of a condominium corporation, on the position that the Local Government Code itself does not sanction the imposition of which is specially formed for the purpose of holding title to the common area, in which the business taxes against it. This position was sustained by the Court of Appeals, and now holders of separate interests shall automatically be members or shareholders, to the merits our analysis. exclusion of others, in proportion to the appurtenant interest of their respective As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government Code. The word business itself is defined under Section 131(d) of the Code as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.[45] This definition of business takes on importance, since Section 143 units.[47] The necessity of a condominium corporation has not gained widespread acceptance[48], and even is merely permissible under the Condominium

Act.[49] Nonetheless, the condominium corporation has been resorted to by many condominium projects, such as the Corporation in this case.

158

maintenance of livelihood, nor the procurement of profit, fall within the scope of In line with the authority of the condominium corporation to manage the permissible corporate purposes of a condominium corporation under the Condominium condominium project, it may be authorized, in the deed of restrictions, to make Act. reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owners fractional interest in any common areas.[50] It is the collection of these assessments from unit owners that form the basis of the City Treasurers claim that the Corporation is doing business. The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these documents unmistakably hew to the limitations contained in the Condominium Act. Per the Articles of Incorporation, the Corporations corporate purposes are limited to: (a) owning and holding title to the common and limited common areas in the Condominium Project; (b) adopting such necessary measures for the The Condominium Act imposes several limitations on the condominium protection and safeguard of the unit owners and their property, including the power to corporation that prove crucial to the disposition of this case. Under Section 10 of the law, contract for security services and for insurance coverage on the entire project; (c) making the and adopting needful rules and regulations concerning the use, enjoyment and occupancy corporate purposes of a condominium corporation are limited to the holding of the of the units and common areas, including the power to fix penalties and assessments for common areas, either in ownership or any other interest in real property recognized by violation of such rules; (d) to provide for the maintenance, repair, sanitation, and law; to the management of the project; and to such other purposes as may be necessary, cleanliness of the common and limited common areas; (e) to provide and contract for incidental or convenient to the accomplishment of such purpose.[51] Further, the same public utilities and other services to the common areas; (f) to contract for the services of provision prohibits the articles of incorporation or by-laws of the condominium persons or firms to assist in the management and operation of the Condominium Project; corporation from containing any provisions which are contrary to the provisions of the (g) to discharge any lien or encumbrances upon the Condominium Project; (h) to enforce Condominium Act, the enabling or master deed, or the declaration of restrictions of the the terms contained in the Master Deed with Declaration of Restrictions of the Project; condominium project.[52] (i) to levy and We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the collect those assessments as provided in the Master Deed, in order to defray the costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or otherwise dispose of real or personal property in connection with the purposes and activities of the corporation; and

159

(k) to exercise and perform such other powers reasonably necessary, incidental or convenient to accomplish the foregoing purposes.[53] Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be considered as being engaged in business, Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended ByLaws, which enumerate the particular expenses to be defrayed by the regular assessments collected from the unit owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.[54] since the repairs or improvements on the car may be deemed oriented towards appreciating the value of the car upon resale. There is an evident distinction between persons who spend on repairs and improvements on their personal and real property for the purpose of increasing its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under the second category, and it would be highly specious to subject these persons to local business taxes. The profit motive in such cases is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit that would be derived under such circumstances would merely be incidental, if not accidental.

The City Treasurer nonetheless contends that the collection of these assessments and dues are with the end view of getting full appreciative living values for the condominium units, and as a result, profit is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.[55]

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of full appreciative living values, a phrase that defies statutory explication, commonsensical meaning, the English language, or even definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the

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due process clause,[56] and the taxpayers right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting taxes.[57] The fact that the Corporation did not fall within the enumerated classes of taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway. Full appreciative living values is nothing but blather in search o f meaning, and to impose a tax hinged on that standard is both arbitrary and oppressive.

The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property.[58] What the City Treasurer fails to add is that every corporation

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taxes. Even though such activities would be considered as ultra vires, since they are organized under the Corporation Code[59] is so specifically empowered. Section 36(7) of the Corporation Code states that every corporation incorporated under the Code has the power and capacity to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the transaction Still, the City Treasurer has not posited the claim that the Corporation is engaged of the lawful business of the corporation may reasonably and necessarily require . . . .[60] Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most meaningful legal relations. from unit owners, such assessments being utilized to defray the necessary expenses for the Condominium Project and the common areas. There is no contemplation of business, Again, whatever capacity the Corporation may have pursuant to its power to no orientation towards profit in this case. Hence, the assailed tax assessment has no basis exercise acts of ownership over personal and real property is limited by its stated under the Local Government Code or the Makati Revenue Code, and the insistence of the corporate purposes, which are by themselves further limited by the Condominium Act. A city in its collection of the void tax constitutes an attempt at deprivation of property condominium corporation, while enjoying such powers of ownership, is prohibited by law without due process of law. from transacting its properties for the purpose of gainful profit. in business activities beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporations collection of assessments engaged in beyond the legal capacity of the condominium corporation[62], the principle of estoppel would preclude the corporation or its officers and members from invoking the void nature of its undertakings for profit as a means of acquitting itself of tax liability.

Accordingly, and with a significant degree of comfort, we hold that condominium WHEREFORE, the petition is DENIED. No costs. corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. Republic of the Philippines Supreme Court Manila

Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a condominium would band together to engage in activities for profit under the shelter of the condominium corporation.
[61]

THIRD DIVISION

Such activity would be prohibited under ERICSSON TELECOMMUNIG.R. NO. 176667 CATIONS, INC., Petitioner, Present:

the Condominium Act, but if the fact is established, we see no reason why the condominium corporation may be made liable by the local government unit for business

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- versus -

YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ.

2002, reiterating its position that the local business tax should be based on gross receipts and not gross revenue.

CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et al.* Promulgated: Respondent. November 22, 2007 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

Respondent denied petitioners protest and gave the latter 30 days within which to appeal the denial. This prompted petitioner to file a petition for review[1] with the Regional Trial Court (RTC) of Pasig, Branch 168, praying for the annulment and cancellation of petitioners deficiency local business taxes totaling P17,262,205.66.

DECISION Respondent and its City Treasurer filed a motion to dismiss on the grounds that the court had no jurisdiction over the subject matter and that petitioner had no legal capacity to sue. The RTC denied the motion in an Order dated December 3, 2002 due to Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office respondents failure to include a notice of hearing. Thereafter, the RTC declared in Pasig City, is engaged in the design, engineering, and marketing of telecommunication respondents in default and allowed petitioner to present evidence ex- parte. facilities/system. In an Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business tax deficiency for the years In a Decision[2] dated March 8, 2004, the RTC canceled and set aside the assessments 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its made by respondent and its City Treasurer. The dispositive portion of the RTC Decision gross revenues as reported in its audited financial statements for the years 1997 and reads: 1998. Petitioner filed a Protest dated December 21, 2000, claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and ordering defendants to CANCEL and SET ASIDE Assessment Notice dated October 25, 2000 and Notice of Assessment dated November 19, 2001. SO ORDERED.[3] The City of Pasig (respondent) issued another Notice of Assessment to petitioner on November 19, 2001, this time based on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January 21, On appeal, the Court of Appeals (CA) rendered its Decision[4] dated November 20, 2006, the dispositive portion of which reads:

AUSTRIA-MARTINEZ, J.:

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WHEREFORE, the decision appealed from is hereby ordered SET ASIDE and a new one entered DISMISSING the plaintiff/appelleescomplaint WITHOUT PREJUDICE. SO ORDERED.
[5]

After receipt by the Court of respondents complaint and petitioners reply, the petition is given due course and considered ready for decision without the need of memoranda from the parties.

The CA sustained respondents claim that the petition filed with the RTC should have been dismissed due to petitioners failure to show that Atty. Maria Theresa B. Ramos (Atty. Ramos), petitioners Manager for Tax and Legal Affairs and the person who signed the Verification and Certification of Non-Forum Shopping, was duly authorized by the Board of Directors.

The Court grants the petition.

First, the complaint filed by petitioner with the RTC was erroneously dismissed by the CA for failure of petitioner to show that itsManager for Tax and Legal Affairs, Atty. Ramos, was authorized by the Board of Directors to sign the Verification and Certification of Non-Forum Shopping in behalf of the petitioner corporation.

Its motion for reconsideration having been denied in a Resolution

[6]

dated February Time and again, the Court, under special circumstances and for compelling reasons, sanctioned substantial compliance with the rule on the submission of verification and certification against non-forum shopping.[8]

9, 2007, petitioner now comes before the Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court, on the following grounds: (1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR LACK OF SHOWING THAT THE SIGNATORY OF THE VERIFICATION/ CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED FOR AND IN BEHALF OF PETITIONER. (2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENTS APPEAL, CONSIDERING THAT IT HAS NO JURISDICTION OVER THE SAME, THE MATTERS TO BE RESOLVED BEING PURE QUESTIONS OF LAW, JURISDICTION OVER WHICH IS VESTED ONLY WITH THIS HONORABLE COURT. (3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER RESPONDENTS APPEAL, SAID COURT ERRED IN NOT DECIDING ON THE MERITS OF THE CASE FOR THE SPEEDY DISPOSITION THEREOF, CONSIDERING THAT THE DEFICIENCY LOCAL BUSINESS TAX ASSESSMENTS ISSUED BY RESPONDENT ARE CLEARLY INVALID AND CONTRARY TO THE PROVISIONS OF THE PASIG REVENUE CODE AND THE LOCAL GOVERNMENT CODE.[7]

In General Milling Corporation v. National Labor Relations Commission,[9] the Court deemed as substantial compliance the belated attempt of the petitioner to attach to the motion for reconsideration the board resolution/secretarys certificate, stating that there was no attempt on the part of the petitioner to ignore the prescribed procedural requirements.

In Shipside Incorporated v. Court of Appeals,[10] the authority of the petitioners resident manager to sign the certification againstforum shopping was submitted to the CA only after the latter dismissed the petition. The Court considered the merits of the

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case and the fact that the petitioner subsequently submitted a secretarys certificate, as special circumstances or compelling reasons that justify tempering the requirements in regard to the certificate of non-forum shopping.[11]

There is a question of law when the doubt or difference is on what the law is on a certain state of facts. On the other hand, there is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.[14] For a question to be one of law, the same must not involve an examination of the probative value of the evidence

There were also cases where there was complete non-compliance with the rule on certification against forum shopping and yet the Court proceeded to decide the case on the merits in order to serve the ends of substantial justice.[12]

presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to

In the present case, petitioner submitted a Secretarys Certificate signed on May 6, 2002, whereby Atty. Ramos was authorized to file a protest at the local government level and to sign, execute and deliver any and all papers, documents and pleadings relative to the said protest and to do and perform all such acts and things as may be necessary to effect the foregoing.[13]

such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.[15]

There is no dispute as to the veracity of the facts involved in the present case. While there is an issue as to the correct amount of local business tax to be paid by petitioner, its

Applying the foregoing jurisprudence, the subsequent submission of the Secretarys Certificate and the substantial merits of the petition, which will be shown forthwith, justify a relaxation of the rule.

determination will not involve a look into petitioners audited financial statements or documents, as these are not disputed; rather, petitioners correct tax liability will be ascertained through an interpretation of the pertinent tax laws, i.e., whether the local business tax, as imposed by the Pasig City Revenue Code (Ordinance No. 25-92) and the

Second, the CA should have dismissed the appeal of respondent as it has no jurisdiction over the case since the appeal involves a pure question of law. The CA seriously erred in ruling that the appeal involves a mixed question of law and fact necessitating an examination and evaluation of the audited financial statements and other documents in order to determine petitioners tax base.

Local Government Code of 1991, should be based on gross receipts, and not on gross revenue which respondent relied on in computing petitioners local business tax deficiency. This, clearly, is a question of law, and beyond the jurisdiction of the CA.

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Section 2(c), Rule 41 of the Rules of Court provides that in all cases where questions of law are raised or involved, the appeal shall be to this Court by petition for review on certiorari under Rule 45.

Respondent assessed deficiency local business taxes on petitioner based on the latters gross revenue as reported in its financial statements, arguing that gross receipts is synonymous with gross earnings/revenue, which, in turn, includes uncollected earnings. Petitioner, however, contends that only the portion of the revenues which were

Thus, as correctly pointed out by petitioner, the appeal before the CA should have been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court, which provides: Sec. 5. Grounds for dismissal of appeal.- The appeal may be dismissed motu proprio or on motion of the respondent on the following grounds: xxxx (f) Error in the choice or mode of appeal. xxxx

actually and constructively received should be considered in determining its tax base.

Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the Local Government Code.

Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors, to wit: SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses: xxxx (e) On contractors and other independent contractors, in accordance with the following schedule:

Third, the dismissal of the appeal, in effect, would have sustained the RTC Decision ordering respondent to cancel the Assessment Notices issued by respondent, and therefore, would have rendered moot and academic the issue of whether the local business tax on contractors should be based on gross receipts or gross revenues. However, the higher interest of substantial justice dictates that this Court should resolve the same, to evade further repetition of erroneous interpretation of the law, [16] for the guidance of the bench and bar.

With gross receipts for the preceding calendar year in the amount of: xxxx (Emphasis supplied)

Amount of Tax Per Annum

As earlier stated, the substantive issue in this case is whether the local business tax on contractors should be based on gross receipts or gross revenue. The above provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as follows:

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xxxx (n) Gross Sales or Receipts include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and valueadded tax (VAT); xxxx

amount withheld belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts. (Emphasis supplied)

Further elaboration was made by the Court in Commissioner of Internal Revenue v. Bank of the Philippine Islands,[18] in this wise:

Receipt of income may be actual or constructive. We have held that the withholding process results in the taxpayers constructive receipt of the income withheld, to wit: By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles 531 and 532 of our Civil Code. Under Article 531:

The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive.

In Commissioner

of

Internal

Revenue

v.

Bank

of

Commerce,[17] the

Court

interpreted gross receipts as including those which were actually or constructively received, viz.:

Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right. Article 532 states: Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by any person without any power whatever; but in the last case, the possession shall not be considered as acquired until the person in whose name the act of possession was executed has ratified the same, without prejudice to the juridical consequences of negotiorum gestio in a proper case. The last means of acquiring possession under Article 531 refers to juridical actsthe acquisition of possession by sufficient titleto which the law gives the force of acts of possession. Respondent argues that only items of income actually received should be included in its gross receipts. It claims that since the amount had already been withheld at source, it did not have actual receipt thereof.

Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depository bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the lending bank, the depository bank deducts the final withholding tax and remits it to the government for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax. The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of the taxpayersgross receipts. Because the

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We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts and legal formalities established therefor. The withholding process is one such act. There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power whatsoever shall be considered as acquired when ratified by the person in whose name the act of possession is executed. In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are indeedfor legal purposestantamount to delivery, receipt or remittance.[19]

There is, therefore, constructive receipt, when the consideration for the articles sold, exchanged or leased, or the services rendered has already been placed under the control of the person who sold the goods or rendered the services without any restriction by thepayor.

In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in consonance with the International Financial Reporting Standards,[21] which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities

Revenue Regulations No. 16-2005 dated September 1, 2005[20] defined and gave examples of constructive receipt, to wit:

of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends),[22] which is measured at the fair value of the consideration received or receivable.[23]

SEC. 4. 108-4. Definition of Gross Receipts. -- x x x Constructive receipt occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are examples of constructive receipts: (1) deposit in banks which are made available to the seller of services without restrictions; (2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and (3) transfer of the amounts retained by the payor to the account of the contractor. As aptly stated by the RTC: [R]evenue from services rendered is recognized when services have been performed and are billable. It is recorded at the amount received orexpected to be received. (Section E [17] of the Statements of Financial Accounting Standards No. 1).[24]

In petitioners case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayers right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive

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THIRD DIVISION income, and not the actual receipt, determines when to include the amount in gross income.[25] G.R. No. 168557 February 16, 2007

The imposition of local business tax based on petitioners gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing
[26]

FELS ENERGY, INC., Petitioner, vs. THE PROVINCE OF BATANGAS and THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents. x----------------------------------------------------x G.R. No. 170628 February 16, 2007

inasmuch as petitioners

revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. NATIONAL POWER CORPORATION, Petitioner, vs. LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS represented by its Provincial Assessor, Respondents. DECISION CALLEJO, SR., J.: Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription. The pertinent facts are as follows: SO ORDERED. On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads: 10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic of the Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the performance of their obligations under this

Thus, respondent committed a palpable error when it assessed petitioners local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts.

WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006 and Resolution dated February 9, 2007issued by the Court of Appeals are SET ASIDE, and the Decision dated March 8, 2004 rendered by the Regional Trial Court of Pasig, Branch 168 is REINSTATED.

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice Republic of the Philippines SUPREME COURT Manila

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agreement (other than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction permit fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges. 6 Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement. On August 7, 1995, FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor. In a letter dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors decision to assess real property taxes on the power barges. However, the motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8 This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary corrections.9 In its Answer to the petition, the Provincial Assessor averred that the barges were real property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160. Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly stated that power barges are not real property subject to real property assessment. On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads: WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount ofP56,184,088.40, for the year 1994. SO ORDERED.
12 7

being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time. Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA). On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by Distraint13over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment during the pendency of the appeal. On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment which the Board would issue. Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before the CBAA. This was approved by the CBAA in an Order 16 dated September 22, 1998. During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment be unfavorable to them). The bonds were duly approved by the CBAA. On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real property tax. The dispositive portion reads: WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 01800958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act accordingly. SO ORDERED.18 Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they are actually, directly and exclusively used by it, the power barges are covered by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. The

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the bargesFELS, a private corporationis the one

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Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and NPC. In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier decision. The fallo of the resolution reads: WHEREFORE, premises considered, it is the resolution of this Board that: (a) The decision of the Board dated 6 April 2000 is hereby reversed. (b) The petition of FELS, as well as the intervention of NPC, is dismissed. (c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed, (d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is likewise hereby affirmed. SO ORDERED.21 FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001. Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491. On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for reconsideration. NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of prescription. The decretal portion of the decision reads: WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are AFFIRMED. SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the appellate courts decision in CA-G.R. SP No. 67490. Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition was, however, denied in this Courts Resolution25 of November 8, 2004, for NPCs failure to sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a motion for reconsideration, which the Court denied with finality in a Resolution26 dated January 19, 2005. Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the right to question the assessment, the right of the Provincial Government to collect the tax was already absolute. NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution27 dated November 23, 2005. The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack of merit in a Resolution28 dated June 20, 2005. On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the following issues: A. Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax. B. Assuming that the subject power barges are real properties, whether they are exempt from real estate tax under Section 234 of the Local Government Code ("LGC"). C. Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law. D.

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Assuming arguendo that the subject power barges are real properties, whether or not the same is subject to depreciation just like any other personal properties. E. Whether the right of the petitioner to question the patently null and void real property tax assessment on the petitioners personal properties is imprescriptible. 29 On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628), indicating the following errors committed by the CA: I THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED OUT OF TIME. II THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES. III THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30 Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their respective Memoranda within 30 days from notice. Almost a year passed but the parties had not submitted their respective memoranda. Considering that taxesthe lifeblood of our economyare involved in the present controversy, the Court was prompted to dispense with the said pleadings, with the end view of advancing the interests of justice and avoiding further delay. In both petitions, FELS and NPC maintain that the appeal before the LBAA was not timebarred. FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration. Petitioners contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides: SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995, contained the following statement: If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or documents submitted in support of the appeal.32 Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law. The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of the property. It follows then that the determination made by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its power to assess properties for taxation purposes subject to appeal before the LBAA.33 We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor. The pertinent holding of the Court in Callanta is as follows: x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices of assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system of appraisal and

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assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief must be prevented and excised from our system.36 For its part, the appellate court declared in CA-G.R. SP No. 67491: x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or lawful possessor of real property of its revised assessed value, the former shall no longer have any jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.37 To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayers property becomes absolute upon the expiration of the period to appeal.38 It also bears stressing that the taxpayers failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits.39 In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and failure in this regard renders the decision final and executory.40 In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determination on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping. FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping could have been committed since the elements of litis pendentia or res judicata are not present. We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two grounds embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to the interest of the State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and happiness. 41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42 x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction acting upon a matter within its authority is conclusive on the rights of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit. xxx Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies to litigate anew a question once it has been considered and decided with finality. Litigations must end and terminate sometime and somewhere. The effective and efficient administration of justice requires that once a judgment has become final, the prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same parties. This is in accordance with the doctrine of res judicata which has the following elements: (1) the former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second actions, identity of parties, subject matter and causes of action. The application of the doctrine of res judicata does not require absolute identity of parties but merely substantial identity of parties. There is substantial identity of parties when there is community of interest or privity of interest between a party in the first and a party in the second case even if the first case did not implead the latter.43 To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the application of res judicata. FELSs argument that it is not bound by the erroneous petition filed by NPC is thus unavailing.

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On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in another forum other than by appeal or special civil action or certiorari. There is also forum shopping when a party institutes two or more actions or proceedings grounded on the same cause, on the gamble that one or the other court would make a favorable disposition.44 Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present in the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decision from one of the tribunals which allowed them to pursue their cases. It must be stressed that an important factor in determining the existence of forum shopping is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs.45 The rationale against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the courts.46 Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other. 47 Having found that the elements of res judicata and forum shopping are present in the consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and contentment of petitioners, we shall shed light on the merits of the case. As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired expertise in their field, are generally binding and conclusive upon the Court; we will not assume to interfere with the sensible exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed.49 We find no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,50 a power company brought an action to review property tax assessment. On the citys motion to dismiss, the Supreme Court of New York held that the barges on which were mounted gas turbine power plants designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory equipment mounted on the barges were subject to real property taxation. Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work.51 Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power. We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section 2.11, Article 2 of the Agreement: OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings, machinery and equipment on the Site used in connection with the Power Barges which have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into electricity.52 It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads: SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: xxx (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; x x x Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation; nevertheless, petitioner FELS still

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cannot find solace in this provision because Section 5.5, Article 5 of the Agreement provides: OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53 It is a basic rule that obligations arising from a contract have the force of law between the parties. Not being contrary to law, morals, good customs, public order or public policy, the parties to the contract are bound by its terms and conditions.54 Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception.55 The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity. The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas. It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local governments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter 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 for it.57 The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments58 and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals.59 In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people.60 WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.

SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 144104 June 29, 2004

LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon City,respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital building constructed thereon are subject to assessment for purposes of real property tax. The Antecedents The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center.

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The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building, respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption5 from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioners request was denied, and a petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the petitioner liable for real property taxes.6 The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real property tax exemption under the constitution and the law. The petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision of the CBAA.8 Undaunted, the petitioner filed its petition in this Court contending that: A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES. B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION. The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients and renders medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it derives income to be used for operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its outpatients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or 170

beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the government attests to its character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not precluded from seeking tax exemption under the 1987 Constitution. In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The petitioners real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the said property is actually, directly and exclusively used for charitable purposes. The respondents noted that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month, when the monthly rental should beP357,000 a month as determined by the Commission on Audit; and that instead of complying with the directive of the COA for the cancellation of the contract for being grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995 for a monthly rental of only P24,000. They assert that the petitioner uses the subsidies granted by the government for charity patients and uses the rest of its income from the property for the benefit of paying patients, among other purposes. They aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients. The respondents further assert, thus: 13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a certain amount as deposit. That even if a patient is living below the poverty line, he is charged with high hospital bills. And, without these bills being first settled, the poor patient cannot be allowed to leave the hospital or be discharged without first paying the hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or person known only to the Center; that even the remains of deceased poor patients suffered the same fate. Moreover, before a patient is admitted for treatment as free or charity patient, one must undergo a series of interviews and must submit all the requirements needed by the Center, usually accompanied by endorsement by an influential agency or person known only to the Center. These facts were heard and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent patients, instead of seeking treatment with the Center, they prefer to be treated at the Quezon Institute. Can such practice by the Center be called charitable?10

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The Issues The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real property taxes. The Courts Ruling The petition is partially granted. On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties.11 In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government. 12 It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the improvement and promotion of the happiness of man.13 The word "charitable" is not restricted to relief of the poor or sick.14 The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison detre for the creation of the petitioner is stated in the decree, viz: Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of illness and death in the Philippines, comprising more than 45% of the total annual deaths from all causes, thus, exacting a tremendous toll on human resources, which ailments are likely to increase and degenerate into serious lung diseases on account of unabated pollution, industrialization and unchecked cigarette smoking in the country;lavvph!l.net

Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early and adequate medical care, immunization and through prompt and intensive prevention and health education programs; Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at preventing, treating and rehabilitating people affected by lung diseases, and to undertake research and training on the cure and prevention of lung diseases, through a Lung Center which will house and nurture the above and related activities and provide tertiary-level care for more difficult and problematical cases; Whereas, to achieve this purpose, the Government intends to provide material and financial support towards the establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people.15 The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus: SECOND: That the purposes for which such corporation is formed are as follows: 1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of the government to assist and provide material and financial support in the establishment and maintenance of a lung center primarily to benefit the people of the Philippines and in pursuance of the policy of the State to secure the well-being of the people by providing them specialized health and medical services and by minimizing the incidence of lung diseases in the country and elsewhere. 2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments and the care of lung patients, including the holding of a series of relevant congresses, conventions, seminars and conferences; 3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic, social, economic, eugenic and physiological aspects of lung or pulmonary diseases and their control; and to collect and publish the findings of such research for public consumption; 4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness, and the

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development of fact-finding, information and reporting facilities for and in aid of the general purposes or objects aforesaid, especially in human lung requirements, general health and physical fitness, and other relevant or related fields; 5. To encourage the training of physicians, nurses, health officers, social workers and medical and technical personnel in the practical and scientific implementation of services to lung patients; 6. To assist universities and research institutions in their studies about lung diseases, to encourage advanced training in matters of the lung and related fields and to support educational programs of value to general health; 7. To encourage the formation of other organizations on the national, provincial and/or city and local levels; and to coordinate their various efforts and activities for the purpose of achieving a more effective programmatic approach on the common problems relative to the objectives enumerated herein; 8. To seek and obtain assistance in any form from both international and local foundations and organizations; and to administer grants and funds that may be given to the organization; 9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote and protect the health of the masses of our people, which has long been recognized as an economic asset and a social blessing; 10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks of life, including those who are poor and needy, all without regard to or discrimination, because of race, creed, color or political belief of the persons helped; and to enable them to obtain treatment when such disorders occur; 11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the general health of the community; 12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by purchase, donation, or otherwise and to dispose of and distribute the same in such manner, and, on such basis as the Center shall, from time to time, deem proper and best,

under the particular circumstances, to serve its general and non-profit purposes and objectives;lavvphil.net 13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or personal, for purposes herein mentioned; and 14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers herein set forth and to do every other act and thing incidental thereto or connected therewith.16 Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.17 As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State Supreme Court of Illinois held, thus: [A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the fact that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the institution and the amounts so received are applied in furthering its charitable purposes, and those benefits are refused to none on account of inability to pay therefor. The fundamental ground upon which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens.20 As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South Dakota v. Baker:21 [T]he fact that paying patients are taken, the profits derived from attendance upon these patients being exclusively devoted to the maintenance of the charity, seems rather to enhance the usefulness of the institution to the poor; for it is a matter of common observation amongst those who have gone about at all amongst the suffering classes, that the deserving poor can with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects of charity; and that their honest pride is much less wounded by being

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placed in an institution in which paying patients are also received. The fact of receiving money from some of the patients does not, we think, at all impair the character of the charity, so long as the money thus received is devoted altogether to the charitable object which the institution is intended to further.22 The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit.23 Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake County:24 Second, the government subsidy payments are provided to the project. Thus, those payments are like a gift or donation of any other kind except they come from the government. In both Intermountain Health Careand the present case, the crux is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a private benefactor, chose to make up the deficit resulting from the exchange between St. Marks Tower and the tenants by making a contribution to the landlord, just as it would have been irrelevant in Intermountain Health Care if the patients income supplements had come from private individuals rather than the government. Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption, as they do here.25 In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations. Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.26 As held in Salvation Army v. Hoehn:27

An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle that, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation . 28 Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the petitioner shall enjoy the tax exemptions and privileges: SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue Code, as amended. The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for the Lung Center.29 It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2: It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius. The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters. ...

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The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are based on the rules of logic and the natural workings of the human mind. They are predicated upon ones own voluntary act and not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned.30 The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be intended beyond what was meant.31 Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus: (3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt from taxation.32 The tax exemption under this constitutional provision covers property taxes only. As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes."34 Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as follows: SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: ... (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly, andexclusively used for religious, charitable or educational purposes.35 We note that under the 1935 Constitution, "... all lands, buildings, and improvements used exclusively for charitable purposes shall be exempt from taxation." 36 However, under the 1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable institution to be considered exempt, the same should not only be "exclusively" used for charitable purposes; it is required that such property be used "actually" and "directly" for such purposes.37
33

In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took effect.38 As this Court held in Province of Abra v. Hernando:39 Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation." The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also "actually" and "directly" used for religious or charitable purposes. The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively."40 If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation.41 The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law.42 Solely is synonymous with exclusively.43 What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.44 The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center." Indeed, the petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.

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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.45 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. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and the area thereof which are leased to private persons, and to compute the real property taxes due thereon as provided for by law. SO ORDERED. Davide, Jr., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio Morales, Azcuna, and Tinga, JJ., concur. THIRD DIVISION

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.

[G.R. No. 120082. September 11, 1996] 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) x x x xxx o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (underscoring supplied)

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 1995[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 1995[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:

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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. (a) xxx xxx (e) xxx Exemptions from Real Property Taxes. x x x

The petition for declaratory relief was docketed as Civil Case No. CEB-16900. In its decision of 22 March 1995,[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 selfreliant 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 x[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.

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.[3]

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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.[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,[7] and that it is an attached agency of the Department of Transportation and Communication (DOTC), [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:[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 Constitution[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,[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,[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.[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.[14] So potent indeed is the power that it was once opined that the power to tax involves the power to destroy.[15] Verily, taxation is a destructive power which interferes with the personal and property rights of the people and takes

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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.[16] But since taxes are what we pay for civilized society,[17] or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi jurisagainst the taxpayer and liberally in favor of the taxing authority.[18] A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. [19] Elsewise stated, taxation is the rule, exemption therefrom is the exception. [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.[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.[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.[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) (b) (c) Income tax, except when levied on banks and other financial institutions; Documentary stamp tax; Taxes on estates, inheritance, gifts, legacies and acquisitions mortis causa, except as otherwise provided herein; other

(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; 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;

(e)

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

(h)

(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) (n) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein; 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 TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. (emphasis supplied)

(o)

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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,[24] while charges are pecuniary liabilities such as rents or fees against persons or property.[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; 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; 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; All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and Machinery and equipment environmental protection. used for pollution control and

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. 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. 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.

(b)

(c)

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.[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:

(b)

(c)

(d) (e)

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.

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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) (2) (3) (4) unless otherwise provided herein in the opening paragraph of Section 133; Unless otherwise provided in this Code in Section 193; not hereafter specifically exempted in Section 232; and Except as provided herein in the last 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

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.

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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. [27] These autonomous regions, provincial, city, municipal or barangay subdivisions are the political subdivisions.[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.[29] The National Government then is composed of the three great departments: the executive, the legislative and the judicial.[30] An agency of the Government refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or governmentowned or controlled corporation, or a local government or a distinct unit therein;[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.[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:

above-mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person. Note that as reproduced in Section 234(a), the phrase and any government-owned or controlled corporation so exempt by its charter was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, especially in light of the general provision on withdrawal of tax exemption privileges in Section 193 and the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments[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.[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.[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,[36] which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO).[37]

(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

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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.[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 Corporation[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. Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

EN BANC G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents. DECISION CARPIO, J.: The Antecedents Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque 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 Paraaque 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 Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows: TAX DECLARATION E-016-01370 TAXABLE YEAR 1992-2001 TAX DUE 19,558,160.00 PENALTY 11,201,083.20

[1]

Rollo, 27-29. Per Judge Ferdinand J. Marcos. Republic of the Philippines SUPREME COURT Manila

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E-016-01374 E-016-01375 E-016-01376 E-016-01377 E-016-01378 E-016-01379 E-016-01380 *E-016-013-85 *E-016-01387 *E-016-01396 GRAND TOTAL

1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1998-2001 1998-2001 1998-2001

111,689,424.90 20,276,058.00 58,144,028.00 18,134,614.65 111,107,950.40 4,322,340.00 7,776,436.00 6,444,810.00 34,876,800.00 75,240.00 P392,435,861.95

in January 2003, the City of Paraaque posted notices of auction sale at the 68,149,479.59 Meanwhile, 179,838,904.49 Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public 12,371,832.00 32,647,890.00 market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City 35,477,712.00 of Paraaque 93,621,740.00 published the notices in the 3 and 10 January 2003 issues of the Philippine , a newspaper of general circulation in the Philippines. The notices 11,065,188.59 Daily Inquirer 29,199,803.24 announced the public auction sale of the Airport Lands and Buildings to the highest bidder 67,794,681.59 178,902,631.99 on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Paraaque City. 2,637,360.00 6,959,700.00 4,744,944.00 A day before 12,521,380.00 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 2,900,164.50 9,344,974.50 Restraining Order. The motion sought to restrain respondents the City of Paraaque, 5,694,560.00 City Mayor 50,571,360.00 of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of 33,858.00 Paraaque, and 109,098.00 the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings. P232,070,863.47 P 624,506,725.42 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.

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 Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque 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 Paraaque 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

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 Paraaque, 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.

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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 Paraaque, 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 nonstock 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 Charter9provides: 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

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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 nonstock 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.

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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.

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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 Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for nonpayment 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:

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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

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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 andinstrumentalities 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

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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 ataxable 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)

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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,31Laguna Lake Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine 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,

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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.

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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 charter 40 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 governmentowned 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. Governmentowned 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 governmentowned 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

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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 governmentowned 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

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(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 "governmentowned 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 Paraaque. 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 Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque 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 declareVOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.

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No costs. SO ORDERED. Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.

local government units (LGUs) to tax government corporations, instrumentalities or agencies. The majority would overturn sub silencio, among others, at least one dozen precedents enumerated below: 1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the leading case penned in 1997 by recently retired Chief Justice Davide, which held that the express withdrawal by the Local Government Code of previously granted exemptions from realty taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the Mactan-Cebu International Airport Authority (MCIAA). The majority invokes the ruling in Basco v. Pagcor,3 a precedent discredited in Mactan, and a vanguard of a doctrine so noxious to the concept of local government rule that the Local Government Code was drafted precisely to counter such philosophy. The efficacy of several rulings that expressly rely on Mactan, such as PHILRECA v. DILG Secretary,4City Government of San Pablo v. Hon. Reyes5 is now put in question. 2) The rulings in National Power Corporation v. City of Cabanatuan,6 wherein the Court, through Justice Puno, declared that the National Power Corporation, a GOCC, is liable for franchise taxes under the Local Government Code, and succeeding cases that have relied on it such as Batangas Power Corp. v. Batangas City7 The majority now states that deems instrumentalities as defined under the Administrative Code of 1987 as purportedly beyond the reach of any form of taxation by LGUs, stating "[l]ocal governments are devoid of power to tax the national government, its agencies and instrumentalities."8 Unfortunately, using the definition employed by the majority, as provided by Section 2(d) of the Administrative Code, GOCCs are also considered as instrumentalities, thus leading to the astounding conclusion that GOCCs may not be taxed by LGUs under the Local Government Code. 3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en banc Court held that the Lung Center of the Philippines may be liable for real property taxes. Using the majority's reasoning, the Lung Center would be properly classified as an instrumentality which the majority now holds as exempt from all forms of local taxation. 10 4) City of Davao v. RTC,11 where the Court held that the Government Service Insurance System (GSIS) was liable for real property taxes for the years 1992 to 1994, its previous exemption having been withdrawn by the enactment of the Local Government Code.12 This decision, which expressly relied on Mactan, would be directly though silently overruled by the majority. 5) The common essence of the Court's rulings in the two Philippine Ports Authority v. City of Iloilo,13 cases penned by Justices Callejo and Azcuna respectively, which relied in part on Mactan in holding the Philippine Ports Authority (PPA) liable for realty taxes, notwithstanding the fact that it is a GOCC. Based on the reasoning of the majority, the PPA cannot be considered a GOCC. The reliance of these cases on Mactan, and its

x-------------------------------------------------------------------------------x DISSENTING OPINION TINGA, J. : The legally correct resolution of this petition would have had the added benefit of an utterly fair and equitable result a recognition of the constitutional and statutory power of the City of Paraaque to impose real property taxes on the Manila International Airport Authority (MIAA), but at the same time, upholding a statutory limitation that prevents the City of Paraaque from seizing and conducting an execution sale over the real properties of MIAA. In the end, all that the City of Paraaque would hold over the MIAA is a limited lien, unenforceable as it is through the sale or disposition of MIAA properties. Not only is this the legal effect of all the relevant constitutional and statutory provisions applied to this case, it also leaves the room for negotiation for a mutually acceptable resolution between the City of Paraaque and MIAA. Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes and judicial precedents left and right in order to protect the precious Ming vase that is the Manila International Airport Authority (MIAA). While the MIAA is left unscathed, it is surrounded by the wreckage that once was the constitutional policy, duly enacted into law, that was local autonomy. Make no mistake, the majority has virtually declared war on the seventy nine (79) provinces, one hundred seventeen (117) cities, and one thousand five hundred (1,500) municipalities of the Philippines.1 The icing on this inedible cake is the strained and purposely vague rationale used to justify the majority opinion. Decisions of the Supreme Court are expected to provide clarity to the parties and to students of jurisprudence, as to what the law of the case is, especially when the doctrines of long standing are modified or clarified. With all due respect, the decision in this case is plainly so, so wrong on many levels. More egregious, in the majority's resolve to spare the Manila International Airport Authority (MIAA) from liability for real estate taxes, no clear-cut rule emerges on the important question of the power of

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rationale for holding governmental entities like the PPA liable for local government taxation is mooted by the majority. 6) The 1963 precedent of Social Security System Employees Association v. Soriano,14 which declared the Social Security Commission (SSC) as a GOCC performing proprietary functions. Based on the rationale employed by the majority, the Social Security System is not a GOCC. Or perhaps more accurately, "no longer" a GOCC. 7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit Authority v. Central Board of Assessment.15 The characterization therein of the Light Rail Transit Authority (LRTA) as a "service-oriented commercial endeavor" whose patrimonial property is subject to local taxation is now rendered inconsequential, owing to the majority's thinking that an entity such as the LRTA is itself exempt from local government taxation16, irrespective of the functions it performs. Moreover, based on the majority's criteria, LRTA is not a GOCC. 8) The cases of Teodoro v. National Airports Corporation17 and Civil Aeronautics Administration v. Court of Appeals.18 wherein the Court held that the predecessor agency of the MIAA, which was similarly engaged in the operation, administration and management of the Manila International Agency, was engaged in the exercise of proprietary, as opposed to sovereign functions. The majority would hold otherwise that the property maintained by MIAA is actually patrimonial, thus implying that MIAA is actually engaged in sovereign functions. 9) My own majority in Phividec Industrial Authority v. Capitol Steel, 19 wherein the Court held that the Phividec Industrial Authority, a GOCC, was required to secure the services of the Office of the Government Corporate Counsel for legal representation.20 Based on the reasoning of the majority, Phividec would not be a GOCC, and the mandate of the Office of the Government Corporate Counsel extends only to GOCCs. 10) Two decisions promulgated by the Court just last month (June 2006), National Power Corporation v. Province of Isabela21 and GSIS v. City Assessor of Iloilo City.22 In the former, the Court pronounced that "[a]lthough as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities." Yet the majority now rules that the exceptions in the LGC no longer hold, since "local governments are devoid of power to tax the national government, its agencies and instrumentalities."23 The ruling in the latter case, which held the GSIS as liable for real property taxes, is now put in jeopardy by the majority's ruling. There are certainly many other precedents affected, perhaps all previous jurisprudence regarding local government taxation vis-a-vis government entities, as well as any previous definitions of GOCCs, and previous distinctions between the exercise of governmental and proprietary functions (a distinction laid down by this Court as far back as 191624). What is

the reason offered by the majority for overturning or modifying all these precedents and doctrines? None is given, for the majority takes comfort instead in the pretense that these precedents never existed. Only children should be permitted to subscribe to the theory that something bad will go away if you pretend hard enough that it does not exist. I. Case Should Have Been Decided Following Mactan Precedent The core issue in this case, whether the MIAA is liable to the City of Paraaque for real property taxes under the Local Government Code, has already been decided by this Court in the Mactan case, and should have been resolved by simply applying precedent. Mactan Explained A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority (MCIAA) claimed that it was exempt from payment of real property taxes to the City of Cebu, invoking the specific exemption granted in Section 14 of its charter, Republic Act No. 6958, and its status as an instrumentality of the government performing governmental functions.25 Particularly, MCIAA invoked Section 133 of the Local Government Code, precisely the same provision utilized by the majority as the basis for MIAA's exemption. Section 133 reads: 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: xxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units. (emphasis and underscoring supplied). However, the Court in Mactan noted that Section 133 qualified the exemption of the National Government, its agencies and instrumentalities from local taxation with the phrase "unless otherwise provided herein." It then considered the other relevant provisions of the Local Government Code, particularly the following: SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemption or incentives granted to, or enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit

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hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.26 SECTION 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically exempted.27 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 and controlled corporations engaged in the 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.28 Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the National Government, its agencies and instrumentalities, as evidenced by these cited provisions which "otherwise provided." But what was the extent of the limitation under Section 133? This is how the Court, correctly to my mind, defined the parameters in Mactan: 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 judicial 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

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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 234.29 The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt from all forms of local government taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise provided" insofar as it allowed LGUs to levy an ad valorem real property tax, irrespective of who owned the property. At the same time, the imposition of real property taxes under Section 232 is in turn qualified by the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are enumerated in Section 234, which specifically states that only real properties owned "by the Republic of the Philippines or any of its political subdivisions" are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234.30 Mactan Overturned the Precedents Now Relied Upon by the Majority But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR,31 decided before the enactment of the Local Government Code. The Court in Basco declared the PAGCOR as exempt from local taxes, justifying the exemption in this wise: Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers xxx

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or 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. Marland, 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 activates 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" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.32 Basco is as strident a reiteration of the old guard view that frowned on the principle of local autonomy, especially as it interfered with the prerogatives and privileges of the national government. Also consider the following citation from Maceda v. Macaraig,33 decided the same year as Basco. Discussing the rule of construction of tax exemptions on government instrumentalities, the sentiments are of a similar vein. Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision or instrumentality. The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers.

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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. In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property "exemption is the rule and taxation the exception."34 Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This evinces the perspective from which the majority is coming from. It is admittedly a viewpoint once shared by this Court, and en vogue prior to the enactment of the Local Government Code of 1991. However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance should be practiced in the Philippines, conceding greater powers once held in the private reserve of the national government to LGUs. The majority might have private qualms about the wisdom of the policy of local autonomy, but the members of the Court are not expected to substitute their personal biases for the legislative will, especially when the 1987 Constitution itself promotes the principle of local autonomy. Article II. Declaration of Principles and State Policies xxx Sec. 25. The State shall ensure the autonomy of local governments. Article X. Local Government xxx Sec. 2. The territorial and political subdivisions shall enjoy local autonomy. Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units.

xxx Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. xxx The Court in Mactan recognized that a new day had dawned with the enactment of the 1987 Constitution and the Local Government Code of 1991. Thus, it expressly rejected the contention of the MCIAA that Basco was applicable to them. In doing so, the language of the Court was dramatic, if only to emphasize how monumental the shift in philosophy was with the enactment of the Local Government Code: Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine Amusement and Gaming Corporation is unavailing since it was decided before the effectivity of the [Local Government Code]. 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.35 (emphasis supplied) The Court Has Repeatedly Reaffirmed Mactan Over the Precedents Now Relied Upon By the Majority Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The notion that instrumentalities may be subjected to local taxation by LGUs was again affirmed in National Power Corporation v. City of Cabanatuan,36 which was penned by Justice Puno. NPC or Napocor, invoking its continued exemption from payment of franchise taxes to the City of Cabanatuan, alleged that it was an instrumentality of the National Government which could not be taxed by a city government. To that end, Basco was cited by NPC. The Court had this to say about Basco. xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect.

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However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax.37 In the 2003 case of Philippine Ports Authority v. City of Iloilo,38 the Court, in the able ponencia of Justice Azcuna, affirmed the levy of realty taxes on the PPA. Although the taxes were assessed under the old Real Property Tax Code and not the Local Government Code, the Court again cited Mactan to refute PPA's invocation of Basco as the basis of its exemption. [Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact we stated therein: The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since P.D. 1869 remains an "operative" law until "amended, repealed or revoked". . . its "exemption clause" remains an exemption to the exercise of the power of local governments to impose taxes and fees. Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the Basco case was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom." The fact that tax exemptions of government-owned or controlled corporations have been expressly withdrawn by the present Local Government Code clearly attests against petitioner's claim of absolute exemption of government instrumentalities from local taxation.39 Just last month, the Court in National Power Corporation v. Province of Isabela40 again rejected Basco in emphatic terms. Held the Court, through Justice Callejo, Sr.: Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court noted primarily that the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. It further explained that in enacting the LGC, Congress empowered the LGUs to impose certain taxes even on instrumentalities of the National Government.41 The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo42 case, a decision also penned by Justice Callejo, Sr., wherein the Court affirmed the

sale of PPA's properties at public auction for failure to pay realty taxes. The Court again reiterated that "it was the intention of Congress to withdraw the tax exemptions granted to or presently enjoyed by all persons, including government-owned or controlled corporations, upon the effectivity" of the Code.43 The Court in the second Public Ports Authority case likewise cited Mactan as providing the "raison d'etre for the withdrawal of the exemption," namely, "the State policy to ensure autonomy to local governments and the objective of the [Local Government Code] that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities. . . . "44 Last year, the Court, in City of Davao v. RTC,45 affirmed that the legislated exemption from real property taxes of the Government Service Insurance System (GSIS) was removed under the Local Government Code. Again, Mactan was relied upon as the governing precedent. The removal of the tax exemption stood even though the then GSIS law46 prohibited the removal of GSIS' tax exemptions unless the exemption was specifically repealed, "and a provision is enacted to substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the fund."47 The Court, citing established doctrines in statutory construction and Duarte v. Dade48 ruled that such proscription on future legislation was itself prohibited, as "the legislature cannot bind a future legislature to a particular mode of repeal."49 And most recently, just less than one month ago, the Court, through Justice Corona in Government Service Insurance System v. City Assessor of Iloilo50 again affirmed that the Local Government Code removed the previous exemption from real property taxes of the GSIS. Again Mactan was cited as having "expressly withdrawn the [tax] exemption of the [GOCC].51 Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule employed by the Court since its adoption, the doctrine therein consistent with the Local Government Code. Corollarily, Basco, the polar opposite of Mactan has been emphatically rejected and declared inconsistent with the Local Government Code. II. Majority, in Effectively Overturning Mactan, Refuses to Say Why Mactan Is Wrong The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it is relied upon by the respondents.52 However, the ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously deducted from the fact that both

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petitioners are airport authorities operating under similarly worded charters. And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces an intent to go against the Court's jurisprudential trend adopting the philosophy of expanded local government rule under the Local Government Code. Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority's studied murkiness vis--vis the Mactan precedent. The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand together. Following basic principles in statutory construction, Mactan will be deemed as giving way to this new ruling. However, the majority does not bother to explain why Mactan is wrong. The interpretation in Mactan of the relevant provisions of the Local Government Code is elegant and rational, yet the majority refuses to explain why this reasoning of the Court in Mactan is erroneous. In fact, the majority does not even engage Mactan in any meaningful way. If the majority believes that Mactan may still stand despite this ruling, it remains silent as to the viable distinctions between these two cases. The majority's silence on Mactan is baffling, considering how different this new ruling is with the ostensible precedent. Perhaps the majority does not simply know how to dispense with the ruling in Mactan. If Mactan truly deserves to be discarded as precedent, it deserves a more honorable end than death by amnesia or ignonominous disregard. The majority could have devoted its discussion in explaining why it thinks Mactan is wrong, instead of pretending that Mactan never existed at all. Such an approach might not have won the votes of the minority, but at least it would provide some degree of intellectual clarity for the parties, LGUs and the national government, students of jurisprudence and practitioners. A more meaningful debate on the matter would have been possible, enriching the study of law and the intellectual dynamic of this Court. There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport. They are the owners of airport properties they respectively maintain and hold title over these properties in their name.53 These entities are both owned by the State, and denied by their respective charters the absolute right to dispose of their properties without prior approval elsewhere.54 Both of them are not empowered to obtain loans or encumber their properties without prior approval the prior approval of the President.55 III. Instrumentalities, Agencies And GOCCs Generally

Liable for Real Property Tax I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with Mactan, which will further demonstrate why the majority has found it inconvenient to even grapple with the precedent that is Mactan in the first place. Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities under Section 133 is qualified by Section 232 and Section 234, and accordingly, the only relevant exemption now applicable to these bodies is as provided under Section 234(o), or on "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." It should be noted that the express withdrawal of previously granted exemptions by the Local Government Code do not even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234 both state, the withdrawal applies to "all persons, including [GOCCs]", thus encompassing the two classes of persons recognized under our laws, natural persons56 and juridical persons.57 The fact that the Local Government Code mandates the withdrawal of previously granted exemptions evinces certain key points. If an entity was previously granted an express exemption from real property taxes in the first place, the obvious conclusion would be that such entity would ordinarily be liable for such taxes without the exemption. If such entities were already deemed exempt due to some overarching principle of law, then it would be a redundancy or surplusage to grant an exemption to an already exempt entity. This fact militates against the claim that MIAA is preternaturally exempt from realty taxes, since it required the enactment of an express exemption from such taxes in its charter. Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government instrumentalities are not taxable persons unless they lease their properties to a taxable person. The general rule laid down in Section 232 is given short shrift. In arriving at this conclusion, several leaps in reasoning are committed. Majority's Flawed Definition of GOCCs. The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality. However, and quite grievously, the supposed foundation of this assertion is an adulteration. The majority gives the impression that a government instrumentality is a distinct concept from a government corporation.58 Most tellingly, the majority selectively cites a portion of Section 2(10) of the Administrative Code of 1987, as follows:

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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. xxx59 (emphasis omitted) However, Section 2(10) of the Administrative Code, when read in full, makes an important clarification which the majority does not show. The portions omitted by the majority are highlighted below: (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 governmentowned or controlled corporations.60 Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also worth citing in full: (4) 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. (emphasis supplied)61 Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an agency of the National Government. Thus, there actually is no point in the majority's assertion that MIAA is not a GOCC, since based on the majority's premise of Section 133 as the key provision, the material question is whether MIAA is either an instrumentality, an agency, or the National Government itself. The very provisions of the Administrative Code provide that a GOCC can be either an instrumentality or an agency, so why even bother to extensively discuss whether or not MIAA is a GOCC? Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer,62 the Supreme Court already noted that a corporation of which the government is the majority stockholder "remains an agency or instrumentality of government." 63 Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal. However, the entire discussion of the majority on the definition of a GOCC, obiter as it may ultimately be, deserves emphatic refutation. The views of the majority on this matter are very dangerous, and would lead to absurdities, perhaps unforeseen by the majority. For in fact, the majority effectively declassifies many entities created and recognized as GOCCs and would give primacy to the Administrative Code of 1987 rather than their respective charters as to the definition of these entities. Majority Ignores the Power

Of Congress to Legislate and Define Chartered Corporations First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be "organized as a stock or non-stock corporation," as defined under the Corporation Code. To insist on this as an absolute rule fails on bare theory. Congress has the undeniable power to create a corporation by legislative charter, and has been doing so throughout legislative history. There is no constitutional prohibition on Congress as to what structure these chartered corporations should take on. Clearly, Congress has the prerogative to create a corporation in whatever form it chooses, and it is not bound by any traditional format. Even if there is a definition of what a corporation is under the Corporation Code or the Administrative Code, these laws are by no means sacrosanct. It should be remembered that these two statutes fall within the same level of hierarchy as a congressional charter, since they all are legislative enactments. Certainly, Congress can choose to disregard either the Corporation Code or the Administrative Code in defining the corporate structure of a GOCC, utilizing the same extent of legislative powers similarly vesting it the putative ability to amend or abolish the Corporation Code or the Administrative Code. These principles are actually recognized by both the Administrative Code and the Corporation Code. The definition of GOCCs, agencies and instrumentalities under the Administrative Code are laid down in the section entitled "General Terms Defined," which qualifies: 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: (emphasis supplied) xxx Similar in vein is Section 6 of the Corporation Code which provides: SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. (emphasis supplied) Thus, the clear doctrine emerges the law that governs the definition of a corporation or entity created by Congress is its legislative charter. If the legislative enactment defines an entity as a corporation, then it is a corporation, no matter if the Corporation Code or the Administrative Code seemingly provides otherwise. In case of conflict between the legislative charter of a government corporation, on one hand, and the Corporate Code and the Administrative Code, on the other, the former always prevails.

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Majority, in Ignoring the Legislative Charters, Effectively Classifies Duly Established GOCCs, With Disastrous and Far Reaching Legal Consequences Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as defined under the Corporation Code. It explains that the MIAA is not a stock corporation because it does not have any capital stock divided into shares. Neither can it be considered as a non-stock corporation because it has no members, and under Section 87, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees or officers. This formulation of course ignores Section 4 of the Corporation Code, which again provides that corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter, and not the Corporation Code. That the MIAA cannot be considered a stock corporation if only because it does not have a stock structure is hardly a plausible proposition. Indeed, there is no point in requiring a capital stock 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. Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation (NPC), which is provided with authorized capital stock wholly subscribed and paid for by the Government of the Philippines, divided into shares but at the same time, is prohibited from transferring, negotiating, pledging, mortgaging or otherwise giving these shares as security for payment of any obligation.64 However, based on the Corporation Code definition relied upon by the majority, even the NPC cannot be considered as a stock corporation. Under Section 3 of the Corporation Code, stock corporations are defined as being "authorized to distribute to the holders of its shares dividends or allotments of the surplus profits on the basis of the shares held."65 On the other hand, Section 13 of the NPC's charter states that "the Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion."66 Can the holder of the shares of NPC, the National Government, receive its surplus profits on the basis of its shares held? It cannot, according to the NPC charter, and hence, following Section 3 of the Corporation Code, the NPC is not a stock corporation, if the majority is to be believed.

The majority likewise claims that corporations without members cannot be deemed nonstock corporations. This would seemingly exclude entities such as the NPC, which like MIAA, has no ostensible members. Moreover, non-stock corporations cannot distribute any part of its income as dividends to its members, trustees or officers. The majority faults MIAA for remitting 20% of its gross operating income to the national government. How about the Philippine Health Insurance Corporation, created with the "status of a taxexempt government corporation attached to the Department of Health" under Rep. Act No. 7875.67 It too cannot be considered as a stock corporation because it has no capital stock structure. But using the criteria of the majority, it is doubtful if it would pass muster as a non-stock corporation, since the PHIC or Philhealth, as it is commonly known, is expressly empowered "to collect, deposit, invest, administer and disburse" the National Health Insurance Fund.68 Or how about the Social Security System, which under its revised charter, Republic Act No. 8282, is denominated as a "corporate body."69The SSS has no capital stock structure, but has capital comprised of contributions by its members, which are eventually remitted back to its members. Does this disqualify the SSS from classification as a GOCC, notwithstanding this Court's previous pronouncement in Social Security System Employees Association v. Soriano?70 In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or non-stock,71 declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government.72 But according to the majority, non-stock corporations are prohibited from declaring any part of its income as dividends. But if Republic Act No. 7656 requires even non-stock corporations to declare dividends from income, should it not follow that the prohibition against declaration of dividends by non-stock corporations under the Corporation Code does not apply to government-owned or controlled corporations? For if not, and the majority's illogic is pursued, Republic Act No. 7656, passed in 1993, would be fatally flawed, as it would contravene the Administrative Code of 1987 and the Corporation Code. In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by Republic Act No. 7656. Following the majority's definition of a GOCC and in accordance with Republic Act No. 7656, here are but a few entities which are not obliged to remit fifty (50%) of its annual net earnings to the National Government as they are excluded from the scope of Republic Act No. 7656: 1) Philippine Ports Authority73 has no capital stock74, no members, and obliged to apply the balance of its income or revenue at the end of each year in a general reserve.75 2) Bases Conversion Development Authority76 - has no capital stock,77 no members. 3) Philippine Economic Zone Authority78 - no capital stock,79 no members. 4) Light Rail Transit Authority80 - no capital stock,81 no members.

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5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required to remit fifty percent (50%) of its net profits to the National Treasury.84 6) National Power Corporation85 - has capital stock but is prohibited from "distributing to the holders of its shares dividends or allotments of the surplus profits on the basis of the shares held;"86 no members. 7) Manila International Airport Authority no capital stock87, no members88, mandated to remit twenty percent (20%) of its annual gross operating income to the National Treasury.89 Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage of Republic Act No. 7656. Apparently, President Fidel V. Ramos disagreed. How else then could Executive Order No. 483, signed in 1998 by President Ramos, be explained? The issuance provides: WHEREAS, Section 1 of Republic Act No. 7656 provides that: "Section 1. Declaration of Policy. - It is hereby declared the policy of the State that in order for the National Government to realize additional revenues, government-owned and/or controlled corporations, without impairing their viability and the purposes for which they have been established, shall share a substantial amount of their net earnings to the National Government." WHEREAS, to support the viability and mandate of government-owned and/or controlled corporations [GOCCs], the liquidity, retained earnings position and medium-term plans and programs of these GOCCs were considered in the determination of the reasonable dividend rates of such corporations on their 1997 net earnings. WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the adjustment on the percentage of annual net earnings that shall be declared by the Manila International Airport Authority [MIAA] and Phividec Industrial Authority [PIA] in the interest of national economy and general welfare. NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers vested in me by law, do hereby order: SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA as dividends to the National Government as provided for under Section 3 of Republic Act No. 7656 is adjusted from at least fifty percent [50%] to the rates specified hereunder: 1. Manila International Airport Authority - 35% [cash]

2. Phividec Industrial Authority - 25% [cash] SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997 net earnings of the concerned government-owned and/or controlled corporations. Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a GOCC, for how else could it have come under the coverage of Republic Act No. 7656, a law applicable only to GOCCs? But, the majority apparently disagrees, and resultantly holds that MIAA is not obliged to remit even the reduced rate of thirty five percent (35%) of its net earnings to the national government, since it cannot be covered by Republic Act No. 7656. All this mischief because the majority would declare the Administrative Code of 1987 and the Corporation Code as the sole sources of law defining what a government corporation is. As I stated earlier, I find it illogical that chartered corporations are compelled to comply with the templates of the Corporation Code, especially when the Corporation Code itself states that these corporations are to be governed by their own charters. This is especially true considering that the very provision cited by the majority, Section 87 of the Corporation Code, expressly says that the definition provided therein is laid down "for the purposes of this [Corporation] Code." Read in conjunction with Section 4 of the Corporation Code which mandates that corporations created by charter be governed by the law creating them, it is clear that contrary to the majority, MIAA is not disqualified from classification as a non-stock corporation by reason of Section 87, the provision not being applicable to corporations created by special laws or charters. In fact, I see no real impediment why the MIAA and similarly situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission, or maybe even the NPC could at the very least, be deemed as no stock corporations (as differentiated from non-stock corporations). The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if the legislature says so. After all, it is the legislature that dictates what a corporation is in the first place. This is better illustrated by another set of entities created before martial law. These include the Mindanao Development Authority,90 the Northern Samar Development Authority,91 the Ilocos Sur Development Authority,92 the Southeastern Samar Development Authority93 and the Mountain Province Development Authority.94 An examination of the first section of the statutes creating these entities reveal that they were established "to foster accelerated and balanced growth" of their respective regions, and towards such end, the charters commonly provide that "it is recognized that a government corporation should be created for the purpose," and accordingly, these charters "hereby created a body corporate."95 However, these corporations do not have capital stock nor members, and are obliged to return the unexpended balances of their appropriations and earnings to a revolving fund in the National Treasury. The majority effectively declassifies these entities as GOCCs, never mind the fact that their very charters declare them to be GOCCs.

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I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples to emphasize my fundamental pointthat it is the legislative charters of these entities, and not the Administrative Code, which define the class of personality of these entities created by Congress. To adopt the view of the majority would be, in effect, to sanction an implied repeal of numerous congressional charters for the purpose of declassifying GOCCs. Certainly, this could not have been the intent of the crafters of the Administrative Code when they drafted the "Definition of Terms" incorporated therein. MIAA Is Without

xxx (d) To sue and be sued in its corporate name; (e) To adopt and use a corporate seal; (f) To succeed by its corporate name; (g) To adopt its by-laws, and to amend or repeal the same from time to time;

Doubt, A GOCC (h) To execute or enter into contracts of any kind or nature; Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs which are stock corporations and GOCCs which are no stock corporations (as distinguished from non-stock corporation). Stock GOCCs are simply those which have capital stock while no stock GOCCs are those which have no capital stock. Obviously these definitions are different from the definitions of the terms in the Corporation Code. Verily, GOCCs which are not incorporated with the Securities and Exchange Commission are not governed by the Corporation Code but by their respective charters. For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC. Observe the following provisions from MIAA's charter: SECTION 3. Creation of the Manila International Airport Authority.There is hereby established a body corporate to be known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and Communications. The principal office of the Authority shall be located at the New Manila International Airport. The Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; Provided, That any subsidiary that may be organized shall have the prior approval of the President. 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. xxx SECTION 5. Functions, Powers, and Duties. The Authority shall have the following functions, powers and duties: (i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein; (j) To exercise the power of eminent domain in the pursuit of its purposes and objectives; xxx (o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. xxx SECTION 16. Borrowing Power. The Authority may, after consultation with the Minister of Finance and with the approval of the President of the Philippines, as recommended by the Minister of Transportation and Communications, raise funds, either from local or international sources, by way of loans, credits or securities, and other borrowing instruments, with the power to create pledges, mortgages and other voluntary liens or encumbrances on any of its assets or properties. All loans contracted by the Authority under this Section, together with all interests and other sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided, That this provision shall not be construed as a prohibition or restriction on the power of the Authority to create pledges, mortgages, and other voluntary liens or encumbrances on any assets or property of the Authority. Except as expressly authorized by the President of the Philippines the total outstanding indebtedness of the Authority in the principal amount, in local and foreign currency, shall not at any time exceed the net worth of the Authority at any given time.

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xxx The President or his duly authorized representative after consultation with the Minister of Finance may guarantee, in the name and on behalf of the Republic of the Philippines, the payment of the loans or other indebtedness of the Authority up to the amount herein authorized. These cited provisions establish the fitness of MIAA to be the subject of legal relations.96 MIAA under its charter may acquire and possess property, incur obligations, and bring civil or criminal actions. It has the power to contract in its own name, and to acquire title to real or personal property. It likewise may exercise a panoply of corporate powers and possesses all the trappings of corporate personality, such as a corporate name, a corporate seal and by-laws. All these are contained in MIAA's charter which, as conceded by the Corporation Code and even the Administrative Code, is the primary law that governs the definition and organization of the MIAA. In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself in the very first paragraph of the present petition before this Court.97 So does, apparently, the Department of Budget and Management, which classifies MIAA as a "government owned & controlled corporation" on its internet website. 98 There is also the matter of Executive Order No. 483, which evinces the belief of the then-president of the Philippines that MIAA is a GOCC. And the Court before had similarly characterized MIAA as a government-owned and controlled corporation in the earlier MIAA case, Manila International Airport Authority v. Commission on Audit.99 Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is because MIAA is actually an instrumentality. But the very definition relied upon by the majority of an instrumentality under the Administrative Code clearly states that a GOCC is likewise an instrumentality or an agency. The question of whether MIAA is a GOCC might not even be determinative of this Petition, but the effect of the majority's disquisition on that matter may even be more destructive than the ruling that MIAA is exempt from realty taxes. Is the majority ready to live up to the momentous consequences of its flawed reasoning? Novel Proviso in 1987 Constitution Prescribing Standards in the Creation of GOCCs Necessarily Applies only to GOCCs Created After 1987.

One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to Section 16, Article XII of the 1987 Constitution, which mandates that the creation of GOCCs through special charters be "in the interest of the common good and subject to the test of economic viability." For the majority, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. But this test of "economic viability" is new to the constitutional framework. No such test was imposed in previous Constitutions, including the 1973 Constitution which was the fundamental law in force when the MIAA was created. How then could the MIAA, or any GOCC created before 1987 be expected to meet this new precondition to the creation of a GOCC? Does the dissent seriously suggest that GOCCs created before 1987 may be declassified on account of their failure to meet this "economic viability test"? Instrumentalities and Agencies Also Generally Liable For Real Property Taxes Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then argues that MIAA is an instrumentality. It cites incompletely, as earlier stated, the provision of Section 2(10) of the Administrative Code. A more convincing view offered during deliberations, but which was not adopted by the ponencia, argued that MIAA is not an instrumentality but an agency, considering the fact that under the Administrative Code, the MIAA is attached within the department framework of the Department of Transportation and Communications.100Interestingly, Executive Order No. 341, enacted by President Arroyo in 2004, similarly calls MIAA an agency. Since instrumentalities are expressly defined as "an agency not integrated within the department framework," that view concluded that MIAA cannot be deemed an instrumentality. Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative Code considers GOCCs as agencies,101 so the fact that MIAA is an agency does not exclude it from classification as a GOCC. On the other hand, the majority justifies MIAA's purported exemption on Section 133 of the Local Government Code, which similarly situates "agencies and instrumentalities" as generally exempt from the taxation powers of LGUs. And on this point, the majority again evades Mactan and somehow concludes that Section 133 is the general rule, notwithstanding Sections 232 and 234(a) of the Local Government Code. And the majority's ultimate conclusion? "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."102 The Court's interpretation of the Local Government Code in Mactan renders the law integrally harmonious and gives due accord to the respective prerogatives of the national government and LGUs. Sections 133 and 234(a) ensure that the Republic of the Philippines

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or its political subdivisions shall not be subjected to any form of local government taxation, except realty taxes if the beneficial use of the property owned has been granted for consideration to a taxable entity or person. On the other hand, Section 133 likewise assures that government instrumentalities such as GOCCs may not be arbitrarily taxed by LGUs, since they could be subjected to local taxation if there is a specific proviso thereon in the Code. One such proviso is Section 137, which as the Court found in National Power Corporation,103 permits the imposition of a franchise tax on businesses enjoying a franchise, even if it be a GOCC such as NPC. And, as the Court acknowledged in Mactan, Section 232 provides another exception on the taxability of instrumentalities. The majority abjectly refuses to engage Section 232 of the Local Government Code although it provides the indubitable general rule that LGUs "may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically exempted." The specific exemptions are provided by Section 234. Section 232 comes sequentially after Section 133(o),104 and even if the sequencing is irrelevant, Section 232 would fall under the qualifying phrase of Section 133, "Unless otherwise provided herein." It is sad, but not surprising that the majority is not willing to consider or even discuss the general rule, but only the exemptions under Section 133 and Section 234. After all, if the majority is dead set in ruling for MIAA no matter what the law says, why bother citing what the law does say. Constitution, Laws and Jurisprudence Have Long Explained the Rationale Behind the Local Taxation Of GOCCs. This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more evident than in the succeeding discussion of the majority, which asserts that the power of local governments to tax national government instrumentalities be construed strictly against local governments. The Maceda case, decided before the Local Government Code, is cited, as is Basco. This section of the majority employs deliberate pretense that the Code never existed, or that the fundamentals of local autonomy are of limited effect in our country. Why is it that the Local Government Code is barely mentioned in this section of the majority? Because Section 5 of the Code, purposely omitted by the majority provides for a different rule of interpretation than that asserted: Section 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules shall apply:

(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of doubt, any question thereon shall be resolved in favor of devolution of powers and of the lower local government unit. Any fair and reasonable doubt as to the existence of the power shall be interpreted in favor of the local government unit concerned; (b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government unit pursuant to the provisions of this Code shall be construed strictly against the person claiming it; xxx Yet the majority insists that "there is 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."105 I wonder whether the Constitution satisfies the majority's desire for "a sound and compelling policy." To repeat: Article II. Declaration of Principles and State Policies xxx Sec. 25. The State shall ensure the autonomy of local governments. Article X. Local Government xxx Sec. 2. The territorial and political subdivisions shall enjoy local autonomy. xxx Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. Or how about the Local Government Code, presumably an expression of sound and compelling policy considering that it was enacted by the legislature, that veritable source of all statutes: SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units.

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Justice Puno, in National Power Corporation v. City of Cabanatuan,106 provides a more "sound and compelling policy considerations" that would warrant sustaining the taxability of government-owned entities by local government units under the Local Government Code. Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises." With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them. 107 I dare not improve on Justice Puno's exhaustive disquisition on the statutory and jurisprudential shift brought about the acceptance of the principles of local autonomy: In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz: "Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments." This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders." 35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units." To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, the Local Autonomy Act of 1959, the Decentralization Act of 1967 and the Local Government Code of 1983. Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies. Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian.108 And the Court's ruling through Justice Azcuna in Philippine Ports Authority v. City of Iloilo109, provides especially clear and emphatic rationale: In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately suffers no loss. In National Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated: Actually, the State has no reason to decry the taxation of NPC's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level. xxxxxxxxx

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To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the government be said to have lost anything. Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government was that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.110 How does the majority counter these seemingly valid rationales which establish the soundness of a policy consideration subjecting national instrumentalities to local taxation? Again, by simply ignoring that these doctrines exist. It is unfortunate if the majority deems these cases or the principles of devolution and local autonomy as simply too inconvenient, and relies instead on discredited precedents. Of course, if the majority faces the issues squarely, and expressly discusses why Basco was right and Mactan was wrong, then this entire endeavor of the Court would be more intellectually satisfying. But, this is not a game the majority wants to play. Mischaracterization of My Views on the Tax Exemption Enjoyed by the National Government Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing my views on that provision as if I had been interpreting the provision as making "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."111 Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the majority. My main thesis on the matter merely echoes the explicit provision of Section 193 that unless otherwise provided in the Local Government Code (LGC) all tax exemptions enjoyed by all persons, whether natural or juridical, including GOCCs, were withdrawn upon the effectivity of the Code. Since the provision speaks of withdrawal of tax exemptions of persons, it follows that the exemptions theretofore enjoyed by MIAA which is definitely a person are deemed withdrawn upon the advent of the Code. On the other hand, the provision does not address the question of who are beyond the reach of the taxing power of LGUs. In fine, the grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. Thus, Section 193 does not apply to entities which were never given any tax exemption. This would include

the national government and its political subdivisions which, as a general rule, are not subjected to tax in the first place.112 Corollarily, the national government and its political subdivisions do not need tax exemptions. And Section 193 which ordains the withdrawal of tax exemptions is obviously irrelevant to them. Section 193 is in point for the disposition of this case as it forecloses dependence for the grant of tax exemption to MIAA on Section 21 of its charter. Even the majority should concede that the charter section is now ineffectual, as Section 193 withdraws the tax exemptions previously enjoyed by all juridical persons. With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the effectivity of the LGC, for MIAA to continue enjoying exemption from realty tax, it will have to rely on a basis other than Section 21 of its charter. Lung Center of the Philippines v. Quezon City 113 provides another illustrative example of the jurisprudential havoc wrought about by the majority. Pursuant to its charter, the Lung Center was organized as a trust administered by an eponymous GOCC organized with the SEC.114 There is no doubt it is a GOCC, even by the majority's reckoning. Applying the Administrative Code, it is also considered as an agency, the term encompassing even GOCCs. Yet since the Administrative Code definition of "instrumentalities" encompasses agencies, especially those not attached to a line department such as the Lung Center, it also follows that the Lung Center is an instrumentality, which for the majority is exempt from all local government taxes, especially real estate taxes. Yet just in 2004, the Court unanimously held that the Lung Center was not exempt from real property taxes. Can the majority and Lung Center be reconciled? I do not see how, and no attempt is made to demonstrate otherwise. Another key point. The last paragraph of Section 234 specifically asserts that any previous exemptions from realty taxes granted to or enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority's interpretation of Sections 133 and 234(a) however necessarily implies that all instrumentalities, including GOCCs, can never be subjected to real property taxation under the Code. If that is so, what then is the sense of the last paragraph specifically withdrawing previous tax exemptions to all persons, including GOCCs when juridical persons such as MIAA are anyway, to his view, already exempt from such taxes under Section 133? The majority's interpretation would effectively render the express and emphatic withdrawal of previous exemptions to GOCCs inutile. Ut magis valeat quam pereat. Hence, where a statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction which will render the provision thereof operative and effective, as well as harmonious with each other.115 But, the majority seems content rendering as absurd the Local Government Code, since it does not have much use anyway for the Code's general philosophy of fiscal autonomy, as evidently seen by the continued reliance on Basco or Maceda. Local government rule has never been a grant of emancipation from the national government. This is the favorite

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bugaboo of the opponents of local autonomythe fallacy that autonomy equates to independence. Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government instrumentality is beyond the reach of local taxation because it is not subject to taxes, fees or charges of any kind. Moreover, the taxation of national instrumentalities and agencies by LGUs should be strictly construed against the LGUs, citing Maceda and Basco. No mention is made of the subsequent rejection of these cases in jurisprudence following the Local Government Code, including Mactan. The majority is similarly silent on the general rule under Section 232 on real property taxation or Section 5 on the rules of construction of the Local Government Code. V. MIAA, and not the National Government Is the Owner of the Subject Taxable Properties Section 232 of the Local Government Code explicitly provides that there are exceptions to the general rule on rule property taxation, as "hereafter specifically exempted." Section 234, certainly "hereafter," provides indubitable basis for exempting entities from real property taxation. It provides the most viable legal support for any claim that an governmental entity such as the MIAA is exempt from real property taxes. To repeat: SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax: xxx (f) 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: The majority asserts that the properties owned by MIAA are owned by the Republic of the Philippines, thus placing them under the exemption under Section 234. To arrive at this conclusion, the majority employs four main arguments. MIAA Property Is Patrimonial And Not Part of Public Dominion The majority claims that the Airport Lands and Buildings are property of public dominion as defined by the Civil Code, and therefore owned by the State or the Republic of the

Philippines. But as pointed out by Justice Azcuna in the first PPA case, if indeed a property is considered part of the public dominion, such property is "owned by the general public and cannot be declared to be owned by a public corporation, such as [the PPA]." Relevant on this point are the following provisions of the MIAA charter: Section 3. Creation of the Manila International Airport Authority. xxx 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. xxx Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. 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. Clearly, it is the MIAA, and not either the State, the Republic of the Philippines or the national government that asserts legal title over the Airport Lands and Buildings. There was an express transfer of ownership between the MIAA and the national government. If the distinction is to be blurred, as the majority does, between the State/Republic/Government and a body corporate such as the MIAA, then the MIAA charter showcases the remarkable absurdity of an entity transferring property to itself. Nothing in the Civil Code or the Constitution prohibits the State from transferring ownership over property of public dominion to an entity that it similarly owns. It is just like a family transferring ownership over the properties its members own into a family corporation. The family exercises effective control over the administration and disposition of these properties. Yet for several purposes under the law, such as taxation, it is the corporation that is deemed to own those properties. A similar situation obtains with MIAA, the State, and the Airport Lands and Buildings. The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful doctrines in this regard. The Court refuted the claim that the properties of the PPA were owned by the Republic of the Philippines, noting that PPA's charter expressly transferred ownership over these properties to the PPA, a situation which similarly obtains with MIAA. The Court even went as far as saying that the fact that the PPA "had not been issued any torrens title over the port and port facilities and appurtenances is of no legal consequence. A torrens title does not, by itself, vest ownership; it is merely an

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evidence of title over properties. xxx It has never been recognized as a mode of acquiring ownership over real properties."116 The Court further added: xxx The bare fact that the port and its facilities and appurtenances are accessible to the general public does not exempt it from the payment of real property taxes. It must be stressed that the said port facilities and appurtenances are the petitioner's corporate patrimonial properties, not for public use, and that the operation of the port and its facilities and the administration of its buildings are in the nature of ordinary business. The petitioner is clothed, under P.D. No. 857, with corporate status and corporate powers in the furtherance of its proprietary interests xxx The petitioner is even empowered to invest its funds in such government securities approved by the Board of Directors, and derives its income from rates, charges or fees for the use by vessels of the port premises, appliances or equipment. xxx Clearly then, the petitioner is a profit-earning corporation; hence, its patrimonial properties are subject to tax.117 There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use. A similar argument was propounded by the Light Rail Transit Authority in Light Rail Transit Authority v. Central Board of Assessment,118 which was cited in Philippine Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a body corporate, "provides valuable transportation facilities to the paying public." 119 It claimed that its carriage-ways and terminal stations are immovably attached to government-owned national roads, and to impose real property taxes thereupon would be to impose taxes on public roads. This view did not persuade the Court, whose decision was penned by Justice (now Chief Justice) Panganiban. It was noted: Though the creation of the LRTA was impelled by public service to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government-owned or controlled corporation. xxx 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 profitearning. It actually uses those carriageways and terminal stations in its public utility business and earns money therefrom.120 xxx 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.121 There is no substantial distinction between the properties held by the PPA, the LRTA, and the MIAA. These three entities are in the business of operating facilities that promote public transportation. The majority further asserts that MIAA's properties, being part of the public dominion, are outside the commerce of man. But if this is so, then why does Section 3 of MIAA's charter authorize the President of the Philippines to approve the sale of any of these properties? In fact, why does MIAA's charter in the first place authorize the transfer of these airport properties, assuming that indeed these are beyond the commerce of man? No Trust Has Been Created Over MIAA Properties For The Benefit of the Republic The majority posits that while MIAA might be holding title over the Airport Lands and Buildings, it is holding it in trust for the Republic. A provision of the Administrative Code is cited, but said provision does not expressly provide that the property is held in trust. Trusts are either express or implied, and only those situations enumerated under the Civil Code would constitute an implied trust. MIAA does not fall within this enumeration, and neither is there a provision in MIAA's charter expressly stating that these properties are being held in trust. In fact, under its charter, MIAA is obligated to retain up to eighty percent (80%) of its gross operating income, not an inconsequential sum assuming that the beneficial owner of MIAA's properties is actually the Republic, and not the MIAA. Also, the claim that beneficial ownership over the MIAA remains with the government and not MIAA is ultimately irrelevant. Section 234(a) of the Local Government Code provides among those exempted from paying real property taxes are "[r]eal property owned by the [Republic] except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." In the context of Section 234(a), the

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identity of the beneficial owner over the properties is not determinative as to whether the exemption avails. It is the identity of the beneficial user of the property owned by the Republic or its political subdivisions that is crucial, for if said beneficial user is a taxable person, then the exemption does not lie. I fear the majority confuses the notion of what might be construed as "beneficial ownership" of the Republic over the properties of MIAA as nothing more than what arises as a consequence of the fact that the capital of MIAA is contributed by the National Government.122 If so, then there is no difference between the State's ownership rights over MIAA properties than those of a majority stockholder over the properties of a corporation. Even if such shareholder effectively owns the corporation and controls the disposition of its assets, the personality of the stockholder remains separately distinct from that of the corporation. A brief recall of the entrenched rule in corporate law is in order: The first consequence of the doctrine of legal entity regarding the separate identity of the corporation and its stockholders insofar as their obligations and liabilities are concerned, is spelled out in this general rule deeply entrenched in American jurisprudence: Unless the liability is expressly imposed by constitutional or statutory provisions, or by the charter, or by special agreement of the stockholders, stockholders are not personally liable for debts of the corporation either at law or equity. The reason is that the corporation is a legal entity or artificial person, distinct from the members who compose it, in their individual capacity; and when it contracts a debt, it is the debt of the legal entity or artificial person the corporation and not the debt of the individual members. (13A Fletcher Cyc. Corp. Sec. 6213) The entirely separate identity of the rights and remedies of a corporation itself and its individual stockholders have been given definite recognition for a long time. Applying said principle, the Supreme Court declared that a corporation may not be made to answer for acts or liabilities of its stockholders or those of legal entities to which it may be connected, or vice versa. (Palay Inc. v. Clave et. al. 124 SCRA 638) It was likewise declared in a similar case that a bonafide corporation should alone be liable for corporate acts duly authorized by its officers and directors. (Caram Jr. v. Court of Appeals et.al. 151 SCRA, p. 372)123 It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the powers of a corporation under the Corporation Law, including the right to corporate succession, and the right to sue and be sued in its corporate name. 124 The national government made a particular choice to divest ownership and operation of the Manila International Airport and transfer the same to such an empowered entity due to perceived advantages. Yet such transfer cannot be deemed consequence free merely because it was the State which contributed the operating capital of this body corporate.

The majority claims that the transfer the assets of MIAA was meant merely to effect a reorganization. The imputed rationale for such transfer does not serve to militate against the legal consequences of such assignment. Certainly, if it was intended that the transfer should be free of consequence, then why was it effected to a body corporate, with a distinct legal personality from that of the State or Republic? The stated aims of the MIAA could have very well been accomplished by creating an agency without independent juridical personality. VI. MIAA Performs Proprietary Functions Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its political subdivisions from realty taxation. The obvious question is what comprises "the Republic of the Philippines." I think the key to understanding the scope of "the Republic" is the phrase "political subdivisions." Under the Constitution, political subdivisions are defined as "the provinces, cities, municipalities and barangays." 125 In correlation, the Administrative Code of 1987 defines "local government" as referring to "the political subdivisions established by or in accordance with the Constitution." Clearly then, these political subdivisions are engaged in the exercise of sovereign functions and are accordingly exempt. The same could be said generally of the national government, which would be similarly exempt. After all, even with the principle of local autonomy, it is inherently noxious and self-defeatist for local taxation to interfere with the sovereign exercise of functions. However, the exercise of proprietary functions is a different matter altogether. Sovereign and Proprietary Functions Distinguished Sovereign or constituent functions are those which constitute the very bonds of society and are compulsory in nature, while ministrant or proprietary functions are those undertaken by way of advancing the general interests of society and are merely optional.126 An exhaustive discussion on the matter was provided by the Court in Bacani v. NACOCO:127 xxx This institution, when referring to the national government, has reference to what our Constitution has established composed of three great departments, the legislative, executive, and the judicial, through which the powers and functions of government are exercised. These functions are twofold: constituent and ministrant. The former are those which constitute the very bonds of society and are compulsory in nature; the latter are those that are undertaken only by way of advancing the general interests of society, and are merely optional. President Wilson enumerates the constituent functions as follows:

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"'(1) The keeping of order and providing for the protection of persons and property from violence and robbery. '(2) The fixing of the legal relations between man and wife and between parents and children. '(3) The regulation of the holding, transmission, and interchange of property, and the determination of its liabilities for debt or for crime. '(4) The determination of contract rights between individuals. '(5) The definition and punishment of crime. '(6) The administration of justice in civil cases. '(7) The determination of the political duties, privileges, and relations of citizens. '(8) Dealings of the state with foreign powers: the preservation of the state from external danger or encroachment and the advancement of its international interests.'" (Malcolm, The Government of the Philippine Islands, p. 19.) The most important of the ministrant functions are: public works, public education, public charity, health and safety regulations, and regulations of trade and industry. The principles determining whether or not a government shall exercise certain of these optional functions are: (1) that a government should do for the public welfare those things which private capital would not naturally undertake and (2) that a government should do these things which by its very nature it is better equipped to administer for the public welfare than is any private individual or group of individuals. (Malcolm, The Government of the Philippine Islands, pp. 19-20.) From the above we may infer that, strictly speaking, there are functions which our government is required to exercise to promote its objectives as expressed in our Constitution and which are exercised by it as an attribute of sovereignty, and those which it may exercise to promote merely the welfare, progress and prosperity of the people. To this latter class belongs the organization of those corporations owned or controlled by the government to promote certain aspects of the economic life of our people such as the National Coconut Corporation. These are what we call government-owned or controlled corporations which may take on the form of a private enterprise or one organized with powers and formal characteristics of a private corporations under the Corporation Law.128 The Court in Bacani rejected the proposition that the National Coconut Corporation exercised sovereign functions:

Does the fact that these corporations perform certain functions of government make them a part of the Government of the Philippines? The answer is simple: they do not acquire that status for the simple reason that they do not come under the classification of municipal or public corporation. Take for instance the National Coconut Corporation. While it was organized with the purpose of "adjusting the coconut industry to a position independent of trade preferences in the United States" and of providing "Facilities for the better curing of copra products and the proper utilization of coconut by-products," a function which our government has chosen to exercise to promote the coconut industry, however, it was given a corporate power separate and distinct from our government, for it was made subject to the provisions of our Corporation Law in so far as its corporate existence and the powers that it may exercise are concerned (sections 2 and 4, Commonwealth Act No. 518). It may sue and be sued in the same manner as any other private corporations, and in this sense it is an entity different from our government. As this Court has aptly said, "The mere fact that the Government happens to be a majority stockholder does not make it a public corporation" (National Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587). "By becoming a stockholder in the National Coal Company, the Government divested itself of its sovereign character so far as respects the transactions of the corporation. . . . Unlike the Government, the corporation may be sued without its consent, and is subject to taxation. Yet the National Coal Company remains an agency or instrumentality of government." (Government of the Philippine Islands vs. Springer, 50 Phil., 288.) The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez bears noting: The fact that government corporations are instrumentalities of the State does not divest them with immunity from suit. (Malong v. PNR, 138 SCRA p. 63) It is settled that when the government engages in a particular business through the instrumentality of a corporation, it divests itself pro hoc vice of its sovereign character so as to subject itself to the rules governing private corporations, (PNB v. Pabolan 82 SCRA 595) and is to be treated like any other corporation. (PNR v. Union de Maquinistas Fogonero y Motormen, 84 SCRA 223) In the same vein, when the government becomes a stockholder in a corporation, it does not exercise sovereignty as such. It acts merely as a corporator and exercises no other power in the management of the affairs of the corporation than are expressly given by the incorporating act. Nor does the fact that the government may own all or a majority of the capital stock take from the corporation its character as such, or make the government the real party in interest. (Amtorg Trading Corp. v. US 71 F2d 524, 528)129 MIAA Performs Proprietary Functions No Matter How

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Vital to the Public Interest The simple truth is that, based on these accepted doctrinal tests, MIAA performs proprietary functions. The operation of an airport facility by the State may be imbued with public interest, but it is by no means indispensable or obligatory on the national government. In fact, as demonstrated in other countries, it makes a lot of economic sense to leave the operation of airports to the private sector. The majority tries to becloud this issue by pointing out that the MIAA does not compete in the marketplace as there is no competing international airport operated by the private sector; and that MIAA performs an essential public service as the primary domestic and international airport of the Philippines. This premise is false, for one. On a local scale, MIAA competes with other international airports situated in the Philippines, such as Davao International Airport and MCIAA. More pertinently, MIAA also competes with other international airports in Asia, at least. International airlines take into account the quality and conditions of various international airports in determining the number of flights it would assign to a particular airport, or even in choosing a hub through which destinations necessitating connecting flights would pass through. Even if it could be conceded that MIAA does not compete in the market place, the example of the Philippine National Railways should be taken into account. The PNR does not compete in the marketplace, and performs an essential public service as the operator of the railway system in the Philippines. Is the PNR engaged in sovereign functions? The Court, in Malong v. Philippine National Railways,130 held that it was not.131 Even more relevant to this particular case is Teodoro v. National Airports Corporation,132 concerning the proper appreciation of the functions performed by the Civil Aeronautics Administration (CAA), which had succeeded the defunction National Airports Corporation. The CAA claimed that as an unincorporated agency of the Republic of the Philippines, it was incapable of suing and being sued. The Court noted: Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute contracts of any kind, to purchase property, and to grant concession rights, and under Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline, accessories and supplies, and rentals for the use of any property under its management. These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue and be sued. The power to sue and be sued is implied from the power to transact private business. And if it has the power to sue and be sued on its behalf, the Civil Aeronautics Administration with greater reason should have the power to prosecute and defend suits for and against the National Airports Corporation, having acquired all the properties, funds and choses in action and assumed all the liabilities of the latter. To deny the National Airports Corporation's creditors access to the courts of justice against the Civil Aeronautics Administration is to say that the government could impair the obligation

of its corporations by the simple expedient of converting them into unincorporated agencies. 133 xxx Eventually, the charter of the CAA was revised, and it among its expanded functions was "[t]o administer, operate, manage, control, maintain and develop the Manila International Airport."134 Notwithstanding this expansion, in the 1988 case of CAA v. Court of Appeals135 the Court reaffirmed the ruling that the CAA was engaged in "private or nongovernmental functions."136 Thus, the Court had already ruled that the predecessor agency of MIAA, the CAA was engaged in private or non-governmental functions. These are more precedents ignored by the majority. The following observation from the Teodoro case very well applies to MIAA. The Civil Aeronautics Administration comes under the category of a private entity. Although not a body corporate it was created, like the National Airports Corporation, not to maintain a necessary function of government, but to run what is essentially a business, even if revenues be not its prime objective but rather the promotion of travel and the convenience of the traveling public. It is engaged in an enterprise which, far from being the exclusive prerogative of state, may, more than the construction of public roads, be undertaken by private concerns.137 If the determinative point in distinguishing between sovereign functions and proprietary functions is the vitality of the public service being performed, then it should be noted that there is no more important public service performed than that engaged in by public utilities. But notably, the Constitution itself authorizes private persons to exercise these functions as it allows them to operate public utilities in this country138 If indeed such functions are actually sovereign and belonging properly to the government, shouldn't it follow that the exercise of these tasks remain within the exclusive preserve of the State? There really is no prohibition against the government taxing itself,139 and nothing obscene with allowing government entities exercising proprietary functions to be taxed for the purpose of raising the coffers of LGUs. On the other hand, it would be an even more noxious proposition that the government or the instrumentalities that it owns are above the law and may refuse to pay a validly imposed tax. MIAA, or any similar entity engaged in the exercise of proprietary, and not sovereign functions, cannot avoid the adverseeffects of tax evasion simply on the claim that it is imbued with some of the attributes of government. VII. MIAA Property Not Subject to Execution Sale Without Consent

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Of the President. Despite the fact that the City of Paraaque ineluctably has the power to impose real property taxes over the MIAA, there is an equally relevant statutory limitation on this power that must be fully upheld. Section 3 of the MIAA charter states that "[a]ny portion [of the [lands transferred, conveyed and assigned to the ownership and administration of the MIAA] shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines." 140 Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be deemed as repealing this prohibition under Section 3, even if it effectively forecloses one possible remedy of the LGU in the collection of delinquent real property taxes. While the Local Government Code withdrew all previous local tax exemptions of the MIAA and other natural and juridical persons, it did not similarly withdraw any previously enacted prohibitions on properties owned by GOCCs, agencies or instrumentalities. Moreover, the resulting legal effect, subjecting on one hand the MIAA to local taxes but on the other hand shielding its properties from any form of sale or disposition, is not contradictory or paradoxical, onerous as its effect may be on the LGU. It simply means that the LGU has to find another way to collect the taxes due from MIAA, thus paving the way for a mutually acceptable negotiated solution.141 There are several other reasons this statutory limitation should be upheld and applied to this case. It is at this juncture that the importance of the Manila Airport to our national life and commerce may be accorded proper consideration. The closure of the airport, even by reason of MIAA's legal omission to pay its taxes, will have an injurious effect to our national economy, which is ever reliant on air travel and traffic. The same effect would obtain if ownership and administration of the airport were to be transferred to an LGU or some other entity which were not specifically chartered or tasked to perform such vital function. It is for this reason that the MIAA charter specifically forbids the sale or disposition of MIAA properties without the consent of the President. The prohibition prevents the peremptory closure of the MIAA or the hampering of its operations on account of the demands of its creditors. The airport is important enough to be sheltered by legislation from ordinary legal processes. Section 3 of the MIAA charter may also be appreciated as within the proper exercise of executive control by the President over the MIAA, a GOCC which despite its separate legal personality, is still subsumed within the executive branch of government. The power of executive control by the President should be upheld so long as such exercise does not contravene the Constitution or the law, the President having the corollary duty to faithfully execute the Constitution and the laws of the land.142 In this case, the exercise of executive control is precisely recognized and authorized by the legislature, and it should be upheld even if it comes at the expense of limiting the power of local government units to collect real property taxes.

Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA properties could not be subject of execution sale without the consent of the President, I suspect that the parties would feel little distress. Through such action, both the Local Government Code and the MIAA charter would have been upheld. The prerogatives of LGUs in real property taxation, as guaranteed by the Local Government Code, would have been preserved, yet the concerns about the ruinous effects of having to close the Manila International Airport would have been averted. The parties would then be compelled to try harder at working out a compromise, a task, if I might add, they are all too willing to engage in.143 Unfortunately, the majority will cause precisely the opposite result of unremitting hostility, not only to the City of Paraaque, but to the thousands of LGUs in the country. VIII. Summary of Points My points may be summarized as follows: 1) Mactan and a long line of succeeding cases have already settled the rule that under the Local Government Code, enacted pursuant to the constitutional mandate of local autonomy, all natural and juridical persons, even those GOCCs, instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The only exemptions from local taxes are those specifically provided under the Local Government Code itself, or those enacted through subsequent legislation. 2) Under the Local Government Code, particularly Section 232, instrumentalities, agencies and GOCCs are generally liable for real property taxes. The only exemptions therefrom under the same Code are provided in Section 234, which include real property owned by the Republic of the Philippines or any of its political subdivisions. 3) The subject properties are owned by MIAA, a GOCC, holding title in its own name. MIAA, a separate legal entity from the Republic of the Philippines, is the legal owner of the properties, and is thus liable for real property taxes, as it does not fall within the exemptions under Section 234 of the Local Government Code. 4) The MIAA charter expressly bars the sale or disposition of MIAA properties. As a result, the City of Paraaque is prohibited from seizing or selling these properties by public auction in order to satisfy MIAA's tax liability. In the end, MIAA is encumbered only by a limited lien possessed by the City of Paraaque. On the other hand, the majority's flaws are summarized as follows: 1) The majority deliberately ignores all precedents which run counter to its hypothesis, including Mactan. Instead, it relies and directly cites those doctrines and precedents

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which were overturned by Mactan. By imposing a different result than that warranted by the precedents without explaining why Mactan or the other precedents are wrong, the majority attempts to overturn all these ruling sub silencio and without legal justification, in a manner that is not sanctioned by the practices and traditions of this Court. 2) The majority deliberately ignores the policy and philosophy of local fiscal autonomy, as mandated by the Constitution, enacted under the Local Government Code, and affirmed by precedents. Instead, the majority asserts that there is no sound rationale for local governments to tax national government instrumentalities, despite the blunt existence of such rationales in the Constitution, the Local Government Code, and precedents. 3) The majority, in a needless effort to justify itself, adopts an extremely strained exaltation of the Administrative Code above and beyond the Corporation Code and the various legislative charters, in order to impose a wholly absurd definition of GOCCs that effectively declassifies innumerable existing GOCCs, to catastrophic legal consequences. 4) The majority asserts that by virtue of Section 133(o) of the Local Government Code, all national government agencies and instrumentalities are exempt from any form of local taxation, in contravention of several precedents to the contrary and the proviso under Section 133, "unless otherwise provided herein [the Local Government Code]." 5) The majority erroneously argues that MIAA holds its properties in trust for the Republic of the Philippines, and that such properties are patrimonial in character. No express or implied trust has been created to benefit the national government. The legal distinction between sovereign and proprietary functions, as affirmed by jurisprudence, likewise preclude the classification of MIAA properties as patrimonial. IX. Epilogue If my previous discussion still fails to convince on how wrong the majority is, then the following points are well-worth considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government instrumentality that exercises corporate powers but not organized as a stock or non-stock corporation. Correspondingly for the majority, the Bangko ng Sentral is exempt from all forms of local taxation by LGUs by virtue of the Local Government Code. Section 125 of Rep. Act No. 7653, The New Central Bank Act, states: SECTION 125. Tax Exemptions. The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments.

The New Central Bank Act was promulgated after the Local Government Code if the BSP is already preternaturally exempt from local taxation owing to its personality as an "government instrumentality," why then the need to make a new grant of exemption, which if the majority is to be believed, is actually a redundancy. But even more tellingly, does not this provision evince a clear intent that after the lapse of five (5) years, that the Bangko Sentral will be liable for provincial, municipal and city taxes? This is the clear congressional intent, and it is Congress, not this Court which dictates which entities are subject to taxation and which are exempt. Perhaps this notion will offend the majority, because the Bangko Sentral is not even a government owned corporation, but a government instrumentality, or perhaps "loosely", a "government corporate entity." How could such an entity like the Bangko Sentral , which is not even a government owned corporation, be subjected to local taxation like any mere mortal? But then, see Section 1 of the New Central Bank Act: SECTION 1. Declaration of Policy. The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy. Apparently, the clear legislative intent was to create a government corporation known as the Bangko Sentral ng Pilipinas. But this legislative intent, the sort that is evident from the text of the provision and not the one that needs to be unearthed from the bowels of the archival offices of the House and the Senate, is for naught to the majority, as it contravenes the Administrative Code of 1987, which after all, is "the governing law defining the status and relationship of government agencies and instrumentalities" and thus superior to the legislative charter in determining the personality of a chartered entity. Its like saying that the architect who designed a school building is better equipped to teach than the professor because at least the architect is familiar with the geometry of the classroom. Consider further the example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC), created by Republic Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a body corporate,144 and empowered with the attributes of a corporation,145 including the power to purchase or acquire real properties.146 However the PITAHC has no capital stock and no members, thus following the majority, it is not a GOCC. The state policy that guides PITAHC is the development of traditional and alternative health care,147 and its objectives include the promotion and advocacy of alternative, preventive and curative health care modalities that have been proven safe, effective and cost effective.148 "Alternative health care modalities" include "other forms of non-

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allophatic, occasionally non-indigenous or imported healing methods" which include, among others "reflexology, acupuncture, massage, acupressure" and chiropractics.149 Given these premises, there is no impediment for the PITAHC to purchase land and construct thereupon a massage parlor that would provide a cheaper alternative to the opulent spas that have proliferated around the metropolis. Such activity is in line with the purpose of the PITAHC and with state policy. Is such massage parlor exempt from realty taxes? For the majority, it is, for PITAHC is an instrumentality or agency exempt from local government taxation, which does not fall under the exceptions under Section 234 of the Local Government Code. Hence, this massage parlor would not just be a shelter for frazzled nerves, but for taxes as well. Ridiculous? One might say, certainly a decision of the Supreme Court cannot be construed to promote an absurdity. But precisely the majority, and the faulty reasoning it utilizes, opens itself up to all sorts of mischief, and certainly, a tax-exempt massage parlor is one of the lesser evils that could arise from the majority ruling. This is indeed a very strange and very wrong decision. I dissent. DANTE O. TINGA Associate Justice Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 163072 April 2, 2009 A7-19100843 A7-19100140 A7-19100139 A7-18305409 A7-18305410 A7-18305413 A7-18305412 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001

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 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 and 225 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 DECLARATION A7-18308346 A7-18305224 TAXABLE YEAR 1997-2001 1992-2001

TAX DUE 243,522,855.00 113,582,466.00 54,454,800.00 1,632,960.00 6,068,448.00 59,129,520.00 20,619,720.00 7,908,240.00 18,441,981.20 109,946,736.00 7,440,000.00

PENALTY 123,351,728.18 71,159,414.98 34,115,932.20 1,023,049.44 3,801,882.85 37,044,644.28 12,918,254.58 4,954,512.36 11,553,901.13 68,881,630.13 4,661,160.00

TOTAL 366,874,583.18 184,741,880.98 88,570,732.20 2,656,009.44 9,870,330.85 96,174,164.28 33,537,974.58 12,862,752.36 29,995,882.33 178,828,366.13 12,101,160.00

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, vs. CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR OF PASAY, Respondents. DECISION CARPIO, J.: This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.

A7-183-05411 1992-2001 A7-1831992-2001

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05245 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 (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

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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 bridgesconstructed 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 (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 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 nonstock 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

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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 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 Under Section 133(o)11of 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 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. ANTONIO T. CARPIO Associate Justice WE CONCUR: REYNATO S. PUNO Chief Justice

LEONARDO A. QUISUMBING Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Associate Justice CONCHITA CARPIO MORALES Associate Justice

CONSUELO YNARES-SANTIAGO Associate Justice RENATO C. CORONA Associate Justice DANTE O. TINGA Associate Justice

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MINITA V. CHICO-NAZARIO Associate Justice ANTONIO EDUARDO B. NACHURA Associate Justice ARTURO D. BRION Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice TERESITA J. LEONARDO-DE CASTRO Associate Justice DIOSDADO M. PERALTA Associate Justice

Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; Provided, that any subsidiary that may be organized shall have the prior approval of the President. 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 the sale or through any other mode unless specifically approved by the President of the Philippines.
5

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. REYNATO S. PUNO Chief Justice

Section 22 of EO 903 reads: SEC. 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other property, movable and 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.

Footnotes
6 1

G.R. No. 155650, 20 July 2006, 495 SCRA 591. Id. at 644-645.

Under Rule 45 of the 1997 Rules of Civil Procedure.

7

Penned by Associate Justice Ruben T. Reyes (now retired Supreme Court Justice) with Associate Justices Remedios Salazar-Fernando and Edgardo F. Sundiam, concurring.
3

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 reads: 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

Providing for a Revision of Executive Order No. 778 Creating the Manila International Airport Authority, Transferring Existing Assets of the Manila International Airport to the Authority, and Vesting the Authority with Power to Administer and Operate the Manila International Airport.
4

Section 3 of EO 903 reads: SEC. 3. Creation of the Manila International Airport Authority. There is hereby established a body corporate to be known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and Communications. The principal office of the Authority shall be located at the New Manila International Airport. The

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purpose of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.
9

The power to levy this tax is vested in local government units (LGUs). Thus, Republic Act (R.A.) No. 7160, or the Local Government Code (LGC) of 1991,3 provides: Under Book II, Title II, Chapter IV-Imposition of Real Property Tax Section 232. Power to Levy Real Property Tax.A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted.4 A significant innovation in the LGC is the withdrawal, subject to some exceptions, of all tax exemption privileges of all natural or juridical persons, including government-owned and controlled corporations (GOCCs), thus: Under Book II, Title I, Chapter V-Miscellaneous Provisions 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.5 This is where the controversy started. The airport authorities, formerly exempt from paying taxes, are now being obliged to pay real property tax on airport properties. To challenge the real property tax assessments, the airport authorities invoke two provisions of the LGCone is stated in Book II, Title I, Chapter I on General Provisions, which reads: 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) 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

Supra note 6 at 615-618.

10

Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 150301, 2 October 2007, 534 SCRA 490.
11

Section 133(o) of the Local Government Code reads: SECTION 133. Common Limitations on the Taxing Powers of the Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, andbarangays shall not extend to the levy of the following: xxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.

12

Manila International Airport Authority v. Court of Appeals, supra note 6.

SEPARATE OPINION NACHURA, J.: Are airport properties subject to real property tax? The question seriously begs for a definitive resolution, in light of our ostensibly contradictory decisions 1 that may have generated no small measure of confusion even among lawyers and magistrates. Hereunder, I propose a simple, direct and painless approach to arrive at an acceptable answer to the question. I. Real property tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners.2

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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 "Cooperative 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.6

and the other in Book II, Title I, Chapter IV on Imposition of Real Property Tax: 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, 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.7 In Mactan Cebu International Airport Authority (MCIAA) v. Marcos,8 the Court ruled that Section 133(o) is qualified by Sections 232 and 234. Thus, MCIAA could not seek refuge in Section 133(o), but only in Section 234(a) provided it could establish that the properties were owned by the Republic of the Philippines. The Court ratiocinated, thus: [R]eading 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.

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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 arewithdrawn 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.9 In addition, the Court went on to hold that the properties comprising the Lahug International Airport and the Mactan International Airport are no longer owned by the Republic, the latter having conveyed the same absolutely to MCIAA. About a decade later, however, the Court ruled in Manila International Airport Authority (MIAA) v. Court of Appeals,10 that the airport properties, this time comprising the Ninoy Aquino International Airport (NAIA), are exempt from real property tax. It justified its ruling by categorizing MIAA as a government instrumentality specifically exempted from paying tax by Section 133(o) of R.A. No. 7160. It further reasoned that the subject properties are properties of public dominion, owned by the Republic, and are only held in trust by MIAA, thus: 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 Paraaque. 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.11 II. In this case, we are confronted by the very same issue. A basic principle in statutory construction decrees that, to discover the general legislative intent, the whole statute, and not only a particular provision thereof, should be considered. Every section, provision or clause in the law must be read and construed in reference to each other in order to arrive at the true intention of the legislature.12 Notably, Section 133 of the LGC speaks of the general limitations on the taxing power of LGUs. This is reinforced by its inclusion in Title I, Chapter I entitled "General Provisions" on "Local Government Taxation." On the other hand, Section 234, containing the enumeration of the specific exemptions from real property tax, is in Chapter IV entitled "Imposition of Real Property Tax" under Title II on "Real Property Taxation." When read together, Section 234, a specific provision, qualifies Section 133, a general provision. Indeed, whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, will overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply.13Otherwise stated, where there are two acts or provisions, one of which is special and particular, and certainly includes the matter in question, and the other general, which, if standing alone, will include the same matter and thus conflict with the special act or provision, the special must be taken as intended to constitute an exception to the general act or provision,

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especially when such general and special acts or provisions are contemporaneous, as the legislature is not to be presumed to have intended a conflict.14 Mactan Cebu therefore adheres to the intendment of the law insofar as it holds that MCIAA cannot seek refuge in Section 133(o); that it can only invoke Section 234(a) so long as it can establish that the properties were owned by the Republic of the Philippines. To repeat, Section 234, which specifies the properties exempted from real property tax, prevails over the general limitations on the taxing power of LGUs stated in Section 133. Thus, if Section 133(o) is not to be a haven, then, I respectfully submit that it is no longer necessary to dichotomize between a government instrumentality and a GOCC. As stressed by the Court in Mactan Cebu, what need only be ascertained is whether the airport properties are owned by the Republic if the airport Authority is to be freed from the burden of paying the real property tax. Similarly, in MIAA, with the Courts finding that the NAIA lands and buildings are owned by the Republic, the airport Authority does not have to pay real property tax to the City of Paraaque. III. As pointed out earlier, Mactan Cebu and MIAA ostensibly contradict each other. While the first considers airport properties as subject to real property tax, the second exempts the same from this imposition. The conflict, however, is more apparent than real. The divergent conclusions in the two cases proceed from different premises; hence, the resulting contradiction. To elucidate, in Mactan Cebu, the Court focused on the proper interpretation of Sections 133, 232 and 234 of the LGC, and emphasized the nature of the tax exemptions granted by law. Mactan Cebu categorized the exemptions as 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 exclusiveuse 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.15 For the airport properties to be exempt from real property tax, they must fall within the mentioned categories. Logically, the airport properties can only qualify under the first exemptionby virtue of ownership. But, as already mentioned, the Court, nevertheless, ruled in Mactan Cebu that the said properties are no longer owned by the Republic having been conveyed absolutely to the airport Authority, thus: 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," which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO). 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."Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable. 16

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In MIAA, a different conclusion was reached by the Court on two grounds. It first banked on the general provision limiting the taxing power of LGUs as stated in Section 133(o) of the LGC that, unless otherwise provided in the Code, the exercise of the taxing powers of LGUs shall not extend to the levy of taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and LGUs. The Court took pains in characterizing airport authorities as government instrumentalities, quite obviously, in order to apply the said provision. After doing so, the Court then shifted its attention and proceeded to focus on the issue of who owns the property to determine whether the case falls within the purview of Section 234(a). Ratiocinating that airport properties are of public dominion which pertain to the state and that the airport Authority is a mere trustee of the Republic, the Court ruled that the said properties are exempt from real property tax, thus: 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: xxxx 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 users 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 users tax is more equitable a principle of taxation mandated in the 1987 Constitution. The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air traffic," 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: xxxx Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man: xxxx The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale. 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 Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for nonpayment of real estate tax.

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Before MIAA can encumber 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," provide: xxxx 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: xxxx 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: xxxx In MIAAs 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. 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:

xxxx 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: xxxx 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 MIAAs 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: xxxx 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

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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: xxxx
17

course, when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. The principal basis of the exemption is likewise ownership.21 Indeed, emphasis should be made on the ownership of the property, rather than on the airport Authority being a taxable entity. This strategy makes it unnecessary to determine whether MIAA is an instrumentality or a GOCC, as painstakingly expounded by the ponente. Likewise, this approach provides a convenient escape from Justice Tingas proposition that the MIAA is a taxable entity liable to pay real property taxes, but the airport properties are exempt from levy on execution to satisfy the tax liability. I fear that this hypothesis may trench on the Constitutional principle of uniformity of taxation,22because a tax lawfully levied and assessed against a taxable governmental entity will not be lienable while like assessments against all other taxable entities of the same tax district will be lienable.23 The better option, then, is for the Court to concentrate on the nature of the tax as a tax on ownership and to directly apply the pertinent real property tax provisions of the LGC, specifically those dealing with the exemption based on ownership, to the case at bar. The phrase, "property owned by the Republic" in Section 234, actually refers to those identified as public property in our laws. Following MIAA, we go to Articles 420 and 421 of the Civil Code which provide: 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. Art. 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property. From the afore-quoted, we readily deduce that airport properties are of public dominion. The "port" in the enumeration certainly includes an airport. With its beacons, landing fields, runways, and hangars, an airport is analogous to a harbor with its lights, wharves and docks; the one is the landing place and haven of ships that navigate the water, the other of those that navigate the air.24 Ample authority further supports the proposition that the term "roads" include runways and landing strips.25 Airports, therefore, being properties of public dominion, are of the Republic.

In the ultimate, I submit that the two rulings do not really contradict, but, instead, complement each one. Mactan Cebu provides the proper rule that, in order to determine whether airport properties are exempt from real property tax, it is Section 234, not Section 133, of the LGC that should be determinative of the properties exempt from the said tax. MIAA then lays down the correct doctrine that airport properties are of public dominion pertaining to the state, hence, falling within the ambit of Section 234(a) of the LGC. However, because of the confusion generated by the apparently conflicting decisions, a fine tuning of Mactan Cebu and MIAA is imperative. IV. Parenthetically, while the basis of a real property tax assessment is actual use,18 the tax itself is directed to theownership of the lands and buildings or other improvements thereon.19 Public policy considerations dictate that property of the State and of its municipal subdivisions devoted to governmental uses and purposes is generally exempt from taxation although no express provision in the law is made therefor.20 In the instant case, the legislature specifically provided that real property owned by the Republic of the Philippines or any of its political subdivisions is exempt from real property tax, except, of

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At this point, I cannot help but air the observation that the legislature may have really intended the phrase "owned by the Republic" in Section 234 to refer to, among others, properties of public dominion. This is because "public dominion" does not carry the idea of ownership. Tolentino, an authority in civil law, explains: This article shows that there is a distinction between dominion and ownership. Private ownership is defined elsewhere in the Code; but the meaning of public dominion is nowhere defined. From the context of various provisions, it is clear that public dominion does not carry the idea of ownership; property of public dominion is not owned by the State, but pertains to the State, which as territorial sovereign exercises certain juridical prerogatives over such property. The ownership of such property, which has the special characteristics of a collective ownership for the general use and enjoyment, by virtue of their application to the satisfaction of the collective needs, is in the social group, whether national, provincial, or municipal. Their purpose is not to serve the State as a juridical person, but the citizens; they are intended for the common and public welfare, and so they cannot be the object of appropriation, either by the State or by private persons. The relation of the State to this property arises from the fact that the State is the juridical representative of the social group, and as such it takes care of them, preserves them and regulates their use for the general welfare.26 Be that as it may, the legislative intent to exempt from real property tax the properties of the Republic remains clear. The soil constituting the NAIA airport and the runways cannot be taxed, being properties of public dominion and pertaining to the Republic. This is true even if the title to the said property is in the name of MIAA. Practical ownership, rather than the naked legal title, must control, particularly because, as a matter of practice, the record title may be in the name of a government agency or department rather than in the name of the Republic. In this case, even if MIAA holds the record title over the airport properties, such holding can only be for the benefit of the Republic,27 especially when we consider that MIAA exercises an essentially public function.28 Further, where property, the title to which is in the name of the principal, is immune from taxes, it remains immune even if the title is standing in the name of an agent or trustee for such principal.29 Properties of public dominion are held in trust by the state or the Republic for the people.30 The national government and the bodies it has created that exercise delegated authority are, pursuant to the general principles of public law, mere agents of the Republic. Here, insofar as it deals with the subject properties, MIAA, a governmental creation exercising delegated powers, is a mere agent of the Republic, and the latter, to repeat, is the trustee of the properties for the benefit of all the people.31 Our ruling in MIAA, therefore, insofar as it holds that the airport Authority is a "trustee of the Republic," may not have been precise. It would have been more sound, legally that is, to consider the relationship between the Republic and the airport Authority as principal and agent, rather than as trustor and trustee.

The history of the subject airport attests to this proposition, thus: The country's premier airport was originally a US Air Force Base, which was turned over to the Philippine government in 1948. It started operations as a civil aviation airport with meager facilities, then consisting of the present domestic runway as its sole landing strip, and a small building northwest of this runway as its sole passenger terminal. The airport's international runway and associated taxiway were built in 1953; followed in 1961 by the construction of a control tower and a terminal building for the exclusive use of international passengers at the southwest intersection of the two runways. These structures formed the key components of an airport system that came to be known as the Manila International Airport (MIA). Like other national airports, the MIA was first managed and operated by the National Airports Corporation, an agency created on June 5, 1948 by virtue of Republic Act No. 224. This was abolished in 1951 and [in] its stead, the MIA Division was created under the Civil Aeronautics Administration (CAA) of the Department of Commerce and Industry. On October 19, 1956, the entire CAA, including the MIA Division, was transferred to the Department of Public Works, Transportation and Communications. In 1979, the CAA was renamed Bureau of Air Transportation following the creation of an exclusive Executive Department for Transportation and Communications. It is worthwhile to note at this point that while the MIA General Manager then carried the rank of a Division Chief only, it became a matter of policy and practice that he be appointed by no less than the President of the Philippines since the magnitude of its impact on the country's economy has acquired such national importance and recognition. During the seventies, the Philippine tourism and industry experienced a phenomenal upsurge in the country's manpower exports, resulting in more international flight frequencies to Manila which grew by more than four times. Executive Order No. 381 promulgated by then President Marcos authorized the development of Manila International Airport to meet the needs of the coming decades. A feasibility study/airport master plan was drawn up in 1973 by Airways Engineering Corporation, the financing of which was source[d] from a US$29.6 Million loan arranged with the Asian Development Bank (ADB). The detailed Engineering Design of the new MIA Development Project (MIADP) was undertaken by Renardet-Sauti/Transplan/F.F. Cruz Consultants while the design of the IPT building was prepared by Architect L.V. Locsin and Associates.

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In 1974, the final engineering design was adopted by the Philippine Government. This was concurred by the ADB on September 18, 1975 and became known as the "Scheme E-5 Modified Plan." Actual work on the project started in the second quarter of 1978. On March 4, 1982, EXECUTIVE ORDER NO. 778 was signed into law, abolishing the MIA Division under the BAT and creating in its stead the MANILA INTERNATIONAL AIRPORT AUTHORITY (MIAA), vested with the power to administer and operate the Manila International Airport (MIA). Though MIAA was envisioned to be autonomous, Letter of Instructions (LOI) No. 1245, signed 31 May 1982, clarified that for purpose of policy integration and program coordination, the MIAA Management shall be under the general supervision but not control of the then Ministry of Transportation and Communications. On July 21, 1983, Executive Order No. 903 was promulgated, providing that 65% of MIAA's annual gross operating income be reverted to the general fund for the maintenance and operation of other international and domestic airports in the country. It also scaled down the equity contribution of the National Government to MIAA: from PhP 10 billion to PhP 2.5 billion and removed the provision exempting MIAA from the payment of corporate tax. Another revision in the MIAA Charter followed with the promulgation of Executive Order No. 909, signed September 16, 1983, increasing the membership of the MIAA Board to nine (9) Directors with the inclusion of two other members to be appointed by the Philippine President. The last amendment to the MIAA Charter was made on July 26, 1987 through Executive Order No. 298 which provided for a more realistic income sharing arrangement between MIAA and the National Government. It provided that instead of the 65% of gross operating income, only 20% of MIAA's gross income, exclusive of income generated from the passenger terminal fees and utility charges, shall revert to the general fund of the National Treasury. EO 298 also reorganized the MIAA Board and raised the capitalization to its original magnitude of PhP 10 billion. The post 1986 Revolution period will not be complete without mention of the renaming of MIA to Ninoy Aquino International Airport with the enactment of Republic Act No. 6639 on August 17, 1987. While this legislation renamed the airport complex, the MIA Authority would still retain its corporate name since it did not amend the original or revised charters of MIAA.32 The MIAA Charter further provides that any portion of the airport cannot be disposed of by the Authority through sale or through any other mode unless specifically approved by the President of the Philippines.33 It is also noted that MIAAs board of directors is practically controlled by the national government, the members thereof being officials of

the executive branch.34 Likewise, the Authority cannot levy and collect dues, charges, fees or assessments for the use of the airport premises, works, appliances, facilities or concessions, or for any service provided by it, without the approval of several executive departments.35 These provisions are consistent with an agency relationship. Let it be remembered that one of the principal elements of an agency relationship is the existence of some degree of control by the principal over the conduct and activities of the agent. In this regard, while an agent undertakes to act on behalf of his principal and subject to his control, a trustee as such is not subject to the control of the beneficiary, except that he is under a duty to deal with the trust property for the latters benefit in accordance with the terms of the trust and can be compelled by the beneficiary to perform his duty. 36 Finally, to consider MIAA as a "trustee of the Republic" will sanction the technical creation of a second trust in which the Republic, which is already a trustee, becomes the second trustor and the airport Authority a second trustee. Although I do not wish to belabor the point, I submit that the validity of such a scenario appears doubtful. Sufficient authority, however, supports the proposition that a trustee can delegate his duties to an agent provided he properly supervises and controls the agents conduct.37 In this case, we can rightly say that the Republic, as the trustee of the public dominion airport properties for the benefit of the people, has delegated to MIAA the administration of the said properties subject, as shown above, to the executive departments supervision and control. In fine, the properties comprising the NAIA being of public dominion which pertain to the State, the same should be exempt from real property tax following Section 234(a) of the LGC. One last word. Given the foregoing disquisition, I find no necessity for this Court to abandon its ruling in Mactan. On the premise that the rationale for exempting airport properties from payment of real estate taxes is ownership thereof by the Republic, the Mactan ruling is impeccable in its logic and its conclusion should remain undisturbed. Having harmonized the apparently divergent views, we need no longer fear any fierce disagreements in the future. I therefore vote to grant the petition. ANTONIO EDUARDO B. NACHURA Associate Justice Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 162015 March 6, 2006

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THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY, DR. VICTOR B. ENRIGA, Petitioners, vs. BAYAN TELECOMMUNICATIONS, INC., Respondent. DECISION GARCIA,J.: Before the Court, on pure questions of law, is this petition for review on certiorari under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Regional Trial Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-02-47292, to wit: 1) Decision1 dated June 6, 2003, declaring respondent Bayan Telecommunications, Inc. exempt from real estate taxation on its real properties located in Quezon City; and 2) Order2 dated December 30, 2003, denying petitioners motion for reconsideration. The facts: Respondent Bayan Telecommunications, Inc.3 (Bayantel) is a legislative franchise holder under Republic Act (Rep. Act) No. 32594 to establish and operate radio stations for domestic telecommunications, radiophone, broadcasting and telecasting. Of relevance to this controversy is the tax provision of Rep. Act No. 3259, embodied in Section 14 thereof, which reads: SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the franchise, as other persons or corporations are now or hereafter may be required by law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from the business transacted under this franchise by the said grantee (Emphasis supplied). On January 1, 1992, Rep. Act No. 7160, otherwise known as the "Local Government Code of 1991" (LGC), took effect. Section 232 of the Code grants local government units within the Metro Manila Area the power to levy tax on real properties, thus: 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 hereinafter specifically exempted.

Complementing the aforequoted provision is the second paragraph of Section 234 of the same Code which withdrew any exemption from realty tax heretofore granted to or enjoyed by all persons, natural or juridical, to wit: SEC. 234 - Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: xxx xxx xxx Except as provided herein, any exemption from payment of real property tax previously granted to, or enjoyed by, all persons, whether natural or juridical, including governmentowned-or-controlled corporations is hereby withdrawn upon effectivity of this Code (Emphasis supplied). On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep. Act No. 7633, amending Bayantels original franchise. The amendatory law (Rep. Act No. 7633) contained the following tax provision: SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof. Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code . xxx. [Emphasis supplied] It is undisputed that within the territorial boundary of Quezon City, Bayantel owned several real properties on which it maintained various telecommunications facilities. These real properties, as hereunder described, are covered by the following tax declarations: (a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-09604073 pertaining to Bayantels Head Office and Operations Center in Roosevelt St., San Francisco del Monte, Quezon City allegedly the nerve center of petitioners telecommunications franchise operations, said Operation Center housing mainly petitioners Network Operations Group and switching, transmission and related equipment; (b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-124-00941 covering Bayantels land, building and equipment in Maginhawa St., Barangay East Teachers Village, Quezon City which houses telecommunications facilities; and

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(c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-011-11540 referring to Bayantels Exchange Center located in Proj. 8, Brgy. Bahay Toro, Tandang Sora, Quezon City which houses the Network Operations Group and cover switching, transmission and other related equipment. In 1993, the government of Quezon City, pursuant to the taxing power vested on local government units by Section 5, Article X of the 1987 Constitution, infra, in relation to Section 232 of the LGC, supra, enacted City Ordinance No. SP-91, S-93, otherwise known as the Quezon City Revenue Code (QCRC),5 imposing, under Section 5 thereof, a real property tax on all real properties in Quezon City, and, reiterating in its Section 6, the withdrawal of exemption from real property tax under Section 234 of the LGC, supra. Furthermore, much like the LGC, the QCRC, under its Section 230, withdrew tax exemption privileges in general, as follows: SEC. 230. 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 RA 6938, non-stock and non-profit hospitals and educational institutions, business enterprises certified by the Board of Investments (BOI) as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, are hereby withdrawn effective upon approval of this Code (Emphasis supplied). Conformably with the Citys Revenue Code, new tax declarations for Bayantels real properties in Quezon City were issued by the City Assessor and were received by Bayantel on August 13, 1998, except one (Tax Declaration No. 124-01013) which was received on July 14, 1999. Meanwhile, on March 16, 1995, Rep. Act No. 7925,6 otherwise known as the "Public Telecommunications Policy Act of the Philippines," envisaged to level the playing field among telecommunications companies, took effect. Section 23 of the Act provides: SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise. On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real properties in the city from the roll of taxable real properties. With its request having been denied, Bayantel interposed an appeal with the Local Board of Assessment

Appeals (LBAA). And, evidently on its firm belief of its exempt status, Bayantel did not pay the real property taxes assessed against it by the Quezon City government. On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount ofP43,878,208.18, followed by the issuance of several warrants of levy against Bayantels properties preparatory to their sale at a public auction set on July 30, 2002. Threatened with the imminent loss of its properties, Bayantel immediately withdrew its appeal with the LBAA and instead filed with the RTC of Quezon City a petition for prohibition with an urgent application for a temporary restraining order (TRO) and/or writ of preliminary injunction, thereat docketed as Civil Case No. Q-02-47292, which was raffled to Branch 227 of the court. On July 29, 2002, or in the eve of the public auction scheduled the following day, the lower court issued a TRO, followed, after due hearing, by a writ of preliminary injunction via its order of August 20, 2002. And, having heard the parties on the merits, the same court came out with its challenged Decision of June 6, 2003, the dispositive portion of which reads: WHEREFORE, premises considered, pursuant to the enabling franchise under Section 11 of Republic Act No. 7633, the real estate properties and buildings of petitioner [now, respondent Bayantel] which have been admitted to be used in the operation of petitioners franchise described in the following tax declarations are hereby DECLARED exempt from real estate taxation: (1) Tax Declaration No. D-096-04071 (2) Tax Declaration No. D-096-04074 (3) Tax Declaration No. D-124-01013 (4) Tax Declaration No. D-011-10810 (5) Tax Declaration No. D-011-10811 (6) Tax Declaration No. D-011-10809 (7) Tax Declaration No. D-124-00941 (8) Tax Declaration No. D-124-00940

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(9) Tax Declaration No. D-124-00939 (10) Tax Declaration No. D-096-04072 (11) Tax Declaration No. D-096-04073 (12) Tax Declaration No. D-011-11540 The preliminary prohibitory injunction issued in the August 20, 2002 Order of this Court is hereby made permanent. Since this is a resolution of a purely legal issue, there is no pronouncement as to costs. SO ORDERED. Their motion for reconsideration having been denied by the court in its Order dated December 30, 2003, petitioners elevated the case directly to this Court on pure questions of law, ascribing to the lower court the following errors: I. [I]n declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that the tax exemption granted to Bayantel in its original franchise had been withdrawn by the [LGC] and that the said exemption was not restored by the enactment of RA 7633. II. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the enactment of the [QCRC] which withdrew the tax exemption which may have been granted by RA 7633. III. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the vague and ambiguous grant of tax exemption provided under Section 11 of RA 7633. IV. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that [it] had failed to exhaust administrative remedies in its claim for real property tax exemption. (Words in bracket added.) As we see it, the errors assigned may ultimately be reduced to two (2) basic issues, namely: 1. Whether or not Bayantels real properties in Quezon City are exempt from real property taxes under its legislative franchise; and 2. Whether or not Bayantel is required to exhaust administrative remedies before seeking judicial relief with the trial court.

We shall first address the second issue, the same being procedural in nature. Petitioners argue that Bayantel had failed to avail itself of the administrative remedies provided for under the LGC, adding that the trial court erred in giving due course to Bayantels petition for prohibition. To petitioners, the appeal mechanics under the LGC constitute Bayantels plain and speedy remedy in this case. The Court does not agree. Petitions for prohibition are governed by the following provision of Rule 65 of the Rules of Court: SEC. 2. Petition for prohibition. When the proceedings of any tribunal, are without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further proceedings in the action or matter specified therein, or otherwise, granting such incidental reliefs as law and justice may require. With the reality that Bayantels real properties were already levied upon on account of its nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the LBAA is not a speedy and adequate remedy within the context of the aforequoted Section 2 of Rule 65. This is not to mention of the auction sale of said properties already scheduled on July 30, 2002. Moreover, one of the recognized exceptions to the exhaustion- of-administrative remedies rule is when, as here, only legal issues are to be resolved. In fact, the Court, cognizant of the nature of the questions presently involved, gave due course to the instant petition. As the Court has said in Ty vs. Trampe:7 xxx. Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. xxx. Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment under protest of the amount of P43,878,208.18, a figure which, in the light of the then prevailing Asian financial crisis, may have been difficult to raise up. Given this reality, an appeal to the LBAA may not be considered as a plain, speedy and adequate remedy. It is thus understandable why Bayantel opted to withdraw its earlier appeal with the LBAA and, instead, filed its petition for prohibition with urgent application for injunctive relief in Civil Case No. Q-02-47292. The remedy availed of by Bayantel under Section 2, Rule 65 of the Rules of Court must be upheld.

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This brings the Court to the more weighty question of whether or not Bayantels real properties in Quezon City are, under its franchise, exempt from real property tax. The lower court resolved the issue in the affirmative, basically owing to the phrase "exclusive of this franchise" found in Section 11 of Bayantels amended franchise, Rep. Act No. 7633. To petitioners, however, the language of Section 11 of Rep. Act No. 7633 is neither clear nor unequivocal. The elaborate and extensive discussion devoted by the trial court on the meaning and import of said phrase, they add, suggests as much. It is petitioners thesis that Bayantel was in no time given any express exemption from the payment of real property tax under its amendatory franchise. There seems to be no issue as to Bayantels exemption from real estate taxes by virtue of the term "exclusive of the franchise" qualifying the phrase "same taxes on its real estate, buildings and personal property," found in Section 14, supra, of its franchise, Rep. Act No. 3259, as originally granted. The legislative intent expressed in the phrase "exclusive of this franchise" cannot be construed other than distinguishing between two (2) sets of properties, be they real or personal, owned by the franchisee, namely, (a) those actually, directly and exclusively used in its radio or telecommunications business, and (b) those properties which are not so used. It is worthy to note that the properties subject of the present controversy are only those which are admittedly falling under the first category. To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to grant or delegate to local governments of Congress inherent power to tax the franchisees properties belonging to the second group of properties indicated above, that is, all properties which, "exclusive of this franchise," are not actually and directly used in the pursuit of its franchise. As may be recalled, the taxing power of local governments under both the 1935 and the 1973 Constitutions solely depended upon an enabling law. Absent such enabling law, local government units were without authority to impose and collect taxes on real properties within their respective territorial jurisdictions. While Section 14 of Rep. Act No. 3259 may be validly viewed as an implied delegation of power to tax, the delegation under that provision, as couched, is limited to impositions over properties of the franchisee which are not actually, directly and exclusively used in the pursuit of its franchise. Necessarily, other properties of Bayantel directly used in the pursuit of its business are beyond the pale of the delegated taxing power of local governments. In a very real sense, therefore, real properties of Bayantel, save those exclusive of its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was that all realties which are actually, directly and exclusively used in the operation of its franchise are "exempted" from any property tax. Bayantels franchise being national in character, the "exemption" thus granted under Section 14 of Rep. Act No. 3259 applies to all its real or personal properties found anywhere within the Philippine archipelago.

However, with the LGCs taking effect on January 1, 1992, Bayantels "exemption" from real estate taxes for properties of whatever kind located within the Metro Manila area was, by force of Section 234 of the Code, supra, expressly withdrawn. But, not long thereafter, however, or on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantels original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section 14, supra, of Bayantels original franchise under Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. 3259 which was deemed impliedly repealed by Section 234 of the LGC was expressly revived under Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed by Bayantel under its original franchise, but subsequently withdrawn by force of Section 234 of the LGC, has been restored by Section 14 of Rep. Act No. 7633. The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987 Constitution,8 local governments are empowered to levy taxes. And pursuant to this constitutional empowerment, juxtaposed with Section 2329 of the LGC, the Quezon City government enacted in 1993 its local Revenue Code, imposing real property tax on all real properties found within its territorial jurisdiction. And as earlier stated, the Citys Revenue Code, just like the LGC, expressly withdrew, under Section 230 thereof, supra, all tax exemption privileges in general. This thus raises the question of whether or not the Citys Revenue Code pursuant to which the city treasurer of Quezon City levied real property taxes against Bayantels real properties located within the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as amended. Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same taxes, as any other persons or corporations on all its real or personal properties, exclusive of its franchise." Bayantels posture is well-taken. While the system of local government taxation has changed with the onset of the 1987 Constitution, the power of local government units to tax is still limited. As we explained in Mactan Cebu International Airport Authority: 10 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 be virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. 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. (at p. 680; Emphasis supplied.) Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X, Section 5 of the 1987 Constitution now in place, .the basic doctrine on local taxation remains essentially the same. For as the Court stressed in Mactan, "the power to tax is [still] primarily vested in the Congress."

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This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the 1986 Constitutional Commission which crafted the 1987 Constitution, thus: What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. They no longer have to wait for a statutory grant of these powers. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. Moreover, these limitations must be "consistent with the basic policy of local autonomy." The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations. Henceforth, in interpreting statutory provisions on municipal fiscal powers, doubts will be resolved in favor of municipal corporations. It is understood, however, that taxes imposed by local government must be for a public purpose, uniform within a locality, must not be confiscatory, and must be within the jurisdiction of the local unit to pass.11(Emphasis supplied). In net effect, the controversy presently before the Court involves, at bottom, a clash between the inherent taxing power of the legislature, which necessarily includes the power to exempt, and the local governments delegated power to tax under the aegis of the 1987 Constitution. Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties within the citys territory and removed exemptions theretofore "previously granted to, or presently enjoyed by all persons, whether natural or juridical .,"12 there can really be no dispute that the power of the Quezon City Government to tax is limited by Section 232 of the LGC which expressly provides that "a province or city or municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted." Under this law, the Legislature highlighted its power to thereafter exempt certain realties from the taxing power of local government units. An interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such absurd situation is unacceptable. For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao,13 this Court has upheld the power of Congress to grant exemptions over the power of local government units to impose taxes. There, the Court wrote: Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local

governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations. (Emphasis supplied.) As we see it, then, the issue in this case no longer dwells on whether Congress has the power to exempt Bayantels properties from realty taxes by its enactment of Rep. Act No. 7633 which amended Bayantels original franchise. The more decisive question turns on whether Congress actually did exempt Bayantels properties at all by virtue of Section 11 of Rep. Act No. 7633. Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has already withdrawn Bayantels former exemption from realty taxes, Congress opted to pass Rep. Act No. 7633 using, under Section 11 thereof, exactly the same defining phrase "exclusive of this franchise" which was the basis for Bayantels exemption from realty taxes prior to the LGC. In plain language, Section 11 of Rep. Act No. 7633 states that "the grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay." The Court views this subsequent piece of legislation as an express and real intention on the part of Congress to once again remove from the LGCs delegated taxing power, all of the franchisees (Bayantels) properties that are actually, directly and exclusively used in the pursuit of its franchise. WHEREFORE, the petition is DENIED. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 171470 January 30, 2009

NATIONAL POWER CORPORATION, Petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) OF LA UNION, PROVINCIAL TREASURER, LA UNION and MUNICIPAL ASSESSOR OF BAUANG, LA UNION,Respondents. DECISION BRION, J.:

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What are the real property tax implications of a Build-Operate-Transfer (BOT) agreement between a government-owned and controlled corporation (GOCC) that enjoys tax exemption and a private corporation? Specifically, under the terms of the BOT Areement, can the GOCC be deemed the actual, direct, and exclusive user of machineries and equipment for tax exemption purposes? If not, can it pass on its tax-exempt status to its BOT partner, a private corporation, through the BOT agreement? The National Power Corporation (NAPOCOR) claims in this case that the machineries and equipment used in a project covered by a BOT agreement, to which it is a party, should be accorded the tax-exempt status it enjoys. The Local Board of Assessment Appeals of the Province of La Union (LBAA), the Central Board of Assessment Appeals (CBAA) and the Court of Tax Appeals (CTA) were one in rejecting NAPOCORs claim. The present petition for review on certiorari filed under Rule 45 of the Rules of Court by NAPOCOR challenges this uniform ruling and seeks the reversal of the CTAs Decision dated February 13, 2006 in the consolidated cases of NAPOCOR v. CBAA, et al.1 and Bauang Private Power Corp. v. Sangguniang Panlalawigan ng La Union, et al.,2 and of the denial of the motion for reconsideration that followed. THE ANTECEDENTS On January 11, 1993, First Private Power Corporation (FPPC) entered into a BOT agreement with NAPOCOR for the construction of the 215 Megawatt Bauang Diesel Power Plant in Payocpoc, Bauang, La Union. The BOT Agreement provided, via an Accession Undertaking, for the creation of the Bauang Private Power Corporation (BPPC) that will own, manage and operate the power plant/station, and assume and perform FPPCs obligations under the BOT agreement. For a fee,3 BPPC will convert NAPOCORs supplied diesel fuel into electricity and deliver the product to NAPOCOR. The pertinent provisions of the BOT agreement, as they relate to the submitted issues in the present case, read: 2.03 NAPOCOR shall make available the Site to CONTRACTOR for the purpose of building and operating the Power Station at no cost to CONTRACTOR for the period commencing on the Effective Date and ending on the Transfer Date and NAPOCOR shall be responsible for the payment of all real estate taxes and assessments, rates, and other charges in respect of the Site and the buildings and improvements thereon. xxxx 2.08 From the date hereof until the Transfer Date, CONTRACTOR shall, directly or indirectly, own the Power Station and all the fixtures, fittings, machinery, and equipment on the Site or used in connection with the Power Station which have been supplied by it

or at its cost and it shall operate and manage the Power Station for the purpose of converting fuel of NAPOCOR into electricity. 2.09 Until the Transfer Date, NAPOCOR shall, at its own cost, supply and deliver all Fuel for the Power Station and shall take all electricity generated by the Power Station at the request of NAPOCOR which shall pay to CONTRACTOR fees as provided in Clause 11. xxxx 2.11 On the Transfer Date, the Power Station shall be transferred by the CONTRACTOR to NAPOCOR without payment of any compensation. The Officer-in-Charge of the Municipal Assessors Office of Bauang, La Union initially issued Declaration of Real Property Nos. 25016 and 25022 to 25029 declaring BPPCs machineries and equipment as tax-exempt. On the initiative of the Bauang Vice Mayor, the municipality questioned before the Regional Director of the Bureau of Local Government Finance (BLGF) the declared tax exemption; later, the issue was elevated to the Deputy Executive Director and Officer-in-Charge of the BLGF, Department of Finance, who ruled that BPPCs machineries and equipments are subject to real property tax and directed the Assessors Office to take appropriate action. The Provincial/Municipal Assessors thereupon issued Revised Tax Declaration Nos. 30026 to 30033 and 30337, and cancelled the earlier issued Declarations of Real Property. The Municipal Assessor of Bauang then issued a Notice of Assessment and Tax Bill to BPPC assessing/taxing the machineries and equipments in the total sum ofP288,582,848.00 for the 1995-1998 period, sans interest of two percent (2%) on the unpaid amounts. BPPCs Vice-President and Plant Manager received the Notice of Assessment and Tax Bill on August 7, 1998. On October 5, 1998, NAPOCOR filed a petition (styled In Re Petition to Declare Exempt the Revised and Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037) with the LBAA. The petition asked that, retroactive to 1995, the machineries covered by the tax declarations be exempt from real property tax under Section 234(c) of Republic Act No. 7160 (the Local Government Code or LGC); and, that these properties be dropped from the assessment roll pursuant to Section 206 of the LGC. Section 234(c) of the LGC provides: 4 Section 234. Exemptions from Real Property Tax. The following are exempted from the payment of real property tax: xxxx

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(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; x x x x. The LBAA denied NAPOCORs petition for exemption in a Decision dated October 26, 2001. It ruled that the exemption provided by Section 234(c) of the LGC applies only when a government-owned or controlled corporation like NAPOCOR owns and/or actually uses machineries and equipment for the generation and transmission of electric power; in this case, NAPOCOR does not own and does not even actually and directly use the machineries. It is the BPPC, a non-government entity, which owns, maintains, and operates the machineries and equipment; using these, it generates electricity and then sells this to NAPOCOR. Additionally, it ruled that the liability for the payment of the real estate taxes is determined by law and not by the agreement of the parties; hence, the provision in the BOT Agreement whereby NAPOCOR assumed responsibility for the payment of all real estate taxes and assessments, rates, and other charges, in relation with the site, buildings, and improvements in the BOT project, is an arrangement between the parties that cannot be the basis in identifying who is liable to the government for the real estate tax. NAPOCOR appealed the LBAA ruling to the CBAA. BPPC moved to intervene on the ground that it has a direct interest in the outcome of the litigation.5 The CBAA subsequently dismissed the appeal based on its finding that the BPPC, and not NAPOCOR, is the actual, direct and exclusive user of the equipment and machineries; thus, the exemption under Section 234(c) does not apply. The CBAA ruled: Sec. 234 (c), R.A. 7160 (supra), is clear and unambiguous: "there is no room for construction." (citations omitted) xxxx Actual use, according to Sec. 199 (b) of R.A. 7160, "refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof." In Velez v. Locsin, 55 SCRA 152: "The word use means to employ for the attainment of some purpose or end." In the "Operation of the Power Station" (Clause 8.01 of the BOT Agreement), CONTRACTOR shall, at its own cost, be responsible for the management, operation, maintenance and repair of the Power Station during the Co-operation period x x x." Said Co-operation period is fifteen (15) years, after which the Power Station will be turned over or transferred to NAPOCOR. Does this determine when NAPOCOR should take over the actual, direct and exclusive use of the Power Station? That is fifteen (15) years therefrom?

It has been established that BPPC manufactures or generates the power which is sold to NAPOCOR and NAPOCOR distributes said power to the consumers. In other words, the relationship between BPPC and NAPOCOR is one of manufacturer or seller and exclusive distributor or buyer. The general perception is that the exclusive distributor or buyer of goods has nothing to do with the manufacturing thereof but as exclusive distributor the latter has the right to acquire all the goods to be sold to the exclusion of all others. In terms of the definitions under Sec. 199 (b) and that offered by Respondents-Appelless (supra), the machineries and equipment are principally or predominantly utilized by BPPC. In terms of the Velez vs. Locsin case (supra), BPPC employs the machineries and equipment to attain its purpose of generating power to be sold to NAPOCOR and collect payment therefrom to compensate for its investment. The BOT Agreement is not a contract for nothing. The following definitions are given by Blacks Law Dictionary, Third Edition: "Actually is opposed to seemingly, pretendedly, or feignedly, as actually engaged in farming means really, truly in fact." "Directly. In a direct way without anything intervening; not by secondary, but by direct means." "Exclusively. Apart from all others; without admission of others to participation; in a manner to exclude." Indeed BPPC does not use said machineries and equipment pretendedly or feignedly but truly and factually hence, "actually." BPPC uses them without anything intervening hence, directly. BPPC uses the same machineries and equipment apart from all others hence, exclusively. This is the fact against the fact there is no argument. This same fact will also deny NAPOCORs claim to a ten (10%) assessment level provided for under Sec. 218 of R.A. 7160 (supra) as to the requirement thereto is simply the same as that in realty tax exemption. The BPPC is a private entity, not a Government Owned or Controlled Corporation (GOCC), hence, not entitled to a 10% assessment level. NAPOCOR then filed with the CTA a petition for review, docketed as CTA E.B. No. 51, to challenge the CBAA decision. BPPC filed its own petition for review of the CBAA decision with the CTA which was docketed as CTA E.B. No. 58. The two petitions were subsequently consolidated. THE APPEALED CTA RULING The CTA rendered on February 13, 2006 a decision dismissing the consolidated petitions. It ruled on two issues: (1) whether BPPC seasonably filed its protest against the assessment; and (2) whether the machineries and equipments are actually, directly, and exclusively

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used by NAPOCOR in the generation and transmission of electric power, and are therefore not subject to tax. On the first issue, the CTA applied Section 226 of the LGC which provides the remedy from an assessment as follows: SEC. 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals in the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of tax declarations and such affidavits or documents submitted in support of the appeal. It found that BPPC never filed an appeal to contest or question the assessment; instead, it was NAPOCOR that filed the purported appeal a petition for exemption of the machineries and equipment. The CTA, however, said that NAPOCOR is not the proper party, and the purported appeal did not substantially comply with the requisites of the law. According to the CTA, NAPOCOR is not the registered owner of the machineries and equipment. These are registered in BPPCs name as further confirmed by Section 2.08 of the BOT Agreement.6 Thus, the CTA declared that until the transfer date of the power station, NAPOCOR does not own any of the machineries and equipment, and therefore has no legal right, title, or interest over these properties. Thus, the CTA concluded that NAPOCOR has no cause of action and no legal personality to question the assessment. As the respondent local government units claim, NAPOCOR is an interloper in the issue of BPPCs real estate tax liabilities. The CTA additionally found that BPPCs subsequent attempt to question the assessment via a motion for intervention with the CBAA failed to follow the correct process prescribed by the Rules Governing Appeals to the CBAA;7 its appeal was not accompanied by an appeal bond. Also, the CTA found NAPOCORs petition to be an inappropriate remedy, as it is not the appeal contemplated by law; NAPOCOR was in fact asserting an exemption on the basis of the provisions of the BOT Agreement. An exemption is an evidentiary matter for the assessors, not for the LBAA, to decide pursuant to Section 206 of the LGC;8 NAPOCOR cannot simply bypass the authority granted to concerned administrative agencies, as these available administrative remedies must first be exhausted. On the more substantive second issue, the CTA saw it clear from the BOT Agreement that BPPC owns and uses the machineries and equipment in the power station, thus directly addressing and disproving NAPOCORs "actual, direct, and exclusive use" argument. It

noted that under the BOT Agreement, NAPOCOR shall have a right over the machineries and equipments only after their transfer at the end of the 15-year co-operation period. "By the nature of the agreement and work of BPPC, the [machineries] are actually, directly, and exclusively used by it in the conversion of bunker fuel to electricity for [NAPOCOR] for a fee," the CTA said. Section 234(c) of the LGC, according to the CTA, is clear. The exemption under the law does not apply because BPPC is not a GOCC it is an independent power corporation currently operating and maintaining the power plant pursuant to the BOT Agreement. The BOT agreement cannot likewise be the basis for the claimed exemption; tax exemption cannot be agreed upon by mere contract between the parties (BPPC and NAPOCOR), as it must be expressly granted by the Constitution, statute, or franchise. A tax exemption, if and when granted, is also not transferrable, as it is a personal privilege and it must be strictly construed, the CTA said in closing. THE SEPARATE APPEALS Thereupon, NAPOCOR and BPPC sought separate reviews of the CTA decision with us. G.R. No. 173811 BPPC filed on September 11, 2006 its petition separately from NAPOCOR. The BPPC petition was docketed as G.R. No. 173811 and was raffled to the First Division of the Court. The First Division denied BPPCs petition in its Resolution dated October 4, 2006 on the reasoning that BPPC failed to sufficiently show that the CTA committed any reversible error in the challenged decision and resolution as to warrant the exercise of the Courts discretionary appellate jurisdiction. BPPC moved to reconsider the denial of its petition, but the Third Division (after the Courts reorganization) denied the motion for reconsideration with finality after finding no substantial arguments to warrant reconsideration. The resolution denying BPPC s petition for review had become final and executory and was thus recorded in the Book of Entries of Judgment on April 3, 2007. G.R. No. 171470 The Present Case The NAPOCOR petition now pending with us was filed on April 6, 2006 and was docketed as G.R. No. 171470. We required the respondents to comment on the petition in our Resolution of May 3, 2006. The respondents filed the required comments. NAPOCOR subsequently filed its Reply. NAPOCOR cited the following as grounds for its petition:

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I. THE CTA ERRED ON A QUESTION OF LAW IN NOT RULING THAT PETITIONER IS THE ACTUAL, DIRECT, AND EXCLUSIVE USER OF THE BAUANG DIESEL POWER PLANT. II. THE CTA ERRED ON A QUESTION OF LAW IN DISREGARDING THAT THE REAL PROPERTY TAX EXEMPTION IS RETAINED UNDER R.A. NO. 7160. III. THE CTA ERRED ON A QUESTION OF LAW IN RULING THAT PETITIONER MUST BE ENGAGED IN BOTH GENERATION AND TRANSMISSION OF POWER BEFORE THE EXEMPTION UNDER SECTION 234(C) OF R.A. NO. 7160 CAN APPLY. IV. THE CTA ERRED ON A QUESTION OF LAW IN NOT CONSTRUING THE EXEMPTIONS UNDER R.A. NO. 7160 IN HARMONY WITH PETITIONERS CHARTER AND THE BOT LAW. V. ASSUMING THE 215 MW BAUANG DIESEL POWER PLANT IS TAXABLE, THE SAME SHOULD BE CLASSIFIED AS "SPECIAL" FOR REAL PROEPRTY TAX PURPOSES SUBJECT TO A 10% ASSESSMENT LEVEL, AND NOT AS COMMERCIAL/INDUSTRIAL PROPERTIES SUBJECT TO AN 80% ASSESSMENT RATE. In the interim and in light of the sale at public auction of the machineries and equipments, NAPOCOR filed a Supplemental Petition based on the following grounds: I. THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONERS APPEAL BECAUSE THE LATTER IS A GOVERNMENT INSTRUMENTALITY WHOSE FOREIGN AND DOMESTIC INDEBTEDNESS ARE GUARANTEED BY THE NATIONAL GOVERNMENT, IS THE BENEFICIAL OWNER OF THE SUBJECT POWER PLANT AND [IS] THUS EXEMPT FROM THE PAYMENT OF REAL PROPERTY TAXES. II.

THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONERS APPEAL BECAUSE THIS LED TO THE SALE OF THE BAUANG POWER PLANT TO THE PROVINCIAL GOVERNMENT OF LA UNION, THUS SERIOUSLY VIOLATING PETITIONERS STATUTORY MANDATE TO CARRY OUT THE TOTAL ELECTRIFICATION OF THE COUNTRY. To support its claim that it is entitled to tax exemption as the actual, direct, and exclusive user of the machineries and equipment, NAPOCOR argues that: a. the BOT agreement is a financing agreement where it (NAPOCOR) is the beneficial owner and the actual, direct, and exclusive user of the power plant, while BPPC is the lender/creditor that retains the plants legal ownership until it is fully paid; the power plant is a NAPOCOR project and BPPC is just the financiercontractor, and any BPPC activity is made on NAPOCORs behalf as a contractor for NAPOCOR; in this way, NAPOCOR takes advantage of BPPCs financial resources and technical expertise to secure a continuous supply of electric power. b. its payment of energy fees, fixed operating fees, and other infrastructure fees to BPPC is not inconsistent with its (NAPOCORs) beneficial ownership and actual, direct, and exclusive use of the power plant, since the collection of the fees is the repayment scheme prescribed by Section 69 of Republic Act No. 6957,10 as amended by Republic Act No. 7718 (BOT Law, as amended); its amortizations over the 15-year co-operation period constitute full payment for the power plant that would warrant the transfer of ownership without payment of additional compensation; finally, that Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 has booked the power plant as NAPOCORs asset for privatization purposes. c. its tax exemption should apply to a BOT project, citing the conditions that gave rise to the BOT law and its own mandate to provide electricity nationwide; BOT projects are really government projects where the private sector participates to provide the heavy initial financial requirements; and that Congress specifically considered NAPOCORs situation in granting tax exemption to machineries and equipment used in power generation and distribution. d. in the interpretation of Section 234(c) of the LGC, related statutes must be considered and the task of the courts is to harmonize all these laws, if possible; specifically, Section 234(c) of the LGC was enacted to clarify or restore NAPOCORs real property tax exemption so that NAPOCOR can perform its public function of supplying electricity to the entire country at affordable rates, while the BOT law was enacted, among others, to authorize NAPOCOR to enter into BOT contracts with the private sector so that NAPOCOR can carry out its mandate; the tax exemption under Section 234(c) of the LGC must be given effect as the only legal and cogent way of harmonizing it with NAPOCORs Charter and the BOT law.

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NAPOCOR concludes that the CTAs ruling clearly defeats the spirit behind its creation, the enactment of the BOT Law, and the tax exemption provision under the LGC. THE COURTS RULING We find the petition devoid of merit. Like the Courts First Division (later, Third Division) in G.R. No. 173811, we find that NAPOCOR failed to sufficiently show that the CTA committed any reversible error in its ruling. NAPOCORs basis for its claimed exemption Section 234(c) of the LGC is clear and not at all ambiguous in its terms. Exempt from real property taxation are: (a) all machineries and equipment; (b) [that are] actually, directly, and exclusively used by; (c) [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. We note, in the first place, that the present case is not the first occasion where NAPOCOR claimed real property tax exemption for a contract partner under Sec. 234 (c) of the LGC. In FELS Energy, Inc. v. The Province of Batangas11 (that was consolidated with NAPOCOR v. Local Board of Assessment Appeals of Batangas, et al.),12the Province of Batangas assessed real property taxes against FELS Energy, Inc. the owner of a barge used in generating electricity under an agreement with NAPOCOR. Their agreement provided that NAPOCOR shall pay all of FELS real estate taxes and assessments. We concluded in that case that we could not recognize the tax exemption claimed, since NAPOCOR was not the actual, direct and exclusive user of the barge as required by Sec. 234 (c). In making this ruling, we cited the required standard of construction applicable to tax exemptions and said: Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. Thus, applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity. The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas. We also recognized this strictissimi juris standard in NAPOCOR v. City of Cabanatuan.13 Under this standard, the claimant must show beyond doubt, with clear and convincing evidence, the factual basis for the claim. Thus, the real issue in a tax exemption

case such as the present case is whether NAPOCOR was able to convincingly show the factual basis for its claimed exception. The records show that NAPOCOR, no less, admits BPPCs ownership of the machineries and equipment in the power plant.14 Likewise, the provisions of the BOT agreement cited above clearly show BPPCs ownership. Thus, ownership is not a disputed issue. Rather than ownership, NAPOCORs use of the machineries and equipment is the critical issue, since its claim under Sec. 234(c) of the LGC is premised on actual, direct and exclusive use. To support this claim, NAPOCOR characterizes the BOT Agreement as a mere financing agreement where BPPC is the financier, while it (NAPOCOR) is the actual user of the properties. As in the fact of ownership, NAPOCORs assertion is belied by the documented arrangements between the contracting parties, viewed particularly from the prism of the BOT law. The underlying concept behind a BOT agreement is defined and described in the BOT law as follows: Build-operate-and-transfer A contractual arrangement whereby the project proponent undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The project proponent operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated and incorporated in the contract to enable the project proponent to recover its investment, and operating and maintenance expenses in the project. The project proponent transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years x x x x. Under this concept, it is the project proponent who constructs the project at its own cost and subsequently operates and manages it. The proponent secures the return on its investments from those using the projects facilities through appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon, the project proponent transfers the ownership of the facility to the government agency. Thus, the government is able to put up projects and provide immediate services without the burden of the heavy expenditures that a project start up requires. A reading of the provisions of the parties BOT Agreement shows that it fully conforms to this concept. By its express terms, BPPC has complete ownership both legal and beneficial of the project, including the machineries and equipment used, subject only to the transfer of these properties without cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon, BPPC provided the funds for the construction of the power

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plant, including the machineries and equipment needed for power generation; thereafter, it actually operated and still operates the power plant, uses its machineries and equipment, and receives payment for these activities and the electricity generated under a defined compensation scheme. Notably, BPPC as owner-user is responsible for any defect in the machineries and equipment.15 As envisioned in the BOT law, the parties agreement assumes that within the agreed BOT period, BPPC the investorprivate corporation shall recover its investment and earn profits through the agreed compensation scheme; thereafter, it shall transfer the whole project, including machineries and equipment, to NAPOCOR without additional cost or compensation. The latter, for its part, derives benefit from the project through the fulfillment of its mandate of delivering electricity to consumers at the soonest possible time, without immediately shouldering the huge financial requirements that the project would entail if it were to undertake the project on its own. Its obligation, in exchange, is to shoulder specific operating costs under a compensation scheme that includes the purchase of all the electricity that BPPC generates. That some kind of "financing" arrangement is contemplated in the sense that the private sector proponent shall initially shoulder the heavy cost of constructing the projects buildings and structures and of purchasing the needed machineries and equipment is undeniable. The arrangement, however, goes beyond the simple provision of funds, since the private sector proponent not only constructs and buys the necessary assets to put up the project, but operates and manages it as well during an agreed period that would allow it to recover its basic costs and earn profits. In other words, the private sector proponent goes into business for itself, assuming risks and incurring costs for its account. If it receives support from the government at all during the agreed period, these are pre-agreed items of assistance geared to ensure that the BOT agreements objectives both for the project proponent and for the government are achieved. In this sense, a BOT arrangement is sui generis and is different from the usual financing arrangements where funds are advanced to a borrower who uses the funds to establish a project that it owns, subject only to a collateral security arrangement to guard against the nonpayment of the loan. It is different, too, from an arrangement where a government agency borrows funds to put a project from a private sector-lender who is thereafter commissioned to run the project for the government agency. In the latter case, the government agency is the owner of the project from the beginning, and the lender-operator is merely its agent in running the project. If the BOT Agreement under consideration departs at all from the concept of a BOT project as defined by law, it is only in the way BPPCs cost recovery is achieved; instead of selling to facility users or to the general public at large, the generated electricity is purchased by NAPOCOR which then resells it to power distribution companies. This deviation, however, is dictated, more than anything else, by the structure and usages of the power industry and does not change the BOT nature of the transaction between the parties.

Consistent with the BOT concept and as implemented, BPPC the owner-manageroperator of the project is the actual user of its machineries and equipment. BPPCs ownership and use of the machineries and equipment are actual, direct, and immediate, while NAPOCORs is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the CTA committed no reversible error in denying NAPOCORs claim for tax exemption. For these same reasons, we reject NAPOCORs argument that the machineries and equipment must be subjected to a lower assessment level. NAPOCOR cites as support Section 216 of the LGC which provides: Section 216. Special Classes of Real Property. - All lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power shall be classified as special. in relation with Section 218 (d) of the LGC which provides: Section 218. Assessment Levels. - The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the Sangguniang Panlalawigan, Sangguniang Panlungsod or Sangguniang Bayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding the following: xxxx (d) On Special Classes: The assessment levels for all lands buildings, machineries and other improvements; Actual Use Cultural Scientific Hospital Local water districts Government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of Assessment Level 15% 15% 15% 10% 10%

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electric power

This ruling reminds us of the other side of the coin in terms of concerns and protection of interests. La Union, as a local government unit, has no less than its own constitutional interests to protect in pursuing this case. These are interests that this Court must also be sensitive to and has taken into account in this Decision. We close with the observation that our role in addressing the concerns and the interests at stake is not all-encompassing. The Judiciary can only resolve the current dispute through our reading and interpretation of the law. The other branches of government which act on policy and which execute these policies, including NAPOCOR itself and the respondent local government unit, are more in the position to act in tackling feared practical consequences. This ruling on the law can be their springboard for action. In light of these conclusions and observations, we need not discuss the other issues raised. WHEREFORE, premises considered, we DENY NAPOCORs petition for lack of merit. We AFFIRM the appealed decision of the Court of Tax Appeals. Costs against NAPOCOR. SO ORDERED.

Since the basis for the application of the claimed differential treatment or assessment level is the same as the claimed tax exemption, the lower tribunals correctly found that there is no basis to apply the lower assessment level of 10%. As our last point, we note that a real concern for NAPOCOR in this case is its assumption under the BOT agreement of BPPCs real property tax liability (which in itself is a recognition that BPPCs real properties are not really tax exempt). NAPOCOR argues that if no tax exemption will be recognized, the responsibility it assumed carries practical implications that are very difficult to ignore. In fact, NAPOCORs supplemental petition is anchored on these practical implications the alleged detriment to the public interest that will result if the levy, sale, and transfer of the machineries and equipment were to be completed. NAPOCORs reference is to the fact that the machineries and equipment have been sold in public auction and the buyer the respondent Province will consolidate its ownership over these properties on February 1, 2009. We fully recognize these concerns. However, these considerations are not relevant to our disposition of the issues in this case. We are faced here with the application of clear provisions of law and settled jurisprudence to a case that, to our mind, should not be treated differently solely because of non-legal or practical considerations. Significantly, local government real property taxation also has constitutional underpinnings, based on Section 5 of Article X of the Constitution,16 that we cannot simply ignore. In FELS Energy, Inc. v. The Province of Batangas,17 earlier cited, we said:

ARTURO D. BRION Associate Justice

NATIONAL POWER CORPORATION VS. PROVINCE OF QUEZON - REAL PROPERTY TAX

FACTS: The power to tax is an incident of sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter 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 for it. The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. [Emphasis supplied.] NPC is a GOCC that entered into an Energy Conversion Agreement (ECA) under a buildoperate-transfer (BOT) arrangement with Mirant Pagbilao Corp. Under the agreement, Mirant will build and finance a thermal power plant in Quezon, and operate and maintain the same for 25 years, after which, Mirant will transfer the power plant to the Respondent without compensation. NPC also undertook to pay all taxes that the government may impose on Mirant. Quezon then assessed Mirant real property taxes on the power plant and its machineries.

ISSUES:

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(1) Can Petitioner file the protest against the real property tax assessment? (2) Can Petitioner claim exemption from the RPT given the BOT arrangement with Mirant? (3) Is payment under protest required before an appeal to the LBAA is made?

assessment, he is required to "first pay the tax" under protest. The case of Ty does not apply as it involved a situation where the taxpayer was questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. A claim for tax exemption, whether full or partial, does

HELD: (1) NO. The two entities vested with personality to contest an assessment are (a) the owner or (b) the person with legal interest in the property. NPC is neither the owner nor the possessor/user of the subject machineries even if it will acquire ownership of the plant at the end of 25 years. The Court said that legal interest should be an interest that is actual and material, direct and immediate, not simply contingent or expectant. While the Petitioner does indeed assume responsibility for the taxes due on the power plant and its machineries, the tax liability referred to is the liability arising from law that the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable between the parties to a contract. The local government units can neither be compelled to recognize the protest of a tax assessment from the Petitioner, an entity against whom it cannot enforce the tax liability.

not question the authority of local assessors to assess real property tax.

(2) NO. To successfully claim exemption under Section 234 (c) of the LGC, the claimant must prove two elements: a) the machineries and equipment are actually, directly, and exclusively used by local water districts and government-owned or controlled corporations; and b) the local water districts and government-owned and controlled corporations claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power. Since neither the Petitioner nor Mirant satisfies both requirements, the claim for exemption must fall.

(3) YES. If a taxpayer disputes the reasonableness of an increase in a real property tax

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