13 republic v paranaque.docx

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13REPUBLIC V. PARANAQUEG.R. No. 191109July 18, 2012

Philippine Reclamation Authority (PRA) is a government-owned andcontrolled corporation (GOCC), a taxable entity, and, therefore notexempt from payment of real property taxes.

By virtue of its mandateunder PD 1084 of 1977, EO 525 of 1979 andEO 380 of 2004, the Philippine Reclamation Authority (PRA), agovernment corporation formerly called Public Estates Authority(PEA), reclaimed several portions of the foreshore and offshore areas

of Manila Bay, including those located in Paraaque City, and wasissued Original Certificates of Title Transfer Certificates of Titleoverthe reclaimed lands.

In 2003, then Paraaque City Treasurer Liberato M. Carabeo(Carabeo) issued Warrants of Levy on PRAs reclaimed properties(Central Business Park and Barangay San Dionisio) located inParaaque City based on the assessment for delinquent real propertytaxes made by then Paraaque City Assessor Soledad Medina Cuefor tax years 2001 and 2002. PRA filed a petition for prohibition with

prayer for temporary restraining order (TRO) and/or writ ofpreliminary injunction against Carabeo before the RTC, which deniedthe petition. After an exchange of several pleadings and the failure ofboth parties to arrive at a compromise agreement, PRA filed a Motionfor Leave to File and Admit Attached Supplemental Petition whichsought to declare as null and void the assessment for real propertytaxes, the levy based on the said assessment, the public auction saleconducted on April 7, 2003, and the Certificates of Sale issuedpursuant to the auction sale.

On January 8, 2010, the RTC rendered its decision dismissing PRAspetition.

PRA asserts that it is not a GOCC under Section 2(13) of theIntroductory Provisions of the Administrative Code. Neither is it aGOCC under Section 16, Article XII of the 1987 Constitution because


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it is not required to meet the test of economic viability. Instead, PRAis a government instrumentality vested with corporate powers andperforming an essential public service pursuant to Section 2(10) ofthe Introductory Provisions of the Administrative Code. Although ithas a capital stock divided into shares, it is not authorized todistribute dividends and allotment of surplus and profits to itsstockholders. Therefore, it may not be classified as a stockcorporation because it lacks the second requisite of a stockcorporation which is the distribution of dividends and allotment ofsurplus and profits to the stockholders.

Thus, PRA insists that, as an incorporated instrumentality of theNational Government, it is exempt from payment of real property taxexcept when the beneficial use of the real property is granted to a

taxable person. PRA claims that based on Section 133(o) of the LGC,local governments cannot tax the national government whichdelegate to local governments the power to tax.

Issue

WON PRA is not exempt from the payment of real property tax

Ruling

Yes.

Based on Section 2(13) of the Introductory Provisions of theAdministrative Code of 1987 it is clear that a GOCC must be"organized as a stock or non-stock corporation" while aninstrumentality is vested by law with corporate powers. Likewise,when the law makes a government instrumentality operationallyautonomous, the instrumentality remains part of the National

Government machinery although not integrated with the departmentframework.

When the law vests in a government instrumentality corporatepowers, the instrumentality does not necessarily become acorporation. Unless the government instrumentality is organized as astock or non-stock corporation, it remains a government


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instrumentality exercising not only governmental but also corporatepowers.

In the case at bench, PRA is not a GOCC because it is neither astock nor a non-stock corporation. It cannot be considered as a stockcorporation because although it has a capital stock divided into nopar value shares as provided in Section 7 of P.D. No. 1084, it is notauthorized to distribute dividends, surplus allotments or profits tostockholders. There is no provision whatsoever in P.D. No. 1084 or inany of the subsequent executive issuances pertaining to PRA,particularly, E.O. No. 525, E.O. No. 65 and EO No. 798 7 thatauthorizes PRA to distribute dividends, surplus allotments or profits toits stockholders.

This Court is convinced that PRA is not a GOCC either under Section2(3) of the Introductory Provisions of the Administrative Code orunder Section 16, Article XII of the 1987 Constitution. The facts, theevidence on record and jurisprudence on the issue support theposition that PRA was not organized either as a stock or a non-stock corporation. Neither was it created by Congress to operatecommercially and compete in the private market. Instead, PRA isa government instrumentality vested with corporate powers andperforming an essential public service pursuant to Section 2(10)of the Introductory Provisions of the Administrative Code. Being

an incorporated government instrumentality, it is exempt frompayment of real property tax.

Clearly, respondent has no valid or legal basis in taxing the subjectreclaimed lands managed by PRA. On the other hand, Section 234(a)of the LGC, in relation to its Section 133(o), exempts PRA frompaying realty taxes and protects it from the taxing powers of localgovernment units.

The real property owned by the Republic of the Philippines (theRepublic) is exempt from real property tax unless the beneficial usethereof has been granted to a taxable person. In this case, there is noproof that PRA granted the beneficial use of the subject reclaimedlands to a taxable entity. There is no showing on record either thatPRA leased the subject reclaimed properties to a private taxableentity.


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This exemption should be read in relation to Section 133(o) of thesame Code, which prohibits local governments from imposing "taxes,fees or charges of any kind on the National Government, its agenciesand instrumentalities x x x." The Administrative Code allows realproperty owned by the Republic to be titled in the name of agenciesor instrumentalities of the national government. Such real propertiesremain owned by the Republic and continue to be exempt from realestate tax.

Indeed, the Republic grants the beneficial use of its real property toan agency or instrumentality of the national government. Thishappens when the title of the real property is transferred to an agencyor instrumentality even as the Republic remains the owner of the realproperty. Such arrangement does not result in the loss of the tax

exemption, unless "the beneficial use thereof has been granted, forconsideration or otherwise, to a taxable person."10

The rationale behind Section 133(o) has also been explained in thecase of the Manila International Airport Authority, to wit:

Section 133(o) recognizes the basic principle that local governmentscannot tax the national government, which historically merelydelegated to local governments the power to tax. While the 1987Constitution now includes taxation as one of the powers of local

governments, local governments may only exercise such power"subject to such guidelines and limitations as the Congress mayprovide."

When local governments invoke the power to tax on nationalgovernment instrumentalities, such power is construed strictly againstlocal governments. The rule is that a tax is never presumed and theremust be clear language in the law imposing the tax. Any doubtwhether a person, article or activity is taxable is resolved againsttaxation. This rule applies with greater force when local governmentsseek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against thetaxpayer claiming the exemption. However, when Congress grants anexemption to a national government instrumentality from localtaxation, such exemption is construed liberally in favor of the national


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government instrumentality.

The reason for the rule does not apply in the case of exemptionsrunning to the benefit of the government itself or its agencies. In suchcase the practical effect of an exemption is merely to reduce theamount of money that has to be handled by government in the courseof its operations. For these reasons, provisions granting exemptionsto government agencies may be construed liberally, in favor of nontax-liability of such agencies.

There is, moreover, no point in national and local governments taxingeach other, unless a sound and compelling policy requires suchtransfer of public funds from one government pocket to another.

There is also no reason for local governments to tax nationalgovernment instrumentalities for rendering essential public servicesto inhabitants of local governments. The only exception is when thelegislature clearly intended to tax government instrumentalities for thedelivery of essential public services for sound and compelling policyconsiderations. There must be express language in the lawempowering local governments to tax national governmentinstrumentalities. Any doubt whether such power exists is resolvedagainst local governments.

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

The states have no power by taxation or otherwise, to retard, impede,burden or in any manner control the operation of constitutional lawsenacted by Congress to carry into execution the powers vested in thefederal government.

The power to tax which was called by Justice Marshall as the "powerto destroy" cannot be allowed to defeat an instrumentality or creationof the very entity which has the inherent power to wield it.

The Court agrees with PRA that the subject reclaimed lands are stillpart of the public domain, owned by the State and, therefore, exemptfrom payment of real estate taxes.Similarly, Article 420 of the Civil


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Code enumerates properties belonging to the State.

Here, the subject lands are reclaimed lands, specifically portions ofthe foreshore and offshore areas of Manila Bay. As such, these landsremain public lands and form part of the public domain. In the case ofChavez v. Public Estates Authority and AMARI Coastal DevelopmentThe fact that alienable lands of the public domain were transferred tothe PEA (now PRA) and issued land patents or certificates of title inPEAs name did not automatically make such lands private. ThisCourt also held therein that reclaimed lands retained their inherentpotential as areas for public use or public service.

As the central implementing agency tasked to undertake reclamationprojects nationwide, with authority to sell reclaimed lands, PEA took

the place of DENR as the government agency charged with leasingor selling reclaimed lands of the public domain. The reclaimed landsbeing leased or sold by PEA are not private lands, in the samemanner that DENR, when it disposes of other alienable lands, doesnot dispose of private lands but alienable lands of the public domain.Only when qualified private parties acquire these lands will the landsbecome private lands. In the hands of the government agency taskedand authorized to dispose of alienable of disposable lands of thepublic domain, these lands are still public, not private lands.

Furthermore, PEA's charter expressly states that PEA "shall holdlands of the public domain" as well as "any and all kinds of lands."PEA can hold both lands of the public domain and private lands.Thus, the mere fact that alienable lands of the public domain like theFreedom Islands are transferred to PEA and issued land patents orcertificates of title in PEA's name does not automatically make suchlands private.13

Likewise, it is worthy to mention Section 14, Chapter 4, Title I, BookIII of the Administrative Code of 1987, provides that the Presidentshall have the power to reserve for settlement or public use, and forspecific public purposes, any of the lands of the public domain, theuse of which is not otherwise directed by law. The reserved land shallthereafter remain subject to the specific public purpose indicated untilotherwise provided by law or proclamation.


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Reclaimed lands such as the subject lands in issue are reservedlands for public use. They are properties of public dominion. Theownership of such lands remains with the State unless they arewithdrawn by law or presidential proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshoreand submerged areas of Manila Bay are part of the "lands of thepublic domain, waters x x x and other natural resources" andconsequently "owned by the State." As such, foreshore andsubmerged areas "shall not be alienated," unless they are classifiedas "agricultural lands" of the public domain. The mere reclamation ofthese areas by PEA does not convert these inalienable naturalresources of the State into alienable or disposable lands of the publicdomain. There must be a law or presidential proclamation officially

classifying these reclaimed lands as alienable or disposable andopen to disposition or concession. Moreover, these reclaimed landscannot be classified as alienable or disposable if the law hasreserved them for some public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion arenot subject to execution or foreclosure sale.14Thus, the assessment,levy and foreclosure made on the subject reclaimed lands byrespondent, as well as the issuances of certificates of title in favor ofrespondent, are without basis.

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13 republic v paranaque.docx