CALTEX (PHILIPPINES) INC.

,
petitioner,vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OFPASAY,
respondents.

FACTS:
This case is about the realty tax on machinery and equipmentinstalled by Caltex (Philippines) Inc. in its gas stations located on leased land. The machines
and equipment consists of underground tanks, elevated tank,elevated water tanks, water tanks, gasoline pumps, computing pumps, waterpumps,
car washer, car hoists, truck hoists, air compressors and tireflators. The said machines and equipment are loaned by Caltex to gas stationoperators
under an appropriate lease agreement or receipt. It is stipulated inthe lease contract that the operators, upon demand, shall return to Caltex themachines and
equipment in good condition as when received, ordinary wearand tear excepted. Caltex retains the ownership thereof during the term of thelease. The city
assessor of Pasay City characterized the said items of gas stationequipment and machinery as taxable realty. The realty tax on said
equipmentamounts to P4,541.10 annually (p. 52, Rollo). The city board of tax appealsruled that they are personalty. The assessor appealed to the Central
Board of Assessment Appeals. The Board held that the said machines and equipment are real property withinthe meaning of sections 3(k) & (m)
and 38 of the Real Property Tax Code,Presidential Decree No. 464, which took effect on June 1, 1974, and that thedefinitions of real property and personal
property in articles 415 and 416 of the Civil Code are not applicable to this case and was reiterated by the Boardin its resolution of January 12, 1978, denying
Caltex's motion forreconsideration, a copy of which was received by its lawyer on April 2, 1979.On May 2, 1979 Caltex filed this certiorari petition wherein it
prayed for thesetting aside of the Board's decision and for a declaration that the saidmachines and equipment are personal property not subject to realty tax.
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this case is not correct.
When Republic act No. 1125 created the Tax Court in1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law
inproviding that the Tax Court had jurisdiction to review by appeal decisions of provincial or cityboards of assessment appeals had in mind the local boards of
assessment appeals but not the
Central
Board of Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over decisions of the said local boards of
assessment appeals and is, therefore, inthe same category as the Tax Court.Section 36 of the Real Property Tax Code provides that the decision of the
Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from thereceipt of its decision by the appellant. Within that
fifteen-day period, a petition forreconsideration may be filed. The Code does not provide for the review of the Board's decisionby this Court. Consequently, the
only remedy available for seeking a review by this Court of the decision of the Central Board of Assessment Appeals is the special civil action of certiorari,the
recourse resorted to herein by Caltex (Philippines), Inc. [PROCEDURAL LANG TO, JUST IN CASE]

ISSUE:
Whether the pieces of gas station equipment and machinery alreadyenumerated are subject to realty tax.

HELD:
This issue has to be resolved primarily under the provisions of theAssessment Law and the Real Property Tax Code.Section 2 of the Assessment Law
provides that the realty tax is due "on realproperty, including land, buildings, machinery, and other improvements" notspecifically exempted in section 3 thereof.
This provision is reproduced withsome modification in the Real Property Tax Code which provides:
SEC. 38.
Incidence of Real Property Tax.
— There shall be levied, assessed andcollected in all provinces, cities and municipalities an annual
ad valorem tax
onreal property, such as land, buildings, machinery and other improvementsaffixed or attached to real property not hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k)
Improvements
— is a valuable addition made to property or an ameliorationin its condition, amounting to more than mere repairs or replacement of waste,costing labor or
capital and intended to enhance its value, beauty or utility or toadapt it for new or further purposes.m)
Machinery
— shall embrace machines, mechanical contrivances,instruments, appliances and apparatus attached to the real estate. It includesthe physical facilities
available for production, as well as the installations andappurtenant service facilities, together with all other equipment designed for oressential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f],Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gasstation building or shed owned by Caltex (as to which it is subject to realtytax) and
which fixtures are necessary to the operation of the gas station, forwithout them the gas station would be useless, and which have been attachedor affixed
permanently to the gas station site or embedded therein, aretaxable improvements and machinery within the meaning of the AssessmentLaw and the Real
Property Tax Code.
Case Digest: Lung Center of the Philippines vs. Quezon City and Constantino Rosas
G.R. No. 144104 June 29, 2004

FACTS:

The Petitioner is a non-stock, non-profit entity which owns a parcel of land in Quezon City. Erected in the middle of the aforesaid lot is a hospital
known as the Lung Center of the Philippines. The ground floor is being leased to a canteen, medical professionals whom use the same as their
private clinics, as well as to other private parties. The right portion of the lot is being leased for commercial purposes to the Elliptical Orchids and
Garden Center. 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.

Petitioner filed a Claim for Exemption from realty taxes amounting to about Php4.5 million, predicating its claim as a charitable institution. The city
assessor denied the Claim. When appealed to the QC-Local Board of Assessment, the same was dismissed. The decision of the QC-LBAA was
affirmed by the Central Board of Assessment Appeals, despite the Petitioners claim that 60% of its hospital beds are used exclusively for charity.

ISSUE:
Whether or not the Petitioner is entitled to exemption from realty taxes notwithstanding the fact that it admits paying clients and leases out a
portion of its property for commercial purposes.

HELD:

The Court held that the petitioner is indeed a charitable institution based on its charter and articles of incorporation. 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.

Despite this, the Court held that the portions of 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. (strictissimi juris) Moreover, P.D. No. 1823 only speaks of tax exemptions as
regards to:
income and gift taxes for 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 for the actual use and benefit of the Lung Center; and
taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment
purchases (expression unius est exclusion alterius/expressium facit cessare tacitum).
 MCIAA vs. MARCOS G.R. No. 120082, September 11, 1996 261 SCRA 667 Public Corporation, Taxation, Local Government Code, Realty Tax,

FACTS:

Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act 6958. Since the time of its creation, MCIAA enjoyed
the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter. However on 11 October 1994, the Office of the
Treasurer of Cebu, demanded for the payment of realty taxes on several parcels of land belonging to the petitioner.

Petitioner objected to such demand for payment as baseless and unjustified and asserted that it is an instrumentality of the government performing
governmental functions, which puts limitations on the taxing powers of local government units.

The City refused to cancel and set aside petitioner’s 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 (LGC), and not an instrumentality of the
government but merely a government owned corporation performing proprietary functions. MCIAA paid its tax account “under protest” when City is
about to issue a warrant of levy against the MCIAA’s properties.

MCIAA filed a Petition of Declaratory Relief with the RTC contending that the taxing power of local government units do not extend to the levy of
taxes or fees on an instrumentality of the national government. It contends that by the nature of its powers and functions, it has the footing of an
agency or instrumentality of the national government; which claim the City rejects. The trial court dismissed the petition, citing that close reading of
the LGC provides the express cancellation and withdrawal of tax exemptions of Government Owned and Controlled Corporations.

ISSUE: Whether the MCIAA is exempted from realty taxes.

RULING:

Tax statutes are construed strictly against the government and liberally in favor of the taxpayer. But since taxes are paid for civilized society, or are
the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris
against the taxpayer and liberally in favor of the taxing authority.

A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Taxation is the rule,
exemption therefrom is the exception. 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.

Further, since taxation is the rule and exemption therefrom the exception, the exemption may 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.

MCIAA is a “taxable person” under its Charter (RA 6958), and 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.

Since Republic Act 7160 or the Local Government Code (LGC) 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.”

With that repealing clause in the LGC, the tax exemption provided for in RA 6958 had been expressly repealed by the provisions of the LGC.
Therefore, MCIAA has to pay the assessed realty tax of its properties effective after January 1, 1992 until the present.
MANILA INTERNATIONAL AIRPORT AUTHORITY v. CA, GR NO. 155650, 2006-07-20
Facts:
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA)
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,... 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.
The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with... respondent City of Parañaque to pay the real estate tax imposed by the
City. MIAA then paid some of the real estate tax already due.
MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque
The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the...
real estate tax delinquency.
MIAA filed with the Court of Appeals an original petition for prohibition and injunction
The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying... against, and auctioning for public sale
the Airport Lands and Buildings.
Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period.
Court of Appeals also denied... motion for reconsideration... the present petition for review.
MIAA insists that it is... 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.
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.
Issues:
whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws.
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.
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.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation.
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.
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."
When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt
whether a person,... article or activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants
an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the
national... government instrumentality.
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.
City Government of Quezon City v. Bayan Telecommunications, Inc. [G.R. No.162015. March 6, 2006]

FACTS

Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic Act (R.A.) No.
3259 (1961) to establish and operate radio stations for domestic telecommunications, radiophone, broadcasting and
telecasting. Section 14 (a) of R.A. No. 3259 states: “The grantee shall be liable to pay the same taxes on its real estate,
buildings and personal property, exclusive of the franchise, xxx”. In 1992, R.A. 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. Barely few months after the LGC took effect, Congress enacted
R.A. No. 7633, amending Bayantel’s original franchise. The Section 11 of the amendatory contained the following
tax provision: “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, xxx“. In 1993, the government of Quezon City enacted an ordinance
otherwise known as the Quezon City Revenue Code withdrawing tax exemption privileges.

ISSUE

Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes under its franchise.

RULING

YES. A clash between the inherent taxing power of the legislature, which necessarily includes the power to exempt, and
the local government’s delegated power to tax under the aegis of the 1987 Constitution must be ruled in favor of the
former. The grant of taxing powers to LGUs 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.

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.

Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the LGC has already withdrawn Bayantel’s
former exemption from realty taxes, the Congress using, Section 11 thereof with exactly the same defining phrase
“exclusive of this franchise” is the basis for Bayantel’s exemption from realty taxes prior to the LGC. In plain language,
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 LGC’s delegated taxing power, all of the franchisee’s (Bayantel’s) properties that are actually,
directly and exclusively used in the pursuit of its franchise.
G.R. No. 166838 : June 15, 2011

STA. LUCIA REALTY & DEVELOPMENT, INC., Petitioner, v. CITY OF PASIG, Respondent,MUNICIPALITY OF CAINTA, PROVINCE OF RIZAL, Intervenor.

LEONARDO-DE CASTRO, J.:

FACTS:

Petitioner is the registered owner of several parcels of land with TCT Nos. 39112, 39110 and 38457, all of which indicated that the lots were located
in Barrio Tatlong Kawayan, Municipality of Pasig.

The parcel of land covered by TCT No. 39112 was consolidated with that covered by TCT No. 518403, which was situated in Barrio Tatlong
Kawayan, Municipality of Cainta, Province of Rizal.The two combined lots were subsequently partitioned into three, for which TCT Nos. 532250,
598424, and 599131, now all bearing the Cainta address, were issued.

TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869 and 92870.The lot covered by TCT No. 38457 was not segregated, but a
commercial building owned by Sta. Lucia East Commercial Center, Inc., a separate corporation, was built on it.

Upon Pasigs petition to correct the location stated in TCT Nos. 532250, 598424, and 599131, the Land Registration Court ordered the amendment
of the TCTs to read that the lots with respect to TCT No. 39112 were located in Barrio Tatlong Kawayan, Pasig City.

On January 31, 1994, Cainta filed a petition for the settlement of its land boundary dispute with Pasig before the Antipolo RTC docketed as Civil
Case No. 94-3006, is still pending up to this date.

On November 28, 1995, Pasig filed a Complaint, docketed as Civil Case No. 65420, against Sta. Lucia for the collection of real estate taxes, including
penalties and interests, on the lots covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 and 38457, including the improvements thereon.

Sta. Lucia alleged that it had been religiously paying its real estate taxes to Cainta, just like what its predecessors-in-interest did, by virtue of the
demands and assessments made and the Tax Declarations issued by Cainta on the claim that the subject properties were within its territorial
jurisdiction.Sta. Lucia further argued that since 1913, the real estate taxes for the lots covered by the above TCTs had been paid to Cainta.

Cainta moved to intervene on the ground that its interest would be greatly affected by the outcome of the case.It averred that it had been
collecting the real property taxes on the subject properties even before Sta. Lucia acquired them.Cainta further asseverated that the establishment
of the boundary monuments would show that the subject properties are within its metes and bounds.

Sta. Lucia and Cainta thereafter moved for the suspension of the proceedings, and claimed that the pending petition in the Antipolo RTC, for the
settlement of boundary dispute between Cainta and Pasig, presented a prejudicial question to the resolution of the case. The RTC denied such for
lack of merit.Holding that the TCTs were conclusive evidence as to its ownership and location, the RTC, rendered a decision in favor of Pasig.

Judgment is likewise rendered against the intervenor Municipality of Cainta, Rizal, ordering it to refund to Sta. Lucia Realty and Development, Inc.
the realty tax payments improperly collected and received by the former from the latter in the aggregate amount ofP358, 403.68.

After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig, on September 11, 1998, filed a Motion for Reconsideration of the RTCs August 10,
1998 Decision.

The RTC granted Pasigs motion and modified its earlier decision to include the realty taxes due on the improvements on the subject lots.

Sta. Lucia assailed the RTCs order granting the execution which was granted by the CA. It added that the boundary dispute case presented a
prejudicial question which must be decided before Pasig can collect the realty taxes due over the subject properties.

Meanwhile, the appeal filed by Sta. Lucia and Cainta was decided by the CA affirming RTCs decision declaring that there was no proper legal basis
to suspend the proceedings.

Sta. Lucia and Cainta filed separate Motions for Reconsideration which was denied by the CA.

Hence, these petitions.

ISSUES:
Whether the RTC and the CA were correct in deciding Pasigs Complaint without waiting for the resolution of the boundary dispute case between
Pasig and Cainta?

Whether Sta. Lucia should continue paying its real property taxes to Cainta, as it alleged to have always done, or to Pasig, as the location stated in
Sta. Lucias TCTs?

HELD:

The petition is granted.

POLITICAL LAW: authority of the local government unit to collect real property taxes

The Court agrees with the CA that the resolution of the boundary dispute between Pasig and Cainta would determine which local government unit
is entitled to collect realty taxes from Sta. Lucia

Under Sections 5 and 57 of the Real Property Tax Code, the authority to collect real property taxes is vested in the locality where the property is
situated. This requisite was reiterated in Sections 201 and 233 of the Local Government Code.

The only import of these provisions is that, while a local government unit is authorized under several laws to collect real estate tax on properties
falling under its territorial jurisdiction,it is imperative to first show that these properties are unquestionably within its geographical boundaries.

The importance of drawing with precise strokes the territorial boundaries of a local unit of government cannot be overemphasized. The
boundariesmust be clear for they define the limits of the territorial jurisdiction of a local government unit.It can legitimately exercise powers of
government only within the limits of its territorial jurisdiction.Beyond these limits,its acts areultra vires.

Needless to state, any uncertainty in the boundaries of local government units will sow costly conflicts in the exercise of governmental powers
which ultimately will prejudice the people's welfare. This is the evil sought to be avoided by the Local Government Code in requiring that the land
area of a local government unit must be spelled out in metes and bounds, with technical descriptions.

Clearly therefore, the local government unit entitled to collect real property taxes from Sta. Lucia must undoubtedly show that the subject
properties are situated within its territorial jurisdiction; otherwise, it would be acting beyond the powers vested to it by law.

Although it is true that Pasig is the locality stated in the TCTs of the subject properties, both Sta. Lucia and Cainta aver that the metes and bounds
of the subject properties, as they are described in the TCTs, reveal that they are within Caintas boundaries. This only means that there may be a
conflict between the location as stated and the location as technically described in the TCTs.Mere reliance therefore on the face of the TCTs will
not suffice as they can only be conclusive evidence of the subject properties locations if both the stated and described locations point to the same
area.

The Antipolo RTC, wherein the boundary dispute case between Pasig and Cainta is pending, would be able to best determine once and for all the
precise metes and bounds of both Pasigs and Caintas respective territorial jurisdictions.The resolution of this dispute would necessarily ascertain
the extent and reach of each local governments authority, a prerequisite in the proper exercise of their powers, one of which is the power of
taxation.

In light of the foregoing, the Pasig RTC should have held in abeyance the proceedings in Civil Case No. 65420, in view of the fact that the outcome
of the boundary dispute case before the Antipolo RTC will undeniably affect both Pasigs and Caintas rights. In the meantime, to avoid further
animosity, Sta. Lucia is directed to deposit thesucceedingreal property taxes due on the subject properties, in an escrow account with the Land
Bank of the Philippines.

The decision and resolution of the Court of Appeals are set aside.
 G.R. No. 192300 November 24, 2014

NATIONAL POWER CORPORATION, Petitioner,

vs.
MUNICIPAL GOVERNMENT OF NAVOTAS, SANGGUNIANG BAYAN OF NAVOTAS AND MANUEL T. ENRIQUEZ, in his capacity as Municipal
Treasurer of Navotas, Respondents.

FACTS : Petitioner National Power Corporation (NPC) is a government owned and controlled corporation. Respondent Municipal Government of
Navotas, is a local government unit, hosting petitioner’s Navotas Power Stations I and II located in the Municipality of Navotas. On the respective dates
of November 16, 1988 and June 29, 1992, petitioner entered into a Build-Operate-and-Transfer Project Agreements (BOTs) with Mirant Navotas I
Corporation and Mirant Navotas II Corporation. petitioner has the obligation to pay for all taxes, except business taxes, relative to the implementation of
the agreements. For the 1st quarter of 2003, petitioner paid respondent Municipality, real property taxes in the amounts of P3,382,715.88 and
P4,973,869.83 for the MNC-I and MNC-II power stations, respectively. After the said quarter, petitioner stopped paying the real property taxes, claiming
exemption from payment thereon pursuant to Section 234(c) of the Local Government Code (LGC) of 1991. On May 25, 2005, MNC-II received four
notices from respondent Municipal Treasurer informing MNC-I and MNC-II of their real property tax delinquencies for the 2nd, 3rd, and 4th quarters of
calendar year 2003 and for the calendar years 2004 and 2005. On November 21, 2005, a Warrant of Levy was received from respondent Municipal
Treasurer. On December 16, 2005, petitioner filed before the Regional Trial Court (RTC) of Malabon City, a Petition for Declaratory Relief, Annulment of
Notice of Delinquency, Warrant of Levy, and Notice of Sale with prayer for the issuance of a Writ of Preliminary Injunction and Temporary Restraining
Order (TRO). Petitioner’s application for the issuance of a TRO was denied by the RTC. Respondents proceeded withthe scheduled public auction.
Considering that there were no bidders for the purchase of the subject properties, the same were forfeited in favor of respondent Municipality. Petitioner
filed an amended petition before the RTC seeking to declare as null and void the public auction. The RTC denied the petition on May 23, 2007. a Petition
for Review with application for Temporary Restraining Order and/or Order of Suspension of Collection and Writ of Preliminary Injunctionwas seasonably
filed with this Court though registered mail on July 27, 2007 and received on August 2, 2007. In a Decision promulgated on July 18, 2008, the Second
Division dismissed the Petition and sustained the RTC’s Decision dated May 23, 2007. Petitioner’s Motion for Reconsideration filed on August 6, 2008
was likewise denied in a Resolution dated January 9, 2009. petitioner filed a petition before the CTA En Banc. In a Decision dated March 1, 2010, the
CTA En Banc affirmed the CTA Second Division’s

ISSUE : the issue is whether or not the CTA Second Division has jurisdiction to review the decision of the RTC which concerns a petition for declaratory
relief involving real property taxes

HELD: Indeed, the CTA, sitting as Division, has jurisdiction to review by appeal the decisions, rulings and resolutions of the RTC over local tax cases,
which includes real property taxes. This is evident from a perusal of the Local Government Code (LGC) which includes the matter of Real Property
Taxation under one of its main chapters. We, therefore, disagree with the conclusion of the CTA En Banc that real property taxes have always been
treated by our laws separately from local taxes. Based on the foregoing, the general meaning of "local taxes" should be adopted in relation to Paragraph
(a)(3) of Section 7 of R.A. 9282, which necessarily includes real property taxes. Second, as correctly pointed out by petitioner, when the legality or
validity of the assessment is in question, and not its reasonableness or correctness, appeals to the LBAA, and subsequently to the CBAA, pursuant to
Sections 22614 and 22915 of the LGC, are not necessary.

Stated differently, in the event that the taxpayer questions the authority and power of the assessor to impose the assessment, and of the treasurer to
collect the real property tax, resort to judicial action may prosper. 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. 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", and
thus, no evidence was presented in said court., 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. Accordingly, if the only issue is
the legality or validity of the assessment – a question of law – direct recourse to the RTC is warranted. the issue is clearly legal given that it involves an
interpretation of the contract between the parties vis-à-vis the applicable laws, i.e.,which entity actually, directly and exclusively uses the subject
machineries and equipment. the CT A En Banc erred in dismissing the petition for review en bane, and affirming the CTA Second Division’s position that
the RTC has no jurisdiction over the instant case for failure of petitioner to exhaust administrative remedies which resulted in the finality of the
assessment
DEMAALA vs COMMISSION ON AUDIT

GR No. 199752

February 17, 2015

FACTS

 The Provincial Board of Palawan enacted Provincial Ordinance No. 332-A which imposed an additional levy on
real property tax for the special education fund at the rate of 0.5%.

Section 48- Additional Levy on Real Property Tax for Special Education Fund. There is hereby levied an annual tax at
the rate of one-half percent (1/2%) of the assessed value property tax. The proceeds thereof shall exclusively accrue
to the Special Education Fund (SEF).

 In conformity with the provincial ordinance, the Municipality of Narra, Palawan where Demaala (petitioner) is
the Mayor, collected from owners of real properties within its territory an annual tax as SEF at the rate of 0.5% of
the assessed value of the property subject to tax.

 However, on post-audit by the COA, Audit Team leader Nostratis issued an Audit Observation Memorandum in
which he noted the supposed deficiencies in the SEF by the Municipality of Narra. He questioned the levy of the
SEF at the rate of 0.5% rather than 1% (which is the rate stated in Sec. 235 of the Local Government Code:

Section 235. Additional Levy on Real Property for the Special Education Fund. - A province or city, or a municipality
within the Metropolitan Manila Area, may levy and collect an annual tax of one percent (1%) on the assessed value of
real property which shall be in addition to the basic real property tax. The proceeds thereof shall exclusively accrue to
the Special Education Fund (SEF).

 COA Regional Cluster issued a Notice of Charge against the Municipality of Narra and held the mayor and
municipal treasurer and all SEF payors liable for deficiency SEF collections.

 Muncipality of Narra filed an MR and stressed that the collection of the SEF at the rate of 0.5% was merely in
accordance with Ordinance No. 332-A. However, its MR was denied.

 Thereafter, Municipality of Narra filed an appeal with the COA’s Legal and Adjudication Office but the same was
denied again.

 Hence, the LGU filed a petition for review with COA. COA ruled against Demaala and held the former Palawan
Vice Governor and other members of the Provincial Board who enacted the Ordinance jointly and severally
liable for the deficiency SEF.

 Their MR denied, petitioners filed the petition for certiorari before the SC.

Arguments of Petitioners Arguments of COA respondent

The option given to LGUs under Sec. 235 LGC of
the LGC (SEF) extends not only to the matter
whether to collect but also to the rate at which
collection is to be made
The option given to LGUs under Sec. 235 LGC is
limited to the matter of whether it shall actually
collect, and that the rate at which it shall collect
(should it choose to do so) is fixed by Sec. 235
which is at 1%
Basically, according to the Municipality, naa option ang
LGU whether or not mu-collect ba ang LGU sa SEF and
naa sad sila option kung pila ang rate nga ila i-impose
Ang argument ni COA kay ang option granted to LGUs
kay kutob ra sa kung whether or not mu-collect ba sila
SEF and if mu-collect sila, dapat 1% rate ang gamiton
kay naka-fix na daw na sa LGC

Issue with Rulings:

CRUX OF THE CONTROVERSY:

WON an LGU (municipality within Metropolitan Manila, city or province may impose an additional levy on real
property for the Special Education Fund at the rate of less than 1% as prescribed under Sec. 235 of the LGC?

RULING:

Yes. Setting the rate of the additional levy for the Special Education Fund is within the taxing power of the
local government units – this is consistent with the guiding constitutional principle of Local Autonomy. (Hello
Consti!)

Let’s back-track a bit and review on our Constitutional Law II lessons:

I.Local Autonomy in relation to Taxation Powers of LGUs

The power to tax is an attribute of sovereignty. It is inherent in the state. Provinces, cities, municipalities, and

barangays are mere territorial and political subdivisions of the state. They act only as part of the
sovereign. Thus, they do not have the inherent power to tax. Their power to tax must be prescribed by

law. Consistent with the view that the power to tax does not inhere in local government units, this court has held
that a reserved temperament must be adhered to in construing the extent of a local government unit’s power to
tax.

Article X, Sec. 5 of the 1987 Constitution is the basis of the taxing powers of the LGUs:
 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.

The taxing power granted by constitutional fiat to LGUs exists in the wider context to “ensure the autonomy of
local government units”.

II. Fiscal Autonomy of LGUs – doubt resolved in favor of local fiscal autonomy

FISCAL AUTONOMY– means that that local government units have the power to create their own sources of
revenue in addition to their equitable share in the national taxes released by the national government, as well as the
power to allocate their resources in accordance with their own priorities.

The taxing powers of the LGUs must be read in relation to their power to effect their basic autonomy. Consistent

with the 1987 Constitution’s declared preference, the taxing powers of local government units must
be resolved in favor of their local fiscal autonomy .The important legal effect of Section 5, Art. X of
the Constution is that henceforth, in interpreting statutory provision on municipal fiscal powers,
doubts will have to be resolved in favor of municipal corporations.

Therefore, back to the controversy at hand, how should Sec. 235 of the LGC (SEF) be interpreted in
relation to the local autonomy granted to LGUs?

Supreme Court ruled that the limits of additional levy for the special educational fund under
Sec. 235 LGC should be read as granting fiscal flexibility to local government units – i.e. the
collection of the SEF is optionalfor the LGUs

Section 235 of the Local Government Code allows provinces and cities, as well as municipalities in Metro
Manila, to collect, on top of the basic annual real property tax, an additional levy which shall exclusively
accrue to the special education fund.
 The operative phrase in Sec. 235 is “may levy and collect an annual tax of one percent (1%)”has
been interpreted by the Supreme Court in Buklod ng Magbubukid vs E.M Ramosas mandatory but

discretionary. The use of the word "may" in a statute denotes that it is directory in nature and

generally permissive only.Section 235’s grant to municipalities in Metro Manila, to cities, and
to provinces of the power to impose an additional levy for the special education fundmakes
its collection OPTIONAL. It is not mandatory that the levy be imposed and collected.

Therefore, petitioners were correct that the option given to LGUs extend not only to the
matter of whether to collect but also the rate at which collection is made.

Section 235’s permissive language is unqualified. Moreover, there is no limiting qualifier to the

articulated rate of 1% which unequivocally indicates that any and all special education fund collections
must be at such rate. At most, there is a seeming ambiguity in Section 235. Consistent with what has
earlier been discussed however, any such ambiguity must be read in favor of local fiscal autonomy.
Insisting on uniformity would be a disservice to certain local government units and would ultimately
undermine the aims of local autonomy and decentralization.

But what about the 1% rate that is prescribed under Sec. 235 LGC?Mao man ni ang argument ni COA
nga even if optional for LGUs nga mu-collect ug SEF, if mag-collect man gani sila, dapat ang rate kay fixed at 1%

Supreme Court ruled held that the specified rate (1%) of the Sec. 235 is a MAXIMUM RATE,
rather than an immutable edict. Accordingly, it was well within the power of the
Sangguniang Panlalawigan of Palawan to enact an ordinance providing for additional levy
on real property tax for the special education fundat the rate of 0.5% rather than at 1%.

Therefore, COA committed grave abuse of discretion when it held that there was a deficiency in the
Municipality of Narra’s collection of additional levy for the special education fund.

Was COA correct in holding petitioners personally liable for the deficiency?
 Supreme Court ruled that COA committed grave abuse of discretion when it held petitioner
personally liable for the supposed deficiency.

Having established the propriety of imposing an additional levy for the special education fund at
the rate of 0.5%, it follows that there was nothing erroneous in the Municipality of Narra’s having
acted pursuant to Section 48 of the Ordinance. It could thus not be faulted for collecting from owners

of real properties located within its territory an annual tax as special education fund at the rate of 0.5%
of the assessed value subject to tax of the property. Likewise, it follows that it was an error for
respondent to hold petitioner personally liable for the supposed deficiency in collections.

Even if it was not proper for the Municipality of Narra to collect the 0.5% rate instead of 1%,
can petitioner still be held personally liable for the deficiency?

No, since the mayor’s acts (Demaala) were done pursuant to an ordinance which, at the time
of collection, was yet to be invalidated.

In support of its arguments, respondent COA raised the case of Salalima vs Guingonawhere Supreme Court held
the local officials liable for violations having to do with the special education fund.

Nonetheless, Supreme Court held that COA’s reliance on the Salalima case was misguided. The circumstances of
Salalima were not analogous to the circumstances in this case.

Salalima vs Guingona Demaala vs COA (present case)

Salalima involved mishandling of proceeds which
was “tantamount to abuse of authority” and
which “can qualify as technical malversation”
Salalima involved the liability of the provincial
officials who were themselves the authors of an
invalid ordinance
Salalima entailed imposition of the administrative
penalty of suspension
This case involves collection of additional levy for
special education fund at a rate which, at the time
of collection, was pursuant to an ordinance that
was yet to be invalidated
This case, Municipality of Narra – as subordinate to
Province of Palawan – merely enforced a provincial
ordinance
In this case, respondent COA is not concerned with
the imposition of administrative penalties but
insists that petitioner Demaala (solidarily with other
persons named) pay the deficiency in collections.
It is basic that laws and local ordinances are "presumed to be valid unless and until the courts
declare the contrary in clear and unequivocal terms." Thus, the concerned officials of the Municipality
of Narra, Palawan must be deemed to have conducted themselves in good faith and with regularity
when they acted pursuant to Chapter 5, Section 48 of Provincial Ordinance No. 332-A, Series of 1995,
and collected the additional levy for the special education fund at the rate of 0.5%. Accordingly, it was
improper for respondent to attribute personal liability to petitioner and to require her to personally
answer to the deficiency in special education fund collections.