Wednesday, September 14, 2011

Local realty tax; gov't exempted - G.R. No. 185023

G.R. No. 185023
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"x x x.

Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the Philippines are exempt from real property tax “except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.” Thus, the portions of the properties not leased to taxable entities are exempt from real estate tax while the portions of the properties leased to taxable entities are subject to real estate tax. The law imposes the liability to pay real estate tax on the Republic of the Philippines for the portions of the properties leased to taxable entities. It is, of course, assumed that the Republic of the Philippines passes on the real estate tax as part of the rent to the lessees.

In Philippine Fisheries Development Authority v. Central Board of Assessment Appeals,12 the Court held:

In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals, the Court resolved the issue of whether the PFDA is a government-owned or controlled corporation or an instrumentality of the national government. In that case, the City of Iloilo assessed real property taxes on the Iloilo Fishing Port Complex (IFPC), which was managed and operated by PFDA. The Court held that PFDA is an instrumentality of the government and is thus exempt from the payment of real property tax, thus:

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

x x x x

This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas Fishing Port Complex, which is also managed and operated by the PFDA. In consonance with the previous ruling, the Court held in the subsequent PFDA case that the PFDA is a government instrumentality not subject to real property tax except those portions of the Navotas Fishing Port Complex that were leased to taxable or private persons and entities for their beneficial use.

Similarly, we hold that as a government instrumentality, the PFDA is exempt from real property tax imposed on the Lucena Fishing Port Complex, except those portions which are leased to private persons or entities.13 (Emphasis supplied)

In Government Service Insurance System v. City Treasurer of the City of Manila,14 the Court held:

x x x The tax exemption the property of the Republic or its instrumentalities carries ceases only if, as stated in Sec. 234(a) of the LGC of 1991, “beneficial use thereof has been granted, for a consideration or otherwise, to a taxable person.” GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak property when it contracted its beneficial use to MHC, doubtless a taxable person. Thus, the real estate tax assessment of Php 54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax delinquency is concerned as assessed over said property.15 (Emphasis supplied)

In Manila International Airport Authority v. Court of Appeals,16 the Court held:

x x x Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the “beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.” MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is subject to real estate tax.17(Emphasis supplied)

In Lung Center of the Philippines v. Quezon City,18 the Court held:

x x x While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name “Elliptical Orchids and Garden Center.” Indeed, the petitioner’s evidence shows that it collectedP1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.19 (Emphasis supplied)

Article 420 of the Civil Code classifies as properties of public dominion those that are “intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads” and those that “are intended for some public service or for the development of the national wealth.” Properties of public dominion are not only exempt from real estate tax, they are exempt from sale at public auction. In Heirs of Mario Malabanan v. Republic,20 the Court held that, “It is clear that property of public dominion, which generally includes property belonging to the State, cannot be x x x subject of the commerce of man.”21

In Philippine Fisheries Development Authority v. Court of Appeals,22 the Court held:

x x x [T]he real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions leased to private persons. In case the Authority fails to pay the real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. InChavez v. Public Estates Authority it was held that reclaimed lands are lands of the public dominion and cannot, without Congressional fiat, be subject of a sale, public or private x x x.

In the same vein, the port built by the State in the Iloilo fishing complex is a property of the public dominion and cannot therefore be sold at public auction. Article 420 of the Civil Code, provides:

“Article 420. The following things are property of public dominion:

1. Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

2. Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.”

The Iloilo fishing port which was constructed by the State for public use and/or public service falls within the term “port” in the aforecitedprovision. Being a property of public dominion the same cannot be subject to execution or foreclosure sale. In like manner, the reclaimed land on which the IFPC is built cannot be the object of a private or public sale without Congressional authorization.23 (Emphasis supplied)

In Manila International Airport Authority,24 the Court held:

x x x [T]he Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.

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

x x x x

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions “ports x x x constructed by the State,” which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.25 (Emphasis supplied)

In the present case, the parcels of land are not properties of public dominion because they are not “intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads.” Neither are they “intended for some public service or for the development of the national wealth.” MPLDC leases portions of the properties to different business establishments. Thus, the portions of the properties leased to taxable entities are not only subject to real estate tax, they can also be sold at public auction to satisfy the tax delinquency.

In sum, only those portions of the properties leased to taxable entities are subject to real estate tax for the period of such leases. Pasig City must, therefore, issue to respondent new real property tax assessments covering the portions of the properties leased to taxable entities. If the Republic of the Philippines fails to pay the real property tax on the portions of the properties leased to taxable entities, then such portions may be sold at public auction to satisfy the tax delinquency.

x x x."