Power of Taxation

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9637

April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant,

vs.
CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Naawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary
corporation duly registered and doing business in the Philippines through its
Philippine agency established in Manila in November, 1898, with its principal office
at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation with
powers that are to be exercised in conformity with the provisions of Republic Act No.
409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and
selling bibles and/or gospel portions thereof (except during the Japanese occupation)
throughout the Philippines and translating the same into several Philippine dialects.
On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff
that it was conducting the business of general merchandise since November, 1945,
without providing itself with the necessary Mayor's permit and municipal license, in
violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and
3364, and required plaintiff to secure, within three days, the corresponding permit and
license fees, together with compromise covering the period from the 4th quarter of
1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that
plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken in
court regarding the same (Annex B). To avoid the closing of its business as well as
further fines and penalties in the premises on October 24, 1953, plaintiff paid to the
defendant under protest the said permit and license fees in the aforementioned
amount, giving at the same time notice to the City Treasurer that suit would be taken
in court to question the legality of the ordinances under which, the said fees were
being collected (Annex C), which was done on the same date by filing the complaint
that gave rise to this action. In its complaint plaintiff prays that judgment be rendered
declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos.
2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to
refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal
interest thereon, and the costs, plaintiff further praying for such other relief and
remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were
enacted by the Municipal Board of the City of Manila by virtue of the power granted
to it by section 2444, subsection (m-2) of the Revised Administrative Code,
superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409,
known as the Revised Charter of the City of Manila, and praying that the complaint
be dismissed, with costs against plaintiff. This answer was replied by the plaintiff
reiterating the unconstitutionality of the often-repeated ordinances.
Before trial the parties submitted the following stipulation of facts:
COME NOW the parties in the above-entitled case, thru their undersigned attorneys
and respectfully submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636
Isaac Peral, Manila, Bibles, New Testaments, bible portions and bible concordance
in English and other foreign languages imported by it from the United States as well
as Bibles, New Testaments and bible portions in the local dialects imported and/or
purchased locally; that from the fourth quarter of 1945 to the first quarter of 1953
inclusive the sales made by the plaintiff were as follows:

Power of Taxation

Quarter

Amount of Sales

4th quarter 1945

P1,244.21

1st quarter 1946

2,206.85

2nd quarter 1946

1,950.38

3rd quarter 1946

2,235.99

4th quarter 1946

3,256.04

1st quarter 1947

13,241.07

2nd quarter 1947

15,774.55

3rd quarter 1947

14,654.13

4th quarter 1947

12,590.94

1st quarter 1948

11,143.90

2nd quarter 1948

14,715.26

3rd quarter 1948

38,333.83

4th quarter 1948

16,179.90

1st quarter 1949

23,975.10

2nd quarter 1949

17,802.08

3rd quarter 1949

16,640.79

4th quarter 1949

15,961.38

1st quarter 1950

18,562.46

2nd quarter 1950

21,816.32

3rd quarter 1950

25,004.55

4th quarter 1950

45,287.92

Power of Taxation

1st quarter 1951

37,841.21

2nd quarter 1951

29,103.98

3rd quarter 1951

20,181.10

4th quarter 1951

22,968.91

1st quarter 1952

23,002.65

2nd quarter 1952

17,626.96

3rd quarter 1952

17,921.01

4th quarter 1952

24,180.72

1st quarter 1953

29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not
herein stipulated.
WHEREFORE, it is respectfully prayed that this case be set for hearing so that the
parties may present further evidence on their behalf. (Record on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved, among other things, that it has
been in existence in the Philippines since 1899, and that its parent society is in New
York, United States of America; that its, contiguous real properties located at Isaac
Peral are exempt from real estate taxes; and that it was never required to pay any
municipal license fee or tax before the war, nor does the American Bible Society in
the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff
further tried to establish that it never made any profit from the sale of its bibles,
which are disposed of for as low as one third of the cost, and that in order to maintain
its operating cost it obtains substantial remittances from its New York office and
voluntary contributions and gifts from certain churches, both in the United States and
in the Philippines, which are interested in its missionary work. Regarding plaintiff's
contention of lack of profit in the sale of bibles, defendant retorts that the admissions
of plaintiff-appellant's lone witness who testified on cross-examination that bibles
bearing the price of 70 cents each from plaintiff-appellant's New York office are sold
here by plaintiff-appellant at P1.30 each; those bearing the price of $4.50 each are

sold here at P10 each; those bearing the price of $7 each are sold here at P15 each;
and those bearing the price of $11 each are sold here at P22 each, clearly show that
plaintiff's contention that it never makes any profit from the sale of its bible, is
evidently untenable.
After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised Administrative Code
and the repealing portions (o) of section 18 of Republic Act No. 409, although they
seemingly differ in the way the legislative intent is expressed, yet their meaning is
practically the same for the purpose of taxing the merchandise mentioned in said legal
provisions, and that the taxes to be levied by said ordinances is in the nature of
percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1,
Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion
and so holds that this case should be dismissed, as it is hereby dismissed, for lack of
merits, with costs against the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals
which certified the case to Us for the reason that the errors assigned to the lower
Court involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative
Code under which Ordinances Nos. 2592 and 3000 were promulgated, was not
repealed by Section 18 of Republic Act No. 409;
3. In not holding that an ordinance providing for taxes based on gross sales or
receipts, in order to be valid under the new Charter of the City of Manila, must first
be approved by the President of the Philippines; and

Power of Taxation

4. In holding that, as the sales made by the plaintiff-appellant have assumed

commercial proportions, it cannot escape from the operation of said municipal
ordinances under the cloak of religious privilege.
The issues. As may be seen from the proceeding statement of the case, the issues
involved in the present controversy may be reduced to the following: (1) whether or
not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and
3364, are constitutional and valid; and (2) whether the provisions of said ordinances
are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the
Philippines, provides that:
(7) No law shall be made respecting an establishment of religion, or prohibiting the
free exercise thereof, and the free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall forever be allowed. No religion
test shall be required for the exercise of civil or political rights.

SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to

conduct or engage in any of the businesses, trades, or occupations enumerated in
Section 3 of this Ordinance or other businesses, trades, or occupations for which a
permit is required for the proper supervision and enforcement of existing laws and
ordinances governing the sanitation, security, and welfare of the public and the
health of the employees engaged in the business specified in said section 3
hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM
THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY
TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not
particularly mentioned in Section 3 of the Ordinance, and the record does not show
that a permit is required therefor under existing laws and ordinances for the proper
supervision and enforcement of their provisions governing the sanitation, security and
welfare of the public and the health of the employees engaged in the business of the
plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads
as follows:

Predicated on this constitutional mandate, plaintiff-appellant contends that

Ordinances Nos. 2529 and 3000, as respectively amended, are unconstitutional and
illegal in so far as its society is concerned, because they provide for religious
censorship and restrain the free exercise and enjoyment of its religious profession, to
wit: the distribution and sale of bibles and other religious literature to the people of
the Philippines.

79. All other businesses, trades or occupations not mentioned in this Ordinance,
except
those
upon
which
the
City is not empowered to license or to tax P5.00.

Before entering into a discussion of the constitutional aspect of the case, We shall first
consider the provisions of the questioned ordinances in relation to their application to
the sale of bibles, etc. by appellant. The records, show that by letter of May 29, 1953
(Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in
connection with the society's alleged business of distributing and selling bibles, etc.
and to pay permit dues in the sum of P35 for the period covered in this litigation, plus
the sum of P35 for compromise on account of plaintiff's failure to secure the permit
required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is
of general application and not particularly directed against institutions like the
plaintiff, and it does not contain any provisions whatever prescribing religious
censorship nor restraining the free exercise and enjoyment of any religious
profession. Section 1 of Ordinance No. 3000 reads as follows:

As to the license fees that the Treasurer of the City of Manila required the society to
pay from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45,
including the sum of P50 as compromise, Ordinance No. 2529, as amended by
Ordinances Nos. 2779, 2821 and 3028 prescribes the following:

Therefore, the necessity of the permit is made to depend upon the power of the City
to license or tax said business, trade or occupation.

SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances
of the City of Manila, as amended, there shall be paid to the City Treasurer for
engaging in any of the businesses or occupations below enumerated, quarterly, license
fees based on gross sales or receipts realized during the preceding quarter in
accordance with the rates herein prescribed: PROVIDED, HOWEVER, That a person
engaged in any businesses or occupation for the first time shall pay the initial license
fee based on the probable gross sales or receipts for the first quarter beginning from

Power of Taxation

the date of the opening of the business as indicated herein for the corresponding
business or occupation.
xxx

xxx

xxx

GROUP 2. Retail dealers in new (not yet used) merchandise, which dealers are not
yet subject to the payment of any municipal tax, such as (1) retail dealers in general
merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including
stationery.
xxx

xxx

force and effect as the law under which they were promulgated has been expressly
repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as
the Revised Manila Charter.

xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said
Ordinance No. 2529, as amended, are not imposed directly upon any religious
institution but upon those engaged in any of the business or occupations therein
enumerated, such as retail "dealers in general merchandise" which, it is alleged, cover
the business or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444,
subsection (m-2) of said legal body, as amended by Act No. 3659, approved on
December 8, 1929, empowers the Municipal Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories
or both, and (b) retail dealers in new (not yet used) merchandise, which dealers are
not yet subject to the payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers
in general merchandise, and (2) retail dealers exclusively engaged in the sale of (a)
textiles . . . (e) books, including stationery, paper and office supplies, . . .:
PROVIDED, HOWEVER, That the combined total tax of any debtor or
manufacturer, or both, enumerated under these subsections (m-1) and (m-2),
whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN
EXCESS OF FIVE HUNDRED PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as
amended, were enacted in virtue of the power that said Act No. 3669 conferred upon
the City of Manila. Appellant, however, contends that said ordinances are longer in

Passing upon this point the lower Court categorically stated that Republic Act No.
409 expressly repealed the provisions of Chapter 60 of the Revised Administrative
Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former
Manila Charter and section 18 (o) of the new seemingly differ in the way the
legislative intent was expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in both legal provisions and,
consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as
still in full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal
the old statute in its entirety and by the same enactment re-enact all or certain
portions of the preexisting law. Of course, the problem created by this sort of
legislative action involves mainly the effect of the repeal upon rights and liabilities
which accrued under the original statute. Are those rights and liabilities destroyed or
preserved? The authorities are divided as to the effect of simultaneous repeals and reenactments. Some adhere to the view that the rights and liabilities accrued under the
repealed act are destroyed, since the statutes from which they sprang are actually
terminated, even though for only a very short period of time. Others, and they seem
to be in the majority, refuse to accept this view of the situation, and consequently
maintain that all rights an liabilities which have accrued under the original statute
are preserved and may be enforced, since the re-enactment neutralizes the repeal,
therefore, continuing the law in force without interruption. (Crawford-Statutory
Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a
new and wider concept of taxation and is different from the provisions of Section
2444(m-2) that the former cannot be considered as a substantial re-enactment of the
provisions of the latter. We have quoted above the provisions of section 2444(m-2) of
the Revised Administrative Code and We shall now copy hereunder the provisions of
Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:

Power of Taxation

(o) To tax and fix the license fee on dealers in general merchandise, including
importers and indentors, except those dealers who may be expressly subject to the
payment of some other municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers and (b)
retail dealers. For purposes of the tax on retail dealers, general merchandise shall be
classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles,
(3) essential commodities, and (4) miscellaneous articles. A separate license shall be
prescribed for each class but where commodities of different classes are sold in the
same establishment, it shall not be compulsory for the owner to secure more than one
license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale
dealers shall pay the license tax as such, as may be provided by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry
and livestock, agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may
have any bearing on the case at bar, is that, while subsection (m-2) prescribes that the
combined total tax of any dealer or manufacturer, or both, enumerated under
subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned
therein, shall not be in excess of P500 per annum, the corresponding section 18,
subsection (o) of Republic Act No. 409, does not contain any limitation as to the
amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in
accordance with the weight of the authorities above referred to that maintain that "all
rights and liabilities which have accrued under the original statute are preserved and
may be enforced, since the reenactment neutralizes the repeal, therefore continuing
the law in force without interruption", We hold that the questioned ordinances of the
City of Manila are still in force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be
approved by the President of the Philippines as per section 18, subsection (ii) of
Republic Act No. 409, which reads as follows:
(ii) To tax, license and regulate any business, trade or occupation being conducted
within the City of Manila,not otherwise enumerated in the preceding subsections,
including percentage taxes based on gross sales or receipts, subject to the approval of
the PRESIDENT, except amusement taxes.

but this requirement of the President's approval was not contained in section 2444 of
the former Charter of the City of Manila under which Ordinance No. 2529 was
promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers
in general merchandise" is expressly enumerated in subsection (o), section 18 of
Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said
business does not have to be approved by the President to be effective, as it is not
among those referred to in said subsection (ii). Moreover, the questioned ordinances
are still in force, having been promulgated by the Municipal Board of the City of
Manila under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are
inapplicable, invalid or unconstitutional if applied to the alleged business of
distribution and sale of bibles to the people of the Philippines by a religious
corporation like the American Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and
3028, appellant contends that it is unconstitutional and illegal because it restrains the
free exercise and enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted,
guarantees the freedom of religious profession and worship. "Religion has been
spoken of as a profession of faith to an active power that binds and elevates man to its
Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his
relations to His Creator and to the obligations they impose of reverence to His being
and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The
constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraints of
such right can only be justified like other restraints of freedom of expression on the
grounds that there is a clear and present danger of any substantive evil which the
State has the right to prevent". (Taada and Fernando on the Constitution of the
Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved
is imposed upon appellant for its distribution and sale of bibles and other religious
literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a
license be obtained before a person could canvass or solicit orders for goods,
paintings, pictures, wares or merchandise cannot be made to apply to members of

Power of Taxation

Jehovah's Witnesses who went about from door to door distributing literature and
soliciting people to "purchase" certain religious books and pamphlets, all published
by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five
cents each, the "price" of the pamphlets five cents each. It was shown that in making
the solicitations there was a request for additional "contribution" of twenty-five cents
each for the books and five cents each for the pamphlets. Lesser sum were accepted,
however, and books were even donated in case interested persons were without funds.
On the above facts the Supreme Court held that it could not be said that petitioners
were engaged in commercial rather than a religious venture. Their activities could not
be described as embraced in the occupation of selling books and pamphlets. Then the
Court continued:
"We do not mean to say that religious groups and the press are free from all financial
burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250,
80 L. ed. 660, 668, 56 S. Ct. 444. We have here something quite different, for
example, from a tax on the income of one who engages in religious activities or a tax
on property used or employed in connection with activities. It is one thing to impose
a tax on the income or property of a preacher. It is quite another to exact a tax from
him for the privilege of delivering a sermon. The tax imposed by the City of
Jeannette is a flat license tax, payment of which is a condition of the exercise of
these constitutional privileges. The power to tax the exercise of a privilege is the
power to control or suppress its enjoyment. . . . Those who can tax the exercise of
this religious practice can make its exercise so costly as to deprive it of the resources
necessary for its maintenance. Those who can tax the privilege of engaging in this
form of missionary evangelism can close all its doors to all those who do not have a
full purse. Spreading religious beliefs in this ancient and honorable manner would
thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this
activity is unimportant if it does not do so. But that is to disregard the nature of this
tax. It is a license tax a flat tax imposed on the exercise of a privilege granted by
the Bill of Rights . . . The power to impose a license tax on the exercise of these
freedom is indeed as potent as the power of censorship which this Court has
repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure
to defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the pursuit of

activities whose enjoyment is guaranteed by the constitutional liberties of press and

religion and inevitably tends to suppress their exercise. That is almost uniformly
recognized as the inherent vice and evil of this flat license tax."
Nor could dissemination of religious information be conditioned upon the approval of
an official or manager even if the town were owned by a corporation as held in the
case of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as
held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme
Court expressed the opinion that the right to enjoy freedom of the press and religion
occupies a preferred position as against the constitutional right of property owners.
"When we balance the constitutional rights of owners of property against those of the
people to enjoy freedom of press and religion, as we must here, we remain mindful of
the fact that the latter occupy a preferred position. . . . In our view the circumstance
that the property rights to the premises where the deprivation of property here
involved, took place, were held by others than the public, is not sufficient to justify
the State's permitting a corporation to govern a community of citizens so as to restrict
their fundamental liberties and the enforcement of such restraint by the application of
a State statute." (Taada and Fernando on the Constitution of the Philippines, Vol. 1,
4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following
organizations shall not be taxed under this Title in respect to income received by
them as such
(e) Corporations or associations organized and operated exclusively for religious,
charitable, . . . or educational purposes, . . .: Provided, however, That the income of
whatever kind and character from any of its properties, real or personal, or from any
activity conducted for profit, regardless of the disposition made of such income,
shall be liable to the tax imposed under this Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the
plaintiff from this tax and says that such exemption clearly indicates that the act of

Power of Taxation

distributing and selling bibles, etc. is purely religious and does not fall under the
above legal provisions.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia,

JJ., concur.

It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same but this
cannot mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason We believe that the provisions of City of Manila
Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's
permit before any person can engage in any of the businesses, trades or occupations
enumerated therein, We do not find that it imposes any charge upon the enjoyment of a right
granted by the Constitution, nor tax the exercise of religious practices. In the case
of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand
or otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles
are being delivered free, or whether same are being sold within the city limits of the City of
Griffin, without first obtaining written permission from the city manager of the City of
Griffin, shall be deemed a nuisance and punishable as an offense against the City of
Griffin, does not deprive defendant of his constitutional right of the free exercise and
enjoyment of religious profession and worship, even though it prohibits him from introducing
and carrying out a scheme or purpose which he sees fit to claim as a part of his religious
system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional,
even if applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as
amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to
license or tax the business of plaintiff Society involved herein for, as stated before, it would
impair plaintiff's right to the free exercise and enjoyment of its religious profession and
worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No.
3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the
decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly
collected from it. Without pronouncement as to costs. It is so ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10448

August 30, 1957

Power of Taxation

IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT

REGARDING THE VALIDITY OF MUNICIPAL ORDINANCE NO. 3659 OF
THE CITY OF MANILA. PHYSICAL THERAPY ORGANIZATION OF THE
PHILIPPINES, INC., petitioner-appellant,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA and ARSENIO H.
LACSON, as Mayor of the City of Manila,respondents-appellees.

ordinance in question, and it is necessary to pass upon the same, for purposes of ready
reference, we are reproducing said ordinance in toto.
ORDINANCE No. 3659
AN ORDINANCE REGULATING THE OPERATION OF MASSAGE CLINICS
IN THE CITY OF MANILA AND PROVIDING PENALTIES FOR VIOLATIONS
THEREOF.

Mariano M. de Joya for appellant.

City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Naawa for appellees.

Be it ordained by the Municipal Board of the City of Manila, that:

MONTEMAYOR, J.:

Section 1. Definition. For the purpose of this Ordinance the following words and
phrases shall be taken in the sense hereinbelow indicated:

The petitioner-appellant, an association of registered massagists and licensed

operators of massage clinics in the City of Manila and other parts of the country, filed
an action in the Court of First Instance of Manila for declaratory judgment regarding
the validity of Municipal Ordinance No. 3659, promulgated by the Municipal Board
and approved by the City Mayor. To stop the City from enforcing said ordinance, the
petitioner secured an injunction upon filing of a bond in the sum of P1,000.00. A
hearing was held, but the parties without introducing any evidence submitted the case
for decision on the pleadings, although they submitted written memoranda.
Thereafter, the trial court dismissed the petition and later dissolved the writ of
injunction previously issued.
The petitioner appealed said order of dismissal directly to this Court. In support of its
appeal, petitioner-appellant contends among other things that the trial court erred in
holding that the Ordinance in question has not restricted the practice of massotherapy
in massage clinics to hygienic and aesthetic massage, that the Ordinance is valid as it
does not regulate the practice of massage, that the Municipal Board of Manila has the
power to enact the Ordinance in question by virtue of Section 18, Subsection (kk),
Republic Act 409, and that permit fee of P100.00 is moderate and not unreasonable.
Inasmuch as the appellant assails and discuss certain provisions regarding the

(a) Massage clinic shall include any place or establishment used in the practice of
hygienic and aesthetic massage;
(b) Hygienic and aesthetic massage shall include any system of manipulation of
treatment of the superficial parts of the human body of hygienic and aesthetic
purposes by rubbing, stroking, kneading, or tapping with the hand or an instrument;
(c) Massagist shall include any person who shall have passed the required
examination and shall have been issued a massagist certificate by the Committee of
Examiners of Massagist, or by the Director of Health or his authorized
representative;
(d) Attendant or helper shall include any person employed by a duly qualified
massagist in any message clinic to assist the latter in the practice of hygienic and
aesthethic massage;
(e) Operator shall include the owner, manager, administrator, or any person who
operates or is responsible for the operation of a message clinic.

Power of Taxation

SEC. 2. Permit Fees. No person shall engage in the operation of a massage clinic
or in the occupation of attendant or helper therein without first having obtained a
permit therefor from the Mayor. For every permit granted under the provisions of
this Ordinance, there shall be paid to the City Treasurer the following annual fees:
(a) Operator of a massage
(b) Attendant or helper

P100.00
5.00

Said permit, which shall be renewed every year, may be revoked by the Mayor at any
time for the violation of this Ordinance.
SEC. 3. Building requirement. (a) In each massage clinic, there shall be separate
rooms for the male and female customers. Rooms where massage operations are
performed shall be provided with sliding curtains only instead of swinging doors. The
clinic shall be properly ventilated, well lighted and maintained under sanitary conditions
at all times while the establishment is open for business and shall be provided with the
necessary toilet and washing facilities.
(b) In every clinic there shall be no private rooms or separated compartment except those
assigned for toilet, lavatories, dressing room, office or kitchen.
(c) Every massage clinic shall "provided with only one entrance and it shall have no
direct or indirect communication whatsoever with any dwelling place, house or building.
SEC. 4. Regulations for the operation of massage clinics. (a) It shall be unlawful for
any operator massagist, attendant or helper to use, or allow the use of, a massage clinic as
a place of assignation or permit the commission therein of any incident or immoral act.
Massage clinics shall be used only for hygienic and aesthetic massage.
(b) Massage clinics shall open at eight o'clock a.m. and shall close at eleven o'clock p.m.

10
(c) While engaged in the actual performance of their duties, massagists, attendants and
helpers in a massage clinic shall be as properly and sufficiently clad as to avoid suspicion
of intent to commit an indecent or immoral act;

(d) Attendants or helpers may render service to any individual customer only for hygienic
and aesthetic purposes under the order, direction, supervision, control and responsibility
of a qualified massagist.
SEC. 5. Qualifications No person who has previously been convicted by final
judgment of competent court of any violation of the provisions of paragraphs 3 and 5 of
Art. 202 and Arts. 335, 336, 340 and 342 of the Revised Penal Code, or Secs. 819 of the
City of Manila, or who is suffering from any venereal or communicable disease shall
engage in the occupation of massagist, attendant or helper in any massage clinic.
Applicants for Mayor's permit shall attach to their application a police clearance and
health certificate duly issued by the City Health Officers as well as a massagist certificate
duly issued by the Committee or Examiners for Massagists or by the Director of Health
or his authorized representatives, in case of massagists.
SEC. 6. Duty of operator of massage clinic. No operator of massage clinic shall allow
such clinic to operate without a duly qualified massagist nor allow, any man or woman to
act as massagist, attendant or helper therein without the Mayor's permit provided for in
the preceding sections. He shall submit whenever required by the Mayor or his authorized
representative the persons acting as massagists, attendants or helpers in his clinic. He
shall place the massage clinic open to inspection at all times by the police, health officers,
and other law enforcement agencies of the government, shall be held liable for anything
which may happen with the premises of the massage clinic.
SEC. 7. Penalty. Any person violating any of the provisions of this Ordinance shall
upon conviction, be punished by a fine of not less than fifty pesos nor more than two
hundred pesos or by imprisonment for not less than six days nor more than six months, or
both such fine and imprisonment, at the discretion of the court.
SEC. 8. Repealing Clause. All ordinances or parts of ordinances, which are
inconsistent herewith, are hereby repealed.

Power of Taxation

SEC. 9. Effectivity. This Ordinance shall take effect upon its approval.
Enacted, August 27, 1954.
Approved, September 7, 1954.
The main contention of the appellant in its appeal and the principal ground of its petition
for declaratory judgment is that the City of Manila is without authority to regulate the
operation of massagists and the operation of massage clinics within its jurisdiction; that
whereas under the Old City Charter, particularly, Section 2444 (e) of the Revised
Administrative Code, the Municipal Board was expressly granted the power to regulate
and fix the license fee for the occupation of massagists, under the New Charter of Manila,
Republic Act 409, said power has been withdrawn or omitted and that now the Director
of Health, pursuant to authority conferred by Section 938 of the Revised Administrative
Code and Executive Order No. 317, series of 1941, as amended by Executive Order No.
392, series, 1951, is the one who exercises supervision over the practice of massage and
over massage clinics in the Philippines; that the Director of Health has issued
Administrative Order No. 10, dated May 5, 1953, prescribing "rules and regulations
governing the examination for admission to the practice of massage, and the operation of
massage clinics, offices, or establishments in the Philippines", which order was approved
by the Secretary of Health and duly published in the Official Gazette; that Section 1 (a) of
Ordinance No. 3659 has restricted the practice of massage to only hygienic and aesthetic
massage prohibits or does not allow qualified massagists to practice therapeutic massage
in their massage clinics. Appellant also contends that the license fee of P100.00 for
operator in Section 2 of the Ordinance is unreasonable, nay, unconscionable.
If we can ascertain the intention of the Manila Municipal Board in promulgating the
Ordinance in question, much of the objection of appellant to its legality may be solved. It
would appear to us that the purpose of the Ordinance is not to regulate the practice of
massage, much less to restrict the practice of licensed and qualified massagists of
therapeutic massage in the Philippines. The end sought to be attained in the Ordinance is
to prevent the commission of immorality and the practice of prostitution in an
establishment masquerading as a massage clinic where the operators thereof offer to
massage or manipulate superficial parts of the bodies of customers for hygienic and

11
aesthetic purposes. This intention can readily be understood by the building requirements
in Section 3 of the Ordinance, requiring that there be separate rooms for male and female
customers; that instead of said rooms being separated by permanent partitions and
swinging doors, there should only be sliding curtains between them; that there should be
"no private rooms or separated compartments, except those assigned for toilet, lavatories,
dressing room, office or kitchen"; that every massage clinic should be provided with only
one entrance and shall have no direct or indirect communication whatsoever with any
dwelling place, house or building; and that no operator, massagists, attendant or helper
will be allowed "to use or allow the use of a massage clinic as a place of assignation or
permit the commission therein of any immoral or incident act", and in fixing the
operating hours of such clinic between 8:00 a.m. and 11:00 p.m. This intention of the
Ordinance was correctly ascertained by Judge Hermogenes Concepcion, presiding in the
trial court, in his order of dismissal where he said: "What the Ordinance tries to avoid is
that the massage clinic run by an operator who may not be a masseur or massagista may
be used as cover for the running or maintaining a house of prostitution."

Ordinance No. 3659, particularly, Sections 1 to 4, should be considered as limited to

massage clinics used in the practice of hygienic and aesthetic massage. We do not believe
that Municipal Board of the City of Manila and the Mayor wanted or intended to regulate
the practice of massage in general or restrict the same to hygienic and aesthetic only.
As to the authority of the City Board to enact the Ordinance in question, the City Fiscal,
in representation of the appellees, calls our attention to Section 18 of the New Charter of
the City of Manila, Act No. 409, which gives legislative powers to the Municipal Board
to enact all ordinances it may deem necessary and proper for the promotion of the
morality, peace, good order, comfort, convenience and general welfare of the City and its
inhabitants. This is generally referred to as the General Welfare Clause, a delegation in
statutory form of the police power, under which municipal corporations, are authorized to
enact ordinances to provide for the health and safety, and promote the morality, peace and
general welfare of its inhabitants. We agree with the City Fiscal.
As regards the permit fee of P100.00, it will be seen that said fee is made payable not by
the masseur or massagist, but by the operator of a massage clinic who may not be a
massagist himself. Compared to permit fees required in other operations, P100.00 may

Power of Taxation

12

appear to be too large and rather unreasonable. However, much discretion is given to
municipal corporations in determining the amount of said fee without considering it as a
tax for revenue purposes:
The amount of the fee or charge is properly considered in determining whether it is a tax
or an exercise of the police power. The amount may be so large as to itself show that the
purpose was to raise revenue and not to regulate, but in regard to this matter there is a
marked distinction between license fees imposed upon useful and beneficial occupations
which the sovereign wishes to regulate but not restrict, and those which areinimical and
dangerous to public health, morals or safety. In the latter case the fee may be very large
without necessarily being a tax. (Cooley on Taxation, Vol. IV, pp. 3516-17; underlining
supplied.)
Evidently, the Manila Municipal Board considered the practice of hygienic and aesthetic
massage not as a useful and beneficial occupation which will promote and is conducive to
public morals, and consequently, imposed the said permit fee for its regulation.
In conclusion, we find and hold that the Ordinance in question as we interpret it and as
intended by the appellees is valid. We deem it unnecessary to discuss and pass upon the
other points raised in the appeal. The order appealed from is hereby affirmed. No costs.
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., Endencia and Felix, JJ., concur.

G.R. No. L-39086 June 15, 1988

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 OF PATERNO MILLARE,respondents.
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;

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

That the amount deposited by the plaintaff him 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;

Power of Taxation

13

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;

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

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

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.

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 nonpayment 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
counstel 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 Patemo 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 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. 083;
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;

Power of Taxation

14

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).

Power of Taxation

15

Petitioner raised the following assignments of error:

I
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
improvementsused 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

Power of Taxation

16

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.

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).

As early as 1916 in YMCA of Manila vs. Collector of lnternal 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.

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]).

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

It must be stressed however, that while this Court allows a more liberal and nonrestrictive 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 purposeeducational,
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 to 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 properly 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

Power of Taxation

17

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.
Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Abra Valley College v. Aquino

G.R. No. L-39086 June 15, 1988
Paras, J.
Facts: Petitioner, an educational corporation and institution of higher learning duly
incorporated with the Securities and Exchange Commission in 1948, filed a complaint
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 by respondents Municipal
Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction
of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court
in its questioned decision. The trial court ruled for the government, holding that the
second floor of the building is being used by the director for residential purposes and
that the ground floor used and rented by Northern Marketing Corporation, a
commercial establishment, and thus the property is not being used exclusively for
educational purposes. Instead of perfecting an appeal, petitioner availed of the instant
petition for review on certiorari with prayer for preliminary injunction before the
Supreme Court, by filing said petition on 17 August 1974.
Issue: Whether or not the lot and building are used exclusively for educational
purposes
Held: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution,
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. Reasonable emphasis
has always been made that the exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of the main purposes. The use of
the school building or lot for commercial purposes is neither contemplated by law,
nor by jurisprudence. In the case at bar, the lease of the first floor of the building to
the Northern Marketing Corporation cannot by any stretch of the imagination be
considered incidental to the purpose of education. The test of exemption from
taxation is the use of the property for purposes mentioned in the Constitution.
The decision of the CFI Abra (Branch I) is affirmed subject to the modification that
half of the assessed tax be returned to the petitioner. The modification is derived from
the fact that the ground floor is being used for commercial purposes (leased) and the
second floor being used as incidental to education (residence of the director).

Power of Taxation

18

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City under Executive Order No.
903, otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by
then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and
2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements
and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the runways and buildings ("Airport
Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA
Charter further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by the
President of the Philippines.5
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 155650

July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF
PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY
ASSESSOR OF PARAAQUE, and CITY TREASURER OF
PARAAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Section 21 of the
MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the
real estate tax imposed by the City. MIAA then paid some of the real estate tax
already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from
the City of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax
delinquency is broken down as follows:

Power of Taxation

19

1992-1997 RPT was paid on Dec. 24, 1997 as

per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Paraaque, through
its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and
Buildings. The Mayor of the City of Paraaque
threatened to sell at public auction the Airport
Lands and Buildings should MIAA fail to pay
the real estate tax delinquency. MIAA thus
sought a clarification of OGCC Opinion No.
061.

TAX
TAXABLE
DECLARATION YEAR

TAX DUE

PENALTY
11,201,083.20

TOTAL

E-016-01370

1992-2001

19,558,160.00

30,789,243.20

E-016-01374

1992-2001

111,689,424.90 68,149,479.59

179,838,904.49

E-016-01375

1992-2001

20,276,058.00

12,371,832.00

32,647,890.00

E-016-01376

1992-2001

58,144,028.00

35,477,712.00

93,621,740.00

E-016-01377

1992-2001

18,134,614.65

11,065,188.59

29,199,803.24

reconsideration. Hence, MIAA filed

on 5 December 2002 the present
petition for review.7
Meanwhile, in January 2003, the City
of Paraaque posted notices of
auction sale at the Barangay Halls of
Barangays Vitalez, Sto. Nio, and
Tambo, Paraaque City; in the public
market of Barangay La Huerta; and
in the main lobby of the Paraaque
City Hall. The City of Paraaque
published the notices in the 3 and 10
January 2003 issues of the Philippine
Daily Inquirer, a newspaper of
general circulation in the Philippines.
The notices announced the public
auction sale of the Airport Lands and
Buildings to the highest bidder on 7
February 2003, 10:00 a.m., at the
Legislative Session Hall Building of
Paraaque City.

E-016-01378
1992-2001
111,107,950.40 67,794,681.59 178,902,631.99
On 9 August 2001, the OGCC issued Opinion
No. 147 clarifying OGCC Opinion No. 061. The
E-016-01379
1992-2001
4,322,340.00
2,637,360.00
6,959,700.00
OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from
1992-2001
7,776,436.00
4,744,944.00
12,521,380.00
real estate tax to show proof of exemption. The E-016-01380
OGCC opined that Section 21 of the MIAA
6,444,810.00
2,900,164.50
9,344,974.50
A day before the public auction, or
Charter is the proof that MIAA is exempt from *E-016-013-85 1998-2001
on 6 February 2003, at 5:10 p.m.,
real estate tax.
MIAA filed before this Court an
*E-016-01387
1998-2001
34,876,800.00 5,694,560.00
50,571,360.00
Urgent Ex-Parte and
Reiteratory
On 1 October 2001, MIAA filed with the Court
Motion
for
the
Issuance
of a
of Appeals an original petition for prohibition *E-016-01396
1998-2001
75,240.00
33,858.00
109,098.00
Temporary Restraining Order. The
and injunction, with prayer for preliminary
motion sought to restrain respondents
injunction or temporary restraining order. The
GRAND
TOTAL
P392,435,861.95
P232,070,863.47
P
624,506,725.42
the City of Paraaque, City Mayor
petition sought to restrain the City of Paraaque
of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque,
from imposing real estate tax on, levying against, and auctioning for public sale the
and the City Assessor of Paraaque ("respondents") from auctioning the Airport
Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
Lands and Buildings.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
it beyond the 60-day reglementary period. The Court of Appeals also denied on 27
immediately. The Court ordered respondents to cease and desist from selling at public
September 2002 MIAA's motion for reconsideration and supplemental motion for

Power of Taxation

20

auction the Airport Lands and Buildings. Respondents received the TRO on the same
day that the Court issued it. However, respondents received the TRO only at 1:25
p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the
TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with
the directive issued during the hearing, MIAA, respondent City of Paraaque, and the
Solicitor General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the general public. Since the
Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts
MIAA from the payment of real estate tax. MIAA insists that it is also exempt from
real estate tax under Section 234 of the Local Government Code because the Airport
Lands and Buildings are owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would not inure to any
public advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one
person, thing, or act excludes all others. An international airport is not among the
exceptions mentioned in Section 193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos8 where we held that the Local Government Code has withdrawn the
exemption from real estate tax granted to international airports. Respondents further
argue that since MIAA has already paid some of the real estate tax assessments, it is
now estopped from claiming that the Airport Lands and Buildings are exempt from
real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of
MIAA are exempt from real estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Paraaque, and all proceedings taken
pursuant to such assessments, are void. In such event, the other issues raised in this
petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax
imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation,
is not exempt from real estate tax. Respondents claim that the deletion of the phrase
"any government-owned or controlled so exempt by its charter" in Section 234(e) of
the Local Government Code withdrew the real estate tax exemption of governmentowned or controlled corporations. The deleted phrase appeared in Section 40(a) of the
1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt
from real estate tax. However, MIAA is not a government-owned or controlled

Power of Taxation

21

corporation. Section 2(13) of the Introductory Provisions of the Administrative Code

of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)
A government-owned or controlled corporation must be "organized as a stock or
non-stock corporation." MIAA is not organized as a stock or non-stock corporation.
MIAA is not a stock corporation because it has no capital stock divided into shares.
MIAA has no stockholders or voting shares. Section 10 of the MIAA
Charter9 provides:
SECTION 10. Capital. The capital of the Authority to be contributed by
the National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which may
be contributed by the National Government or transferred by it from any of its
agencies, the valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission on Audit on the
date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986 representing
about seventy percentum (70%) of the unremitted share of the National
Government from 1983 to 1986 to be remitted to the National Treasury as

provided for in Section 11 of E. O. No. 903 as amended, shall be converted

into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into
shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of
the Corporation Code defines a non-stock corporation as "one where no part of its
income is distributable as dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury.11 This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade,
industry, agriculture and like chambers." MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as
a government-owned or controlled corporation. What then is the legal status of MIAA
within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government

Power of Taxation

22

instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(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. x x x (Emphasis
supplied)

sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
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:
xxxx

When the law vests in a government instrumentality corporate powers, the

instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, 12 police
authority13 and the levying of fees and charges.14 At the same time, MIAA exercises
"all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government machinery
although not integrated with the department framework. The MIAA Charter expressly
states that transforming MIAA into a "separate and autonomous body" 16 will make its
operation more "financially viable."17
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 government-owned or controlled corporation.
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.
However, they are not government-owned or controlled corporations in the strict

(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalitiesand local government units.(Emphasis and underscoring
supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution 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 may provide."18
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The rule
is that a tax is never presumed and there must be clear language in the law imposing
the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming
the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed liberally
in favor of the national government instrumentality. As this Court declared in Maceda
v. Macaraig, Jr.:

Power of Taxation

23

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 taxliability of such agencies.19

seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional

Law, Vol. 2, p. 140, emphasis supplied)

There is, moreover, 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.

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it. 20

There is also no reason for local governments to tax national government

instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in the
law empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.

2. Airport Lands and Buildings of MIAA are Owned by the Republic

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

ARTICLE 419. Property is either of public dominion or of private ownership.

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. (MC Culloch v. Maryland, 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

Otherwise, mere creatures 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 tool for regulation" (U.S. v. Sanchez, 340 US 42).

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil Code
provides:

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

(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores, roadsteads,
and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth. (Emphasis
supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in
the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use
or for public service, shall form part of the patrimonial property of the State.

Power of Taxation

24

No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by
the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by
the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by
the public for international and domestic travel and transportation. The fact that
the MIAA collects terminal fees and other charges from the public does not remove
the character of the Airport Lands and Buildings as properties for public use. The
operation by the government of a tollway does not change the character of the road as
one for public use. Someone must pay for the maintenance of the road, either the
public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing the public
for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property
of public dominion as one "intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can use the road under
the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that maintains the operations of
MIAA. The collection of such fees does not change the character of MIAA as an
airport for public use. Such fees are often termed user's tax. This means taxing those
among the public who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A user's tax is more
equitable a principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal
airport of the Philippines for both international and domestic air traffic," 22 are

properties of public dominion because they are intended for public use.As properties
of public dominion, they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are outside the commerce of man. The Court has ruled
repeatedly that properties of public dominion are outside the commerce of man. As
early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and
in towns comprises the provincial and town roads, the squares, streets, fountains, and
public waters, the promenades, and public works of general service supported by said
towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of
Cavite could not in 1907 withdraw or exclude from public use a portion thereof in
order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a
portion of said plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, and plazas and streets are outside
of this commerce, as was decided by the supreme court of Spain in its decision of
February 12, 1895, which says: "Communal things that cannot be sold because
they are by their very nature outside of commerce are those for public use, such
as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and
to be made available to the public in general. They are outside the commerce of

Power of Taxation

25

man and cannot be disposed of or even leased by the municipality to private parties.
While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said temporary
occupation or use must also cease, and the town officials should see to it that the town
plazas should ever be kept open to the public and free from encumbrances or illegal
private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy on
execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. This will
happen if the City of Paraaque can foreclose and compel the auction sale of the 600hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must
first withdraw from public usethe Airport Lands and Buildings. Sections 83 and 88
of the Public Land Law or Commonwealth Act No. 141, which "remains to this day
the existing general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of
the public domain as reservations for the use of the Republic of the Philippines or of
any of its branches, or of the inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or purposes when the public
interest requires it, including reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal pastures or lequas communales,
public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall benon-alienable and shall not be subject to occupation, entry,

sale, lease, or other disposition until again declared alienable under the
provisions of this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are inalienable in their present
status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public
use, their ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use,
and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book
III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. (1) The President shall have the power to reserve for settlement
or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are
withdrawn by law or presidential proclamation from public use, they are properties of
public dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:

Power of Taxation

26

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of
the Government is authorized by law to be conveyed, the deed of conveyance shall
be executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly vested by law
in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the
name of any political subdivision or of any corporate agency or instrumentality,
by the executive head of the agency or instrumentality. (Emphasis supplied)

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.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the
Bureau of Air Transportation and Transitory Provisions. The Manila International
Airport including the Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the deed of conveyance on behalf
of the Republic. Only the President of the Republic can sign such deed of
conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands
and Buildings from the Bureau of Air Transportation of the Department of
Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
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. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All
existing public airport facilities, runways, lands, buildings and other property,

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the
Republic receiving cash, promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the
Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the
Philippines for both international and domestic air traffic, is required to provide
standards of airport accommodation and service comparable with the best airports in
the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have
to be upgraded to meet the current and future air traffic and other demands of aviation
in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives
of providing high standards of accommodation and service within the context of
a financially viable operation, will best be achieved by a separate and
autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree
No. 1772, the President of the Philippines is given continuing authority to reorganize

Power of Taxation

27

the National Government, which authority includes the creation of new entities,
agencies and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership of these
assets from the Republic to MIAA. The purpose was merely to reorganize a division
in the Bureau of Air Transportation into a separate and autonomous body. The
Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA
itself is owned solely by the Republic. No party claims any ownership rights over
MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall
not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines." This only means that the Republic
retained the beneficial ownership of the Airport Lands and Buildings because under
Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a
thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does
not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands
and Buildings without the Republic paying MIAA any consideration. Under Section 3
of the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport
Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any
"[r]eal property owned by the Republic of the Philippines." Section 234(a) 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 has been granted, for
consideration or otherwise, to a taxable person;

x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing "[t]axes, fees or charges of any
kind on the National Government, its agencies and instrumentalitiesx x x." The real
properties owned by the Republic are titled either in the name of the Republic itself or
in the name of agencies or instrumentalities of the National Government. The
Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real
property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code states that real property
owned by the Republic loses its tax exemption only if the "beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person." MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to MIAA
the beneficial use of the Airport Lands and Buildings, such fact does not make these
real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is subject to real estate tax. In such
a case, MIAA has granted the beneficial use of such land area for a consideration to
ataxable person and therefore such land area is subject to real estate tax. In Lung
Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such
taxes. On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29
3. Refutation of Arguments of Minority

Power of Taxation

28

The minority asserts that the MIAA is not exempt from real estate tax because Section
193 of the Local Government Code of 1991 withdrew the tax exemption of "all
persons, whether natural or juridical" upon the effectivity of the Code. Section 193
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. No.
6938, non-stock and non-profit hospitals and educational institutions are hereby
withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority
argues that since the Local Government Code withdrew the tax exemption of all
juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority
declares:
It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons.
To repeat, the provisions lay down the explicit proposition that the withdrawal of
realty tax exemption applies to all persons. The reference to or the inclusion of
GOCCs is only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized
under our laws, natural and juridical persons. Obviously, MIAA is not a natural
person. Thus, the determinative test is not just whether MIAA is a GOCC, but
whether MIAA is a juridical person at all. (Emphasis and underscoring in the
original)
The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status whether MIAA is a juridical person or not. The minority also
insists that "Sections 193 and 234 may be examined in isolation from Section 133(o)
to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government
Code expressly withdrew the tax exemption of all juridical persons "[u]nless
otherwise provided in this Code." Now, Section 133(o) of the Local Government

Code expressly provides otherwise, specifically prohibiting local governments

from imposing any kind of tax on national government instrumentalities. Section
133(o) states:
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:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)
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. The taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities, "[u]nless otherwise provided
in this Code" as stated in the saving clause of Section 133. The saving clause refers to
Section 234(a) on the exception to the exemption from real estate tax of real property
owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all
juridical persons are subject to tax by local governments. The minority insists that the
juridical persons exempt from local taxation are limited to the three classes of entities
specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and
non-profit hospitals and educational institutions. It would be belaboring the obvious
why the MIAA does not fall within any of the exempt entities under Section 193.
(Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of
the Local Government Code. This theory will result in gross absurdities. It will make
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

Power of Taxation

29

exempt entities in Section 193. Under this theory, local governments can impose any
kind of local tax, and not only real estate tax, on the national government.

when it gives the beneficial use of its real properties to a taxable entity. Section
234(a) of the Local Government Code provides:

Under the minority's theory, many national government instrumentalities with

juridical personalities will also be subject to any kind of local tax, and not only real
estate tax. Some of the national government instrumentalities vested by law with
juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine Rice Research
Institute,31Laguna Lake

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

Development Authority,32 Fisheries Development Authority,33 Bases Conversion

Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law
does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all
national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA
is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from imposing any kind of tax on the
national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government Code
grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and instrumentalities. As
an exception to this rule, local governments may tax the national government, its
agencies and instrumentalities only if the Local Government Code expressly so
provides.
The saving clause in Section 133 refers to the exception to the exemption in Section
234(a) of the Code, which makes the national government subject to real estate 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.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate
tax. The exception to this exemption is when the government gives the beneficial use
of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the
national government, its agencies and instrumentalities are subject to any kind of tax
by local governments. The exception to the exemption applies only to real estate tax
and not to any other tax. The justification for the exception to the exemption is that
the real property, although owned by the Republic, is not devoted to public use or
public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the
Local Government Code, the later provisions prevail over Section 133. Thus, the
minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following
an accepted rule of construction, in case of conflict the subsequent provisions should
prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the
general exemptions attaching to instrumentalities under Section 133(o) of the Local
Government Code being qualified by Sections 193 and 234 of the same law.
(Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on
one hand, and Sections 193 and 234 on the other. No one has urged that there is such
a conflict, much less has any one presenteda persuasive argument that there is such a

Power of Taxation

30

conflict. The minority's assumption of an irreconcilable conflict in the statutory

provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section
193 expressly admits its subordination to other provisions of the Code when Section
193 states "[u]nless otherwise provided in this Code." By its own words, Section 193
admits the superiority of other provisions of the Local Government Code that limit
the exercise of the taxing power in Section 193. When a provision of law grants a
power but withholds such power on certain matters, there is no conflict between the
grant of power and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to tax. Section 133 states that
the taxing powers of local governments "shall not extend to the levy" of any kind of
tax on the national government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing
power. If the taxing power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local governments can impose
any kind of tax on the national government, its agencies and instrumentalities a
gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in
this Code." This exception which is an exception to the exemption of the Republic
from real estate tax imposed by local governments refers to Section 234(a) of the
Code. The exception to the exemption in Section 234(a) subjects real property owned
by the Republic, whether titled in the name of the national government, its agencies
or instrumentalities, to real estate tax if the beneficial use of such property is given to
a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points
out that Section 2 of the Introductory Provisions of the Administrative Code admits
that its definitions are not controlling when it provides:
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:
xxxx
The minority then concludes that reliance on the Administrative Code definition is
"flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the
Administrative Code. However, this does not automatically mean that the definition
in the Administrative Code does not apply to the Local Government Code. Section 2
of the Administrative Code clearly states that "unless the specific words x x x of a
particular statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining
the phrase "government-owned or controlled corporation" differently from the
definition in the Administrative Code. Indeed, there is none. The Local Government
Code is silent on the definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however, expressly defines the phrase
"government-owned or controlled corporation." The inescapable conclusion is that
the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and procedural
principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus, offices,

Power of Taxation

31

agencies and instrumentalities. Unless a statute expressly provides for a different

status and relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled
corporation" should apply only to corporations organized under the Corporation
Code, the general incorporation law, and not to corporations created by special
charters. The minority sees no reason why government corporations with special
charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under
the Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and
organized under the Corporation Code through registration with the Securities and
Exchange Commission. In short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital
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.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or
controlled corporation" does not distinguish between one incorporated under the
Corporation Code or under a special charter. Where the law does not distinguish,
courts should not distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations. Prime examples are the Land Bank of
the Philippines and the Development Bank of the Philippines. The special charter 40 of
the Land Bank of the Philippines provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine
billion pesos, divided into seven hundred and eighty million common shares with a
par value of ten pesos each, which shall be fully subscribed by the Government, and
one hundred and twenty million preferred shares with a par value of ten pesos each,
which shall be issued in accordance with the provisions of Sections seventy-seven
and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank
shall be Five Billion Pesos to be divided into Fifty Million common shares with par
value of P100 per share. These shares are available for subscription by the National
Government. Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth Two Billion Five
Hundred Million which shall be deemed paid for by the Government with the net
asset values of the Bank remaining after the transfer of assets and liabilities as
provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their
special charters are the Philippine Crop Insurance Corporation,42 Philippine
International Trading Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All these
government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule
that they are not government-owned or controlled corporations because they are not
registered with the Securities and Exchange Commission would remove them from
the reach of Section 234 of the Local Government Code, thus exempting them from
real estate tax.
Third, the government-owned or controlled corporations created through special
charters are those that meet the two conditions prescribed in Section 16, Article XII of
the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that
the government-owned or controlled corporation must meet the test of economic
viability. Section 16, Article XII of the 1987 Constitution provides:

Power of Taxation

32

SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (Emphasis and
underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or
controlled corporations" through special charters only if these entities are required to
meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with
special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good meaning for economic development
purposes these government-owned or controlled corporations with special charters
are usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of economic
viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "governmentowned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental
or public functions. Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these instrumentalities
perform essential government functions or public services. However, when the
legislature creates through special charters corporations that perform economic or
commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the
market place.

This is the situation of the Land Bank of the Philippines and the Development Bank
of the Philippines and similar government-owned or controlled corporations, which
derive their income to meet operating expenses solely from commercial transactions
in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to
the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation becomes
exempt from the test of economic performance. We know what happened in the past.
If a government corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always invoked is the
common good. That is the reason why this year, out of a budget of P115 billion for
the entire government, about P28 billion of this will go into equity infusions to
support a few government financial institutions. And this is all taxpayers' money
which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet
this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on future enthusiasts for state capitalism to
excuse themselves from the responsibility of meeting the market test so that they
become viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by Commissioner Foz,
the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC
TEST," together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission,
explains in his textbook The 1987 Constitution of the Republic of the Philippines: A
Commentary:
The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common good and
subject to the test of economic viability." The addition includes the ideas that they

Power of Taxation

33

must show capacity to function efficiently in business and that they should not go into
activities which the private sector can do better. Moreover, economic viability is more
than financial viability but also includes capability to make profit and generate
benefits not quantifiable in financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested
with corporate powers and performing essential public services. The State is obligated
to render essential public services regardless of the economic viability of providing
such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that
are usually organized under their special charters as stock corporations, like the Land
Bank of the Philippines and the Development Bank of the Philippines. These are the
government-owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did
not create MIAA to compete in the market place. MIAA does not compete in the
market place because there is no competing international airport operated by the
private sector. MIAA performs an essential public service as the primary domestic
and international airport of the Philippines. The operation of an international airport
requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure
of passengers, screening out those without visas or travel documents, or those with
hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
3. The quarantine office of the Department of Health, to enforce health measures
against the spread of infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and
animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the
entry of terrorists and the escape of criminals, as well as to secure the airport premises
from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications,
to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take
off from, the airport; and
7. The MIAA, to provide the proper premises such as runway and buildings for
the government personnel, passengers, and airlines, and to manage the airport
operations.
All these agencies of government perform government functions essential to the
operation of an international airport.
MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees that MIAA charges
every passenger are regulatory or administrative fees 47 and not income from
commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10)
of the Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x
(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. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital
structure, MIAA remains a government instrumentality under Section 2(10) of the

Power of Taxation

34

Introductory Provisions of the Administrative Code. More importantly, as long as

MIAA renders essential public services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase "government-owned or
controlled corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or
illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the
creation of "government-owned or controlled corporations." The Administrative Code
defines what constitutes a "government-owned or controlled corporation." To belittle
this phrase as "clarificatory or illustrative" is grave error.

(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth. (Emphasis
supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use or public service,
the Airport Lands and Buildings are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion

To summarize, MIAA is not a government-owned or controlled corporation under

Section 2(13) of the Introductory Provisions of the Administrative Code because it is
not organized as a stock or non-stock corporation. Neither is MIAA a governmentowned or controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of economic viability.
MIAA is a government instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to
any kind of tax by local governments under Section 133(o) of the Local Government
Code. The exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property owned by the Republic is
given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public
use and thus are properties of public dominion. Properties of public dominion are
owned by the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative
Code, which governs the legal relation and status of government units, agencies and
offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under Section
133(o) of the Local Government Code, MIAA as a government instrumentality is not
a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by
local governments. The only exception is when MIAA leases its real property to a
"taxable person" as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus,
only portions of the Airport Lands and Buildings leased to taxable persons like
private parties are subject to real estate tax by the City of Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the State
or the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties of
public dominion and owned by the Republic. As properties of public dominion owned
by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings
are expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions
of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP

Power of Taxation

35

No. 66878. We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority EXEMPT from the real estate tax imposed by the
City of Paraaque. We declare VOID all the real estate tax assessments, including the
final notices of real estate tax delinquencies, issued by the City of Paraaque on the
Airport Lands and Buildings of the Manila International Airport Authority, except for
the portions that the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its effects, of the
Airport Lands and Buildings of the Manila International Airport Authority.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, AustriaMartinez, Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario,
Garcia, Velasco, Jr., J.J., concur.

No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 79307 August 29, 1989
COMMISSIONER OF CUSTOMS, petitioner,
vs.
THE HON. RAMON P. MAKASIAR, RTC Judge, Branch 35, Manila and THE
DISTILLERS CO. LTD. OF ENGLAND, respondents.
Quasha, Asperilla, Ancheta, Pena & Nolasco for private respondent.

England v. Victorio Francisco, et al.," the dispositive portion of which reads as

follows:
WHEREFORE, having been issued by the Collector of Customs in excess of his
jurisdiction the disputed Warrant of Seizure and Detention dated January 2, 1979, in
Seizure Identification No. 2-79 of the Bureau of Customs, as well as all the
proceedings taken thereon are declared NULL and VOID, and the writ of prohibition
prayed for is GRANTED. The public respondent is ordered to REFRAIN and
DESIST from conducting any proceedings for the seizure and forfeiture of the articles
in question until after the Court having taken cognizance and legal custody thereof
has rendered its final judgment in the criminal cases which involve the same articles.
Without costs.
SO ORDERED. [RTC Decision, p. 7; Rollo, p. 26].

CORTES, J.:

The undisputed acts are as follows:

Petitioner Commissioner of Customs seeks the reversal of respondent judge's decision

dated 20 July 1987 in Civil Case No. 82-12821 entitled "The Distillers Co. Ltd., of

On 7 December 1978, the then Court of First Instance of Manila (herein referred to as
CFI-MANILA) issued Search and Seizure Warrants in Criminal Case Nos. 8602 and

Power of Taxation

36

8603 entitled "People of the Philippines vs. Howard J. Sosis,, et al.," for violation of
Section 11 (a) and/or 11(e) of Republic Act No. 3720, * and violation of Article 188
of the Revised Penal Code (captioned as "Substituting and altering trademarks,
tradenames, or service marks"), respectively, and ordering the seizure of the
following:
a) Materials:
All whisky, bottles, labels, caps, cartons, boxes, machinery equipment or other
materials used or intended to be used, or suitable for use, in connection with counterfeiting or imitation of Johnnie Walker Scotch Whisky (Emphasis supplied)
b) Documents:
xxx
under the control and possession of:
1. Howard J. Sosis
2. George Morrison Lonie
3. Hercules Bottling Co.
4. Lauro Villanueva
5. Vicente Velasco
6. Manuel Esteban
7. Eugenio Mauricio
[Rollo, pp. 106-107].

On 8 December 1978, a composite team from the Ministry of Finance Bureau of

Investigation and Intelligence (herein referred to as BII), the Bureau of Customs and
the Integrated National Police enforced the search and seizure warrants, and seized
and confiscated the following articles, among others, found in the premises of the
Hercules Bottling Co., Inc. (herein referred to as HERCULES) at Isla de Provisor,
Paco, Manila:
Six (6) Tanks of Scotch Whisky; 417 cartons each containing I doz. bottles of
"Johnnie Walker Black Label Whisky"; 109 empty bottles; Empty Cartons of
"Johnnie Walker Black Label Scotch Whisky" number 900-2044 empty cartons.
[Rollo, p. 21].
The articles seized remained in the premises of HERCULES guarded and secured by
BII personnel.
On 2 January 1979, the Collector of Customs for the Port of Manila, after being
informed of the seizure of the subject goods and upon verification that the same were
imported contrary to law, issued a warrant of seizure and detention, in Seizure
Identification No. 2-79, and ordered the immediate seizure and turnover of the seized
items to its Auction and Cargo Disposal Division at the Port of Manila. Seizure and
forfeiture proceedings were then initiated against the above-enumerated articles for
alleged violation of Section 2530 (f) of the Tariff and Customs Code, in relation to
Republic Act 3720, to wit:
Sec. 2530. Property subject to forfeiture under Tariff and Customs law:
xxx
(f) Any article the importation or exportation of which is effected or attempted
contrary to law, or any article of prohibited importation or exportation, and all other

Power of Taxation

37

articles which, in the opinion of the collector have been used, are or were entered to
be used as instruments in the importation or exportation of the former.
xxx
On 29 January 1979, the CFI-MANILA issued an order authorizing the transfer and
delivery of the seized articles to the customs warehouse located at South Harbor, Port
of Manila, subject to the following conditions:
1. The Commissioner of Customs is willing to have custody of the same and
guarantees their safekeeping at all times in the same quantity, quality, manner and
condition when the articles shall be turned over to and received by the Bureau of
Customs in custodia legis, subject to the further orders from the Court;
2. No article shall be transferred without the presence of a representative of the
applicant, the defendants, the Commissioner of Customs and the Court; these
representatives to secure the necessary escort as guarantee that nothing will happen
during the transfer of the articles.
3. The Commissioner of Customs to issue the proper and necessary receipt for each
and every article transferred to and received by the Bureau of Customs pursuant to
this order [Rollo, p. 22].
Meanwhile, the validity and constitutionality of the issuance and service of the search
and seizure warrants issued by the CFI- MANILA were contested in and upheld by
the Court of Appeals in CA-G.R. No. SP-09153-R entitled "Hercules Bottling Co.
Inc., et al., v. Victoriano Savellano, et al." HERCULES filed a petition for certiorari
in the Supreme Court but in a resolution dated 26 November 1986 in G.R. No. 55061
captioned as Hercules Bottling Co., Inc. v. The Court of Appeals, the Court dismissed
the petition.
Consequently, the City Fiscal of Manila proceeded with the preliminary investigation
of the criminal cases, where private respondent, The Distillers Co. Ltd. of England,

claiming to be the owner and exclusive manufacturer of Johnnie Walker Scotch

Whiskey was the private complainant [Rollo, p. 61], With the dismissal of
HERCULES' petition, the Bureau of Customs also resumed hearing the seizure and
forfeiture proceedings over the said articles.
The present controversy arose when private respondent, on 11 June 1982, objected to
the continuation by the Collector of Customs of the seizure proceedings claiming,
among others, that these proceedings would hamper or even jeopardize the
preliminary investigation being conducted by the fiscal. The Collector of Customs
ignored the objections.
In order to stop and enjoin the Hearing Officer of the Bureau of Customs from taking
further action in the seizure proceedings of the subject goods, private respondent on
24 September 1982 filed a petition for prohibition with preliminary injunction and/or
temporary restraining order, docketed as Civil Case No. 82-12721. It must be noted at
this juncture that the petition was heard not before the CFI-MANILA which originally
issued the search warrants, but before another sala, that of respondent judge of the
Regional Trial Court, Branch 35, Manila.
Respondent judge issued a temporary restraining order on 29 September 1982.
Subsequently, a writ for preliminary injunction was issued as well. Petitioner filed an
answer on 12 November 1982. On 20 July 1987, respondent judge rendered a
decision holding that the Collector of Customs acted in excess of its jurisdiction in
issuing the warrant of seizure and detention considering that the subject goods had
already come under the legal custody of the CFI-MANILA. Hence, petitioner
represented by the Solicitor General, filed the instant petition on 11 August 1987.
In the meantime, Howard Sosis and company were charged for violation of Chapter
VI, Sec. 11(a) & (e) of Republic Act 3720 in Criminal Case No. 88-63157 and for
violation of Article 188 of the Revised Penal Code in Criminal Case No. 88-63156
before the Regional Trial Court and the Metropolitan Trial Court of Manila,
respectively [Rollo, p. 83].

Power of Taxation

38

In his petition, the Commissioner of Customs assigns as errors the following:

I. RESPONDENT JUDGE ERRED IN ISSUING A TEMPORARY RESTRAINING
ORDER AND SUBSEQUENTLY A WRIT OF INJUNCTION IN CIVIL CASE NO.
82-12721 NOTWITHSTANDING THE FACT THAT PRIVATE RESPONDENT,
THE DISTILLERS CO., LTD., OF ENGLAND HAS NO VALID CAUSE OF
ACTION AGAINST HEREIN PETITIONER;
II. RESPONDENT RTC JUDGE GRAVELY ERRED IN TAKING COGNIZANCE
OF THE PETITION AND IN PROCEEDING TO HEAR AND RENDER A
DECISION IN CIVIL CASE NO. 82-12721 NOTWITHSTANDING THE FACT
THAT THE TRIAL COURT HAS NO JURISDICTION OVER THE CASE [Rollo,
pp. 10-11].
Petitioner contends that the authority of the Bureau of Customs over seizure and
forfeiture cases is beyond the judicial interference of the Regional Trial Court, even in
the form of certiorari, prohibition or mandamus which are really attempts to review
the Commissioner's actions [Rollo, p. 98]. Petitioner argues that judicial recourse
from the decision of the Bureau of Customs on seizure and forfeiture cases can only
be sought in the Court of Tax Appeals and eventually in this Court.
Private respondent however contends that while the law may have vested exclusive
jurisdiction in the Bureau of Customs over forfeiture and seizure cases, in this case
respondent judge had jurisdiction to enjoin the Bureau of Customs from continuing
with its seizure and forfeiture proceedings since the articles here were already
in custodia legis, by virtue of the search warrants issued by the CFI-MANILA.
Private respondent contends that respondent judge may properly take cognizance of
the instant case since unlike the cases cited by petitioner, the action for prohibition
was brought not to claim ownership or possession over the goods but only to preserve
the same and to prevent the Bureau of Customs from doing anything prejudicial to the
successful prosecution of the criminal cases [Rollo, p. 123].

The issue thus presented is whether or not respondent judge may enjoin the Collector
of Customs from continuing with its seizure and forfeiture proceedings over goods
earlier seized by virtue of search warrants issued by the CFI-MANILA.
The instant petition is impressed with merit.
This Court finds that respondent-judge has failed to adhere to the prevailing rule
which denies him jurisdiction to enjoin the Bureau of Customs from taking further
action in the seizure and forfeiture proceedings over the subject goods.
Jurisprudence is replete with cases which have held that regional trial courts are
devoid of any competence to pass upon the validity or regularity of seizure and
forfeiture proceedings conducted in the Bureau of Customs, and to enjoin, or
otherwise interfere with, these proceedings. The Collector of Customs sitting in
seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all
questions touching on the seizure and forfeiture of dutiable goods. The regional trial
courts are precluded from assuming cognizance over such matters even through
petitions of certiorari, prohibition or mandamus [See General Travel Service v. David,
G.R. No. L-19259, September 23, 1966, 18 SCRA 59; Pacis v. Averia, G.R. No. L22526, November 29, 1966, 18 SCRA 907; De Joya v. Lantin, G.R. No. L-24037,
April 27, 1967, 19 SCRA 893; Ponce Enrile v. Vinuya G.R. No. L-29043, January 30,
1971, 37 SCRA 381; Collector of Customs v. Torres, G.R. No. L-22977, May 31,
1972, 45 SCRA 272; Pacis v. Geronimo, G.R. No. L-24068, April 23, 1974,56 SCRA
583; Commissioner of Customs v. Navarro, G.R. No. L-33146, May 31, 1977, 77
SCRA 264; Republic v. Bocar, G.R. No. L-35260, September 4, 1979,93 SCRA 78;
De la Fuente v. De Veyra, G.R. No. L-35385, January 31, 1983, 120 SCRA 451].
It is likewise well-settled that the provisions of the Tariff and Customs Code and that
of Republic Act No. 1125, as amended ** specify the proper fora for the ventilation
of any legal objections or issues raised concerning these proceedings. Actions of the
Collector of Customs are appealable to the Commissioner of Customs, whose
decisions, in turn, are subject to the exclusive appellate jurisdiction of the Court of

Power of Taxation

39

Tax Appeals. Thereafter, an appeal lies to this Court through the appropriate petition
for review by writ of certiorari. Undeniably, regional trial courts do not share these
review powers.
The above rule is anchored upon the policy of placing no unnecessary hindrance on
the government's drive not only to prevent smuggling and other frauds upon customs,
but also, and more importantly, to render effective and efficient the collection of
import and export duties due the state. For tariff and customs duties are taxes
constituting a significant portion of the public revenue which are the lifeblood that
enables the government to carry out functions it has been instituted to perform.
Notwithstanding these considerations, respondent judge entertained private
respondent's petition for prohibition holding that the seizure and forfeiture
proceedings instituted in the Bureau of Customs was null and void because the
subject goods were earlier seized by virtue of the warrants issued by the CFIMANILA in Criminal Cases Nos. 8602 and 8603.
This holding is erroneous.
Even if it be assumed that a taint of irregularity may be imputed to the exercise by the
Collector of Customs of his jurisdiction to institute seizure and forfeiture proceedings
over the subject goods because he had accepted custody of the same under conditions
specified in the CFI-Manila order dated January 29, 1979, it would not mean that
respondent judge was correspondingly vested with the jurisdiction to interfere with
such proceedings (See Ponce Enrile v. Vinuya supra]. It bears repeating that law and
settled jurisprudence clearly deprive the regional trial courts of jurisdiction to enjoin
the Collector of Customs from exercising his exclusive authority to order seizure and
forfeiture proceedings over imported goods.
Moreover, there is no legal basis for respondent judge's conclusion that the Collector
of Customs is deprived of his jurisdiction to issue the assailed warrant of seizure and
detention, and to institute seizure and forfeiture proceedings for the subject goods
simply because the same were first taken in custodia legis.

Undeniably, the subject goods have been brought under the legal control of the CFIMANILA by virtue of its search and seizure warrants and are, therefore, in custodia
legis. But this fact merely serves to deprive any other court or tribunal, except one
having supervisory control or superior jurisdiction in the premises, of the right to
divest the CFI-MANILA of its custody and control of the said property [Collector of
Internal Revenue v. Flores Vda. de Codinera G.R. No. L-9675, September 28,
1957], or to interfere with and change its possession without its consent[National
Power Corporation v. De Veyra, G.R. No. L-15763, December 22, 1961, 3 SCRA
646; De Leon v. Salvador, G.R. Nos. L-30871 & L-31603, December 28, 1970, 36
SCRA 567; Vlasons Enterprises Corporation v. Court of Appeals, G.R. No. 61688,
October 28, 1987, 155 SCRA 186].
In the instant case, the CFI-Manila was not divested of its jurisdiction over the subject
goods, nor were its processes interfered with by the Collector of Customs. It, in fact,
authorized the transfer and delivery of the subject goods from the premises of
HERCULES to the Bureau of Customs warehouse/bodega at the South Harbor, Port
of Manila thereby entrusting the Bureau of Customs with the actual possession and
control of the same.
On the other hand, since the Collector of Customs herein had actual possession and
control over the subject goods, his jurisdiction over the goods was secured for the
purpose of instituting seizure and forfeiture proceedings to determine whether or not
the same were imported into the country contrary to law [See Papa v. Mago, G.R. No.
L-27360, February 28, 1968, 22 SCRA 857]. This is consistent with the principle that
the basic operative fact for the institution and perfection of proceedings in rem like
the seizure and forfeiture proceedings pursuant to the Tariff and Customs Code, is the
actual or constructive possession of the res by the tribunal empowered by law to
conduct the proceedings [See Dodge v. US, 71 L. ed. 392 (1926); US v. Mack, 79 L.
ed. 1559 (1935) citing The Ann, 3 L. ed. 734 (1815); Fettig Canning Co. v. Steckler,
188 F. 2d 715 (1951) citing Strong v. US, 46 F. 2d 257, 79 ALR 150 (1931)].

Power of Taxation

40

Therefore, contrary to the import of respondent judge's decision, the Collector of

Customs was not precluded by law or legal principle from assuming jurisdiction over
the subject goods. No legal infirmity attended the seizure and forfeiture proceedings
over the subject goods.
The Court must emphasize at this point that the instant case does not involve a
conflict of jurisdictions. Proceedings before the regular courts for criminal
prosecutions against Howard Sosis, et al., and seizure and forfeiture proceedings for
the subject goods conducted by the Bureau of Customs may be maintained
simultaneously and independently of each other. For the nature of the two
proceedings are entirely different such that a resolution in one is not decisive of the
issue in the other. The latter, which is administrative and civil in nature, is directed
against the res or articles imported and entails a determination of the legality of its
importation. The former is directed against those persons who may be held liable for
violating the penal laws in connection with the importation [See Diosamito v.
Balanque, G.R. No. L-30734, July 28,1969,28 SCRA 836; People v. CFI, G.R. No. L41686, November 17, 1980, 101 SCRA 86].
Private respondent, however, argues that conflict may arise regarding the disposition
of the subject goods if the proceedings before the Collector of Customs and the
regular courts were allowed to proceed simultaneously. Private respondent contends
that in view of the nature of the seizure and forfeiture proceedings, a judgment in
favor of HERCULES will result in the release of the subject goods to the claimants
thereof, while an unfavorable decision will entail their destruction or sale. It is
asserted that either of the two outcomes will hamper or even jeopardize the ongoing
criminal prosecutions, said goods comprising the substantial part of the evidence for
the People of the Philippines.
Proper adherence by both tribunals to the rules of comity as defined in the leading
case of The Government of the Philippines v. Gale [24 Phil. 95 (1931)] will forestall
the conflict feared. In that case the Court had established the rule that where the
preservation and safekeeping of the subject matter of an action is demanded, as it is

made to appear that these articles may prove to be of vital importance as exhibits in
the prosecution of other charges in another proceeding, the rules for the orderly
course of proceedings in courts and tribunals forbid the disposition or destruction
thereof in one action which would prejudice the other, and vice versa [Id. at pp. 9899].
The State in the instant case must be given reasonable opportunity to present its cases
for the proper enforcement of the applicable provisions of the Revised Penal Code,
Republic Act No. 3720, and the Tariff and Customs Code, and the prosecution of the
violators thereof. It follows then that the execution of any final decision in the seizure
and forfeiture case before the Bureau of Customs, whether it requires the destruction,
sale or the release of the subject goods, should not frustrate the prosecution's task of
duly presenting and offering its evidence in Criminal Cases Nos. 88-63156 and 8863157.
It is apropos to note that for evidentiary purposes, it would not be necessary to present
each and every item of the goods in question before the courts trying the criminal
cases. Thus, a representative quantity of the goods, as may be agreed upon by the
authorized customs officials and fiscals prosecuting the criminal cases, shall be set
aside as evidence to be presented in the above criminal cases and retained in custodia
legis until final judgment is secured in these cases. The rest of the goods may be
disposed of in accordance with the final decision rendered in the seizure and
forfeiture proceedings pursuant to the Tariff and Customs Code.
WHEREFORE, in view of the foregoing, the respondent judge's decision dated 20
July 1987 is REVERSED. The seizure and forfeiture proceedings involving the goods
in question before the Bureau of Customs may proceed subject to the above
pronouncements relative to the setting aside of so much of the goods as may be
required for evidentiary purposes.
SO ORDERED.