ROMEO P.

GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK,

INC. (ECN), Petitioners, versus DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION
(ERC), NATIONAL POWER CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES
MANAGEMENT GROUP (PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY
ELECTRIC COMPANY INC. (PECO), Respondents.

G.R. No. 159796 | 2007-07-17

DECISION

NACHURA, J.:

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc.
(ECN) (petitioners), come before this Court in this original action praying that Section 34 of Republic Act
(RA) 9136, otherwise known as the "Electric Power Industry Reform Act of 2001" (EPIRA), imposing the
Universal Charge,[1] and Rule 18 of the Rules and Regulations (IRR)[2] which seeks to implement the
said imposition, be declared unconstitutional. Petitioners also pray that the Universal Charge imposed
upon the consumers be refunded and that a preliminary injunction and/or temporary restraining order
(TRO) be issued directing the respondents to refrain from implementing, charging, and collecting the
said charge.[3] The assailed provision of law reads:

SECTION 34. Universal Charge. - Within one (1) year from the effectivity of this Act, a universal charge to
be determined, fixed and approved by the ERC, shall be imposed on all electricity end-users for the
following purposes:

(a) Payment for the stranded debts[4] in excess of the amount assumed by the National Government
and stranded contract costs of NPC[5] and as well as qualified stranded contract costs of distribution
utilities resulting from the restructuring of the industry;

(b) Missionary electrification;[6]

(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis-
a-vis imported energy fuels;

(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh),
which shall accrue to an environmental fund to be used solely for watershed rehabilitation and
management. Said fund shall be managed by NPC under existing arrangements; and

(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years.

The universal charge shall be a non-bypassable charge which shall be passed on and collected from all
end-users on a monthly basis by the distribution utilities. Collections by the distribution utilities and the
TRANSCO in any given month shall be remitted to the PSALM Corp. on or before the fifteenth (15th) of
the succeeding month, net of any amount due to the distribution utility. Any end-user or self-generating
entity not connected to a distribution utility shall remit its corresponding universal charge directly to the
TRANSCO. The PSALM Corp., as administrator of the fund, shall create a Special Trust Fund which shall
be disbursed only for the purposes specified herein in an open and transparent manner. All amount
collected for the universal charge shall be distributed to the respective beneficiaries within a reasonable
period to be provided by the ERC.

The Facts

Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]

On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities Group[8] (NPC-SPUG)
filed with respondent Energy Regulatory Commission (ERC) a petition for the availment from the
Universal Charge of its share for Missionary Electrification, docketed as ERC Case No. 2002-165.[9]

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194, praying that
the proposed share from the Universal Charge for the Environmental charge of P0.0025 per kilowatt-
hour (/kWh), or a total of P119,488,847.59, be approved for withdrawal from the Special Trust Fund
(STF) managed by respondent Power Sector Assets and Liabilities Management Group (PSALM)[10] for
the rehabilitation and management of watershed areas.[11]

On December 20, 2002, the ERC issued an Order[12] in ERC Case No. 2002-165 provisionally approving
the computed amount of P0.0168/kWh as the share of the NPC-SPUG from the Universal Charge for
Missionary Electrification and authorizing the National Transmission Corporation (TRANSCO) and
Distribution Utilities to collect the same from its end-users on a monthly basis.

On June 26, 2003, the ERC rendered its Decision[13] (for ERC Case No. 2002-165) modifying its Order of
December 20, 2002, thus:

WHEREFORE, the foregoing premises considered, the provisional authority granted to petitioner
National Power Corporation-Strategic Power Utilities Group (NPC-SPUG) in the Order dated December
20, 2002 is hereby modified to the effect that an additional amount of P0.0205 per kilowatt-hour should
be added to the P0.0168 per kilowatt-hour provisionally authorized by the Commission in the said
Order. Accordingly, a total amount of P0.0373 per kilowatt-hour is hereby APPROVED for withdrawal
from the Special Trust Fund managed by PSALM as its share from the Universal Charge for Missionary
Electrification (UC-ME) effective on the following billing cycles:

(a) June 26-July 25, 2003 for National Transmission Corporation (TRANSCO); and

(b) July 2003 for Distribution Utilities (Dus).

Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the amount of P0.0373 per
kilowatt-hour and remit the same to PSALM on or before the 15th day of the succeeding month.

In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a detailed report to
include Audited Financial Statements and physical status (percentage of completion) of the projects
using the prescribed format.

Let copies of this Order be furnished petitioner NPC-SPUG and all distribution utilities (Dus).

SO ORDERED.

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among others,[14] to
set aside the above-mentioned Decision, which the ERC granted in its Order dated October 7, 2003,
disposing:

WHEREFORE, the foregoing premises considered, the "Motion for Reconsideration" filed by petitioner
National Power Corporation-Small Power Utilities Group (NPC-SPUG) is hereby GRANTED. Accordingly,
the Decision dated June 26, 2003 is hereby modified accordingly.

Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following:

1. Projects for CY 2002 undertaken;

2. Location

3. Actual amount utilized to complete the project;

4. Period of completion;

5. Start of Operation; and

6. Explanation of the reallocation of UC-ME funds, if any.

SO ORDERED.[15]

Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to draw up to
P70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget subject to the availability of
funds for the Environmental Fund component of the Universal Charge.[16]

On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO) charged
petitioner Romeo P. Gerochi and all other
end-users with the Universal Charge as reflected in their respective electric bills starting from the month
of July 2003.[17]

Hence, this original action.

Petitioners submit that the assailed provision of law and its IRR which sought to implement the same are
unconstitutional on the following grounds:

1) The universal charge provided for under Sec. 34 of the EPIRA and sought to be implemented under
Sec. 2, Rule 18 of the IRR of the said law is a tax which is to be collected from all electric end-users and
self-generating entities. The power to tax is strictly a legislative function and as such, the delegation of
said power to any executive or administrative agency like the ERC is unconstitutional, giving the same
unlimited authority. The assailed provision clearly provides that the Universal Charge is to be
determined, fixed and approved by the ERC, hence leaving to the latter complete discretionary
legislative authority.

2) The ERC is also empowered to approve and determine where the funds collected should be used.

3) The imposition of the Universal Charge on all end-users is oppressive and confiscatory and amounts
to taxation without representation as the consumers were not given a chance to be heard and
represented.[18]

Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to fund the
operations of the NPC. They argue that the cases[19] invoked by the respondents clearly show the
regulatory purpose of the charges imposed therein, which is not so in the case at bench. In said cases,
the respective funds[20] were created in order to balance and stabilize the prices of oil and sugar, and to
act as buffer to counteract the changes and adjustments in prices, peso devaluation, and other variables
which cannot be adequately and timely monitored by the legislature. Thus, there was a need to delegate
powers to administrative bodies.[21] Petitioners posit that the Universal Charge is imposed not for a
similar purpose.

On the other hand, respondent PSALM through the Office of the Government Corporate Counsel (OGCC)
contends that unlike a tax which is imposed to provide income for public purposes, such as support of
the government, administration of the law, or payment of public expenses, the assailed Universal
Charge is levied for a specific regulatory purpose, which is to ensure the viability of the country's electric
power industry. Thus, it is exacted by the State in the exercise of its inherent police power. On this
premise, PSALM submits that there is no undue delegation of legislative power to the ERC since the
latter merely exercises a limited authority or discretion as to the execution and implementation of the
provisions of the EPIRA.[22]

Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor General
(OSG), share the same view that the Universal Charge is not a tax because it is levied for a specific
regulatory purpose, which is to ensure the viability of the country's electric power industry, and is,
therefore, an exaction in the exercise of the State's police power. Respondents further contend that said
Universal Charge does not possess the essential characteristics of a tax, that its imposition would
redound to the benefit of the electric power industry and not to the public, and that its rate is uniformly
levied on electricity end-users, unlike a tax which is imposed based on the individual taxpayer's ability to
pay. Moreover, respondents deny that there is undue delegation of legislative power to the ERC since
the EPIRA sets forth sufficient determinable standards which would guide the ERC in the exercise of the
powers granted to it. Lastly, respondents argue that the imposition of the Universal Charge is not
oppressive and confiscatory since it is an exercise of the police power of the State and it complies with
the requirements of due process.[23]

On its part, respondent PECO argues that it is duty-bound to collect and remit the amount pertaining to
the Missionary Electrification and Environmental Fund components of the Universal Charge, pursuant to
Sec. 34 of the EPIRA and the Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could
be held liable under Sec. 46[24] of the EPIRA, which imposes fines and penalties for any violation of its
provisions or its IRR.[25]

The Issues

The ultimate issues in the case at bar are:

1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA is a tax; and

2) Whether or not there is undue delegation of legislative power to tax on the part of the ERC.[26]

Before we discuss the issues, the Court shall first deal with an obvious procedural lapse.

Petitioners filed before us an original action particularly denominated as a Complaint assailing the
constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and Rule 18 of the EPIRA's IRR.
No doubt, petitioners have locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA
because they sustained a direct injury as a result of the imposition of the Universal Charge as reflected
in their electric bills.

However, petitioners violated the doctrine of hierarchy of courts when they filed this "Complaint"
directly with us. Furthermore, the Complaint is bereft of any allegation of grave abuse of discretion on
the part of the ERC or any of the public respondents, in order for the Court to consider it as a petition
for certiorari or prohibition.

Article VIII, Section 5(1) and (2) of the 1987 Constitution[27] categorically provides that:

SECTION 5. The Supreme Court shall have the following powers:

1. Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and
overpetitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.

2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the rules of court may
provide, final judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement,
law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.

But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto,
and habeas corpus, while concurrent with that of the regional trial courts and the Court of Appeals, does
not give litigants unrestrained freedom of choice of forum from which to seek such relief.[28] It has long
been established that this Court will not entertain direct resort to it unless the redress desired cannot be
obtained in the appropriate courts, or where exceptional and compelling circumstances justify availment
of a remedy within and call for the exercise of our primary jurisdiction.[29] This circumstance alone
warrants the outright dismissal of the present action.

This procedural infirmity notwithstanding, we opt to resolve the constitutional issue raised herein. We
are aware that if the constitutionality of Sec. 34 of the EPIRA is not resolved now, the issue will certainly
resurface in the near future, resulting in a repeat of this litigation, and probably involving the same
parties. In the public interest and to avoid unnecessary delay, this Court renders its ruling now.

The instant complaint is bereft of merit.

The First Issue

To resolve the first issue, it is necessary to distinguish the State's power of taxation from the police
power.

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 that is to pay it.[30] It is based on the principle
that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious
need.[31] Thus, the theory behind the exercise of the power to tax emanates from necessity; without
taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the
people.[32]

On the other hand, police power is the power of the state to promote public welfare by restraining and
regulating the use of liberty and property.[33] It is the most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the State. The justification is found in the Latin
maxims salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut
alienum non laedas (so use your property as not to injure the property of others). As an inherent
attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply
of instruments through which the State, as parens patriae, gives effect to a host of its regulatory
powers.[34] We have held that the power to "regulate" means the power to protect, foster, promote,
preserve, and control, with due regard for the interests, first and foremost, of the public, then of the
utility and of its patrons.[35]

The conservative and pivotal distinction between these two powers rests in the purpose for which the
charge is made. If generation of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised
does not make the imposition a tax.[36]

In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power,
particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates
the purposes for which the Universal Charge is imposed[37] and which can be amply discerned as
regulatory in character. The EPIRA resonates such regulatory purposes, thus:

SECTION 2. Declaration of Policy. - It is hereby declared the policy of the State:

(a) To ensure and accelerate the total electrification of the country;

(b) To ensure the quality, reliability, security and affordability of the supply of electric power;

(c) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition
and full public accountability to achieve greater operational and economic efficiency and enhance the
competitiveness of Philippine products in the global market;

(d) To enhance the inflow of private capital and broaden the ownership base of the power generation,
transmission and distribution sectors;

(e) To ensure fair and non-discriminatory treatment of public and private sector entities in the process
of restructuring the electric power industry;

(f) To protect the public interest as it is affected by the rates and services of electric utilities and other
providers of electric power;

(g) To assure socially and environmentally compatible energy sources and infrastructure;

(h) To promote the utilization of indigenous and new and renewable energy resources in power
generation in order to reduce dependence on imported energy;

(i) To provide for an orderly and transparent privatization of the assets and liabilities of the National
Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to ensure consumer
protection and enhance the competitive operation of the electricity market; and

(k) To encourage the efficient use of energy and other modalities of demand side management.

From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but
an exaction in the exercise of the State's police power. Public welfare is surely promoted.

Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police
power.[38] In Valmonte v. Energy Regulatory Board, et al.[39] and in Gaston v. Republic Planters
Bank,[40] this Court held that the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund
(SSF) were exactions made in the exercise of the police power. The doctrine was reiterated in Osmeña v.
Orbos[41] with respect to the OPSF. Thus, we disagree with petitioners that the instant case is different
from the aforementioned cases. With the Universal Charge, a Special Trust Fund (STF) is also created
under the administration of PSALM.[42] The STF has some notable characteristics similar to the OPSF
and the SSF, viz.:

1) In the implementation of stranded cost recovery, the ERC shall conduct a review to determine
whether there is under-recovery or over recovery and adjust (true-up) the level of the stranded cost
recovery charge. In case of an over-recovery, the ERC shall ensure that any excess amount shall be
remitted to the STF. A separate account shall be created for these amounts which shall be held in trust
for any future claims of distribution utilities for stranded cost recovery. At the end of the stranded cost
recovery period, any remaining amount in this account shall be used to reduce the electricity rates to
the end-users.[43]

2) With respect to the assailed Universal Charge, if the total amount collected for the same is greater
than the actual availments against it, the PSALM shall retain the balance within the STF to pay for
periods where a shortfall occurs.[44]

3) Upon expiration of the term of PSALM, the administration of the STF shall be transferred to the DOF
or any of the DOF attached agencies as designated by the DOF Secretary.[45]

The OSG is in point when it asseverates:

Evidently, the establishment and maintenance of the Special Trust Fund, under the last paragraph of
Section 34, R.A. No. 9136, is well within the pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State.[46]

This feature of the Universal Charge further boosts the position that the same is an exaction imposed
primarily in pursuit of the State's police objectives. The STF reasonably serves and assures the
attainment and perpetuity of the purposes for which the Universal Charge is imposed, i.e., to ensure the
viability of the country's electric power industry.

The Second Issue

The principle of separation of powers ordains that each of the three branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere. A logical corollary to the doctrine of separation of powers is the principle of non-delegation of
powers, as expressed in the Latin maxim potestas delegata non delegari potest (what has been
delegated cannot be delegated). This is based on the ethical principle that such delegated power
constitutes not only a right but a duty to be performed by the delegate through the instrumentality of
his own judgment and not through the intervening mind of another. [47]

In the face of the increasing complexity of modern life, delegation of legislative power to various
specialized administrative agencies is allowed as an exception to this principle.[48] Given the volume
and variety of interactions in today's society, it is doubtful if the legislature can promulgate laws that will
deal adequately with and respond promptly to the minutiae of everyday life. Hence, the need to
delegate to administrative bodies - the principal agencies tasked to execute laws in their specialized
fields - the authority to promulgate rules and regulations to implement a given statute and effectuate its
policies. All that is required for the valid exercise of this power of subordinate legislation is that the
regulation be germane to the objects and purposes of the law and that the regulation be not in
contradiction to, but in conformity with, the standards prescribed by the law. These requirements are
denominated as the completeness test and the sufficient standard test.

Under the first test, the law must be complete in all its terms and conditions when it leaves the
legislature such that when it reaches the delegate, the only thing he will have to do is to enforce it. The
second test mandates adequate guidelines or limitations in the law to determine the boundaries of the
delegate's authority and prevent the delegation from running riot.[49]

The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34 thereof, is
complete in all its essential terms and conditions, and that it contains sufficient standards.

Although Sec. 34 of the EPIRA merely provides that "within one (1) year from the effectivity thereof, a
Universal Charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity
end-users," and therefore, does not state the specific amount to be paid as Universal Charge, the
amount nevertheless is made certain by the legislative parameters provided in the law itself. For one,
Sec. 43(b)(ii) of the EPIRA provides:

SECTION 43. Functions of the ERC. - The ERC shall promote competition, encourage market
development, ensure customer choice and penalize abuse of market power in the restructured
electricity industry. In appropriate cases, the ERC is authorized to issue cease and desist order after due
notice and hearing. Towards this end, it shall be responsible for the following key functions in the
restructured industry:
xxxx

(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in accordance with
law, a National Grid Code and a Distribution Code which shall include, but not limited to the following:

xxxx

(ii) Financial capability standards for the generating companies, the TRANSCO, distribution utilities and
suppliers: Provided, That in the formulation of the financial capability standards, the nature and function
of the entity shall be considered: Provided, further, That such standards are set to ensure that the
electric power industry participants meet the minimum financial standards to protect the public
interest. Determine, fix, and approve, after due notice and public hearings the universal charge, to be
imposed on all electricity end-users pursuant to Section 34 hereof;

Moreover, contrary to the petitioners' contention, the ERC does not enjoy a wide latitude of discretion
in the determination of the Universal Charge. Sec. 51(d) and (e) of the EPIRA[50] clearly provides:

SECTION 51. Powers. - The PSALM Corp. shall, in the performance of its functions and for the attainment
of its objective, have the following powers:

xxxx

(d) To calculate the amount of the stranded debts and stranded contract costs of NPC which shall form
the basis for ERC in the determination of the universal charge;

(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales and other property
contributed to it, including the proceeds from the universal charge.

Thus, the law is complete and passes the first test for valid delegation of legislative power.

As to the second test, this Court had, in the past, accepted as sufficient standards the following:
"interest of law and order;"[51] "adequate and efficient instruction;"[52] "public interest;"[53] "justice
and equity;"[54] "public convenience and welfare;"[55] "simplicity, economy and efficiency;"[56]
"standardization and regulation of medical education;"[57] and "fair and equitable employment
practices."[58] Provisions of the EPIRA such as, among others, "to ensure the total electrification of the
country and the quality, reliability, security and affordability of the supply of electric power"[59] and
"watershed rehabilitation and management"[60] meet the requirements for valid delegation, as they
provide the limitations on the ERC's power to formulate the IRR. These are sufficient standards.

It may be noted that this is not the first time that the ERC's conferred powers were challenged.
In Freedom from Debt Coalition v. Energy Regulatory Commission,[61] the Court had occasion to say:
In determining the extent of powers possessed by the ERC, the provisions of the EPIRA must not be read
in separate parts. Rather, the law must be read in its entirety, because a statute is passed as a whole,
and is animated by one general purpose and intent. Its meaning cannot to be extracted from any single
part thereof but from a general consideration of the statute as a whole. Considering the intent of
Congress in enacting the EPIRA and reading the statute in its entirety, it is plain to see that the law has
expanded the jurisdiction of the regulatory body, the ERC in this case, to enable the latter to implement
the reforms sought to be accomplished by the EPIRA. When the legislators decided to broaden the
jurisdiction of the ERC, they did not intend to abolish or reduce the powers already conferred upon
ERC's predecessors. To sustain the view that the ERC possesses only the powers and functions listed
under Section 43 of the EPIRA is to frustrate the objectives of the law.

In his Concurring and Dissenting Opinion[62] in the same case, then Associate Justice, now Chief Justice,
Reynato S. Puno described the immensity of police power in relation to the delegation of powers to the
ERC and its regulatory functions over electric power as a vital public utility, to wit:

Over the years, however, the range of police power was no longer limited to the preservation of public
health, safety and morals, which used to be the primary social interests in earlier times. Police power
now requires the State to "assume an affirmative duty to eliminate the excesses and injustices that are
the concomitants of an unrestrained industrial economy." Police power is now exerted "to further the
public welfare - a concept as vast as the good of society itself." Hence, "police power is but another name
for the governmental authority to further the welfare of society that is the basic end of all
government." When police power is delegated to administrative bodies with regulatory functions, its
exercise should be given a wide latitude. Police power takes on an even broader dimension in
developing countries such as ours, where the State must take a more active role in balancing the many
conflicting interests in society. The Questioned Order was issued by the ERC, acting as an agent of the
State in the exercise of police power. We should have exceptionally good grounds to curtail its exercise.
This approach is more compelling in the field of rate-regulation of electric power rates. Electric power
generation and distribution is a traditional instrument of economic growth that affects not only a few
but the entire nation. It is an important factor in encouraging investment and promoting business. The
engines of progress may come to a screeching halt if the delivery of electric power is impaired. Billions of
pesos would be lost as a result of power outages or unreliable electric power services. The State thru the
ERC should be able to exercise its police power with great flexibility, when the need arises.

This was reiterated in National Association of Electricity Consumers for Reforms v. Energy Regulatory
Commission[63] where the Court held that the ERC, as regulator, should have sufficient power to
respond in real time to changes wrought by multifarious factors affecting public utilities.

From the foregoing disquisitions, we therefore hold that there is no undue delegation of legislative
power to the ERC.

Petitioners failed to pursue in their Memorandum the contention in the Complaint that the imposition
of the Universal Charge on all end-users is oppressive and confiscatory, and amounts to taxation without
representation. Hence, such contention is deemed waived or abandoned per Resolution[64] of August 3,
2004.[65] Moreover, the determination of whether or not a tax is excessive, oppressive or confiscatory
is an issue which essentially involves questions of fact, and thus, this Court is precluded from reviewing
the same.[66]

As a penultimate statement, it may be well to recall what this Court said of EPIRA:

One of the landmark pieces of legislation enacted by Congress in recent years is the EPIRA. It established
a new policy, legal structure and regulatory framework for the electric power industry. The new thrust is
to tap private capital for the expansion and improvement of the industry as the large government debt
and the highly capital-intensive character of the industry itself have long been acknowledged as the
critical constraints to the program. To attract private investment, largely foreign, the jaded structure of
the industry had to be addressed. While the generation and transmission sectors were centralized and
monopolistic, the distribution side was fragmented with over 130 utilities, mostly small and
uneconomic. The pervasive flaws have caused a low utilization of existing generation capacity;
extremely high and uncompetitive power rates; poor quality of service to consumers; dismal to
forgettable performance of the government power sector; high system losses; and an inability to
develop a clear strategy for overcoming these shortcomings.

Thus, the EPIRA provides a framework for the restructuring of the industry, including the privatization of
the assets of the National Power Corporation (NPC), the transition to a competitive structure, and the
delineation of the roles of various government agencies and the private entities. The law ordains the
division of the industry into four (4) distinct sectors, namely: generation, transmission, distribution and
supply.

Corollarily, the NPC generating plants have to privatized and its transmission business spun off and
privatized thereafter.[67]

Finally, every law has in its favor the presumption of constitutionality, and to justify its nullification,
there must be a clear and unequivocal breach of the Constitution and not one that is doubtful,
speculative, or argumentative.[68] Indubitably, petitioners failed to overcome this presumption in favor
of the EPIRA. We find no clear violation of the Constitution which would warrant a pronouncement that
Sec. 34 of the EPIRA and Rule 18 of its IRR are unconstitutional and void.

WHEREFORE, the instant case is hereby DISMISSED for lack of merit.

SO ORDERED.
WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-appellant, vs. THE COLLECTOR OF
INTERNAL REVENUE, respondent-appellee.

G.R. No. L-46720 | 1940-06-28

DECISION

MORAN, J:

An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.

Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the
place of her alleged last residence and domicile. Among the properties she left was her one-half
conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous
partnership (sociedad anonima), organized and existing under the laws of the Philippines, with its
principal office in the City of Manila. She left a will which was duly admitted to probate in California
where her estate was administered and settled. Petitioner-appellant, Wells Fargo Bank & Union Trust
Company, was duly appointed trustee of the trust created by the said will. The Federal and State of
California's inheritance taxes due on said shares have been duly paid. Respondent Collector of Internal
Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to which
petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower
court, with the statement that, "if it should be held by a final declaratory judgment that the transfer of
the aforesaid shares of stock is legally subject to the Philippine inheritance tax, the petitioner will pay
such tax, interest and penalties (saving error in computation) without protest and will not file an action
to recover the same; and the petitioner believes and therefore alleges that if it should be held that such
transfer is not subject to said tax, the respondent will not proceed to assess and collect the same." The
Court of First Instance of Manila rendered judgment, holding that the transmission by will of the said
35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner.

Petitioner concedes (1) that the Philippine inheritance tax is not a tax on property, but upon
transmission by inheritance (Lorenzo vs. Posadas, 35 Of. Gaz., 2393, 2395), and (2) that as to real and
tangible personal property of a non-resident decedent, located in the Philippines, the Philippine
inheritance tax may be imposed upon their transmission by death, for the self-evident reason that,
being a property situated in this country, its transfer is, in some way, dependent, for its effectiveness,
upon Philippine laws. It is contended, however, that, as to intangibles, like the shares of stock in
question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by death
necessarily takes place under his domiciliary laws.

Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of
inheritance of any share issued by any corporation or sociedad anonima organized or constituted in the
Philippines, is subject to the tax therein provided. This provision has already been applied to shares of
stock in a domestic corporation which were owned by a British subject residing and do miciled in Great
Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs vs. Government of P. I., G. R. No. 35694.)
Petitioner, however, invokes the rule laid down by the United States Supreme Court in four cases
(Farmers Loan & Trust Company vs. Minnesota, 280 U. S. 204; 74 Law. ed., 371; Baldwin vs. Missouri,
281 U. S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission, 282 U. S., 1; 75 Law. ed.,
131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R.,
1401), to the effect that an inheritance tax can be imposed with respect to intangibles only by the State
where the decedent was domiciled at the time of his death, and that, under the due-process clause, the
State in which a corporation has been incorporated has no power to impose such tax if the shares of
stock in such corporation are owned by a non-resident decedent. It is to be observed, however, that in a
later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the United States Supreme Court upheld
the authority of the Federal Government to impose an inheritance tax on the transmission, by death of a
non-resident, of stocks in a domestic (American) corporation, irrespective of the situs of the
corresponding certificates of stock. But it is contended that the doctrine in the foregoing case is not
applicable, because the due-process clause is directed at the State and not at the Federal Government,
and that the federal or national power of the United States is to be determined in relation to other
countries and their subjects by applying the principles of jurisdiction recognized in international
relations. Be that as it may, the truth is that the due-process clause is "directed at the protection of the
individual and he is entitled to its immunity as much against the state as against the national
government." (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid
down in the four cases relied upon by the appellant was predicated on a proper regard for the relation
of the states of the American Union, which requires that property should be taxed in only one state and
that jurisdiction to tax is restricted accordingly. In other words, the application to the states of the due-
process rule springs from a proper distribution of their powers and spheres of activity as ordained by the
United States Constitution, and such distribution is enforced and protected by not allowing one state to
reach out and tax property in another. And these considerations do not apply to the Philippines. Our
status rests upon a wholly distinct basis and no analogy, however remote, can be suggested in the
relation of one state of the Union with another or with the United States. The status of the Philippines
has been aptly defined as one which, though a part of the United States in the international sense, is,
nevertheless, foreign thereto in a domestic sense. (Downes vs. Bidwell, 182 U. S., 244, 341.)

At any rate, we see nothing of consequence in drawing any distinction between the operation and effect
of the due-process clause as it applies to the individual states and to the national government of the
United States. The question here involved is essentially not one of due-process, but of the power of the
Philippine Government to tax. If that power be conceded, the guaranty of due process cannot certainly
be invoked to frustrate it, unless the law involved is challenged, which is not, on considerations
repugnant to such guaranty of due process or that of the equal protection of the laws, as, when the law
is alleged to be arbitrary, oppressive or discriminatory.

Originally, the settled law in the United States is that intangibles have only one situs for the purpose of
inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this
rule has, of late, been relaxed. The maxim mobila sequuntur personam, upon which the rule rests, has
been decried as a mere "fiction of law having its origin in considerations of general convenience and
public policy, and cannot be applied to limit or control the right of the state to tax property within its
jurisdiction" (State Board of Assessors vs. Comptoir National I:)'Escompte, 191 U. S., 388, 403, 404), and
must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be
applied if to do so would result in inescapable and patent injustice." (Safe Deposit & Trust Co. vs.
Virginia, 280 U. S., 83, 91-92.) There is thus a marked shift from artificial postulates of law, formulated
for reasons of convenience, to the actualities of each case.

An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either
of two fundamental considerations: (1) upon the recognition of the inherent power of each government
to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws;
and (2) upon the principle that as to intangibles, a single location in space is hardly possible, considering
the multiple, distinct relationships which may be entered into with respect thereto. It is on the basis of
the first consideration that the case of Burnet vs. Brooks, supra, was decided by the Federal Supreme
Court, sustaining the power of the Government to impose an inheritance tax upon transmission, by
death of a non-resident, of shares of stock in a domestic (American) corporation, regardless of the situs
of their corresponding certificates; and on the basis of the second consideration, the case of Cury vs.
McCanless, supra.

In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax
is precluded by the due-process clause of the Fifth Amendment, held:

"The point, being solely one of jurisdiction to tax, involves none of the other considerations raised by
confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are
embodied in the due-process clause for the protection of life, liberty, and property of all persons citizens
and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473,
476; 41 S. Ct., 229; Nichols vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710; 52 A.
L. R., 1081; Heiner vs. Donnon, 285 U. S., 312, 326; 76 Law. ed., 772, 779; 52 S. Ct., 358. If in the instant
case the Federal Government had jurisdiction to impose the tax, there is manifestly no ground for
assailing it. Knowlton vs. Moore, 178 U. S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747; McGray vs.
United States, 195 U. S., 27, 61; 49 Law. ed., 78, 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy
Co., 220 U. S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312;
Brushaber vs. Union P. R. Co., 240 U. S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; 414,
Ann. Cas., 1917B, 713; United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 493, 496; 39 S. Ct.,
214." Italics ours.)

And, in sustaining the power of the Federal Government to tax properties within its borders, wherever
its owner may have been domiciled at the time of his death, the court ruled:

". . . There does not appear, a priori, to be anything contrary to the principles of international law, or
hurtful to the polity of nations, in a State's taxing property physically situated within its borders,
wherever its owner may have been domiciled at the time of his death." . . .

"As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds
the citizenship of the owner, his domicile, the source of income, the situs of the property efforts have
been made to preclude multiple taxation through the negotiation of appropriate international
conventions. These endeavors, however, have proceeded upon express or implied recognition, and not
in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon
any one of these grounds." . . . (See pages 39-397; 399.)
In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and
Tennessee may each constitutionally impose death taxes upon the transfer of an interest in intangibles
held in trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciles in
Tennessee, sustained the power of each State to impose the tax. In arriving at this conclusion, the court
made the following observations:

"In cases where the owner of intangibles confines his activity to the place of his domicile it has been
found convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U. S., 308,
313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301 U.
S., 234, 24I; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are
taxed at their situs and not elsewhere, or, perhaps less artificially, by invoking the maxim mobilia
sequuntur personam, Blodgett vs. Silberman, 277 U. S., 1; 72 Law. ed., 749; 48 S. Ct., 410, supra; Baldwin
vs. Missouri, 281 U. S., 586; 74 Law. ed., 1056; 50 S. Ct.; 436; 72 A. L. R., 1303, supra, which means only
that it is the identity or association of intangibles with the person of their owner at his domicile which
gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so
as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring
his person or property within the reach of the tax gatherer there, the reason for a single place of
taxation no longer obtains, and the rule is not even workable substitute for the reasons which may exist
in any particular case to support the constitutional power of each state concerned to tax. Whether we
regard the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice
Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over
tangibles or over persons whose relationships are the source of intangible rights, or on the benefit and
protection conferred by the taxing sovereignty, or both, it is undeniable that the state of domicile is not
deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and
consequently that there are many circumstances in which more than one state may have jurisdiction to
impose a tax and measure it by some or all of the taxpayer's intangibles. Shares of corporate stock may
be taxed at the domicile of the shareholder and also at that of the corporation which the taxing state
has created and controls; and income may be taxed both by the state where it is earned and by the state
of the recipient's domicile. Protection, benefit, and power over the subject matter are not confined to
either state." . . . (Pp. 1347-1349.)

". . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere
mechanical operation of locating at a single place, and there taxing, every legal interest growing out of
all the complex legal relationships which may be entered into between persons. This is the case because
in point of actuality those interests may be too diverse in their relationships to various taxing
jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and
applied before the Fourteenth Amendment was adopted, and still recognized by this Court as valid." (P.
1351.)

We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here
involved is controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in
the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have
remained in this country up to the time when the deceased died in California, and they were in
possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom
they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote
the certificates at the general meetings of the stockholders, to collect dividends thereon, and dispose of
the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation
of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of
stock held in trust for the true owner thereof. In other words, the owner residing in California has
extended here her activities with respect to her intangibles so as to avail herself of the protection and
benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be
upheld.

Judgment is affirmed, with costs against petitioner-appellant.

Avanceña, C.J., Imperial, Diaz, and Concepcion, JJ., concur.

LAUREL, J.:

I concur in the result.

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner and appellant,
vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents and appellees.

G.R. No. L-10405 | 1960-12-29

DECISION

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action
for declaratory relief, with injunction upon the ground that Republic Act No. 920, entitled An Act
Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof,
an item (43[h]) of P85,000.00, "for the construction, reconstruction, repair, extension and
improvement" of "Pasig feeder road terminals (Gen. Roxas - Gen. Araneta - Gen. Lucban - Gen. Capinpin
- Gen. Segundo - Gen. Delgado - Gen. Malvar - Gen. Lim)"; that, at the time of the passage and approval
of said Act, the aforementioned feeder roads were "nothing but projected and planned subdivision
roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according
to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, nor far away from the
intersection between the latter and Highway 54), which projected feeder roads "do not connect any
government property or any important premises to the main highway"; that the aforementioned
Antonio Subdivision (as well as the lands on which said feeder roads were to be constructed) were
private respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a
member of the Senate of the Philippines; that on May 29, 1953, respondent Zulueta, addressed a letter
to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the
municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said roads and agree to change the names of two
of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed; that on
July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention to the approval
of Republic Act No. 920, and the sum of P85,000.00 appropriated therein for the construction of the
projected feeder reads in question; that the municipal council of Pasig endorsed said letter of
respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not made any
endorsement thereon"; that inasmuch as the projected feeder roads in question were private property
at the time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00
therein made, for the construction, reconstruction, repair, extension and improvement of said projected
feeder roads, was "illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made
by Congress because its members were made to believe that the projected feeder roads in question
were "public roads and not private streets of a private subdivision"; that, "in order to give a semblance
of legality, when there is absolutely none, to the aforementioned appropriation", respondent Zulueta
executed, on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged
deed of donation - copy of which is annexed to the petition - of the four (4) parcels of land constituting
said project feeder roads, in favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was on the same date, accepted by the ten Executive Secretary; that being
subject to an onerous condition, said donation partook of the nature of a contract; that, such, said
donation violated the provision of our fundamental law prohibition members of Congress from being
directly or indirectly financially interested in any contract with the Government, and, hence, is
unconstitutional, as well as null and void ab initio, for the construction of the projected feeder roads in
question with public funds would greatly enhance or increase the value of the aforementioned
subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his
subdivision streets or roads at his own expense"; that the construction of said projected feeder roads
was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court,
the respondents would continue to execute, comply with, follow and implement the aforementioned
illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner
but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void;
that the alleged deed of donation of the feeder roads in question be "declared unconstitutional and,
therefore, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works, the Commissioner of the Bureau of Public
Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder
roads project, and from making and securing any new and further releases on the aforementioned item
of Republic Act No. 926 and the disbursing officers of the Department of Public Works and
Communications, the Bureau of Public Works and the Bureau of Public Highways from making any
further payments out of said funds provided for in Republic Act No. 920; and that pending final hearing
on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties
respondent from making and securing any new and further releases on the aforesaid item of Republic
Act No. 920 and from making any further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to
sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province Administrative Code; that said respondent "not aware of any law which makes illegal the
appropriation of public funds for the improvement of . . . private proper"; and that, the constitutional
provision invoked by petitioner inapplicable to the donation in question, the same being a pure act of
liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the
appropriation in question because "there is no actual bona fide case . . . in which the validity of Republic
Act No. 920 is necessarily involved and petitioner "has not shown that he has a personal and substantial
interest" in said Act "and that its enforcement has caused or will cause him a direct injury".

Acting upon said motion to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor of
Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to
question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is
without power to appropriate public revenues for anything but a public purpose", that the construction
and improvement of the feeder roads in question, if such roads were private property, would not be a
public purpose; that, being subject to the following condition:
"The within donation is hereby made upon the condition that the Government of the Republic of the
Philippines will use the parcels of land hereby donated for street purposes only and for no other
purposes whatsoever; it being expressly understood that should the Government of the Republic of the
Philippines violate the condition hereby imposed upon it, the title to the land hereby donated shall,
upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA." (Italics supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existent and void from the very beginning contracts "whose cause, object or
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interests are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as such, are deemed to have admitted hypothetically the allegations of fact
made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner of
several parcels of residential land, situated in Pasig Rizal, and known as the Antonio Subdivision, certain
portions of which had been reserved for the projected feeder roads aforementioned, which, admittedly,
were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the
"construction, reconstruction, repair, extension and improvement" of said roads, was passed by
Congress, as well as when it was approved by the President on June 20, 1953. The petition further
alleges that the construction of said feeder roads, to be undertaken with the aforementioned
appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of
constructing its subdivision streets or roads at his own expenses, 1 and would greatly enhance or
increase the value of the subdivision" of said respondent. The lower court held that under these
circumstances, the appropriation in question was "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2 However, respondent
Zulueta contended, in his motion to dismiss that:

"A law passed by Congress and approved by the President can never be illegal because Congress is the
source of all laws . . .. Aside from the fact that the movant is not aware of any law which makes illegal
the appropriation of public funds for the improvement of what we, in the meantime, may assume as
private property . . .." (Record on Appeal, pp. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Philippines and the system of checks and
balances underlying our political structure. Moreover, it is refuted by the decisions of this Court
invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a private purpose the principle according
to Ruling Case Law, is this:

"It is a general rule that the legislature is without power to appropriate public revenue for anything but
a public purpose. . . . It is the essential character of the direct object of the expenditure which must
determine its validity as justifying a tax, and not the magnitude of the interests to be affected nor the
degree to which the general advantage of the community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental advantage to the public or to the state, which results
from the promotion of private interests and the prosperity of private enterprises or business, does not
justify their aid by the use of public money." (25 R.L.C. pp. 398-400; Italics supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

"In accordance with the rule that the taxing power must be exercised for public purposes only, discussed
supra sec. 14, money raised by taxation can be expanded only for public purposes and not for the
advantage of private individuals." (85 C.J.S. pp. 645-646; italics supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

"Generally, under the express or implied provisions of the constitution, public funds may be used for a
public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a
tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can
be made for other than a public purpose. . .

xxx xxx xxx

"The test of the constitutionality of a statute requiring the use of public funds is whether the statute is
designed to promote the public interests, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public. . . ." (81 C.J.S. p. 1147; italics
supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently
sound, are a necessary corollary to our democratic system of government, which, as such, exists
primarily for the promotion of the general welfare. Besides, reflecting as they do, the established
jurisprudence in the United States, after whose constitutional system ours has been patterned, said
views and jurisprudence are, likewise, part and parcel of our own constitutional law.

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the
ground that petitioner may not contest the legality of the donation above referred to because the same
does not affect him directly. This conclusion is, presumably, based upon the following premises namely:
(1) that, if valid, said donation cured the constitutional infirmity of the aforementioned appropriation;
(2) that the latter may not be annulled without a previous declaration of unconstitutionality of the said
donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no
exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval,
not upon events occupying, or acts performed, subsequently thereto, unless the latter consist of an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in
question, the legality thereof depended upon whether said roads were public or private property when
the bill, which, later on, became Republic Act No. 920, was passed by Congress, or when said bill was
approved by the President and the disbursement of said sum became effective, or on June 20, 1953 (see
section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private
purpose, and, hence, was null and void. 4 The donation to the Government, over five (5) months after
the approval and effectivity of said Act, made according to the petition, for the purpose of giving a
"semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned
basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For
instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177
of said Code, exercise the rights and actions of the latter, except only those which are inherent in his
person, including, therefore, his right to the annulment of said contract, even though such creditors are
not affected by the same, except indirectly, in the manner indicated in said legal provision.

Again, it is well settled that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance
of taxpayers, laws providing for the disbursement of public funds, 5 upon the theory that "the
expenditure of public funds by an officer of the State for the purpose of administering an
unconstitutional act constitutes an misapplication of such funds," which may be enjoined at the request
of a taxpayer. 6 Although there are some decisions to the contrary, 7 the prevailing view in the United
States is stated in the American Jurisprudence as follows:

"In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute the general rule is that only persons individually affected, but also
taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and
may therefore question the constitutionality of statutes requiring expenditure of public moneys." (11
Am. Jur. 761; italics supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262
U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of
the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its
government. Indeed, under the composite system of government existing in the U.S., states of the
Union are integral part of the Federation from an international viewpoint, but, each state enjoys
internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal
Constitution. In fact, the same was made by representatives of each state of the Union, not of the
people of the U.S., except insofar as the former represented the people of the respective States, and the
people of each State has, independently of that of the others, ratified said Constitution. In other words,
the Federal Constitution and the Federal statutes have become binding upon the people of the U.S. in
consequence of an act of, and, in this sense, through the respective states of the Union of which they
are citizens. The peculiar nature of the relation between said people and the Federal Government of the
U.S. is reflected in the election of its President, who is chosen directly, not by the people of the U.S., but
by electors chosen by each State, in such manner as the legislature thereof may direct (Article II, section
2, of the Federal Constitution).

The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing
between the people and taxpayers of each state and the government thereof, except that the authority
of the Republic of the Philippines over the people of the Philippines is more fully direct than that of the
states of the Union, insofar as the simple and unitary type of our national government is not subject to
limitations analogous to those imposed by the Federal Constitution upon the states of the Union, and
those imposed upon the Federal Government in the interest of the states of the Union. For this reason,
the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating
local or state public funds - which has been upheld by the Federal Supreme Court (Crampton vs.
Zabriskie, 101 U.S. 601) - has greater application in the Philippines than that adopted with respect to
acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the
Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting
the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President
of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to
question the constitutionality of an appropriation for backpay of members of Congress. However, in
Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Election (84 Phil., 368; 45 Off.
Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain appropriations of
public funds, and invalidated the same. Moreover, the reason that impelled this Court to take such
position in said two (2) cases - the importance of the issues therein raised - is present in the case at bar.
Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a
taxpayer. The province of Rizal, which he represents officially as it Provincial Governor, is our most
populated political subdivision, 7 and, the taxpayers therein bear a substantial portion of the burden of
taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioner's action in contesting the appropriation and donation in question; that this action should not
have been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower
court for further proceedings not inconsistent with this decision, with the costs of this instance against
respondent Jose C. Zulueta. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, Paredes
and Dizon, JJ., concur.
SILVESTRE M. PUNSALAN, ET AL., plaintiffs-appellants, vs. THE MUNICIPAL BOARD OF THE CITY OF
MANILA, ET AL., defendants-appellants.

G.R. No. L-4817 | 1954-05-26

DECISION

REYES, J.:

This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner,
a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf
of other professionals practicing in the City of Manila who may desire to join it." Object of the suit is the
annulment of Ordinance No. 3398 of the City of Manila together with the provision of the Manila
charter authorizing it and the refund of taxes collected under the ordinance but paid under protest.

The ordinance in question, which was approved by the municipal board of the City of Manila on July 25,
1950, imposes a municipal occupation tax on persons exercising various professions in the city and
penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of
not more than six months, or by both such fine and imprisonment in the discretion of the court." Among
the professions taxed were those to which plaintiffs belong. The ordinance was enacted pursuant to
paragraph (1) of section 18 of the Revised Charter of the City of Manila (as amended by Republic Act No.
409), which empowers the Municipal Board of said city to impose a municipal occupation tax, not to
exceed P50 per annum, on persons engaged in the various professions above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court upheld
the validity of the provision of law authorizing the enactment of the ordinance but declared the
ordinance itself illegal and void on the ground that the penalty therein provided for non-payment of the
tax was not legally authorized. From this decision both parties appealed to this Court, and the only
question they have presented for our determination is whether this ruling is correct or not, for though
the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on this point.

To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition
of the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of
the very section that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter)
in express terms also empowers the Municipal Board "to fix penalties for the violation of ordinances
which shall not exceed to (sic) two hundred pesos fine or six months' imprisonment, or both such fine
and imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in
question is illegal and void because it imposes a penalty not authorized by law is clearly without basis.

As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this municipal
occupation tax; and in any event, the Legislature may, in its discretion, select what occupations shall be
taxed, and in the exercise of that discretion it may tax all, or it may select for taxation certain classes and
leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is
that while the law has authorized the City of Manila to impose the said tax, it has withheld that
authority from other chartered cities, not to mention municipalities. We do not think it is for the courts
to judge what particular cities or municipalities should be empowered to impose occupation taxes in
addition to those imposed by the National Government. That matter is peculiarly within the domain of
the political departments and the courts would do well not to encroach upon it. Moreover, as the seat
of the National Government and with a population and volume of trade many times that of any other
Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the
professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax
than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who have
no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs make a
distinction that is not found in the ordinance. The ordinance imposes the tax upon every person
"exercising" or "pursuing" - in the City of Manila naturally - any one of the occupations named, but does
not say that such person must have his office in Manila. What constitutes exercise or pursuit of a
profession in the city is a matter of judicial determination.

The argument against double taxation may not be invoked where one tax is imposed by the state and
the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that
there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with
respect to the same occupation, calling or activity by both the state and the political subdivisions
thereof. (51 Am. Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No.
3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the provision of
the Manila charter authorizing it. With costs against plaintiffs-appellants.

Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador and Concepcion, JJ., concur.
REV. FR. CASIMIRO LLADOC, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, respondents.

G.R. No. L-19201 | 1965-06-16

DECISION

PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin
Ruiz then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the
construction of a new Catholic Church in the locality. The total amount was actually spent for the
purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29,
1960, the respondent Commissioner of Internal Revenue issued as assessment for donee's gift tax
against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax
amounted to P1,370.00 including surcharges, interest of 1% monthly from May 15, 1958 to June 15,
1960, and the compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and
the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for Review, the
Rev. Fr. Casimiro Lladoc, claimed among others, that at the time of the donation, he was not the parish
priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of
Victorias," and therefore, he should not be liable for the donee's gift tax. It was also asserted that the
assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would
be a clear violation of the provisions of the Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:

". . . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its
Archbishops and Bishops with respect to the properties of the church within their parish. They are the
guardians, superintendents or administrators of these properties, with the right of succession and may
sue and be sued.
xxx xxx xxx

"The petitioner impugns the fairness of the assessment with the argument that he should not be held
liable for gift taxes on donation which he did not receive personally since he was not yet the parish
priest of Victorias in the year 1957 when said donation was given. It is intimated that if someone has to
pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the donation in
behalf of the Catholic parish of Victorias or the Roman Catholic Church. Following petitioner's line of
thinking, we would be equally unfair to hold that the assessment now in question should have been
addressed to, and collected from the Rev. Fr. Crispin Ruiz to be paid from income derived from his
present parish wherever it may be. It does not seem right to indirectly burden the present parishioners
of Rev. Fr. Ruiz for donee's gift tax on a donation to which they were not benefited.

xxx xxx xxx

"We saw no legal basis then as we see none now, to include within the Constitutional exemption, taxes
which partake of the nature of an excise upon the use made of the properties or upon the exercise of
the privilege of receiving the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627;
1938, 302 U.S. 742.)

"It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by law, and
the party claiming exemption must justify his claim by a clear, positive, or express grant of such privilege
by law. (Collector vs. Manila Jockey Club, 98 Phil., 670; 53 Off. Gaz., 3762.)

"The phrase `exempt from taxation' as employed in Section 22(3), Article VI of the Constitution of the
Philippines, should not be interpreted to mean exemption from all kinds of taxes. Statutes exempting
charitable and religious property from taxation should be construed fairly though strictly and in such
manner as to give effect to the main intent of the lawmakers." (Roman Catholic Church vs. Hastrings, 5
Phil., 701.)

xxx xxx xxx

"WHEREFORE, in view of the foregoing considerations, the decision of the respondent Commissioner of
Internal Revenue appealed from, is hereby affirmed except with regard to the imposition of the
compromise penalty in the amount of P20.00 (Collector of Internal Revenue vs. U.S.T., G. R. No. L-11274,
Nov. 28, 1958; . . ., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the
respondent the amount of P900.00 as donee's gift tax, plus the surcharge of five per centum (5%) as ad
valorem penalty under Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from
May 15, 1958 to the date of actual payment. The surcharge of 25% provided in Section 120 for failure to
file a return may not be imposed as the failure to file a return was not due to willful neglect. (. . .) No
costs."

The above judgment is now before Us on appeal, petitioner assigning two (2) errors allegedly committed
by the Tax Court, all of which converge on the singular issue of whether or not petitioner should be
liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of the Victorias
Parish Church.

Section 22(3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches
and personages or convents, appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra-distinguished from excise taxes. In the present
case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was an excise upon the use made of the
properties, upon the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int. Rev., 91
F [2d] 627.) Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A
gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter
vivos, the imposition of which on property used exclusively for religious purposes, do not constitute an
impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt
from taxation," as employed in the Constitution supra should not be interpreted to mean exemption
from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in
favor of the petitioner, the exemption herein must be denied.

The next issue which readily present itself, in view of petitioner's thesis, and Our finding that a tax
liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should not
be liable, because at the time of the donation he was not the priest of Victorias. We note the merit of
the above claim, and in order to put things in their proper light, this Court, in its Resolution of March 15,
1965, ordered the parties to show cause why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc, it appearing that the
Head of such Diocese is the real party in interest. The Solicitor General, in representation of the
Commissioner of Internal Revenue, interposed no objection to such a substitution. Counsel for the
petitioner did not also offer objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal issues
and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also appeared as
counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested that it was
submitting itself to the jurisdiction and orders of this Court and that it was presenting, by reference, the
brief of petitioner Rev. Fr. Casimiro Lladoc, as its own and for all purposes.
In view hereof and considering that, as heretofore stated, the assessment at bar had been properly
made and the imposition of the tax is not a violation of the constitutional provision exempting churches,
personages or convents, etc. (Art. VI, sec. 22[3], Constitution), the Head of the Diocese, to which the
parish of Victorias pertains is liable for the payment thereof.

The decision appealed from should be, as it is hereby affirmed, insofar as tax liability is concerned; it is
modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that the
Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the said
gift tax, without special pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P. and
Zaldivar, JJ., concur.

Barrera, J., took no part.

THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA, Provincial Assessor, petitioner, vs.
HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding Judge of Branch I, Court of First
Instance Abra; THE ROMAN CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo
Etspueler and Reverend Felipe Flores, respondents.

G.R. No. L-49336 | 1981-08-31

DECISION

FERNANDO, C.J.:

On the face of this certiorari and mandamus petition filed by the Province of Abra,1 it clearly appears
that the actuation of respondent Judge Harold M. Hernando of the Court of First Instance of Abra left
much to be desired. First, there was a denial of a motion to dismiss2 an action for declaratory relief by
private respondent Roman Catholic Bishop of Bangued desirous of being exempted from a real estate
tax followed by a summary judgment3 granting such exemption, without even hearing the side of
petitioner. In the rather vigorous language of the Acting Provincial Fiscal, as counsel for petitioner,
respondent Judge "virtually ignored the pertinent provisions of the Rules of Court; . . . wantonly violated
the rights of petitioner to due process, by giving due course to the petition of private respondent for
declaratory relief, and thereafter without allowing petitioner to answer and without any hearing,
adjudged the case; all in total disregard of basic laws of procedure and basic provisions of due process in
the constitution, thereby indicating a failure to grasp and understand the law, which goes into the
competence of the Honorable Presiding Judge." 4

It was the submission of counsel that an action for declaratory relief would be proper only before a
breach or violation of any statute, executive order or regulation. 5 Moreover, there being a tax
assessment made by the Provincial Assessor on the properties of respondent Roman Catholic Bishop,
petitioner failed to exhaust the administrative remedies available under Presidential Decree No. 464
before filing such court action. Further, it was pointed out to respondent Judge that he failed to abide by
the pertinent provision of such Presidential Decree which provides as follows: "No court shall entertain
any suit assailing the validity of a tax assessed under this Code until the taxpayer, shall have paid, under
protest, the tax assessed against him nor shall any court declare any tax invalid by reason of
irregularities or informalities in the proceedings of the officers charged with the assessment or
collection of taxes, or of failure to perform their duties within this time herein specified for their
performance unless such irregularities, informalities or failure shall have impaired the substantial rights
of the taxpayers; nor shall any court declare any portion of the tax assessed under the provisions of this
Code invalid except upon condition that the taxpayer shall pay the just amount of the tax, as determined
by the court in the pending proceeding." 6

When asked to comment, respondent Judge began with the allegation that there "is no question that
the real properties sought to be taxed by the Province of Abra are properties of the respondent Roman
Catholic Bishop of Bangued, Inc." 7 The very next sentence assumed the very point it asked when he
categorically stated: "Likewise, there is no dispute that the properties including their produce are
actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or
charitable purposes." 8 For him then: "The proper remedy of the petitioner is appeal and not this special
civil action." 9 A more exhaustive comment was submitted by private respondent Roman Catholic Bishop
of Bangued, Inc. It was, however, unable to lessen the force of the objection raised by petitioner
Province of Abra, especially the due process aspect. It is to be admitted that his opposition to the
petition, pressed with vigor, ostensibly finds a semblance of support from the authorities cited. It is thus
impressed with a scholarly aspect. It suffers, however, from the grave infirmity of stating that only a
pure question of law is presented when a claim for exemption is made.

The petition must be granted.

1. Respondent Judge would not have erred so grievously had he merely compared the provisions of the
present Constitution with that appearing in the 1935 Charter on the tax exemption of "lands, buildings,
and improvements." There is a marked difference. 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." 10 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. 11 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. According to Commissioner of Internal Revenue v.
Guerrero: 12 "From 1906, in Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting
Commissioner of Customs, it has been the constant and uniform holding that exemption from taxation is
not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer.
Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be
construed strictissimi juris." 13 In Manila Electric Company v. Vera, 14 a 1975 decision, such principle was
reiterated, reference being made to Republic Flour Mills, Inc. v. Commissioner of Internal
Revenue; 15 Commissioner of Customs v. Philippine Acetylene Co. & CTA; 16 and Davao Light and Power
Co., Inc. v. Commissioner of Customs. 17

2. Petitioner Province of Abra is therefore fully justified in invoking the protection of procedural due
process. If there is any case where proof is necessary to demonstrate that there is compliance with the
constitutional provision that allows an exemption, this is it. Instead, respondent Judge accepted at its
face the allegation of private respondent. All that was alleged in the petition for declaratory relief filed
by private respondents, after mentioning certain parcels of land owned by it, are that they are used
"actually, directly and exclusively" as sources of support of the parish priest and his helpers and also of
private respondent Bishop.18

In the motion to dismiss filed on behalf of petitioner Province of Abra, the objection was based primarily
on the lack of jurisdiction, as the validity of a tax assessment may be questioned before the Local Board
of Assessment Appeals and not with a court. There was also mention of a lack of a cause of action, but
only because, in its view, declaratory relief is not proper, as there had been breach or violation of the
right of government to assess and collect taxes on such property. It clearly appears, therefore, that in
failing to accord a hearing to petitioner Province of Abra and deciding the case immediately in favor of
private respondent, respondent Judge failed to abide by the constitutional command of procedural due
process.

WHEREFORE, the petition is granted and the resolution of June 19, 1978 is set aside. Respondent Judge,
or who ever is acting on his behalf, is ordered to hear the case on the merit. No costs.

Barredo, Concepcion, Jr. and De Castro, JJ., concur.

Aquino, J., concurs in the result. The trial court should resolve the jurisdictional issue raised by the
provincial assessor.
Abad Santos, J., is on leave.
ABRA VALLEY COLLEGE, INC. represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P.
AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra;
GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS CF PATERNO MILLARE, respondents.

G.R. No. L-39086 | 1988-06-15

DECISION

PARAS, J.:

This is a petition for review on certiorari of the decision of the defunct Court of First Instance of Abra,
Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc.,
represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar
V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal
portion of which reads:

"IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

"That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial
Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc.,
represented by Director Pedro Borgonia located at Bangued, Abra, is valid;

"That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the
amount of P5,140.31 and back taxes and penalties from the promulgation of this decision;

"That the amount deposited by the plaintiff in the sum of P60,000.00 before the trial, be confiscated to
apply for the payment of the back taxes and for the redemption of the property in question, if the
amount is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who
represents the plaintiff herein;

"That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be
returned to said Municipal Treasurer of Bangued, Abra;

"And finally the case is hereby ordered dismissed with costs against the plaintiff.

"SO ORDERED." (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the
Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents
Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void
the "Notice of Seizure" and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-
payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the
college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of
petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer,
defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was
caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at
public auction of said college lot and building, which sale was held on the same date. Dr. Paterno
Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly
accepted. The certificate of sale was correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counsel a motion to
dismiss the complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then
Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of
Paterno Millare; Rollo, pp. 98-100) to the complaint this was followed by an amended answer (Annex
"3," ibid; Rollo, pp. 101-103) on August 31, 1972.

On September 1, 1972, the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-
108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent
Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid;
Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court
the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia,
deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court
in its questioned decision. Said Stipulations reads:

"STIPULATION OF FACTS

"COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the
following agreed stipulation of facts:

"1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted;
but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is
actually holding the position of Provincial Treasurer of the Province of Abra;

"2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located
in Bangued, Abra under Original Certificate of Title No. 0-83;

"3. That the defendant Gaspar V. Bosque, as Municipal Treasurer of Bangued, Abra caused to be served
upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under
Original Certificate of title No. 0-83 for the satisfaction of real property taxes thereon, amounting to
P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A;
"4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public
auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to
defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor
was issued by the defendant Municipal Treasurer.

"5. That all other matters not particularly and specially covered by this stipulation of facts will be the
subject of evidence by the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of
facts on the point agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd. Agripino Brillantes

Typ. AGRIPINO BRILLANTES

Attorney for Plaintiff
Sgd. Loreto Roldan

Typ. LORETO ROLDAN

Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra
Sgd. Demetrio V. Pre

Typ. DEMETRIO V. PRE

Attorney for Defendant
Paterno Millare"
(Rollo, pp. 17-18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school
is recognized by the government and is offering Primary, High School and College Courses, and has a
school population of more than one thousand students all in all; (b) that it is located right in the heart of
the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First
Instance building; (c) that the elementary pupils are housed in a two-storey building across the street;
(d) that the high school and college students are housed in the main building; (e) that the Director with
his family is in the second floor of the main building; and (f) that the annual gross income of the school
reaches more than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is
whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p.
20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero,
filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on
May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and
jurisprudence, the school building and school lot used for educational purposes of the Abra Valley
College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-
49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of
petitioner school for residential purposes. He thus ruled for the government and rendered the assailed
decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its
appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of
the instant petition for review on certiorari with prayer for preliminary injunction before this Court,
which petition was filed on August 17, 1974 (Rollo, p. 2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo,
p. 58). Respondents were required to answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND
BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER
ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER
ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY
TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE
COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp.
1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for educational
purposes."

Petitioner contends that the primary use of the lot and building for educational purposes, and not the
incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of
the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary
thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment
Law, are without legal basis and therefore void.

On the other hand, private respondents maintain that the college lot and building in question which
were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational
purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr.
Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial
purposes because the ground floor of the college building is being used and rented by a commercial
establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" [Comment;
Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section
22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption
from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all
lands, buildings, and improvements used exclusively for religious, charitable or educational purposes . . .
."

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No.
409, otherwise known as the Assessment Law, provides:

"The following are exempted from real property tax under the Assessment Law:

xxx xxx xxx

( c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the basic and
controlling guide, norm and standard to determine tax exemption, and not the mere incidental use
thereof.

As early as 1916 in YMCA of Manila vs. Collector of Internal Revenue, 33 Phil. 217 [1916], this Court
ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a
restaurant for its members, still these do not constitute business in the ordinary acceptance of the word,
but an institution used exclusively for religious, charitable and educational purposes, and as such, it is
entitled to be exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court
included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a
cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the
exemption from payment of land tax in favor of the convent includes, not only the land actually
occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest.
The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also
qualifies for exemption because this constitutes incidental use in religious functions.

The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of
Herrera vs. Quezon City Board of Assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal
Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus

"Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is
'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably necessary for the accomplishment of said
purposes, such as in the case of hospitals, 'a school for training nurses, a nurses' home, property use to
provide housing facilities for interns, resident doctors, superintendents, and other members of the
hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as
'Athletic fields' including 'a firm used for the inmates of the institution.'" (Cooley on Taxation, Vol. 2, p.
1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the
Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil. 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI,
Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made
that exemption extends to facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for
commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the
second floor of the main building in the case at bar for residential purposes of the Director and his
family, may find justification under the concept of incidental use, which is complimentary to the main or
primary purpose educational, the lease of the first floor thereof to the Northern Marketing Corporation
cannot by any stretch of the imagination be considered incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in
this Court. That the matter was not taken up in the trial court is really apparent in the decision of
respondent Judge. No mention thereof was made in the stipulation of facts, not even in the description
of the school building by the trial judge, both embodied in the decision nor as one of the issues to
resolve in order to determine whether or not said property may be exempted from payment of real
estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even
after it was raised in this Court.
Indeed it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on
appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not
squarely raised below, still in the interest of substantial justice, this Court is not prevented from
considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just
decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building
as well as the lot where it is built, should be taxed, not because the second floor of the same is being
used by the Director and his family for residential purposes, but because the first floor thereof is being
used for commercial purposes. However, since only a portion is used for purposes of commerce, it is
only fair that half of the assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED
subject to the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.
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. OSMEÑA, and EUSTAQUIO
B. CESA, respondents.

G.R. No. 120082 | 1996-09-11

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 its raises issues dwelling on the scope of the taxing
power of local government-owned and controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act
No. 6958, mandated to "principally undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug
Airport in Cebu City, . . . and such other Airports as may be established in the Province of Cebu . . . (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 . . .

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 exempt 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:

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 barangay shall
not extend to the levy of the following:

a) . . .

Xxx xxx xxx

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

Respondent 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 Governmental Code that took effect on January 1, 1992:

Sec. 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.

xxx xxx xxx

Sec. 234. Exemptions from Real Property taxes. . . .

(a) . . .

Xxx xxx xxx

(c) . . .

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. 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 MACIAA 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

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, decress [sic],
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." ([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 Court's ruling finds expression to give impetus and meaning to the overall objectives of the New
Local Government Code of 1991, RA 7160. "It is hereby declared the policy of the State that the
territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and make them more
effective partners in the attainment of national goals. Towards 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. . . . 5

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

I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED WITH GOVERNMENT
POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR
AGENCY OF THE GOVERNMENT.

II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO
THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-owned or
controlled corporation it is mandated to perform functions in the same category as an instrumentality of
Government. An instrumentality of Government is one created to perform governmental functions
primarily to promote certain aspects of the economic life of the people. 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 of 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 character, PD 1869. All its shares of stock
are owned by the National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke 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 government.

Justice Holmes, speaking for the Supreme Court, make references 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 creature 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 toll 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.

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 governmental function 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 power of the local government units.

In its comment respondent City of Cebu alleges that as local a 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 petitioner's 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 corporation, and Section 234 thereof does
not distinguish between 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 the Manila International Airport Authority is a
governmental-owned corporation, 12 and to reject the application of Basco because it was
"promulgated . . . before the enactment and the singing 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 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
juris against the taxpayers and liberally in favor of the taxing authority. 18 A claim of exemption from tax
payment 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 exemption from
taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government
units as follows:

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

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

(b) Documentary stamp tax;

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

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

(e) Taxes, fees and charges and other imposition upon goods carried into or out of, or passing through,
the territorial jurisdictions of local government units in the guise or charges for wharfages, 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 enterprise certified to be the Board of Investment 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 contractor and person engage in the transportation of
passengers of freight by hire and common carriers by air, land, or water, except as provided in this code;

(k) Taxes on premiums paid by ways 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 of thereof, except, tricycles;

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

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprise 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; and

(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS.

Needless to say the last item (item o) is pertinent in 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 the light of the above
enumeration. The term "fees" means charges fixed by law or Ordinance for the regulation or inspection
of business activity, 24 while "charges" are pecuniary liabilities such as rents or fees against person 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 on an annual ad valorem tax on real property such as land, building, machinery
and other improvements not hereafter specifically exempted.

Section 234 of 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 reconsideration or otherwise, to a taxable
person;

(b) Charitable institutions, churches, parsonages or convents appurtenants thereto, mosques nonprofits
or religious cemeteries and all lands, building 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 exemptions 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 his Code.

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

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

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

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

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

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons
including government-owned or controlled corporations are withdrawn upon the effectivity of the Code.
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 constitutions, are hereby
withdrawn upon the effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant tax exemption privileges.

Thus, Section 192 thereof provides:

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

The foregoing sections of the LGC speaks 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 of provisos in these section, 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 were explicitly indicated in the text. For instance, in item (a) which excepts the income taxes
"when livied on banks and other financial institutions", item (d) which excepts "wharfage on wharves
constructed and maintained by the local government until concerned"; and item (1) which excepts
taxes, fees, and charges for the registration and issuance of license 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 otherwise provided
herein" as in items (c) and (i), or the clause "excepts as provided in this Code" in item (j). These clauses
would be obviously unnecessary or mere surplus-ages 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 Section 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 of the National Government, its agencies and instrumentalties, and
local government units"; however, pursuant to Section 232, provinces, cities, 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 used
thereof has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of
the first paragraph of Section 234.

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

including government-owned and controlled corporations, Section 193 of the LGC prescribes the general
rule, viz., they are withdrawn upon the effectivity of the LGC, except 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 in so
far as the real property taxes are concerned by limiting the retention only to those enumerated there-in;
all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover,
even as the real property is 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 taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from 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
Section 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.

I 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 one exists. In light of
the petitioner's theory that it is an "instrumentality of the Government", it could only be within be first
item of the first paragraph of the section by expanding the scope of the terms Republic of the
Philippines" to embrace . . . . . . "instrumentalities" and "agencies" or expediency we quote:

(a) real property owned by the Republic of the Philippines, or any 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 petitioner's claim that it is an instrumentality of
the Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and
in the second place it fails to consider the fact that the legislature used the phrase "National
Government, its agencies and instrumentalities" "in Section 133(o),but only the phrase "Republic of the
Philippines or any of its political subdivision "in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are not interchangeable.

The former is boarder and synonymous with "Government of the Republic of the Philippines" which the
Administrative Code of the 1987 defines as the "corporate governmental entity though which the
functions of the government are exercised through at the Philippines, including, saves as the contrary
appears from the context, the various arms through which political authority is made effective in the
Philippines, whether pertaining to the autonomous reason, the provincial, city, municipal or barangay
subdivision or other forms of local government." 27 These autonomous regions, provincial, city,
municipal or barangay subdivisions" are the political subdivision. 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 government-owned 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. 646, otherwise known as the Real
Property Tax Code, which reads:

Sec 40. Exemption from Real Property Tax. The exemption shall be as follows:

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

Note that as a 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, specially in light of the general
provision on withdrawal of exemption from payment of real property taxes in the last paragraph of
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 this entities to share in the requirements of the 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 petitioner's 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, acrodrome
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

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 petitioner's
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 forgoing 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.
LUNG CENTER OF THE PHILIPPINES, Petitioner, versus CONSTANTINO P. ROSAS, in his capacity as City
Assessor of Quezon City, Respondents.

G.R. No. 144104 | 2004-06-29

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision[1] 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.

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 Exemption[5] from
real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The
petitioner's 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-LBAA's 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 out-patients were charity patients and of the hospital's 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-BAA[9] 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
petitioner's 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 be P357,000 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]

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 Court's 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 d'etre 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;

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 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;

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 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
Care and 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. Mark's 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.

...

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 one's 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.[33] 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, and exclusively 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]

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 petitioner's evidence shows that it collected
P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes.[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.
MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, versus COURT OF APPEALS, CITY OF
PARANAQUE, CITY MAYOR OF PARANAQUE, SANGGUNIANG PANGLUNGSOD NG PARANAQUE, CITY
ASSESSOR OF PARANAQUE, and CITY TREASURER OF PARANAQUE, Respondents. [ DISSENTING
OPINION TINGA, J. ]

G.R. No. 155650 | 2006-07-20

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 Parañaque 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 Parañaque from seizing and conducting an
execution sale over the real properties of MIAA. In the end, all that the City of Parañaque 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
Parañaque 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 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,[4] City Government of San Pablo v. Hon. Reyes[5] 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 City[7] 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 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 taxation[16], 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 Corporation[17] 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 Isabela[21] 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-visgovernment 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 1916[24]). 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 Parañaque 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 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 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 anad 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.

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. 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 Isabela[40] 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 Bascocase 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 Iloilo[42] 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 law[46] 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. Dade[48] 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 Iloilo[50] 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 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-a-vis theMactan 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 thinksMactan 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 persons[56]
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:

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.
xxx[59] (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 government-owned 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.

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 non-stock
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 tax-exempt 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."[69] The 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 Authority[73] - has no capital stock[74], 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 Authority[76] - has no capital stock,[77] no members.

3) Philippine Economic Zone Authority[78] - no capital stock,[79] no members.

4) Light Rail Transit Authority[80] - no capital stock,[81] no members.

5) Bangko Sentral ng Pilipinas[82] - no capital stock,[83] no members, required to remit fifty percent
(50%) of its net profits to the National Treasury.[84]

6) National Power Corporation[85] - 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 stock[87], no members[88], 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 Authority[93] 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.

I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples
to emphasize my fundamental point-that 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

Doubt, A GOCC
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:

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;

(h) To execute or enter into contracts of any kind or nature;

(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.

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.[100] Interestingly, 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 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.

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 Iloilo[109], 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.

xxx xxx xxx

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 bugaboo of the opponents of local autonomy-the
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 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 profit-earning. 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 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:

'(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

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 Appeals[135] the Court reaffirmed
the ruling that the CAA was engaged in "private or non-governmental 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
country[138] 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 adverse-effects 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

Of the President.
Despite the fact that the City of Parañaque 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 Parañaque, 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
Parañaque 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
Parañaque.

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 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 anindependent 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-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.