G.R. No. 185023. August 24, 2011.

CITY OF PASIG, REPRESENTED BY THE CITY TREASURER and THE CITY ASSESSOR, petitioner, vs. REPUBLIC
OF THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
Respondent

Facts:

Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land, with a total area of
18.4891 hectares, situated in Pasig City. The properties are covered by Transfer Certificate of Title (TCT)
Nos. 337158 and 469702 and Tax Declaration Nos. E-030-01185 and E-03001186 under the name of
MPLDC. Portions of the properties are leased to different business establishments.

In 1986, the registered owner of MPLDC, Jose Y. Campos (Campos), voluntarily surrendered MPLDC to
the Republic of the Philippines.

On 30 September 2002, the Pasig City Assessor’s Office sent MPLDC two notices of tax delinquency for its
failure to pay real property tax on the properties for the period 1979 to 2001 totaling P256,858,555.86. In
a letter dated 29 October 2002, Independent Realty Corporation (IRC) President Ernesto R. Jalandoni
(Jalandoni) and Treasurer Rosario Razon informed the Pasig City Treasurer that the tax for the period 1979
to 1986 had been paid, and that the properties were exempt from tax beginning 1987.

In letters dated 10 July 2003 and 8 January 2004, the Pasig City Treasurer informed MPLDC and IRC that
the properties were not exempt from tax. In a letter dated 16 February 2004, MPLDC General Manager
Antonio Merelos (Merelos) and Jalandoni again informed the Pasig City Treasurer that the properties were
exempt from tax. In a letter dated 11 March 2004, the Pasig City Treasurer again informed Merelos that
the properties were not exempt from tax.

On 20 October 2005, the Pasig City Assessor’s Office sent MPLDC a notice of final demand for payment of
tax for the period 1987 to 2005 totaling P389,027,814.48. On the same day, MPLDC paid P2,000,000
partial payment under protest.

Issue:

WON Republic is exempted from paying the assessed real property tax

Held:

The petition is partly meritorious.

Even as the Republic of the Philippines is now the owner of the properties in view of the voluntary
surrender of MPLDC by its former registered owner, Campos, to the State, such transfer does not prevent
a third party with a better right from claiming such properties in the proper forum. In the meantime, the
Republic of the Philippines is the presumptive owner of the properties for taxation purposes.

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

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

In sum, only those portions of the properties leased to taxable entities are subject to real estate tax for
the period of such leases. Pasig City must, therefore, issue to respondent new real property tax
assessments covering the portions of the properties leased to taxable entities. If the Republic of the
Philippines fails to pay the real property tax on the portions of the properties leased to taxable entities,
then such portions may be sold at public auction to satisfy the tax delinquency.
G.R. No. 191109. July 18, 2012.*

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY (PRA),

petitioner, vs. CITY OF PARAÑAQUE, respondent.

Facts:

The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree
(P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing Funds
Therefor and For Other Purposes) which took effect on February 4, 1977 to provide a coordinated,
economical and efficient reclamation of lands, and the administration and operation of lands belonging
to, managed and/or operated by, the government with the object of maximizing their utilization and
hastening their development consistent with public interest.

On October 26, 2004, then President Gloria Macapagal Arroyo issued E.O. No. 380 transforming PEA into
PRA, which shall perform all the powers and functions of the PEA relating to reclamation activities.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila
Bay, including those located in Parañaque City, and was issued Original Certificates of Title (OCT Nos. 180,
202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311,
9685, and 9686) over the reclaimed lands.

On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of
Levy on PRA’s reclaimed properties (Central Business Park and Barangay San Dionisio) located in
Parañaque City based on the assessment for delinquent real property taxes made by then Parañaque City
Assessor Soledad Medina Cue for tax years 2001 and 2002.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative
Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required
to meet the test of economic viability. Instead, PRA is a government instrumentality vested with corporate
powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions
of the Administrative Code. Although it has a capital stock divided into shares, it is not authorized to
distribute dividends and allotment of surplus and profits to its stockholders. Therefore, it may not be
classified as a stock corporation because it lacks the second requisite of a stock corporation which is the
distribution of dividends and allotment of surplus and profits to the stockholders.

It insists that it may not be classified as a non-stock corporation because it has no members and it is not
organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers as
provided in Section 88 of the Corporation Code.

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from
payment of real property tax except 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 which delegate to local governments the power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the
payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or
public service. While the subject reclaimed lands are still in its hands, these lands remain public lands and
form part of the public domain. Hence, the assessment of real property taxes made on said lands, as well
as the levy thereon, and the public sale thereof on April 7, 2003, including the issuance of the certificates
of sale in favor of the respondent Parañaque City, are invalid and of no force and effect.

Issue:

WON PRA is exempt from the payment of real property tax

Held:

Yes. PRA is exempt from the payment of real property tax.

It is clear that a GOCC must be “organized as a stock or non-stock corporation” while an instrumentality
is vested by law with corporate powers.

Many government instrumentalities are vested with corporate powers but they do not become stock or
non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a
GOCC. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines, and Bangko Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. They are not, however,
GOCCs in the strict sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.

Two requisites must concur before one may be classified as a stock corporation, namely:

(1) that it has capital stock divided into shares; and

(2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders.

In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot
be considered as a stock corporation because although it has a capital stock divided into no par value
shares as provided in Section 74 of P.D. No. 1084, it is not authorized to distribute dividends, surplus
allotments or profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the
subsequent executive issuances pertaining to PRA, particularly, E.O. No. 525,5 E.O. No. 6546 and EO No.
7987 that authorizes PRA to distribute dividends, surplus allotments or profits to its stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock
corporation must have members.

The fundamental provision above authorizes Congress to create GOCCs through special charters on two
conditions:
1) the GOCC must be established for the common good; and

2) the GOCC must meet the test of economic viability.

In this case, PRA may have passed the first condition of common good but failed the second one—
economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or
commercial activities. Neither was it created to compete in the market place considering that there were
no other competing reclamation companies being operated by the private sector. As mentioned earlier,
PRA was created essentially to perform a public service considering that it was primarily responsible for
a coordinated, economical and efficient reclamation, administration and operation of lands belonging to
the government with the object of maximizing their utilization and hastening their development
consistent with the public interest.

This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory Provisions of
the Administrative Code or under Section 16, Article XII of the 1987 Constitution. The facts, the evidence
on record and jurisprudence on the issue support the position that PRA was not organized either as a
stock or a non-stock corporation. Neither was it created by Congress to operate commercially and
compete in the private market. Instead, PRA is a government instrumentality vested with corporate
powers and performing 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 from
payment of real property tax.

Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On
the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from paying realty
taxes and protects it from the taxing powers of local government units.
G.R. No. 189999 June 27, 2012

ANGELES UNIVERSITY FOUNDATION, Petitioner,

vs.
CITY OF ANGELES, JULIET G. QUINSAAT, in her capacity as Treasurer of Angeles City and ENGR.
DONATO N. DIZON, in his capacity as Acting Angeles City Building Official, Respondents.

Facts:

Petitioner Angeles University Foundation (AUF) is an educational institution established on May 25, 1962
and was converted into a non-stock, non-profit education foundation under the provisions of Republic
Act (R.A.) No. 60554 on December 4, 1975.

Sometime in August 2005, petitioner filed with the Office of the City Building Official an application for a
building permit for the construction of an 11-storey building of the Angeles University Foundation Medical
Center in its main campus located at MacArthur Highway, Angeles City, Pampanga. Said office issued a
Building Permit Fee Assessment in the amount of P126,839.20. An Order of Payment was also issued by
the City Planning and Development Office, Zoning Administration Unit requiring petitioner to pay the sum
of P238,741.64 as Locational Clearance Fee.5

In separate letters dated November 15, 2005 addressed to respondents City Treasurer Juliet G. Quinsaat
and Acting City Building Official Donato N. Dizon, petitioner claimed that it is exempt from the payment
of the building permit and locational clearance fees, citing legal opinions rendered by the Department of
Justice (DOJ). Petitioner also reminded the respondents that they have previously issued building permits
acknowledging such exemption from payment of building permit fees on the construction of petitioner’s
4-storey AUF Information Technology Center building and the AUF Professional Schools building on July
27, 2000 and March 15, 2004, respectively.6

Respondent City Treasurer referred the matter to the Bureau of Local Government Finance (BLGF) of the
Department of Finance, which in turn endorsed the query to the DOJ. Then Justice Secretary Raul M.
Gonzalez, in his letter-reply dated December 6, 2005, cited previous issuances of his office (Opinion No.
157, s. 1981 and Opinion No. 147, s. 1982) declaring petitioner to be exempt from the payment of building
permit fees. Under the 1st Indorsement dated January 6, 2006, BLGF reiterated the aforesaid opinion of
the DOJ stating further that "xxx the Department of Finance, thru this Bureau, has no authority to review
the resolution or the decision of the DOJ."7

Petitioner wrote the respondents reiterating its request to reverse the disputed assessments and invoking
the DOJ legal opinions which have been affirmed by Secretary Gonzalez. Despite petitioner’s plea,
however, respondents refused to issue the building permits for the construction of the AUF Medical
Center in the main campus and renovation of a school building located at Marisol Village. Petitioner then
appealed the matter to City Mayor Carmelo F. Lazatin but no written response was received by petitioner.

Issue:

WON Angeles University Foundation is exempt from the payment of real property tax.
Held:

No. On petitioner’s claim that it is exempted from the payment of real property tax assessed against its
real property presently occupied by informal settlers.

Section 28(3), Article VI of the 1987 Constitution provides:

xxxx

(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.

Section 234(b) of the Local Government Code of 1991 implements the foregoing constitutional provision
by declaring that --

SECTION 234. Exemptions from Real Property Tax.– The following are exempted from payment of the real
property tax:

xxxx

(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;

In Lung Center of the Philippines v. Quezon City,31 this Court held that only portions of the hospital
actually, directly and exclusively used for charitable purposes are exempt from real property taxes, while
those portions leased to private entities and individuals are not exempt from such taxes. We explained
the condition for the tax exemption privilege of charitable and educational institutions, as follows:

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." 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. The words "dominant use" or "principal use" cannot be substituted
for the words "used exclusively" without doing violence to the Constitutions and the law. Solely is
synonymous with exclusively.

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.32 (Emphasis and underscoring supplied.)

Petitioner failed to discharge its burden to prove that its real property is actually, directly and
exclusively used for educational purposes. While there is no allegation or proof that petitioner leases the
land to its present occupants, still there is no compliance with the constitutional and statutory
requirement that said real property is actually, directly and exclusively used for educational purposes. The
respondents correctly assessed the land for real property taxes for the taxable period during which the
land is not being devoted solely to petitioner’s educational activities. Accordingly, the CA did not err in
ruling that petitioner is likewise not entitled to a refund of the real property tax it paid under protest.