FIRST DIVISION

STA. LUCIA REALTY & DEVELOPMENT, G.R. No. 166838

INC.,
Petitioner, Present:

VELASCO, JR .,*
- versus - Acting Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,**
CITY OF PASIG, DEL CASTILLO, and
Respondent, PEREZ, JJ.
Promulgated:
MUNICIPALITY OF CAINTA, PROVINCE OF
RIZAL, June 15, 2011
Intervenor.

x----------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

For review is the June 30, 2004 Decision[1] and the January 27, 2005 Resolution[2] of the Court of Appeals in CA-
G.R. CV No. 69603, which affirmed with modification the August 10, 1998 Decision [3] and October 9, 1998 Order[4] of the
Regional Trial Court (RTC) of Pasig City, Branch 157, in Civil Case No. 65420.

Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is the registered owner of several parcels of land
with Transfer Certificates of Title (TCT) Nos. 39112, 39110 and 38457, all of which indicated that the lots were located
in Barrio Tatlong Kawayan, Municipality of Pasig[5] (Pasig).

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

TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869 and 92870.

The lot covered by TCT No. 38457 was not segregated, but a commercial building owned by Sta. Lucia East
Commercial Center, Inc., a separate corporation, was built on it.[6]

Upon Pasigs petition to correct the location stated in TCT Nos. 532250, 598424, and 599131, the Land
Registration Court, on June 9, 1995, ordered the amendment of the TCTs to read that the lots with respect to TCT No.
39112 were located in Barrio Tatlong Kawayan, Pasig City.[7]

On January 31, 1994, Cainta filed a petition[8] for the settlement of its land boundary dispute with Pasig before the
RTC, Branch 74 of Antipolo City (Antipolo RTC). This case, docketed as Civil Case No. 94-3006, is still pending up to this
date.

On November 28, 1995, Pasig filed a Complaint,[9] docketed as Civil Case No. 65420, against Sta. Lucia for the
collection of real estate taxes, including penalties and interests, on the lots covered by TCT Nos. 532250, 598424,
599131, 92869, 92870 and 38457, including the improvements thereon (the subject properties).

1
 Sta. Lucia, in its Answer, alleged that it had been religiously paying its real estate taxes to Cainta, just like what its
predecessors-in-interest did, by virtue of the demands and assessments made and the Tax Declarations issued by Cainta
on the claim that the subject properties were within its territorial jurisdiction. Sta. Lucia further argued that since 1913, the
real estate taxes for the lots covered by the above TCTs had been paid to Cainta.[10]

Cainta was allowed to file its own Answer-in-Intervention when it moved to intervene on the ground that its
interest would be greatly affected by the outcome of the case.It averred that it had been collecting the real property taxes
on the subject properties even before Sta. Lucia acquired them. Cainta further asseverated that the establishment of the
boundary monuments would show that the subject properties are within its metes and bounds. [11]

Sta. Lucia and Cainta thereafter moved for the suspension of the proceedings, and claimed that the pending
petition in the Antipolo RTC, for the settlement of boundary dispute between Cainta and Pasig, presented a prejudicial
question to the resolution of the case.[12]

The RTC denied this in an Order dated December 4, 1996 for lack of merit. Holding that the TCTs were
conclusive evidence as to its ownership and location, [13] the RTC, on August 10, 1998, rendered a Decision in favor of
Pasig:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of [Pasig], ordering Sta.
Lucia Realty and Development, Inc. to pay [Pasig]:

1) P273,349.14 representing unpaid real estate taxes and penalties as of 1996, plus interest of
2% per month until fully paid;

2) P50,000.00 as and by way of attorneys fees; and

3) The costs of suit.

Judgment is likewise rendered against the intervenor Municipality of Cainta, Rizal, ordering it to
refund to Sta. Lucia Realty and Development, Inc. the realty tax payments improperly collected and
received by the former from the latter in the aggregate amount of P358, 403.68.[14]

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

The RTC, on October 9, 1998, granted Pasigs motion in an Order [15] and modified its earlier decision to include the realty
taxes due on the improvements on the subject lots:

WHEREFORE, premises considered, the plaintiffs motion for reconsideration is hereby

granted. Accordingly, the Decision, dated August 10, 1998 is hereby modified in that the defendant is
hereby ordered to pay plaintiff the amount of P5,627,757.07 representing the unpaid taxes and penalties
on the improvements on the subject parcels of land whereon real estate taxes are adjudged as due for
the year 1996.[16]

Accordingly, Sta. Lucia filed an Amended Notice of Appeal to include the RTCs October 9, 1998 Order in its
protest.

On October 16, 1998, Pasig filed a Motion for Execution Pending Appeal, to which both Sta. Lucia and Cainta
filed several oppositions, on the assertion that there were no good reasons to warrant the execution pending appeal. [17]

On April 15, 1999, the RTC ordered the issuance of a Writ of Execution against Sta. Lucia.

On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under Rule 65 of the Rules of Court with the Court of
Appeals to assail the RTCs order granting the execution.Docketed as CA-G.R. SP No. 52874, the petition was raffled to
the First Division of the Court of Appeals, which on September 22, 2000, ruled in favor of Sta. Lucia, to wit:

WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN DUE
COURSE and GRANTED by this Court. The assailed Order dated April 15, 1999 in Civil Case No. 65420
granting the motion for execution pending appeal and ordering the issuance of a writ of execution pending
appeal is hereby SET ASIDE and declared NULL and VOID.[18]

2
 The Court of Appeals added that the boundary dispute case presented a prejudicial question which must be
decided before x x x Pasig can collect the realty taxes due over the subject properties. [19]

Pasig sought to have this decision reversed in a Petition for Certiorari filed before this Court on November 29,
2000, but this was denied on June 25, 2001 for being filed out of time. [20]

Meanwhile, the appeal filed by Sta. Lucia and Cainta was raffled to the (former) Seventh Division of the Court of
Appeals and docketed as CA-G.R. CV No. 69603. On June 30, 2004, the Court of Appeals rendered its Decision, wherein
it agreed with the RTCs judgment:

WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that the award of
P50,000.00 attorneys fees is DELETED.[21]

In affirming the RTC, the Court of Appeals declared that there was no proper legal basis to suspend the
proceedings.[22] Elucidating on the legal meaning of a prejudicial question, it held that there can be no prejudicial question
when the cases involved are both civil.[23] The Court of Appeals further held that the elements of litis pendentia and forum
shopping, as alleged by Cainta to be present, were not met.

Sta. Lucia and Cainta filed separate Motions for Reconsideration, which the Court of Appeals denied in a
Resolution dated January 27, 2005.

Undaunted, Sta. Lucia and Cainta filed separate Petitions for Certiorari with this Court. Caintas petition, docketed
as G.R. No. 166856 was denied on April 13, 2005 for Caintas failure to show any reversible error. Sta. Lucias own
petition is the one subject of this decision.[24]

In praying for the reversal of the June 30, 2004 judgment of the Court of Appeals, Sta. Lucia assigned the
following errors:

ASSIGNMENT OF ERRORS

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING [WITH MODIFICATION] THE

DECISION OF THE REGIONAL TRIAL COURT IN PASIG CITY

II.

THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING THE CASE IN VIEW OF THE
PENDENCY OF THE BOUNDARY DISPUTE WHICH WILL FINALLY DETERMINE THE SITUS OF THE
SUBJECT PROPERTIES

III.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PAYMENT OF
REALTY TAXES THROUGH THE MUNICIPALITY OF CAINTA WAS VALID PAYMENT OF REALTY
TAXES

IV.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT IN THE MEANTIME THAT
THE BOUNDARY DISPUTE CASE IN ANTIPOLO CITY REGIONAL TRIAL COURT IS BEING FINALLY
RESOLVED, THE PETITIONER STA. LUCIA SHOULD BE PAYING THE REALTY TAXES ON THE
SUBJECT PROPERTIES THROUGH THE INTERVENOR CAINTA TO PRESERVE THE STATUS
QUO.[25]

Pasig, countering each error, claims that the lower courts correctly decided the case considering that the TCTs
are clear on their faces that the subject properties are situated in its territorial jurisdiction. Pasig contends that the
principles of litis pendentia, forum shopping, and res judicata are all inapplicable, due to the absence of their requisite
elements. Pasig maintains that the boundary dispute case before the Antipolo RTC is independent of the complaint for
collection of realty taxes which was filed before the Pasig RTC. It avers that the doctrine of prejudicial question, which has

3
a definite meaning in law, cannot be invoked where the two cases involved are both civil. Thus, Pasig argues, since there
is no legal ground to preclude the simultaneous hearing of both cases, the suspension of the proceedings in the Pasig
RTC is baseless.

Cainta also filed its own comment reiterating its legal authority over the subject properties, which fall within its
territorial jurisdiction. Cainta claims that while it has been collecting the realty taxes over the subject properties since way
back 1913, Pasig only covered the same for real property tax purposes in 1990, 1992, and 1993. Cainta also insists that
there is a discrepancy between the locational entries and the technical descriptions in the TCTs, which further supports
the need to await the settlement of the boundary dispute case it initiated.

The errors presented before this Court can be narrowed down into two basic issues:

1) Whether the RTC and the CA were correct in deciding Pasigs Complaint without waiting for the
resolution of the boundary dispute case between Pasig and Cainta; and

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

We agree with the First Division of the Court of Appeals in CA-G.R. SP No. 52874 that the resolution of the
boundary dispute between Pasig and Cainta would determine which local government unit is entitled to collect realty taxes
from Sta. Lucia.[26]

The Local Government Unit entitled

To Collect Real Property Taxes

The Former Seventh Division of the Court of Appeals held that the resolution of the complaint lodged before the
Pasig RTC did not necessitate the assessment of the parties evidence on the metes and bounds of their respective
territories. It cited our ruling in Odsigue v. Court of Appeals[27] wherein we said that a certificate of title is conclusive
evidence of both its ownership and location.[28] The Court of Appeals even referred to specific provisions of the 1991 Local
Government Code and Act. No. 496 to support its ruling that Pasig had the right to collect the realty taxes on the subject
properties as the titles of the subject properties show on their faces that they are situated in Pasig. [29]

Under Presidential Decree No. 464 or the Real Property Tax Code, the authority to collect real property taxes is
vested in the locality where the property is situated:
Sec. 5. Appraisal of Real Property. All real property, whether taxable or exempt, shall be
appraised at the current and fair market value prevailing in the locality where the property is situated.
xxxx
Sec. 57. Collection of tax to be the responsibility of treasurers. The collection of the real property
tax and all penalties accruing thereto, and the enforcement of the remedies provided for in this Code or
any applicable laws, shall be the responsibility of the treasurer of the province, city or municipality where
the property is situated. (Emphases ours.)

This requisite was reiterated in Republic Act No. 7160, also known as the 1991 the Local Government Code, to
wit:

Section 201. Appraisal of Real Property. All real property, whether taxable or exempt, shall be
appraised at the current and fair market value prevailing in the locality where the property is
situated. The Department of Finance shall promulgate the necessary rules and regulations for the
classification, appraisal, and assessment of real property pursuant to the provisions of this Code.

Section 233. Rates of Levy. A province or city or a municipality within the Metropolitan Manila
Area shall fix a uniform rate of basic real property tax applicable to their respective localities as
follows: x x x. (Emphases ours.)

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

4
 Accentuating on the importance of delineating territorial boundaries, this Court, in Mariano, Jr. v. Commission on
Elections[30] said:

The importance of drawing with precise strokes the territorial boundaries of a local unit of
government cannot be overemphasized. The boundaries must be clear for they define the limits of the
territorial jurisdiction of a local government unit. It can legitimately exercise powers of
government only within the limits of its territorial jurisdiction. Beyond these limits, its acts
are ultra vires. Needless to state, any uncertainty in the boundaries of local government units will sow
costly conflicts in the exercise of governmental powers which ultimately will prejudice the people's
welfare. This is the evil sought to be avoided by the Local Government Code in requiring that the land
area of a local government unit must be spelled out in metes and bounds, with technical
descriptions.[31] (Emphasis ours.)

The significance of accurately defining a local government units boundaries was stressed in City of Pasig v.
Commission on Elections,[32] which involved the consolidated petitions filed by the parties herein, Pasig and Cainta,
against two decisions of the Commission on Elections (COMELEC) with respect to the plebiscites scheduled by Pasig for
the ratification of its creation of two new Barangays. Ruling on the contradictory reliefs sought by Pasig and Cainta, this
Court affirmed the COMELEC decision to hold in abeyance the plebiscite to ratify the creation of Barangay
Karangalan; but set aside the COMELECs other decision, and nullified the plebiscite that ratified the creation ofBarangay
Napico in Pasig, until the boundary dispute before the Antipolo RTC had been resolved. The aforementioned case held as
follows:

1. The Petition of the City of Pasig in G.R. No. 125646 is DISMISSED for lack of merit; while

2. The Petition of the Municipality of Cainta in G.R. No. 128663 is GRANTED. The COMELEC Order in
UND No. 97-002, dated March 21, 1997, is SET ASIDE and the plebiscite held on March 15, 1997 to
ratify the creation of Barangay Napico in the City of Pasig is declared null and void. Plebiscite on the
same is ordered held in abeyance until after the courts settle with finality the boundary dispute
between the City of Pasig and the Municipality of Cainta, in Civil Case No. 94-3006.[33]

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

Certificates of Title as
Conclusive Evidence of Location

While we fully agree that a certificate of title is conclusive as to its ownership and location, this does not preclude
the filing of an action for the very purpose of attacking the statements therein. In De Pedro v. Romasan Development
Corporation,[34] we proclaimed that:

We agree with the petitioners that, generally, a certificate of title shall be conclusive as to all
matters contained therein and conclusive evidence of the ownership of the land referred to therein.
However, it bears stressing that while certificates of title are indefeasible, unassailable and binding
against the whole world, including the government itself, they do not create or vest title. They merely
confirm or record title already existing and vested. They cannot be used to protect a usurper from the true
owner, nor can they be used as a shield for the commission of fraud; neither do they permit one to enrich
himself at the expense of other.[35]

In Pioneer Insurance and Surety Corporation v. Heirs of Vicente Coronado,[36] we set aside the lower courts ruling
that the property subject of the case was not situated in the location stated and described in the TCT, for lack of adequate
basis. Our decision was in line with the doctrine that the TCT is conclusive evidence of ownership and location.However,
we refused to simply uphold the veracity of the disputed TCT, and instead, we remanded the case back to the trial court
for the determination of the exact location of the property seeing that it was the issue in the complaint filed before it. [37]

In City Government of Tagaytay v. Guerrero,[38] this Court reprimanded the City of Tagaytay for levying taxes on a
property that was outside its territorial jurisdiction, viz:

5
 In this case, it is basic that before the City of Tagaytay may levy a certain property for sale due to
tax delinquency, the subject property should be under its territorial jurisdiction. The city officials are
expected to know such basic principle of law. The failure of the city officials of Tagaytay to verify if
the property is within its jurisdiction before levying taxes on the same constitutes gross
negligence.[39] (Emphasis ours.)

Although it is true that Pasig is the locality stated in the TCTs of the subject properties, both Sta. Lucia and Cainta
aver that the metes and bounds of the subject properties, as they are described in the TCTs, reveal that they are within
Caintas boundaries.[40] This only means that there may be a conflict between the location as stated and the location as
technically described in the TCTs. Mere reliance therefore on the face of the TCTs will not suffice as they can only be
conclusive evidence of the subject properties locations if both the stated and described locations point to the same area.

The Antipolo RTC, wherein the boundary dispute case between Pasig and Cainta is pending, would be able to
best determine once and for all the precise metes and bounds of both Pasigs and Caintas respective territorial
jurisdictions. The resolution of this dispute would necessarily ascertain the extent and reach of each local governments
authority, a prerequisite in the proper exercise of their powers, one of which is the power of taxation. This was the
conclusion reached by this Court in City of Pasig v. Commission on Elections,[41] and by the First Division of the Court of
Appeals in CA-G.R. SP No. 52874. We do not see any reason why we cannot adhere to the same logic and reasoning in
this case.

The Prejudicial Question Debate

It would be unfair to hold Sta. Lucia liable again for real property taxes it already paid simply because Pasig
cannot wait for its boundary dispute with Cainta to be decided.Pasig has consistently argued that the boundary dispute
case is not a prejudicial question that would entail the suspension of its collection case against Sta. Lucia. This was also
its argument in City of Pasig v. Commission on Elections,[42] when it sought to nullify the COMELECs ruling to hold in
abeyance (until the settlement of the boundary dispute case), the plebiscite that will ratify its creation of Barangay
Karangalan. We agreed with the COMELEC therein that the boundary dispute case presented a prejudicial question and
explained our statement in this wise:

To begin with, we agree with the position of the COMELEC that Civil Case No. 94-3006 involving
the boundary dispute between the Municipality of Cainta and the City of Pasig presents a prejudicial
question which must first be decided before plebiscites for the creation of the proposed barangays may
be held.

The City of Pasig argues that there is no prejudicial question since the same contemplates a civil
and criminal action and does not come into play where both cases are civil, as in the instant case. While
this may be the general rule, this Court has held in Vidad v. RTC of Negros Oriental, Br. 42, that, in
the interest of good order, we can very well suspend action on one case pending the final
outcome of another case closely interrelated or linked to the first.

In the case at bar, while the City of Pasig vigorously claims that the areas covered by the
proposed Barangays Karangalan and Napico are within its territory, it can not deny that portions of the
same area are included in the boundary dispute case pending before the Regional Trial Court of
Antipolo. Surely, whether the areas in controversy shall be decided as within the territorial jurisdiction of
the Municipality of Cainta or the City of Pasig has material bearing to the creation of the proposed
Barangays Karangalan and Napico. Indeed, a requisite for the creation of a barangay is for its territorial
jurisdiction to be properly identified by metes and bounds or by more or less permanent natural
boundaries. Precisely because territorial jurisdiction is an issue raised in the pending civil case, until and
unless such issue is resolved with finality, to define the territorial jurisdiction of the
proposed barangays would only be an exercise in futility. Not only that, we would be paving the way for
potentially ultra vires acts of such barangays. x x x.[43] (Emphases ours.)

It is obvious from the foregoing, that the term prejudicial question, as appearing in the cases involving the parties
herein, had been used loosely. Its usage had been more in reference to its ordinary meaning, than to its strict legal
meaning under the Rules of Court.[44] Nevertheless, even without the impact of the connotation derived from the term, our
own Rules of Court state that a trial court may control its own proceedings according to its sound discretion:

POWERS AND DUTIES OF COURTS AND JUDICIAL OFFICERS

Rule 135

6
 SEC. 5. Inherent powers of courts. Every court shall have power:

xxxx

(g) To amend and control its process and orders so as to make them comformable to law and justice.

Furthermore, we have acknowledged and affirmed this inherent power in our own decisions, to wit:

The court in which an action is pending may, in the exercise of a sound discretion, upon proper
application for a stay of that action, hold the action in abeyance to abide the outcome of another pending
in another court, especially where the parties and the issues are the same, for there is power inherent in
every court to control the disposition of causes (sic) on its dockets with economy of time and effort for
itself, for counsel, and for litigants. Where the rights of parties to the second action cannot be properly
determined until the questions raised in the first action are settled the second action should be stayed.

The power to stay proceedings is incidental to the power inherent in every court to control the
disposition of the cases on its dockets, considering its time and effort, that of counsel and the litigants.
But if proceedings must be stayed, it must be done in order to avoid multiplicity of suits and prevent
vexatious litigations, conflicting judgments, confusion between litigants and courts. It bears stressing that
whether or not the RTC would suspend the proceedings in the SECOND CASE is submitted to its sound
discretion.[45]

In light of the foregoing, we hold that the Pasig RTC should have held in abeyance the proceedings in Civil Case
No. 65420, in view of the fact that the outcome of the boundary dispute case before the Antipolo RTC will undeniably
affect both Pasigs and Caintas rights. In fact, the only reason Pasig had to file a tax collection case against Sta. Lucia was
not that Sta. Lucia refused to pay, but that Sta. Lucia had already paid, albeit to another local government unit. Evidently,
had the territorial boundaries of the contending local government units herein been delineated with accuracy, then there
would be no controversy at all.

In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit the succeeding real property taxes
due on the subject properties, in an escrow account with the Land Bank of the Philippines.

WHEREFORE, the instant petition is GRANTED. The June 30, 2004 Decision and the January 27, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 69603 are SET ASIDE. The City of Pasig and the Municipality of
Cainta are both directed to await the judgment in their boundary dispute case (Civil Case No. 94-3006), pending before
Branch 74 of the Regional Trial Court in Antipolo City, to determine which local government unit is entitled to exercise its
powers, including the collection of real property taxes, on the properties subject of the dispute. In the meantime, Sta.
Lucia Realty and Development, Inc. is directed to deposit the succeeding real property taxes due on the lots and
improvements covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 and 38457 in an escrow account with the
Land Bank of the Philippines.

SO ORDERED.

FIRST DIVISION

G.R. No. 181756 June 15, 2015

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner,

vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a clear opportunity for this Court to clarify the effects of our two previous decisions, issued a decade apart, on the
power of local government units to collect real property taxes from airport authorities located within their area, and the
nature or the juridical personality of said airport authorities.

7
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to reverse and
set aside the October 8, 2007 Decision1 of the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360 and the February
12, 2008 Resolution2 denying petitioner's motion for reconsideration.

THE FACTS

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on July 31, 1990 under
Republic Act No. 69583 to "undertake the economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City x x x and such other airports as
may be established in the Province of Cebu." It is represented in this case by the Office of the Solicitor General.
Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and existing under its own
charter with capacity to sue and be sued. Respondent Elena T. Pacaldo was impleaded in her capacity as the City
Treasurer of respondent City.

Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision of Republic Act No. 6958:

Section 14. Tax Exemptions.– The Authority shall be exempt from realty taxes imposed by the National Government or
any of its political subdivisions, agencies and instrumentalities: Provided, That no tax exemption herein granted shall
extend to any subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International Airport Authority v.
Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of Republic Act No. 7160 (The Local Government
Code of 1991), petitioner was no longer exempt from real estate taxes. The Court held:

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. x x x.

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots comprising
the Mactan International Airport in the amount of ₱162,058,959.52. Petitioner complained that there were discrepancies in
said Statement of Real Estate Tax as follows:

(a) [T]he statement included lots and buildings not found in the inventory of petitioner’s real properties;

(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double assessment;

(c) [There were] double entries pertaining to the same lots; and

(d) [T]he statement included lots utilized exclusively for governmental purposes. 5

Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in the amount of
₱151,376,134.66. Petitioner averred that this amount covered real estate taxes on the lots utilized solely and exclusively
for public or governmental purposes such as the airfield, runway and taxiway, and the lots on which they are situated. 6

Petitioner paid respondent City the amount of four million pesos (₱4,000,000.00) monthly, which was later increased to six
million pesos (₱6,000,000.00) monthly. As of December 2003, petitioner had paid respondent City a total of
₱275,728,313.36.7

Upon request of petitioner’s General Manager, the Secretary of the Department of Justice (DOJ) issued Opinion No. 50,
Series of 1998,8 and we quote the pertinent portions of said Opinion below:

You further state that among the real properties deemed transferred to MCIAA are the airfield, runway, taxiway and the
lots on which the runway and taxiway are situated, the tax declarations of which were transferred in the name of the
MCIAA. In 1997, the City of Lapu-Lapu imposed real estate taxes on these properties invoking the provisions of the Local
Government Code.

8
It is your view that these properties are not subject to real property tax because they are exclusively used for airport
purposes. You said that the runway and taxiway are not only used by the commercial airlines but also by the Philippine Air
Force and other government agencies. As such and in conjunction with the above interpretation of Section 15 of R.A. No.
6958, you believe that these properties are considered owned by the Republic of the Philippines. Hence, this request for
opinion.

The query is resolved in the affirmative. The properties used for airport purposes (i.e. airfield, runway, taxiway and the lots
on which the runway and taxiway are situated) are owned by the Republic of the Philippines.

xxxx

Under the Law on Public Corporations, the legislature has complete control over the property which a municipal
corporation has acquired in its public or governmental capacity and which is devoted to public or governmental use. The
municipality in dealing with said property is subject to such restrictions and limitations as the legislature may impose. On
the other hand, property which a municipal corporation acquired in its private or proprietary capacity, is held by it in the
same character as a private individual. Hence, the legislature in dealing with such property, is subject to the constitutional
restrictions concerning property (Martin, Public Corporations [1997], p. 30; see also Province of Zamboanga del [Norte] v.
City of Zamboanga [131 Phil. 446]). The same may be said of properties transferred to the MCIAA and used for airport
purposes, such as those involved herein. Since such properties are of public dominion, they are deemed held by the
MCIAA in trust for the Government and can be alienated only as may be provided by law.

Based on the foregoing, it is our considered opinion that the properties used for airport purposes, such as the airfield,
runway and taxiway and the lots on which the runway and taxiway are located, are owned by the State or by the Republic
of the Philippines and are merely held in trust by the MCIAA, notwithstanding that certificates of titles thereto may have
been issued in the name of the MCIAA. (Emphases added.)

Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the City Treasurer of Lapu-
Lapu dated August 3, 1998,9 which reads:

The distinction as to which among the MCIAA properties are still considered "owned by the State or by the Republic of the
Philippines," such as the resolution in the above-cited DOJ Opinion No. 50, for purposes of real property tax exemption is
hereby deemed tenable considering that the subject "airfield, runway, taxiway and the lots on which the runway and
taxiway are situated" appears to be the subject of real property tax assessment and collection of the city government of
Lapu-Lapu, hence, the same are definitely located within the jurisdiction of Lapu-Lapu City. Moreover, then
Undersecretary Antonio P. Belicena of the Department of Finance, in his 1st Indorsement dated May 18, 1998, advanced
that "this Department (DOF) interposes no objection to the request of Mactan Cebu International Airport Authority for
exemption from payment of real property tax on the property used for airport purposes" mentioned above.

The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject airfield, runway, taxiway and
the lots on which the runway and taxiway are situated, from the "Taxable Roll" to the "Exempt Roll" of real properties.

The City Treasurer thereat should be informed on the action taken for his immediate appropriate action. (Emphases
added.)

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax Balances up to the year
2002 reflecting the amount of ₱246,395,477.20. Petitioner claimed that the statement again included the lots utilized
solely and exclusively for public purpose such as the airfield, runway, and taxiway and the lots on which these are built.
Respondent Pacaldo then issued Notices of Levy on 18 sets of real properties of petitioner. 10

Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of Lapu-Lapu City with prayer for the
issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction, docketed as SCA No. 6056-L.
Branch 53 of RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for prohibition sought to enjoin respondent
City from issuing a warrant of levy against petitioner’s properties and from selling them at public auction for delinquency in
realty tax obligations. The petition likewise prayed for a declaration that the airport terminal building, the airfield, runway,
taxiway and the lots on which they are situated are exempted from real estate taxes after due hearing. Petitioner based its
claim of exemption on DOJ Opinion No. 50.

The RTC issued an Order denying the motion for extension of the TRO. Thus, on December10, 2003, respondent City
auctioned 27 of petitioner’s properties. As there was no interested bidder who participated in the auction sale, respondent

9
City forfeited and purchased said properties. The corresponding Certificates of Sale of Delinquent Property were issued to
respondent City.12

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance authorizing the
collection of real property tax, a tax for the special education fund (SEF), and a penalty interest for its nonpayment.
Petitioner argued that without the corresponding tax ordinances, respondent City could not impose and collect real
property tax, an additional tax for the SEF, and penalty interest from petitioner. 13

The RTC issued an Order14 on December 28, 2004 granting petitioner’s application for a writ of preliminary injunction. The
pertinent portions of the Order are quoted below:

The supervening legal issue has rendered it imperative that the matter of the consolidation of the ownership of the
auctioned properties be placed on hold. Furthermore, it is the view of the Court that great prejudice and damage will be
suffered by petitioner if it were to lose its dominion over these properties now when the most important legal issue has still
to be resolved by the Court. Besides, the respondents and the intervenor have not sufficiently shown cause why
petitioner’s application should not be granted.

WHEREFORE, the foregoing considered, petitioner’s application for a writ of preliminary injunction is granted.
Consequently, upon the approval of a bond in the amount of one million pesos (₱1,000,000.00), let a writ of preliminary
injunction issue enjoining the respondents, the intervenor, their agents or persons acting in [their] behalf, to desist from
consolidating and exercising ownership over the properties of the petitioner.

However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an Order 15 dated December 5,
2005. The RTC reasoned as follows:

The respondent City, in the courseof the hearing of its motion, presented to this Court a certified copy of its Ordinance No.
44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 whereof authorized the collection of a rate of one and
one-half (1 1/2) [per centum] from owners, executors or administrators of any real estate lying within the jurisdiction of the
City of Lapu-Lapu, based on the assessed value as shown in the latest revision.

Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local Government Code of 1991), to
the mind of the Court this ordinance is still a valid and effective ordinance in view of Sec. 529 of RA 7160 x x x [and the]
Implementing Rules and Regulations of RA 7160 x x x.

xxxx

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty collected is
higher than the 2% interest allowed under Sec. 255 of the said law which provides:

In case of failure to pay the basic real property tax or any other tax levied under this Title upon the expiration of the
periods as provided in Section 250, or when due, as the case may be, shall subject the taxpayer to the payment of
interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax shall
have been fully paid: Provided, however, That in no case shall the total interest on the unpaid tax or portion thereof
exceed thirty-six (36) months.

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44 pursuant to
Section 529 of RA 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of this disparity is
simply that respondent City can only collect an interest of 2% per month on the unpaid tax. Consequently, respondent City
[has] to recompute the petitioner’s tax liability.

It is also the Court’s perception that respondent City can still collect the additional 1% tax on real property without an
ordinance to this effect. It may be recalled that Republic Act No. 5447 has created the Special Education Fund which is
constituted from the proceeds of the additional tax on real property imposed by the law. Respondent City has collected
this tax as mandated by this law without any ordinance for the purpose, as there is no need for it. Even when RA 5447
was amended by PD 464 (Real Property Tax Code), respondent City had continued to collect the tax, as it used to.

It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3) and b(2) which
concern the allocation of the additional tax, considering that under RA 7160, the proceeds of the additional 1% tax on real

10
property accrue exclusively to the Special Education Fund. Nevertheless, RA 5447 has not been totally repealed; there is
only a partial repeal.

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of the
additional 1% tax. This is so since RA 5447 is still in force and effect, and the declared policy of the government in
enacting the law, which is to contribute to the financial support of the goals of education as provided in the Constitution,
necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would be to place the collection
of the tax at the option of the local legislature. This would run counter to the declared policy of the government when the
SEF was created and the tax imposed.

As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant petition, the Court
deems it proper, at this stage of the proceedings, not to treat this issue, as it involves facts which are yet to be
established.

x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a futile gesture in the light of Section 263
of RA 7160. x x x.

xxxx

It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the one-year period, ownership
fully vests on the local government unit concerned. Thus, when in the present case petitioner failed to redeem the parcels
of land acquired by respondent City, the ownership thereof became fully vested on respondent City without the latter
having to perform any other acts to perfect its ownership. Corollary thereto, ownership on the part of respondent City has
become a fait accompli.

WHEREFORE, in the light of the foregoing considerations, respondents’ motion for reconsideration is granted, and the
order of this Court dated December 28, 2004 is hereby reconsidered. Consequently, the writ of preliminary injunction
issued by this Court is hereby lifted.

Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City), with urgent prayer for the
issuance of a TRO and/or writ of preliminary injunction, docketed as CA-G.R. SP No. 01360. The Court of Appeals (Cebu
City) issued a TRO17 on January 5, 2006 and shortly thereafter, issued a writ of preliminary injunction 18 on February 17,
2006.

RULING OF THE COURT OF APPEALS

The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007, holding that petitioner is a
government-owned or controlled corporation and its properties are subject to realty tax. The dispositive portion of the
questioned Decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which they are situated
NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;

b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the Special Education
Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section 255 of the Local Government
Code, respondent city can only collect an interest of 2% per month on the unpaid tax which total interest shall, in
no case, exceed thirty-six (36) months; c. We DECLARE the sale in public auction of the aforesaid properties and
the eventual forfeiture and purchase of the subject property by the respondent City of Lapu-Lapu as NULL and
VOID. However, petitioner MCIAA’s property is encumbered only by a limited lien possessed by the respondent
City of Lapu-Lapu in accord with Section 257 of the Local Government Code.19Petitioner filed a Motion for Partial
Reconsideration20 of the questioned Decision covering only the portion of said decision declaring that petitioner is
a GOCC and, therefore, not exempt from the realty tax and special education fund imposed by respondent City.
Petitioner cited Manila International Airport Authority v. Court of Appeals 21 (the 2006 MIAA case) involving the City
of Parañaque and the Manila International Airport Authority. Petitioner claimed that it had been described by this
Court as a government instrumentality, and that it followed "as a logical consequence that petitioner is exempt
from the taxing powers of respondent City of Lapu-Lapu."22 Petitioner alleged that the 1996 MCIAA case had

11
 been overturned by the Court in the 2006 MIAA case. Petitioner thus prayed that it be declared exempt from
paying the realty tax, special education fund, and interest being collected by respondent City.

On February 12, 2008, the Court of Appeals denied petitioner’s motion for partial reconsideration in the questioned
Resolution.

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case and refused to apply the
2006 MIAA case. The Court of Appeals wrote in the questioned Decision: "We find that our position is in line with the
coherent and cohesive interpretation of the relevant provisions of the Local Government Code on local taxation
enunciated in the [1996 MCIAA] case which to our mind is more elegant and rational and provides intellectual clarity than
the one provided by the Supreme Court in the [2006] MIAA case."23

In the questioned Decision, the Court of Appeals held that petitioner’s airport terminal building, airfield, runway, taxiway,
and the lots on which they are situated are not exempt from real estate tax reasoning as follows:

Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of local autonomy,
all natural and juridical persons, including government-owned or controlled corporations (GOCCs), instrumentalities and
agencies, are no longer exempt from local taxes even if previously granted an exemption. The only exemptions from local
taxes are those specifically provided under the Code itself, or those enacted through subsequent legislation.

Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local government
units of their power to tax, the scope thereof or its limitations, and the exemptions from local taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units. x x x.

xxxx

The above-stated provision, however, qualified the exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase "unless otherwise provided herein."

Section 232 of the LGC provides for the power of the local government units (LGUs for brevity) to levy real property tax. x
x x.

xxxx

Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous
exemptions granted to natural and juridical persons, including government-owned and controlled corporations, except as
provided therein. x x x.

xxxx

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x x.24 (Citations omitted.)

The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the 2006 MIAA case, it finds and
rules that:

a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the National Government, its
agencies and instrumentalities as the same is qualified by Sections 193, 232 and 234 which "otherwise provided"; and

b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)

The Court of Appeals ratiocinated in the following manner:

Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by persons, whether natural
or juridical, like the petitioner MCIAA, are deemed withdrawn upon the effectivity of the Code. Further, the last paragraph
of Section 234 of the Code also unequivocally withdrew, upon the Code’s effectivity, exemptions from payment of real
property taxes previously granted to natural or juridical persons, including government-owned or controlled corporations,

12
except as provided in the said section. Petitioner MCIAA, undoubtedly a juridical person, it follows that its exemption from
such tax granted under Section 14 of R.A. 6958 has been withdrawn.

xxxx

From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC, instrumentalities were generally
exempt from all forms of local government taxation, unless otherwise provided in the Code. On the other hand, Section
232 "otherwise provided" insofar as it allowed local government units to levy an ad valorem real property tax, irrespective
of who owned the property. At the same time, the imposition of real property taxes under Section 232 is, in turn, qualified
by the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are enumerated in Section
234 of the Code which specifically states that only real properties owned by the Republic of the Philippines or any of its
political subdivisions are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the
exceptions under Section 234 of the LGC.

Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its agencies and
instrumentalities under Section 133 is qualified by Sections 232 and 234, and accordingly, the only relevant exemption
now applicable to these bodies is what is now provided under Section 234(a) of the Code. It may be noted that the
express withdrawal of previously granted exemptions to persons from the payment of real property tax by the LGC does
not even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234
of the Code both state, the withdrawal applies to "all persons, including GOCCs," thus encompassing the two classes of
persons recognized under our laws, natural persons and juridical persons.

xxxx

The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already been lengthily but soundly,
cogently and lucidly answered in the [1996 MCIAA] case x x x.

xxxx

Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case that MIAA (and also
petitioner MCIAA) is not a government-owned or controlled corporation but an instrumentality based on Section 2(10) of
the Administrative Code of 1987 appears to be unsound. In the [2006 MIAA] case, the majority justifies MIAA’s purported
exemption on Section 133(o)of the Local Government Code which places "agencies and instrumentalities: as generally
exempt from the taxation powers of the LGUs. It further went on to hold that "By express mandate of the Local
Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the
MIAA." x x x.26 (Citations omitted.)

The Court of Appeals further cited Justice Tinga’s dissent in the 2006 MIAA case as well as provisions from petitioner
MCIAA’s charter to show that petitioner is a GOCC.27 The Court of Appeals wrote:

These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal relations. Under its charter, it
has the power to acquire, possess and incur obligations. It also has the power to contract in its own name and to acquire
title to movable or immovable property. More importantly, it may likewise exercise powers of a corporation under the
Corporation Code. Moreover, based on its own allegation, it even recognized itself as a GOCC when it alleged in its
petition for prohibition filed before the lower court that it "is a body corporate organized and existing under Republic Act
No. 6958 x x x."

We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can no longer challenge the
tax-exempt character of the properties since it is estopped from doing so when respondent City of Lapu-Lapu, through its
former mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioner’s properties are exempt from real property tax.

It is not denied by the respondent city that it considered, through its former mayor, Ernest H. Weigel, Jr., petitioner’s
subject properties, specifically the runway and taxiway, as exempt from taxes. However, as astutely pointed out by the
respondent city it "can never be in estoppel, particularly in matters involving taxes. It is a well-known rule that erroneous
application and enforcement of the law by public officers do not preclude subsequent correct application of the statute,
and that the Government is never estopped by mistake or error on the part of its agents." 28 (Citations omitted.)

The Court of Appeals established the following:

13
 a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for the imposition
of realty tax against petitioner MCIAA;

b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is authorized by law,
Republic Act No. 5447; and

c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is likewise [sanctioned]
by respondent City’s ordinance.29

The Court of Appeals likewise held that respondent City has a valid and existing local tax ordinance, Ordinance No. 44, or
the Omnibus Tax Ordinance of Lapu-Lapu City, which provided for the imposition of real property tax. The relevant
provision reads:

Chapter 5 – Tax on Real Property Ownership

Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2) percentum shall be collected from owners, executors or
administrators of any real estate lying within the territorial jurisdiction of the City of Lapu-Lapu, based on the assessed
value as shown in the latest revision.30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of the LGC, it remained in
force and effect, citing Section 529 of the LGC and Article 278 of the LGC’s Implementing Rules and Regulations. 31

As regards the Special Education Fund, the Court of Appeals held that respondent City can still collect the additional 1%
tax on real property even without an ordinance to this effect, as this is authorized by Republic Act No. 5447, as amended
by Presidential Decree No. 464 (the Real Property Tax Code), which does not require an enabling tax ordinance. The
Court of Appeals affirmed the RTC’s ruling that Republic Act No. 5447 was still in force and effect notwithstanding the
passing of the LGC, as the latter only partially repealed the former law. What Section 534 of the LGC repealed was
Section 3 a(3) and b(2) of Republic Act No. 5447, and not the entire law that created the Special Education Fund. 32 The
repealed provisions referred to allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco and the
percentage remittances to the taxing authority concerned. The Court of Appeals, citing The Commission on Audit of the
Province of Cebu v. Province of Cebu,33 held that "[t]he failure to add a specific repealing clause particularly mentioning
the statute to be repealed indicates that the intent was not to repeal any existing law on the matter, unless an
irreconcilable inconsistency and repugnancy exists in the terms of the new and the old laws." 34 The Court of Appeals
quoted the RTC’s discussion on this issue, which we reproduce below:

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of the
additional 1% tax. This is so since R.A. 5447 is still in force and effect, and the declared policy of the government in
enacting the law, which is to contribute to the financial support of the goals of education as provided in the Constitution,
necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would be to place the collection
of the tax at the option of the local legislature. This would run counter to the declared policy of the government when the
SEF was created and the tax imposed.35 Regarding the penalty interest, the Court of Appeals found that Section 30 of
Ordinance No. 44 of respondent City provided for a penalty surcharge of 25% of the tax due for a given year. Said
provision reads:

Section 30. – PENALTY FOR FAILURE TO PAY TAX. – Failure to pay the tax provided for under this Chapter within the
time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-five percent (25%), without interest.36

The Court of Appeals however declared that after the effectivity of the Local Government Code, the respondent City could
only collect penalty surcharge up to the extent of 72%, covering a period of three years or 36 months, for the entire
delinquent property.37 This was lower than the 25% per annum surcharge imposed by Ordinance No. 44. 38The Court of
Appeals affirmed

the findings of the RTC in the decision quoted below:

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty collected is
higher than the 2% allowed under Sec. 255 of the said law which provides:

xxxx

14
This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44 pursuant to
Section 529 of RA No. 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of this disparity is
simply that respondent City can only collect an interest of 2% per month on the unpaid tax. Consequently, respondent city
will have to [recompute] the petitioner’s tax liability.39

It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that respondent City has the
power to impose real property taxes over petitioner, "it is also evident and categorical that, under Republic Act
No. 6958, the properties of petitioner MCIAA may not be conveyed or transferred to any person or entity except to
the national government."40 The relevant provisions of the said law are quoted below:

Section 4. Functions, Powers and Duties.– The Authority shall have the following functions, powers and duties:

xxxx

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility,
or property of whatever kind and nature, whether movable or immovable, or any interest therein: Provided, That any asset
located in the Mactan International Airport important to national security shall not be subject to alienation or mortgage by
the Authority nor to transfer to any entity other than the National Government[.]

Section 13. Borrowing Power.– The Authority may, in accordance with Section 21, Article XII of the Constitution and other
existing laws, rules and regulations on local or foreign borrowing, raise funds, either from local or international sources, by
way of loans, credit or securities, and other borrowing instruments with the power to create pledges, mortgages and other
voluntary liens or encumbrances on any of its assets or properties, subject to the prior approval of the President of the
Philippines.

All loans contracted by the Authority under this section, together with all interests and other sums payable in respect
thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one
another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided, That
this provision shall not be construed as a prohibition or restriction on the power of the Authority to create pledges,
mortgages and other voluntary liens or encumbrances on any asset or property of the Authority. The payment of the loans
or other indebtedness of the Authority may be guaranteed by the National Government subject to the approval of the
President of the Philippines.

The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its charter the absolute right to dispose
of its property to any person or entity except to the national government and it is not empowered to obtain loans or
encumber its property without the approval of the President."41 The questioned Decision contained the following
conclusion:

With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested exclusively on Congress.
LGUs, through its local legislative bodies, are now given direct authority to levy taxes, fees and other charges pursuant to
Article X, Section 5 of the 1987 Constitution. And one of the most significant provisions of the LGC is the removal of the
blanket inclusion of instrumentalities and agencies of the national government from the coverage of local taxation. The
express withdrawal by the Code of previously granted exemptions from realty taxes applied to instrumentalities and
government-owned or controlled corporations (GOCCs) such as the petitioner Mactan-Cebu International Airport
Authority. Thus, petitioner MCIAA became a taxable person in view of the withdrawal of the realty tax exemption that it
previously enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and categorically held in the Mactan
case, the removal and withdrawal of tax exemptions previously enjoyed by persons, natural or juridical, are consistent with
the State policy to ensure autonomy to local governments and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.

However, in the case at bench, petitioner MCIAA’s charter expressly bars the alienation or mortgage of its property to any
person or entity except to the national government. Therefore, while petitioner MCIAA is a taxable person for purposes of
real property taxation, respondent City of Lapu-Lapu is prohibited from seizing, selling and owning these properties by and
through a public auction in order to satisfy petitioner MCIAA’s tax liability. 42 (Citations omitted.)

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied petitioner’s motion for
reconsideration based on the following grounds:

15
First, the MCIAA case remains the controlling law on the matter as the same is the established precedent; not the MIAA
case but the MCIAA case since the former, as keenly pointed out by the respondent City of Lapu-Lapu, has not yet
attained finality as there is still yet a pending motion for reconsideration filed with the Supreme Court in the aforesaid
case.

Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be similarly invoked in the case
at bench. The said case cannot be considered as the "law of the case." The "law of the case" doctrine has been defined
as that principle under which determinations of questions of law will generally be held to govern a case throughout all its
subsequent stages where such determination has already been made on a prior appeal to a court of last resort. It is
merely a rule of procedure and does not go to the power of the court, and will not be adhered to where its application will
result in an unjust decision. It relates entirely to questions of law, and is confined in its operation to subsequent
proceedings in the same case. According to said doctrine, whatever has been irrevocably established constitutes the law
of the case only as to the same parties in the same case and not to different parties in an entirely different case. Besides,
pending resolution of the aforesaid motion for reconsideration in the MIAA case, the latter case has not irrevocably
established anything.

Thus, after a thorough and judicious review of the allegations in petitioner’s motion for reconsideration, this Court resolves
to deny the same as the matters raised therein had already been exhaustively discussed in the decision sought to be
reconsidered, and that no new matters were raised which would warrant the modification, much less reversal,
thereof.43 (Emphasis added, citations omitted.)

PETITIONER’S THEORY

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly declared that petitioner, while
vested with corporate powers, is not considered a government-owned or controlled corporation, but is a government
instrumentality like the Manila International Airport Authority (MIAA), Philippine Ports Authority (PPA), University of the
Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government instrumentality, all its airport
lands and buildings are exempt from real estate taxes imposed by respondent City. 44Petitioner alleges that Republic Act
No. 6958 placed "a limitation on petitioner’s administration of its assets and properties" as it provides under Section 4(e)
that "any asset in the international airport important to national security cannot be alienated or mortgaged by petitioner or
transferred to any entity other than the National Government."45

Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the following:

PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE HONORABLE COURT

IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT
CITY OF LAPULAPU.

II

THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,
TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY
TAXES.

III

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT ANY APPROPRIATE
ORDINANCE.

IV

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE SPECIAL EDUCATION
FUND IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.

16
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANSANY ORDINANCE MANDATING ITS
IMPOSITION.46

Petitioner claims the following similarities with MIAA:

1. MCIAA belongs to the same class and performs identical functions as MIAA;

2. MCIAA is a public utility like MIAA;

3. MIAA was organized to operate the international and domestic airport in Paranaque City for public use, while
MCIAA was organized to operate the international and domestic airport in Mactan for public use.

4. Both are attached agencies of the Department of Transportation and Communications. 47

Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No. 903).

Section 3 of Executive Order No. 903 provides:

Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a body corporate to be known
as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and
Communications. The principal office of the Authority shall be located at the New Manila International Airport. The
Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; x x x.

Section 2 of Republic Act No. 6958 reads:

Section 2. Creation of the Mactan-Cebu International Airport Authority.– There is hereby established a body corporate to
be known as the Mactan-Cebu International Airport Authority which shall be attached to the Department of Transportation
and Communications. The principal office of the Authority shall be located at the Mactan International Airport, Province of
Cebu.

The Authority may have such branches, agencies or subsidiaries as it may deem proper and necessary.

As to MIAA’s purposes and objectives, Section 4 of Executive Order No. 903 reads:

Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and objectives:

(a) To help encourage and promote international and domestic air traffic in the Philippines as a means of making
the Philippines a center of international trade and tourism and accelerating the development of the means of
transportation and communications in the country;

(b) To formulate and adopt for application in the Airport internationally acceptable standards of airport
accommodation and service; and

(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and domestic air travel.

Petitioner claims that the above purposes and objectives are analogous to those enumerated in its charter, specifically
Section 3 of Republic Act No. 6958, which reads:

Section 3. Primary Purposes and Objectives.– The Authority shall principally undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug
Airport in Cebu City, hereinafter collectively referred to as the airports, and such other airports as may be established in
the Province of Cebu. In addition, it shall have the following objectives:

(a) To encourage, promote and develop international and domestic air traffic in the central Visayas and Mindanao
regions as a means of making the regions centers of international trade and tourism, and accelerating the
development of the means of transportation and communications in the country; and

17
 (b) To upgrade the services and facilities of the airports and to formulate internationally acceptable standards of
airport accommodation and service.

The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:

Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:

(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate government
agencies, a comprehensive and integrated policy and program for the Airport and to implement, review and
update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be
necessary for the efficient functioning of the Airport;

(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the Airport, and to control and/or supervise as may be necessary the construction of any structure
or the rendition of any services within the Airport;

(d) To sue and be sued in its corporate name;

(e) To adopt and use a corporate seal;

(f) To succeed by its corporate name;

(g) To adopt its by-laws, and to amend or repeal the same from time to time;

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

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein;

(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport premises, works,
appliances, facilities or concessions or for any service provided by the Authority, subject to the approval of the
Minister of Transportation and Communications in consultation with the Minister of Finance, and subject further to
the provisions of Batas Pambansa Blg. 325 where applicable;

(l) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness
of the government;

(m) To provide services, whether on its own or otherwise, within the Airport and the approaches thereof, which
shall include but shall not be limited to, the following:

(1) Aircraft movement and allocation of parking areas of aircraft on the ground;

(2) Loading or unloading of aircrafts;

(3) Passenger handling and other services directed towards the care, convenience and security of
passengers, visitors and other airport users; and

(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.

(n) To perform such other acts and transact such other business, directly or indirectly necessary, incidental or
conducive to the attainment of the purposes and objectives of the Authority, including the adoption of necessary
measures to remedy congestion in the Airport; and

18
 (o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.

Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of Republic Act No. 6958, as
shown in the provision quoted below:

Section 4. Functions, Powers and Duties.– The Authority shall have the following functions, powers and duties:

(a) To formulate a comprehensive and integrated development policy and program for the airports and to
implement, review and update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be
necessary for the efficient functioning of the airports;

(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the airports, and to control and supervise the construction of any structure or the rendition of any
service within the airports;

(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines, insofar as those
powers are not inconsistent with the provisions of this Act;

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein: Provided,
That any asset located in the Mactan International Airport important to national security shall not be subject to
alienation or mortgage by the Authority nor to transfer to any entity other than the National Government;

(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works, appliances,
facilities or concessions, or for any service provided by the Authority;

(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the use of airport
premises for such measures as may be necessary to make the Authority more effective and efficient in the
discharge of its assigned tasks;

(i) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness;
and

(j) To provide services, whether on its own or otherwise, within the airports and the approaches thereof as may be
necessary or in connection with the maintenance and operation of the airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its premises, as shown in their respective charters quoted
below:

EO 903, Sec. 6. Police Authority. — The Authority shall have the power to exercise such police authority as may be
necessary within its premises to carry out its functions and attain its purposes and objectives, without prejudice to the
exercise of functions within the same premises by the Ministry of National Defense through the Aviation Security
Command (AVSECOM) as provided in LOI 961: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required. x x x.

R.A. No. 6958, Section 5. Police Authority.– The Authority shall have the power to exercise such police authority as may
be necessary within its premises or areas of operation to carry out its functions and attain its purposes and objectives:
Provided, That the Authority may request the assistance of law enforcement agencies, including request for deputization
as may be required. x x x.

Petitioner pointed out other similarities in the two charters, such as:

19
 1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section 15, Executive
Order No. 903; Section 12, Republic Act No. 6958);

2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903; Section 14, Republic
Act No. 6958);

3. Both MCIAA and MIAA are required to submit to the President an annual report generally dealing with their
activities and operations (Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958); and

4. Both have borrowing power subject to the approval of the President (Section 16, Executive Order No. 903;
Section 13, Republic Act No. 6958).48

Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006 MIAA case, placed it in the
same class as MIAA and considered it as a government instrumentality. Petitioner submits that since it is also a
government instrumentality like MIAA, the following conclusion arrived by the Court in the 2006 MIAA case is also
applicable to petitioner:

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 Parañaque.

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.49 (Emphases added.)

Petitioner insists that its properties consisting of the airport terminal building, airfield, runway, taxiway and the lots on
which they are situated are not subject to real property tax because they are actually, solely and exclusively used for
public purposes.50 They are indispensable to the operation of the Mactan International Airport and by their very nature,
these properties are exempt from tax. Said properties belong to the State and are merely held by petitioner in trust. As
earlier mentioned, petitioner claims that these properties are important to national security and cannot be alienated,
mortgaged, or transferred to any entity except the National Government.

Petitioner prays that judgment be rendered:

a) Declaring petitioner exempt from paying real property taxes as it is a government instrumentality;

b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic real property
tax, the additional tax for the SEF and the penalty interest for its failure to pass the corresponding tax ordinances;
and

c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real property taxes as
they are used solely and exclusively for public purpose.51

In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has overturned the 1996
MCIAA ruling. Petitioner cites Justice Dante O. Tinga’s dissent in the MIAA ruling, as follows:

[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides for a
wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by the Court
in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously deducted from the
fact that both petitioners are airport authorities operating under similarly worded charters. And the fact that the majority

20
cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces an intent to go against the
Court’s jurisprudential trend adopting the philosophy of expanded local government rule under the Local Government
Code.

x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand together.
Following basic principles in statutory construction, Mactan will be deemed as giving way to this new ruling.

xxxx

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly situated.
They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport. They are the
owners of airport properties they respectively maintain and hold title over these properties in their name. These entities
are both owned by the State, and denied by their respective charters the absolute right to dispose of their properties
without prior approval elsewhere. Both of them are not empowered to obtain loans or encumber their properties without
prior approval the prior approval of the President.52 (Citations omitted.)

Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on respondent City’s part that it
must have a tax measure to be able to impose a tax or special assessment. Petitioner avers that assuming that it is a non-
exempt entity or that its airport lands and buildings are not exempt, it was only upon the effectivity of Ordinance No. 070-
2007 on January 1,2008 that respondent City could properly impose the basic real property tax, the additional tax for the
SEF, and the interest in case of nonpayment.53

Petitioner filed its Memorandum 54 on June 17, 2009.

RESPONDENTS’ THEORY

In their Comment,55 respondents point out that petitioner partially moved for a reconsideration of the questioned Decision
only as to the issue of whether petitioner is a GOCC or not. Thus, respondents declare that the other portions of the
questioned decision had already attained finality and ought not to be placed in issue in this petition for certiorari. Thus,
respondents discussed the other issues raised by petitioner with reservation as to this objection. Respondents
summarized the issues and the grounds relied upon as follows:

STATEMENT OF THE ISSUES

WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM PAYING REAL

PROPERTY TAXES

WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL EDUCATION FUND AND PENALTY
INTEREST

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE LOTS
ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES

GROUNDS RELIED UPON

1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES

2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY TAXES

3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT

4. CITY CAN COLLECT REALTY TAX AND INTEREST

5. CITY CAN COLLECT SEF

6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE RELIEF

7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56

21
Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals] case does not make it the
controlling case on the matter."57 Respondents further claim that the 1996 MCIAA case where this Court held that
petitioner is a GOCC is the controlling jurisprudence. Respondents point out that petitioner and MIAA are two very
different entities. Respondents argue that petitioner is a GOCC contrary to its assertions, based on its Charter and on
DOJ Opinion No. 50.

Respondents contend that if petitioner is not a GOCC but an instrumentality of the government, still the following
statement in the 1996 MCIAA case applies:

Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and
national policy, no one can doubt its wisdom.58 Respondents argue that MCIAA properties such as the terminal building,
taxiway and runway are not exempt from real property taxation. As discussed in the 1996 MCIAA case, Section 234 of the
LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said decision also provides that the transfer
of ownership of the land to petitioner was absolute and petitioner cannot evade payment of taxes. 59

Even if the following issues were not raised by petitioner in its motion for reconsideration of the questioned Decision, and
thus the ruling pertaining to these issues in the questioned decision had become final, respondents still discussed its side
over its objections as to the propriety of bringing these up before this Court.

1. Estoppel does not lie against the government.

2. Respondent City can collect realty taxes and interest.

a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).

b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or the Omnibus Tax Ordinance, wherein the
imposition of real property tax was made. This Ordinance was in force and effect by virtue of Article 278
of the IRR of Republic Act No. 7160.60

c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real property
taxes, special education fund and further provided for the payment of interest and surcharges. Thus, the
issue is passé and is moot and academic.

3. Respondent City can collect Special Education Fund.

a. The LGC does not require the enactment of an ordinance for the collection of the SEF.

b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need not be
covered by ordinance. Besides, the City has enacted the Revenue Code containing provisions for the levy
and collection of the SEF.61

Furthermore, respondents aver that:

1. Collection of taxes is beyond the ambit of injunction.

a. Respondents contend that the petition only questions the denial of the writ of preliminary injunction by
the RTC and the Court of Appeals. Petitioner failed to show irreparable injury.

b. Comparing the alleged damage that may be caused petitioner and the direct affront and challenge
against the power to tax, which is an attribute of sovereignty, it is but appropriate that injunctive relief
should be denied.

2. Petitioner did not comply with LGC provisions on payment under protest.

a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of Republic
Act No. 7160. Section 252 of Republic Act No. 716062 requires that the taxpayer’s protest can only be
entertained if the tax is first paid under protest.63

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Respondents submitted their Memorandum 64 on June 30, 2009, wherein they allege that the 1996 MCIAA case is still
good law, as shown by the following cases wherein it was quoted:

1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92 (2007)];

2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];

3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil. 785 (2008)]; and

4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].

Respondents assert that the constant reference to the 1996 MCIAA case "could hardly mean that the doctrine has
breathed its last" and that the 1996 MCIAA case stands as precedent and is controlling on petitioner MCIAA. 65

Respondents allege that the issue for consideration is whether it is proper for petitioner to raise the issue of whether it is
not liable to pay real property taxes, special education fund (SEF), interests and/or surcharges. 66 Respondents argue that
the Court of Appeals was correct in declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway, and
runway. Respondent City relies on the following grounds:

1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;

2. MCIAA is a corporation;

3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991 authorizes the
collection of real property taxes (etc.) from MCIAA;

4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt from realty taxes,
special education fund and interest;

5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from MCIAA; [and]

6. Estoppel does not lie against the government.67

THIS COURT’S RULING

The petition has merit. The petitioner is an instrumentality of the government; thus, its properties actually, solely and
exclusively used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and the lots on
which they are situated, are not subject to real property tax and respondent City is not justified in collecting taxes from
petitioner over said properties.

DISCUSSION

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and that petitioner is a GOCC.
The 2006 MIAA case governs.

The Court of Appeals’ reliance on the 1996 MCIAA case is misplaced and its staunch refusal to apply the 2006 MIAA case
is patently erroneous. The Court of Appeals, finding for respondents, refused to apply the ruling in the 2006 MIAA case on
the premise that the same had not yet reached finality, and that as far as MCIAA is concerned, the 1996 MCIAA case is
still good law.68

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases,69 still, in 2006, the
Court en banc decided a case that in effect reversed the 1996 Mactan ruling. The 2006 MIAA case had, since the
promulgation of the questioned Decision and Resolution, reached finality and had in fact been either affirmed or cited in
numerous cases by the Court.70 The decision became final and executory on November 3, 2006.71Furthermore, the 2006
MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by a Division. Hence, the 1996
MCIAA case should be read in light of the subsequent and unequivocal ruling in the 2006 MIAA case.

23
To recall, in the 2006 MIAA case, we held that MIAA’s airport lands and buildings are exempt from real estate tax imposed
by local governments; that it is not a GOCC but an instrumentality of the national government, with its real properties
being owned by the Republic of the Philippines, and these are exempt from real estate tax. Specifically referring to
petitioner, we stated as follows:

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 sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of government
entities.72 (Emphases ours.)

In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and Buildings of MIAA are exempt from
real estate tax under existing laws."73 We quote the extensive discussion of the Court that led to its finding that MIAA’s
lands and buildings were 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

xxxx

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA
is not a government-owned or controlled corporation. 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 (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.

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. x x x

xxxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code 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. 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.

24
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 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

(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.

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises "all the
powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of
this Executive Order."

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" will make its operation more "financially viable."

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 sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of government
entities.74 (Emphases ours, citations omitted.)

The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the local governments as
against the national government or its instrumentality:

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

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

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."

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.

25
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. x x x.

xxxx

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.

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.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments
cannot tax national government instrumentalities. x x x.75 (Emphases ours, citations omitted.)

The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic and belong to the public
domain. The Court said:

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

xxxx

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. x x x.

xxxx

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.

The Airport Lands and Buildings of MIAA x x x 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. 76 (Emphases
supplied, citations omitted.)

The Court also held in the 2006 MIAA case that airport lands and buildings are outside the commerce of man.

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:

xxxx

The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of man may be the object of a
contract, x x x.

26
 xxxx

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of
an auction sale.

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 Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public use the Airport
Lands and Buildings. x x x.

xxxx

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;

xxxx

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.77

Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings in trust for the Republic. [Under]
Section 48, Chapter 12, Book I of the Administrative Code [which] allows instrumentalities like MIAA to hold title to real
properties owned by the Republic."78

The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held that said provision
exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." 79 The Court emphasized,
however, that "portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax." The Court further held:

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 instrumentalities x 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

27
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 a taxable person and
therefore such land area is subject to real estate tax. x x x.80

Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila International Airport Authority
v. City of Pasay,81 thus:

The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands and
buildings located in Parañaque City while this case involved airport lands and buildings located in Pasay City. The 2006
MIAA case and this case raised the same threshold issue: whether the local government can impose real property tax on
the airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.

xxxx

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of 1987
uses the phrase "includes x x x government-owned or controlled corporations" which means that a government
"instrumentality" may or may not be a "government-owned or controlled corporation." Obviously, the term government
"instrumentality" is broader than the term "government-owned or controlled corporation." x x x.

xxxx

The fact that two terms have separate definitions means that while a government "instrumentality" may include a
"government-owned or controlled corporation," there may be a government "instrumentality" that will not qualify as a
"government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that MIAA
would not fall under such definition. MIAA is a government "instrumentality" that does not qualify as a "government-owned
or controlled corporation." x x x.

xxxx

Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from
any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units is subject
to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133(o) of the Local
Government Code, local government units have no power to tax instrumentalities of the national government like the
MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties. Furthermore, the airport lands and
buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from real property tax
under Section 234(a) of the Local Government Code. However, under the same provision, if MIAA leases its real property
to a taxable person, the specific property leased becomes subject to real property tax. In this case, only those portions of
the NAIA Pasay properties which are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay. (Emphases added, citations omitted.)

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned several other government
instrumentalities, among which was the Philippine Fisheries Development Authority. Thus, applying the 2006 MIAA ruling,
the Court, in Philippine Fisheries Development Authority v. Court of Appeals, 82 held:

On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality of the
national government. As such, it is generally exempt from payment of real property tax, except those portions which have
been leased to private entities.

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the instrumentalities of the
national government. x x x.

xxxx

28
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock but it is
not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence, it is not a stock corporation.
Neither [is it] a non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an 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.
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, the Authority which is tasked with the special public function to carry out the government’s policy "to promote the
development of the country’s fishing industry and improve the efficiency in handling, preserving, marketing, and
distribution of fish and other aquatic products," exercises the governmental powers of eminent domain, and the power to
levy fees and charges. At the same time, the Authority exercises "the general corporate powers conferred by laws upon
private and government-owned or controlled corporations."

xxxx

In light of the foregoing, the Authority should be classified as an instrumentality of the national government which is liable
to pay taxes only with respect to the portions of the property, the beneficial use of which were vested in private entities.
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.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions
leased to private persons.1âwphi1 In case the Authority fails to pay the real property taxes due thereon, said portions
cannot be sold at public auction to satisfy the tax delinquency. x x x.

xxxx

In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to pay real
property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are leased to private
entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or any part thereof, being a
property of public domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax
delinquency through means other than the sale at public auction of the IFPC. (Citations omitted.) Another government
instrumentality specifically mentioned in the 2006 MIAA case was the Philippine Ports Authority (PPA). Hence, in Curata
v. Philippine Ports Authority,83 the Court held that the PPA is similarly situated as MIAA, and ruled in this wise:

This Court’s disquisition in Manila International Airport Authority v. Court of Appeals –– ruling that MIAA is not a
government-owned and/or controlled corporation (GOCC), but an instrumentality of the National Government and thus
exempt from local taxation, and that its real properties are owned by the Republic of the Philippines –– is instructive. x x x.
These findings are squarely applicable to PPA, as it is similarly situated as MIAA. First, PPA is likewise not a GOCC for
not having shares of stocks or members. Second, the docks, piers and buildings it administers are likewise owned by the
Republic and, thus, outside the commerce of man. Third, PPA is a mere trustee of these properties. Hence, like MIAA,
PPA is clearly a government instrumentality, an agency of the government vested with corporate powers to perform
efficiently its governmental functions.

Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and such may not be
garnished absent an allocation by its Board or by statutory grant. If the PPA funds cannot be garnished and its properties,
being government properties, cannot be levied via a writ of execution pursuant to a final judgment, then the trial court
likewise cannot grant discretionary execution pending appeal, as it would run afoul of the established jurisprudence that
government properties are exempt from execution. What cannot be done directly cannot be done indirectly. (Citations
omitted.)

In Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila 84 the Court found that
the GSIS was also a government instrumentality and not a GOCC, applying the 2006 MIAA case even though the GSIS
was not among those specifically mentioned by the Court as similarly situated as MIAA. The Court said:

29
GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila International Airport Authority v. Court of
Appeals, a case likewise involving real estate tax assessments by a Metro Manila city on the real properties administered
by MIAA, argues for the non-tax liability of GSIS for real estate taxes. x x x.

xxxx

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport Authority,
e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of man, the rationale
underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated.
First, while created under CA 186 as a non-stock corporation, a status that has remained unchanged even when it
operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of the LGC, a GOCC
following the teaching of Manila International Airport Authority, for, like MIAA, GSIS’s capital is not divided into unit shares.
Also, GSIS has no members to speak of. And by members, the reference is to those who, under Sec. 87 of the
Corporation Code, make up the non-stock corporation, and not to the compulsory members of the system who are
government employees. Its management is entrusted to a Board of Trustees whose members are appointed by the
President.

Second, the subject properties under GSIS’s name are likewise owned by the Republic. The GSIS is but a mere trustee of
the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the
system. This particular property arrangement is clearly shown by the fact that the disposal or conveyance of said subject
properties are either done by or through the authority of the President of the Philippines. x x x. (Emphasis added, citations
omitted.)

All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be classified as a government
instrumentality, as its properties are being used for public purposes, and should be exempt from real estate taxes. This is
not to derogate in any way the delegated authority of local government units to collect realty taxes, but to uphold the
fundamental doctrines of uniformity in taxation and equal protection of the laws, by applying all the jurisprudence that
have exempted from said taxes similar authorities, agencies, and instrumentalities, whether covered by the 2006 MIAA
ruling or not.

To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock corporation, which is a
necessary condition before an agency or instrumentalityis deemed a government-owned or controlled corporation. Like
MIAA, petitioner MCIAA has capital under its charter but it is not divided into shares of stock. It also has no stockholders
or voting shares. Republic Act No. 6958 provides:

Section 9. Capital.– The [Mactan-Cebu International Airport] Authority shall have an authorized capital stock equal to and
consisting of:

(a) The value of fixed assets (including airport facilities, runways and equipment) and such other properties,
movable and immovable, currently administered by or belonging to the airports as valued on the date of the
effectivity of this Act;

(b) The value of such real estate owned and/or administered by the airports; and

(c) Government contribution in such amount as may be deemed an appropriate initial balance.1âwphi1 Such
initial amount, as approved by the President of the Philippines, which shall be more or less equivalent to six (6)
months working capital requirement of the Authority, is hereby authorized to be appropriated in the General
Appropriations Act of the year following its enactment into law. Thereafter, the government contribution to the
capital of the Authority shall be provided for in the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA 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, and
are outside the commerce of man. This, unless petitioner leases its real property to a taxable person, the specific property
leased becomes subject to real property tax; in which case, only those portions of petitioner’s properties which are leased
to taxable persons like private parties are subject to real property tax by the City of Lapu-Lapu.

We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the 2006 MIAA case, and we
quote:

30
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
government-owned 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. x x x.

xxxx

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

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 Parañaque.

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.85 (Emphases added.) WHEREFORE, we hereby GRANT the petition. We REVERSE and SET ASIDE the Decision
dated October 8, 2007 and the Resolution dated February 12, 2008 of the Court of Appeals (Cebu City) in CA-G.R. SP
No. 01360. Accordingly, we DECLARE:

1. Petitioner's properties that are actually, solely and exclusively used for public purpose, consisting of the airport
terminal building, airfield, runway, taxiway and the lots on which they are situated, EXEMPT from real property tax
imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax for the special education fund and the
penalty interest, as well as the final notices of real property tax delinquencies, issued by the City of Lapu-Lapu on
petitioner's properties, except the assessment covering the portions that petitioner has leased to private parties.

3. NULL and VOID the sale in public auction of 27 of petitioner's properties and the eventual forfeiture and
purchase of the said properties by respondent City of Lapu-Lapu. We likewise declare VOID the corresponding
Certificates of Sale of Delinquent Property issued to respondent City of Lapu-Lapu.

SO ORDERED.

FIRST DIVISION

G.R. No. 212920, September 16, 2015

31
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NIPPON EXPRESS (PHILS.) CORPORATION, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated December 18, 2013 and the Resolution3 dated
June 10, 2014 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 924, which affirmed the Resolution4 dated July
31, 2012 of the CTA Third Division (CTA Division) in CTA Case No. 6967, granting respondent Nippon Express (Phils.)
Corporation's (Nippon) motion to withdraw petition for review5 (motion to withdraw).

The Facts

Nippon is a domestic corporation duly organized and existing under Philippine laws which is primarily engaged in the
business of freight forwarding, namely, in the international and domestic air and sea freight and cargo forwarding, hauling,
carrying, handling, distributing, loading, and unloading general cargoes and all classes of goods, wares, and
merchandise, and the operation of container depots, warehousing, storage, hauling, and packing facilities. 6 It is a Value-
Added Tax (VAT) registered entity with Tax Identification No. VAT Registration No. 004-669-434-000.7 As such, it filed its
quarterly VAT returns for the year 2002 on April 25, 2002, July 25, 2002, October 25, 2002, and January 27, 2003,
respectively.8 It maintained that during the said period it incurred input VAT attributable to its zero-rated sales in the
amount of P28,405,167.60, from which only P3,760,660.74 was applied as tax credit, thus, reflecting refundable excess
input VAT in the amount of P24,644,506.86.9

On April 22, 2004, Nippon filed an administrative claim for refund10 of its unutilized input VAT in the amount of
P24,644,506.86 for the year 2002 before the Bureau of Internal Revenue (BIR). 11 A day later, or on April 23, 2004, it filed
a judicial claim for tax refund, by way of petition for review,12 before the CTA, docketed as CTA Case No. 6967.13

For its part, petitioner the Commissioner of Internal Revenue (CIR) asserted, inter alia, that the amounts being claimed by
Nippon as unutilized input VAT were not properly documented, hence, should be denied. 14

Proceedings Before the CTA Division

In a Decision15 dated August 10, 2011, the CTA Division partially granted Nippon's claim for tax refund, and thereby
ordered the CIR to issue a tax credit certificate in the reduced amount of P2,614,296.84, representing its unutilized input
VAT which was attributable to its zero-rated sales.16 It found that while Nippon timely filed its administrative and judicial
claims within the two (2)-year prescriptive period,17 it, however, failed to show that the recipients of its services - which, in
this case, were mostly Philippine Economic Zone Authority registered enterprises - were non-residents "doing business
outside the Philippines." Accordingly, it concluded that Nippon's purported sales therefrom could not qualify as zero-rated
sales, hence, the reduction in the amount of tax credit certificate claimed.18

Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed a motion to
withdraw,19 considering that the BIR, acting on its administrative claim, already issued a tax credit certificate in the
amount of P21,675,128.91 on July 27, 2011 (July 27, 2011 Tax Credit Certificate).

Separately, the CIR moved for reconsideration 20 of the August 10, 2011 Decision and filed its comment/opposition 21 to
Nippon's motion to withdraw, claiming that: (a) the CTA Division had already resolved the factual issue pertaining to
Nippon's entitlement to a tax credit certificate, which, after trial, was proven to be only in the amount of P2,614,296.84; (b)
the issuance of the July 27, 2011 Tax Credit Certificate was bereft of factual and legal bases, and prejudicial to the
interest of the government; and (c) Nippon's motion to withdraw was "tantamount to [a] withdrawal and abandonment of its
[mjotion for [reconsideration also filed in this case."22

Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011 Decision on August 16,
2011,23 likewise sought for reconsideration,24 praying that the CTA Division set aside its August 10, 2011 Decision and
render judgment ordering the CIR to issue a tax credit certificate in the full amount of P24,644,506.86, or in the
alternative, grant its motion to withdraw.25cralawred

In a Resolution dated July 31, 2012,26 the CTA Division granted Nippon's motion to withdraw and, thus, considered the
case closed and terminated.27 It found that pursuant to Revenue Memorandum Circular No. 49-03 (RMC No. 49-03)
dated August 15, 2003, Nippon correctly availed of the proper remedy notwithstanding the promulgation of the August
10, 2011 Decision. It added that in approving the withdrawal of Nippon's petition for review, it exercised its discretionary
authority under Section 3, Rule 50 of the Rules of Court after due consideration of the reasons proffered by Nippon,

32
namely: (a) that the parties had already arrived at a reasonable settlement of the issues; (b) further legal and related costs
would be avoided; and (c) the court's time and resources would be saved. 28

Aggrieved, the CIR elevated29 its case to the CTA En Banc.

The CTA En Banc Ruling

In a Decision30 dated December 18, 2013, the CTA En Banc affirmed the July 31, 2012 Resolution of the CTA Division
granting Nippon's motion to withdraw.31 It debunked the CIR's assertions that Nippon failed to comply with the
requirements set forth in RMC No. 49-03 - i.e., that Nippon failed to notify the BIR that it agreed with its findings and to file
the necessary motion before the CTA Division prior to the promulgation of its Decision -noting that RMC No. 49-03 did not
expressly require a taxpayer to inform the BIR of its assent nor prescribe a definite period for filing a motion to withdraw. It
also observed that the CIR did not deny the existence and issuance of the July 27, 2011 Tax Credit Certificate. In this
regard, the same may be taken judicial notice of, and the need for its formal offer dispensed with.32

The CIR moved for partial reconsideration33 which was, however, denied by the CTA En Banc in a Resolution34 dated
June 10, 2014; hence, this petition.

The Issue Before the Court

The core issue in this case is whether the CTA properly granted Nippon's motion to withdraw.

The Court's Ruling

The petition is meritorious.

A perusal of the Revised Rules of the Court of Tax Appeals 35 (RRCTA) reveals the lack of provisions governing the
procedure for the withdrawal of pending appeals before the CTA. Hence, pursuant to Section 3, Rule 1 of the RRCTA, the
Rules of Court shall suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in the Philippines shall apply suppletorily to these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA under Rules 42, 43, 44, and 46 of the
Rules of Court which are equally adopted in the RRCTA36 - states that when the case is deemed submitted for resolution,
withdrawal of appeals made after the filing of the appellee's brief may still be allowed in the discretion of the court:
RULE 50
DISMISSAL OF APPEAL

xxxx

Section 3. Withdrawal of appeal. — An appeal may be withdrawn as of right at any time before the filing of the appellee's
brief. Thereafter, the withdrawal may be allowed in the discretion of the court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit Certificate, Nippon filed a motion to withdraw
the case, proffering that:
Having arrived at a reasonable settlement of the issues with the [CIR]/BIR, and to avoid incurring further legal and related
costs, not to mention the time and resources of [the CTA], [Nippon] most respectfully moves for the withdrawal of its
Petition for Review.37
Finding the aforementioned grounds to be justified, the CTA Division allowed the withdrawal of Nippon's appeal thereby
ordering the case closed and terminated, notwithstanding the fact that the said motion was filed after the promulgation of
its August 10, 2011 Decision.

While it is true that the CTA Division has the prerogative to grant a motion to withdraw under the authority of the foregoing
legal provisions, the attendant circumstances in this case should have incited it to act otherwise.

First, it should be pointed out that the August 10, 2011 Decision was rendered by the CTA Division after a full-blown
hearing in which the parties had already ventilated their claims. Thus, the findings contained therein were the results of an
exhaustive study of the pleadings and a judicious evaluation of the evidence submitted by the parties, as well as the
report of the commissioned certified public accountant. In Reyes v. Commission on Elections,38 the Court only noted, and
did not grant, a motion to withdraw the petition filed after it had already acted on said petition, ratiocinating in the following
wise:
It may well be in order to remind petitioner that jurisdiction, once acquired, is not lost upon the instance of the parties, but
continues until the case is terminated. When petitioner filed her Petition for Certiorari jurisdiction vested in the Court and,
in fact, the Court exercised such jurisdiction when it acted on the petition. Such jurisdiction cannot be lost by the unilateral
withdrawal of the petition by petitioner.39

33
The primary reason, however, that militates against the granting of the motion to withdraw is the fact that the CTA
Division, in its August 10, 2011 Decision, had already determined that Nippon was only entitled to refund the reduced
amount of P2,614,296.84 since it failed to prove that the recipients of its services were non-residents "doing business
outside the Philippines"; hence, Nippon's purported sales therefrom could not qualify as zero-rated sales, necessitating
the reduction in the amount of refund claimed. Markedly different from this is the BIR's determination that Nippon should
receive P21,675,128.91 as per the July 27, 2011 Tax Credit Certificate, which is, in all, P19,060,832.07 larger than the
amount found due by the CTA Division. Therefore, as aptly pointed out by Associate Justice Teresita J. Leonardo-De
Castro during the deliberations on this case, the massive discrepancy alone between the administrative and judicial
determinations of the amount to be refunded to Nippon should have already raised a red flag to the CTA Division. Clearly,
the interest of the government, and, more significantly, the public, will be greatly prejudiced by the erroneous grant of
refund - at a substantial amount at that - in favor of Nippon. Hence, under these circumstances, the CTA Division should
not have granted the motion to withdraw.

In this relation, it deserves mentioning that the CIR is not estopped from assailing the validity of the July 27, 2011 Tax
Credit Certificate which was issued by her subordinates in the BIR. In matters of taxation, the government cannot be
estopped by the mistakes, errors or omissions of its agents for upon it depends the ability of the government to serve the
people for whose benefit taxes are collected.40

Finally, the Court has observed that based on the records, Nippon's administrative claim for the first taxable quarter of
2002 which closed on March 31, 2002 was already time-barred41 for being filed on April 22, 2004, or beyond the two (2)-
year prescriptive period pursuant to Section 112(A) 42 of the National Internal Revenue Code of 1997. Although
prescription was not raised as an issue, it is well-settled that if the pleadings or the evidence on record show that the claim
is barred by prescription, the Court may motu proprio order its dismissal on said ground.43

All told, the CTA committed a reversible error in granting Nippon's motion to withdraw. The August 10, 2011 Decision of
the CTA Division should therefore be reinstated, without prejudice, however, to the right of either party to appeal the same
in accordance with the RRCTA.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2013 and the Resolution dated June 10,
2014 of the Court of Tax Appeals En Banc in CTA EB Case No. 924 are hereby SET ASIDE. The Decision dated August
10, 2011 of the Court of Tax Appeals Third Division in CTA Case No. 6967 is REINSTATED, without prejudice, however,
to the right of either party to appeal the same in accordance with the Revised Rules of the Court of Tax Appeals.

SO ORDERED.chanroblesvirtuallawlibrary

Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Perez, JJ., concur.

SECOND DIVISION

COMMISSION OF INTERNAL REVENUE, G.R. No. 170389

Petitioner,

Present:

CARPIO, J., Chairperson,

- versus - LEONARDO-DE CASTRO,*

PERALTA,

MENDOZA, and

SERENO,** JJ.

AQUAFRESH SEAFOODS, INC., Promulgated:

34
Respondent.

October 20, 2010

x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari,[1] under Rule 45 of the Rules of Court, seeking to set aside the
November 9, 2005 Decision[2] of the Court of Tax Appeals (CTA) En Banc in CTA-E.B. No. 77. The CTA En Banc affirmed
the December 22, 2004 Decision of the CTA First Division.

The facts of the case are as follows:

On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land, including
improvements thereon, located at Barrio Banica, Roxas City, for the consideration of Three Million One Hundred
Thousand Pesos (Php 3,100, 000.00). Said properties were covered under Transfer Certificate of Titles Nos. T-21799 and
T-21804.

Respondent then filed a Capital Gains Tax Return/Application for Certification Authorizing Registration and paid the
amount of Php186,000.00, representing the Capital Gains Tax (CGT) and the amount of Php46,500.00, representing the
Documentary Stamp Tax (DST) due from the said sale. Subsequently, Revenue District Officer Gil G. Tabanda issued
Certificate Authorizing Registration No. 1071477.

The Bureau of Internal Revenue (BIR), however, received a report that the lots sold were undervalued for taxation
purposes. This prompted the Special Investigation Division (SID) of the BIR to conduct an occular inspection over the
properties. After the investigation, the SID concluded that the subject properties were commercial with a zonal value
of Php2,000.00 per square meter.

On September 15, 2000, Regional Director Leonardo Q. Sacamos (Director Sacamos) of the Revenue Region Iloilo City
sent two Assessment Notices apprising respondent of CGT and DST defencies in the sum of Php1,372,171.46 and
Php356,267.62, respectively. Director Sacamos relied on the findings of the SID that the subject properties were
commercial with a zonal valuation of Php2,000.00 per square meter.

On October 1, 2000, respondent sent a letter protesting the assessments made by Director Sacamos. On December 1,
2000, Director Sacamos denied respondent's protest for lack of legal basis. Respondent appealed, but the same was
denied with finality on February 13, 2002.

35
On March 19, 2002, respondent filed a petition for review[3] before the CTA seeking the reversal of the denial of its protest.
The main thrust of respondent's petition was that the subject properties were located in Barrio Banica, Roxas, where the
pre-defined zonal value was Php650.00 per square meter based on the Revised Zonal Values of Real Properties in the
City of Roxas under Revenue District Office No. 72 Roxas City (1995 Revised Zonal Values of Real
Properties). Respondent asserted that the subject properties were classified as RR or residential and not commercial.
Respondent argued that since there was already a pre-defined zonal value for properties located in Barrio Banica, the BIR
officials had no business re-classifying the subject properties to commercial.

On December 22, 2004, the CTA promulgated a Decision[4] ruling in favor of respondent, the dispositive portion of which
reads:

IN VIEW OF THE FOREGOING, respondent's assessments for deficiency capital against tax and
documentary stamp taxes are hereby CANCELLED and SET ASIDE. x x x

SO ORDERED.[5]

Ruling in favor of respondent, the CTA opined that that the existing Revised Zonal Values in the City of Roxas should
prevail for purposes of determining respondent's tax liabilities, thus:

While respondent is given the authority to determine the fair market value of the subject properties for the
purpose of computing internal revenue taxes, such authority is not without restriction or limitation. The first
sentence of Section 6(E) sets the limitation or condition in the exercise of such power by requiring
respondent to consult with competent appraisers both from private and public sectors. As there was
no re-evaluation and no revision of the zonal values of the subject properties in Roxas City at the time of
the sale, respondent cannot unilaterally determine the zonal values of the subject properties by invoking
his powers of obtaining information and making assessments under Sections 5 and 6 of the NIRC. The
existing Revised Zonal Values of Real Properties in the City of Roxas shall prevail for the purpose
of determining the proper tax liabilities of petitioner.[6]

Petitioner Commissioner of Internal Revenue filed a Motion for Reconsideration, which was, however, denied by the CTA
in a Resolution[7] dated April 4, 2005.

Petitioner then appealed to the CTA En Banc.

In a Decision dated November 9, 2005, the CTA En Banc dismissed petitioner's appeal, the dispositive portion of which
reads:

WHEREFORE, premises considered, the Petition for Review is DISMISSED for lack of merit.

SO ORDERED.[8]

36
The CTA En Banc ruled that the 1995 Revised Zonal Values of Real Properties should prevail. Said court relied on
Section 6 (E) of the National Internal Revenue Code (NIRC) which requires consultation from appraisers, from both the
public and private sectors, in fixing the zonal valuation of properties. The CTA En Banc held that petitioner failed to prove
any amendment effected on the 1995 Revised Zonal Values of Real Properties at the time of the sale of the subject
properties.

Hence, herein petition, with petitioner raising the following issues for this Court's resolution, to wit:

I.

WHETHER OR NOT THE REQUIREMENT OF CONSULTATION WITH COMPETENT APPRAISERS

BOTH FROM THE PRIVATE AND PUBLIC SECTORS IN DETERMINING THE FAIR MARKET VALUE OF
THE SUBJECT LOTS IS APPLICABLE IN THE CASE AT BAR.

II.

WHETHER OR NOT THE COURT OF TAX APPEALS EN BANC COMMITTED GRAVE ERROR IN
APPLYING THE FAIR MARKET VALUE BASED ON THE ZONAL VALUATION OF A RESIDENTIAL LAND
AS TAX BASE IN THE COMPUTATION OF CAPITAL GAINS TAX AND DOCUMENTARY STAMP TAX
DEFICIENCIES OF RESPONDENT.[9]

The petition is not meritorious. The issues being interrelated, this Court shall discuss the same in seriatim.

Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%) percent is imposed on the gains presumed to have been
realized in the sale, exchange or disposition of lands and/or buildings which are not actively used in the business of a
corporation and which are treated as capital assets based on the gross selling price or fair market value as determined in
accordance with Section 6(E) of the NIRC, whichever is higher.

On the other hand, under Section 196 of the NIRC, DST is based on the consideration contracted to be paid or on its fair
market value determined in accordance with Section 6(E) of the NIRC, whichever is higher.

Thus, in determining the value of CGT and DST arising from the sale of a property, the power of the CIR to assess is
subject to Section 6(E) of the NIRC, which provides:

Section 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement. -

xxxx

(E) Authority of the Commissioner to Prescribe Real Property Values The Commissioner is hereby
authorized to divide the Philippines into different zones or area and shall, upon consultation with
competent appraisers both from the private and public sectors, determine the fair market value of real
properties located in each zone or area. For purposes of computing internal revenue tax, the value of the
property shall be, whichever is higher of:

37
 (1) the fair market value as determined by the Commissioner; or

(2) the fair market value as shown in the schedule of values of the Provincial and City
Assessors.

While the CIR has the authority to prescribe real property values and divide the Philippines into zones, the law is clear that
the same has to be done upon consultation with competent appraisers both from the public and private sectors. It is
undisputed that at the time of the sale of the subject properties found in Barrio Banica, Roxas City, the same were
classified as RR, or residential, based on the 1995 Revised Zonal Value of Real Properties. Petitioner, thus, cannot
unilaterally change the zonal valuation of such properties to commercial without first conducting a re-evaluation of the
zonal values as mandated under Section 6(E) of the NIRC.

Petitioner argues, however, that the requirement of consultation with competent appraisers is mandatory only when it is
prescribing real property values that is when a formulation or change is made in the schedule of zonal values. Petitioner
also contends that what it did in the instant case was not to prescribe the zonal value, but merely classify the same as
commercial and apply the corresponding zonal value for such classification based on the existing schedule of zonal
values in Roxas City.[10]

We disagree.

To this Court's mind, petitioner's act of re-classifying the subject properties from residential to commercial cannot be done
without first complying with the procedures prescribed by law. It bears to stress that ALL the properties in Barrio Banica
were classified as residential, under the 1995 Revised Zonal Values of Real Properties. Thus, petitioner's act of
classifying the subject properties involves a re-classification and revision of the prescribed zonal values.

In addition, Revenue Memorandum No. 58-69 provides for the procedures on the establishment of the zonal values of real
properties, viz.:

(1) The submission or review by the Revenue District Offices Sub-Technical Committee of the
schedule of recommended zonal values to the TCRPV;
(2) The evaluation by TCRPV of the submitted schedule of recommended zonal values of real
properties;
(3) Except in cases of correction or adjustment, the TCRPV finalizes the schedule and submits
the same to the Executive Committee on Real Property Valuation (ECRPV);
(3) Upon approval of the schedule of zonal values by the ECRPV, the same is embodied
in a Department Order for implementation and signed by the Secretary of Finance. Thereafter, the
schedule takes effect (15) days after its publication in the Official Gazette or in any newspaper of general
circulation.

Petitioner failed to prove that it had complied with Revenue Memorandum No. 58-69 and that a revision of the 1995
Revised Zonal Values of Real Properties was made prior to the sale of the subject properties. Thus, notwithstanding
petitioner's disagreement to the classification of the subject properties, the same must be followed for purposes of
computing the CGT and DST. It bears stressing, and as observed by the CTA En Banc, that the 1995 Revised Zonal
Values of Real Properties was drafted by petitioner, BIR personnel, representatives from the Department of Finance,
National Tax Research Center, Institute of Philippine Real Estate Appraisers and Philippine Association of Realtors
Board, which duly satisfied the requirement of consultation with public and private appraisers. [11]

Petitioner contends, nevertheless, that its act of classifying the subject properties based on actual use was in accordance
with guidelines number 1-b and 2 as set forth in Certain Guidelines in the Implementation of Zonal Valuation of Real
Properties for RDO 72 Roxas City (Zonal Valuation Guidelines). [12]

38
Section 1 (b) of the Zonal Valuation Guidelines reads:

1. No zonal value has been prescribed for a particular classification of real property.

Where in the approved schedule of zonal values for a particular barangay -

xxxx

b) No zonal value has been prescribed for a particular classification of real

property in one barangay, the zonal value prescribed for the same classification of real
property located in an adjacent barangay of similar conditions shall be used.

Section 1 (b) does not apply to the case at bar for the simple reason that said proviso operates only when no zonal
valuation has been prescribed. The properties located in BarrioBanica, Roxas City were already subject to a zonal
valuation, a fact which even petitioner has admitted in its petition, thus:

It must be noted that under the schedule of zonal values, Barangay Banica, where the subject lots are
situated, has a single classification only that of a residential area. Accordingly, it has a prescribed zonal value
of Php650.00 per square meter.[13]

Petitioner, however, also relies on Section 2 (a) of the Zonal Valuation Guidelines, to justify its action. Said section states:

2. Predominant Use of Property.

a) All real properties, regardless of actual use, located in a street/barangay zone, the use of which are
predominantly commercial shall be classified as Commercial for purposes of zonal valuation.

In BIR Ruling No. 041-2001, issued on September 18, 2001, the BIR tackled the application of a provision which is
identical to Section 2 (a) of the Zonal Valuation Guidelines. BIR Ruling No. 041-2001 involved a request by the Iglesia Ni
Cristo that the re-computation of CGT and DST based on the predominant use of the real properties located at Mindanao
Avenue, Quezon City, be set aside. In said case, the Iglesia ni Cristo paid the CGT and DST based on the zonal value of
residential lots in Quezon City. The Revenue District Officer, however, ordered a re-computation of the CGT and DST
based on the ground that the real property is located in a predominantly commercial area and must be classified as
commercial for purposes of zonal valuation. The BIR ruled in favor of Iglesia ni Cristo stating that Certain Guidelines in the
Implementation of Zonal Valuation of Real Properties for RDO No. 38, applying the predominant use of property as the
basis for the computation of the Capital Gains and Documentary Stamp Taxes, shall apply only when the real property
is located in an area or zone where the properties are not yet classified and their respective zonal valuation are
not yet determined. The pertinent portion of BIR Ruling No. 041-2001 reads:

39
 In reply, please be informed that this Office finds your request meritorious. The number 2 guideline laid
down in Certain Guidelines in the implementation of Zonal valuation of Real Properties for RDO No. 38-
North Quezon City xxx does not apply to this case.

Number 2 of the CERTAIN GUIDELINES IN THE IMPLEMENTATION OF ZONAL VALUATION OF REAL

PROPERTIES FOR RD NO. 38 NORTH QUEZON CITY provides:

2. PREDOMINANT USE OF PROPERTY:

ALL REAL PROPERTIES REGARDLESS OF ACTUAL USE, LOCATED IN A

STREET/BARANGAY ZONE, THE USE OF WHICH ARE PREDOMINANTLY
COMMERCIAL SHALL BE CLASSIFIED AS 'COMMERICIAL'FOR PURPOSES OF
ZONAL VALUATION.

It is the considered opinion of this Office that the guideline applies when the real property is located
in an area or zone where the properties are not yet classified and their respective zonal valuation are
not yet determined.

In the instant case, however, the classification and valuation of the properties located in Mindanao
Avenue, Bagong Bantay, have already been determined. Under Department of Finance Order No. 6-
2000, the properties along Mindanao Avenue had already been classified as residential and commercial. The
zonal valuation thereof had already been determined. x x x Therefore, the Revenue District Officer of RDO
No. 38 has no discretion to determine the classification or valuation of the properties located in the
pertinent area. The computation of the capital gains and documentary stamp taxes shall be based on the
zonal of residential properties located at Mindanao Avenue, Bago Bantay, Quezon City. [14]

Based on the foregoing, this Court need not belabour on the applicability of Section 2 (a), as the BIR itself has already
ruled that the same shall apply only when the real property is located in an area or zone where the properties are not yet
classified and their respective zonal valuation are not yet determined. As mentioned earlier, the subject properties were
already part of the 1995 Revised Zonal Value of Real Properties which classified the same as residential with a zonal
value of Php650.00 per square meter; thus, Section 2 (a) clearly has no application.

This Court agrees with the observation of the CTA that zonal valuation was established with the objective of having an
efficient tax administration by minimizing the use of discretion in the determination of the tax based on the part of the
administrator on one hand and the taxpayer on the other hand. [15] Zonal value is determined for the purpose of
establishing a more realistic basis for real property valuation. Since internal revenue taxes, such as CGT and DST, are
assessed on the basis of valuation, the zonal valuation existing at the time of the sale should be taken into account.[16]

If petitioner feels that the properties in Barrio Banica should also be classified as commercial, then petitioner should work
for its revision in accordance with Revenue Memorandum Order No. 58-69. The burden was on petitioner to prove that the
classification and zonal valuation in Barrio Banica have been revised in accordance with the prevailing memorandum. In
the absence of proof to the contrary, the 1995 Revised Zonal Values of Real Properties must be followed.

Lastly, this Court takes note of the wording of Section 2 (b) of the Zonal Valuation Guidelines, to wit:

2. Predominant Use of Property.

b) The predominant use of other classification of properties located in a street/barangay zone, regardless
of actual use shall be considered for purposes of zonal valuation.

40
Based thereon, this Court rules that even assuming arguendo that the subject properties were used for commercial
purposes, the same remains to be residential for zonal value purposes. It appears that actual use is not considered for
zonal valuation, but the predominant use of other classification of properties located in the zone. Again, it is undisputed
that the entire Barrio Banica has been classified as residential.

WHEREFORE, premises considered, the petition is denied. The November 9, 2005 Decision of the Court of Tax
Appeals En Banc, in CTA-E.B. No. 77, is hereby AFFIRMED.

SO ORDERED.

SECOND DIVISION

November 9, 2016

G.R. No. 196596

COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
DE LA SALLE UNIVERSITY, INC., Respondent

x-----------------------x

G.R. No. 198841

DE LA SALLE UNIVERSITY INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

x-----------------------x

G.R. No. 198941

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
DE LA SALLE UNIVERSITY, INC., Respondent.

DECISION

BRION, J.:

Before the Court are consolidated petitions for review on certiorari:1

1. G.R. No. 196596 filed by the Commissioner of Internal Revenue (Commissioner) to assail the December 10, 2010
decision and March 29, 2011 resolution of the Court of Tax Appeals (CTA) in En Banc Case No. 622;2

2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to assail the June 8, 2011 decision and October 4, 2011
resolution in CTA En Banc Case No. 671;3 and

3. G.R. No. 198941 filed by the Commissioner to assail the June 8, 2011 decision and October 4, 2011 resolution in
CTA En Banc Case No. 671.4

G.R. Nos. 196596, 198841 and 198941 all originated from CTA Special First Division (CTA Division) Case No. 7303. G.R.
No. 196596 stemmed from CTA En Banc Case No. 622 filed by the Commissioner to challenge CTA Case No. 7303.
G.R. No. 198841 and 198941 both stemmed from CTA En Banc Case No. 671 filed by DLSU to also challenge CTA
Case No. 7303.

41
 The Factual Antecedents

Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA) No. 2794 authorizing
its revenue officers to examine the latter's books of accounts and other accounting records for all internal revenue taxes
for the period Fiscal Year Ending 2003 and Unverified Prior Years.5

On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.6

Subsequently on August 18, 2004, the BIR through a Formal Letter of Demand assessed DLSU the following deficiency
taxes: (1) income tax on rental earnings from restaurants/canteens and bookstores operating within the campus;
(2) value-added tax (VAI) on business income; and (3) documentary stamp tax (DSI) on loans and lease contracts. The
BIR demanded the payment of ₱17,303,001.12, inclusive of surcharge, interest and penalty for taxable years 2001, 2002
and 2003.7

DLSU protested the assessment. The Commissioner failed to act on the protest; thus, DLSU filed on August 3, 2005 a
petition for review with the CTA Division.8

DLSU, a non-stock, non-profit educational institution, principally anchored its petition on Article XIV, Section 4 (3)of the
Constitution, which reads:

(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. xxx.

On January 5, 2010, the CTA Division partially granted DLSU's petition for review. The dispositive portion of the decision
reads:

WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST assessment on the loan transactions of
[DLSU] in the amount of ₱1,1681,774.00 is hereby CANCELLED. However, [DLSU] is ORDERED TO PAY deficiency
income tax, VAT and DST on its lease contracts, plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the total
amount of ₱18,421,363.53 ... xxx.

In addition, [DLSU] is hereby held liable to pay 20% delinquency interest on the total amount due computed from
September 30, 2004 until full payment thereof pursuant to Section 249(C)(3) of the [National Internal Revenue Code].
Further, the compromise penalties imposed by [the Commissioner] were excluded, there being no compromise agreement
between the parties.

SO ORDERED.9

Both the Commissioner and DLSU moved for the reconsideration of the January 5, 2010 decision.10 On April 6, 2010, the
CTA Division denied the Commissioner's motion for reconsideration while it held in abeyance the resolution on DLSU's
motion for reconsideration.11

On May 13, 2010, the Commissioner appealed to the CTA En Banc (CTA En Banc Case No. 622) arguing that
DLSU's use of its revenues and assets for non-educational or commercial purposes removed these items from the
exemption coverage under the Constitution.12

On May 18, 2010, DLSU formally offered to the CTA Division supplemental pieces of documentary evidence to prove that
its rental income was used actually, directly and exclusively for educational purposes. 13 The Commissioner did not
promptly object to the formal offer of supplemental evidence despite notice. 14

On July 29, 2010, the CTA Division, in view of the supplemental evidence submitted, reduced the amount of DLSU's tax
deficiencies. The dispositive portion of the amended decision reads:

WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is hereby PARTIALLY GRANTED. [DLSU] is
hereby ORDERED TO PAY for deficiency income tax, VAT and DST plus 25% surcharge for the fiscal years 2001, 2002
and 2003 in the total adjusted amount of ₱5,506,456.71 ... xxx.

In addition, [DLSU] is hereby held liable to pay 20% per annum deficiency interest on the ... basic deficiency taxes ... until
full payment thereof pursuant to Section 249(B) of the [National Internal Revenue Code] ... xxx.

42
Further, [DLSU] is hereby held liable to pay 20% per annum delinquency interest on the deficiency taxes, surcharge and
deficiency interest which have accrued ... from September 30, 2004 until fully paid. 15

Consequently, the Commissioner supplemented its petition with the CTA En Banc and argued that the CTA Division erred
in admitting DLSU's additional evidence.16

Dissatisfied with the partial reduction of its tax liabilities, DLSU filed a separate petition for review with the CTA En
Banc (CTA En Banc Case No. 671) on the following grounds: (1) the entire assessment should have been cancelled
because it was based on an invalid LOA; (2) assuming the LOA was valid, the CTA Division should still have cancelled
the entire assessment because DLSU submitted evidence similar to those submitted by Ateneo De Manila
University (Ateneo) in a separate case where the CTA cancelled Ateneo's tax assessment;17 and (3) the CTA Division
erred in finding that a portion of DLSU's rental income was not proved to have been used actually, directly and exclusively
for educational purposes.18

The CTA En Banc Rulings

CTA En Banc Case No. 622

The CTA En Banc dismissed the Commissioner's petition for review and sustained the findings of the CTA Division.19

Tax on rental income

Relying on the findings of the court-commissioned Independent Certified Public Accountant (Independent CPA), the
CTA En Banc found that DLSU was able to prove that a portion of the assessed rental income was used actually, directly
and exclusively for educational purposes; hence, exempt from tax. 20 The CTA En Banc was satisfied with DLSU's
supporting evidence confirming that part of its rental income had indeed been used to pay the loan it obtained to build the
university's Physical Education – Sports Complex.21

Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the part of its income that was not shown by supporting
documents to have been actually, directly and exclusively used for educational purposes, must be subjected to income tax
and VAT.22

DST on loan and mortgage transactions

Contrary to the Commissioner's contention, DLSU froved its remittance of the DST due on its loan and mortgage
documents.23 The CTA En Banc found that DLSU's DST payments had been remitted to the BIR, evidenced by the stamp
on the documents made by a DST imprinting machine, which is allowed under Section 200 (D) of the National Internal
Revenue Code (Tax Code)24 and Section 2 of Revenue Regulations (RR) No. 15-2001.25

Admissibility of DLSU's supplemental evidence

The CTA En Banc held that the supplemental pieces of documentary evidence were admissible even if DLSU formally
offered them only when it moved for reconsideration of the CTA Division's original decision. Notably, the law creating the
CTA provides that proceedings before it shall not be governed strictly by the technical rules of evidence.26

The Commissioner moved but failed to obtain a reconsideration of the CTA En Banc's December 10, 2010
decision.27 Thus, she came to this court for relief through a petition for review on certiorari (G.R. No. 196596).

CTA En Banc Case No. 671

The CTA En Banc partially granted DLSU's petition for review and further reduced its tax liabilities
to ₱2,554,825.47inclusive of surcharge.28

On the validity of the Letter of Authority

The issue of the LOA' s validity was raised during trial;29 hence, the issue was deemed properly submitted for decision
and reviewable on appeal.

43
Citing jurisprudence, the CTA En Banc held that a LOA should cover only one taxable period and that the practice of
issuing a LOA covering audit of unverified prior years is prohibited.30 The prohibition is consistent with Revenue
Memorandum Order (RMO) No. 43-90, which provides that if the audit includes more than one taxable period, the other
periods or years shall be specifically indicated in the LOA.31

In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. Hence, the
assessments for deficiency income tax, VAT and DST for taxable years 2001 and 2002 are void, but the assessment for
taxable year 2003 is valid.32

On the applicability of the Ateneo case

The CTA En Banc held that the Ateneo case is not a valid precedent because it involved different parties, factual settings,
bases of assessments, sets of evidence, and defenses.33

On the CTA Division's appreciation of the evidence

The CTA En Banc affirmed the CTA Division's appreciation of DLSU' s evidence. It held that while DLSU successfully
proved that a portion of its rental income was transmitted and used to pay the loan obtained to fund the construction of the
Sports Complex, the rental income from other sources were not shown to have been actually, directly and exclusively
used for educational purposes.34

Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No. 198841) and the Commissioner (G.R. No. 198941)
came to this Court for relief.

The Consolidated Petitions

G.R. No. 196596

The Commissioner submits the following arguments:

First, DLSU's rental income is taxable regardless of how such income is derived, used or disposed of. 35 DLSU's
operations of canteens and bookstores within its campus even though exclusively serving the university community do not
negate income tax liability.36

The Commissioner contends that Article XIV, Section 4 (3) of the Constitution must be harmonized with Section 30 (H) of
the Tax Code, which states among others, that the income of whatever kind and character of [a non-stock and non-profit
educational institution] from any of [its] properties, real or personal, or from any of [its] activities conducted for
profit regardless of the disposition made of such income, shall be subject to tax imposed by this Code.37

The Commissioner argues that the CTA En Banc misread and misapplied the case of Commissioner of Internal
Revenue v. YMCA38 to support its conclusion that revenues however generated are covered by the constitutional
exemption, provided that, the revenues will be used for educational purposes or will be held in reserve for such
purposes.39

On the contrary, the Commissioner posits that a tax-exempt organization like DLSU is exempt only from property tax but
not from income tax on the rentals earned from property. 40 Thus, DLSU's income from the leases of its real properties is
not exempt from taxation even if the income would be used for educational purposes. 41

Second, the Commissioner insists that DLSU did not prove the fact of DST payment42 and that it is not qualified to use
the On-Line Electronic DST Imprinting Machine, which is available only to certain classes of taxpayers under RR No. 9-
2000.43

Finally, the Commissioner objects to the admission of DLSU's supplemental offer of evidence. The belated submission of
supplemental evidence reopened the case for trial, and worse, DLSU offered the supplemental evidence only after it
received the unfavorable CTA Division's original decision.44 In any case, DLSU's submission of supplemental
documentary evidence was unnecessary since its rental income was taxable regardless of its disposition. 45

G.R. No. 198841

44
DLSU argues as that:

First, RMO No. 43-90 prohibits the practice of issuing a LOA with any indication of unverified prior years. A LOA issued
contrary to RMO No. 43-90 is void, thus, an assessment issued based on such defective LOA must also be void. 46

DLSU points out that the LOA issued to it covered the Fiscal Year Ending 2003 and Unverified Prior Years. On the basis
of this defective LOA, the Commissioner assessed DLSU for deficiency income tax, VAT and DST for taxable years 2001,
2002 and 2003.47 DLSU objects to the CTA En Banc's conclusion that the LOA is valid for taxable year 2003. According to
DLSU, when RMO No. 43-90 provides that:

The practice of issuing [LOAs] covering audit of 'unverified prior years' is hereby prohibited.

it refers to the LOA which has the format "Base Year + Unverified Prior Years." Since the LOA issued to DLSU follows this
format, then any assessment arising from it must be entirely voided.48

Second, DLSU invokes the principle of uniformity in taxation, which mandates that for similarly situated parties, the same
set of evidence should be appreciated and weighed in the same manner. 49 The CTA En Banc erred when it did not
similarly appreciate DLSU' s evidence as it did to the pieces of evidence submitted by Ateneo, also a non-stock, non-profit
educational institution.50

G.R. No. 198941

The issues and arguments raised by the Commissioner in G.R. No. 198941 petition are exactly the same as those she
raised in her: (1) petition docketed as G.R. No. 196596 and (2) comment on DLSU's petition docketed as G.R. No.
198841.51

Counter-arguments

DLSU's Comment on G.R. No. 196596

First, DLSU questions the defective verification attached to the petition.52

Second, DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all assets and revenues of non-
stock, non-profit educational institutions used actually, directly and exclusively for educational purposes are exempt from
taxes and duties.53

On this point, DLSU explains that: (1) the tax exemption of non-stock, non-profit educational institutions is novel to
the 1987 Constitution and that Section 30 (H) of the 1997 Tax Code cannot amend the 1987 Constitution;54 (2) Section
30 of the 1997 Tax Code is almost an exact replica of Section 26 of the 1977 Tax Code -with the addition of non-stock,
non-profit educational institutions to the list of tax-exempt entities; and (3) that the 1977 Tax Code was promulgated when
the 1973 Constitution was still in place.

DLSU elaborates that the tax exemption granted to a private educational institution under the 1973 Constitution was only
for real property tax. Back then, the special tax treatment on income of private educational institutions only emanates from
statute, i.e., the 1977 Tax Code. Only under the 1987 Constitution that exemption from tax of all the assets and
revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes,
was expressly and categorically enshrined.55

DLSU thus invokes the doctrine of constitutional supremacy, which renders any subsequent law that is contrary to the
Constitution void and without any force and effect.56 Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the
income of whatever kind and character of a non-stock and non-profit educational institution from any of its properties, real
or personal, or from any of its activities conducted for profit regardless of the disposition made of such income, should be
declared without force and effect in view of the constitutionally granted tax exemption on "all revenues and assets of non-
stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes."57

DLSU further submits that it complies with the requirements enunciated in the YMCA case, that for an exemption to be
granted under Article XIV, Section 4 (3) of the Constitution, the taxpayer must prove that: (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is
used actually, directly and exclusively for educational purposes.58 Unlike YMCA, which is not an educational institution,

45
DLSU is undisputedly a non-stock, non-profit educational institution. It had also submitted evidence to prove that it
actually, directly and exclusively used its income for educational purposes. 59

DLSU also cites the deliberations of the 1986 Constitutional Commission where they recognized that the tax exemption
was granted "to incentivize private educational institutions to share with the State the responsibility of educating the
youth."60

Third, DLSU highlights that both the CTA En Banc and Division found that the bank that handled DLSU' s loan and
mortgage transactions had remitted to the BIR the DST through an imprinting machine, a method allowed under RR No.
15-2001.61 In any case, DLSU argues that it cannot be held liable for DST owing to the exemption granted under the
Constitution.62

Finally, DLSU underscores that the Commissioner, despite notice, did not oppose the formal offer of supplemental
evidence. Because of the Commissioner's failure to timely object, she became bound by the results of the submission of
such supplemental evidence.63

The CIR's Comment on G.R. No. 198841

The Commissioner submits that DLSU is estopped from questioning the LOA's validity because it failed to raise this issue
in both the administrative and judicial proceedings.64 That it was asked on cross-examination during the trial does not
make it an issue that the CTA could resolve.65 The Commissioner also maintains that DLSU's rental income is not tax-
exempt because an educational institution is only exempt from property tax but not from tax on the income earned from
the property.66

DLSU's Comment on G.R. No. 198941

DLSU puts forward the same counter-arguments discussed above.67 In addition, DLSU prays that the Court award
attorney's fees in its favor because it was constrained to unnecessarily retain the services of counsel in this separate
petition.68

Issues

Although the parties raised a number of issues, the Court shall decide only the pivotal issues, which we summarize as
follows:

I. Whether DLSU' s income and revenues proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes;

II. Whether the entire assessment should be voided because of the defective LOA;

III. Whether the CTA correctly admitted DLSU's supplemental pieces of evidence; and

IV. Whether the CTA's appreciation of the sufficiency of DLSU's evidence may be disturbed by the Court.

Our Ruling

As we explain in full below, we rule that:

I. The income, revenues and assets of non-stock, non-profit educational institutions proved to have been used
actually, directly and exclusively for educational purposes are exempt from duties and taxes.

II. The LOA issued to DLSU is not entirely void. The assessment for taxable year 2003 is valid.

III. The CTA correctly admitted DLSU's formal offer of supplemental evidence; and

IV. The CTA's appreciation of evidence is conclusive unless the CTA is shown to have manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly considered, would justify a different
conclusion.

46
The parties failed to convince the Court that the CTA overlooked or failed to consider relevant facts. We thus sustain the
CTA En Banc's findings that:

a. DLSU proved that a portion of its rental income was used actually, directly and exclusively for educational
purposes; and

b. DLSU proved the payment of the DST through its bank's on-line imprinting machine.

I. The revenues and assets of non-stock,

non-profit educational institutions
proved to have been used actually,
directly, and exclusively for educational
purposes are exempt from duties and
taxes.

DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which reads:

(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.

Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such
exemptions subject to the limitations provided by law including restrictions on dividends and provisions for
reinvestment. [underscoring and emphasis supplied]

Before fully discussing the merits of the case, we observe that:

First, the constitutional provision refers to two kinds of educational institutions: (1) non-stock, non-profit educational
institutions and (2) proprietary educational institutions. 69

Second, DLSU falls under the first category. Even the Commissioner admits the status of DLSU as a non-stock, non-profit
educational institution.70

Third, while DLSU's claim for tax exemption arises from and is based on the Constitution, the Constitution, in the same
provision, also imposes certain conditions to avail of the exemption. We discuss below the import of the constitutional
text vis-a-vis the Commissioner's counter-arguments.

Fourth, there is a marked distinction between the treatment of non-stock, non-profit educational institutions and
proprietary educational institutions. The tax exemption granted to non-stock, non-profit educational institutions is
conditioned only on the actual, direct and exclusive use of their revenues and assets for educational purposes. While tax
exemptions may also be granted to proprietary educational institutions, these exemptions may be subject to limitations
imposed by Congress.

As we explain below, the marked distinction between a non-stock, non-profit and a proprietary educational institution is
crucial in determining the nature and extent of the tax exemption granted to non-stock, non-profit educational institutions.

The Commissioner opposes DLSU's claim for tax exemption on the basis of Section 30 (H) of the Tax Code. The relevant
text reads:

The following organizations shall not be taxed under this Title [Tax on

Income] in respect to income received by them as such:

xxxx

(H) A non-stock and non-profit educational institution

xxxx

47
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for
profit regardless of the disposition made of such income shall be subject to tax imposed under this
Code. [underscoring and emphasis supplied]

The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted to non-stock, non-profit educational
institutions such that the revenues and income they derived from their assets, or from any of their activities conducted for
profit, are taxable even if these revenues and income are used for educational purposes.

Did the 1997 Tax Code qualify the tax exemption constitutionally-granted to non-stock, non-profit educational institutions?

We answer in the negative.

While the present petition appears to be a case of first impression,71 the Court in the YMCA case had in fact already
analyzed and explained the meaning of Article XIV, Section 4 (3) of the Constitution. The Court in that case made
doctrinal pronouncements that are relevant to the present case.

The issue in YMCA was whether the income derived from rentals of real property owned by the YMCA, established as a
"welfare, educational and charitable non-profit corporation," was subject to income tax under the Tax Code and the
Constitution.72

The Court denied YMCA's claim for exemption on the ground that as a charitable institution falling under Article VI,
Section 28 (3) of the Constitution,73 the YMCA is not tax-exempt per se; " what is exempted is not the institution itself...
those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes."74

The Court held that the exemption claimed by the YMCA is expressly disallowed by the last paragraph of then Section 27
(now Section 30) of the Tax Code, which mandates that the income of exempt organizations from any of their properties,
real or personal, are subject to the same tax imposed by the Tax Code, regardless of how that income is used. The Court
ruled that the last paragraph of Section 27 unequivocally subjects to tax the rent income of the YMCA from its property. 75

In short, the YMCA is exempt only from property tax but not from income tax.

As a last ditch effort to avoid paying the taxes on its rental income, the YMCA invoked the tax privilege granted under
Article XIV, Section 4 (3) of the Constitution.

The Court denied YMCA's claim that it falls under Article XIV, Section 4 (3) of the Constitution holding that the
term educational institution, when used in laws granting tax exemptions, refers to the school system (synonymous with
formal education); it includes a college or an educational establishment; it refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal school system.76

The Court then significantly laid down the requisites for availing the tax exemption under Article XIV, Section 4 (3),
namely: (1) the taxpayer falls under the classification non-stock, non-profit educational institution; and (2)
the income it seeks to be exempted from taxation is used actually, directly and exclusively for educational
purposes.77

We now adopt YMCA as precedent and hold that:

1. The last paragraph of Section 30 of the Tax Code is without force and effect with respect to non-stock, non-profit
educational institutions, provided, that the non-stock, non-profit educational institutions prove that its assets and revenues
are used actually, directly and exclusively for educational purposes.

2. The tax-exemption constitutionally-granted to non-stock, non-profit educational institutions, is not subject to limitations
imposed by law.

The tax exemption granted by the

Constitution to non-stock, non-profit
educational institutions is conditioned only
on the actual, direct and exclusive use of

48
their assets, revenues and income78 for
educational purposes.

We find that unlike Article VI, Section 28 (3) of the Constitution (pertaining to charitable institutions, churches,
parsonages or convents, mosques, and non-profit cemeteries), which exempts from tax only the assets,
i.e., "all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes ... ," Article XIV, Section 4 (3) categorically states that "[a]ll revenues and assets ... used
actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties."

The addition and express use of the word revenues in Article XIV, Section 4 (3) of the Constitution is not without
significance.

We find that the text demonstrates the policy of the 1987 Constitution, discernible from the records of the 1986
Constitutional Commission79 to provide broader tax privilege to non-stock, non-profit educational institutions as recognition
of their role in assisting the State provide a public good. The tax exemption was seen as beneficial to students who may
otherwise be charged unreasonable tuition fees if not for the tax exemption extended to all revenues and assets of non-
stock, non-profit educational institutions.80

Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the revenues
and income must have also been sourced from educational activities or activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any reference to the source of revenues. Thus, so long as the
revenues and income are used actually, directly and exclusively for educational purposes, then said revenues and income
shall be exempt from taxes and duties.81

We find it helpful to discuss at this point the taxation of revenues versus the taxation of assets.

Revenues consist of the amounts earned by a person or entity from the conduct of business operations.82 It may refer to
the sale of goods, rendition of services, or the return of an investment. Revenue is a component of the tax base in income
tax,83 VAT,84 and local business tax (LBT).85

Assets, on the other hand, are the tangible and intangible properties owned by a person or entity. 86 It may refer to real
estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of goods, or any property from which
the person or entity may derive income or use to generate the same. In Philippine taxation, the fair market value of real
property is a component of the tax base in real property tax (RPT).87 Also, the landed cost of imported goods is a
component of the tax base in VAT on importation 88 and tariff duties.89

Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted from income tax, VAT, and LBT. On the other hand, when it
also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted from RPT.

To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax from which the entity
shall be exempted from shall depend on whether the item is an item of revenue or asset.

To illustrate, if a university leases a portion of its school building to a bookstore or cafeteria, the leased portion is not
actually, directly and exclusively used for educational purposes, even if the bookstore or canteen caters only to university
students, faculty and staff.

The leased portion of the building may be subject to real property tax, as held in Abra Valley College, Inc. v.
Aquino.90 We ruled in that case that the test of exemption from taxation is the use of the property for purposes mentioned
in the Constitution. We also held that the exemption extends to facilities which are incidental to and reasonably necessary
for the accomplishment of the main purposes.

In concrete terms, the lease of a portion of a school building for commercial purposes, removes such asset from
the property tax exemption granted under the Constitution.91 There is no exemption because the asset is not used
actually, directly and exclusively for educational purposes. The commercial use of the property is also not incidental to
and reasonably necessary for the accomplishment of the main purpose of a university, which is to educate its students.

However, if the university actually, directly and exclusively uses for educational purposes the revenues earned from the
lease of its school building, such revenues shall be exempt from taxes and duties. The tax exemption no longer hinges on

49
the use of the asset from which the revenues were earned, but on the actual, direct and exclusive use of the revenues for
educational purposes.

Parenthetically, income and revenues of non-stock, non-profit educational institution not used actually, directly and
exclusively for educational purposes are not exempt from duties and taxes. To avail of the exemption, the taxpayer
must factually prove that it used actually, directly and exclusively for educational purposes the revenues or income
sought to be exempted.

The crucial point of inquiry then is on the use of the assets or on the use of the revenues. These are two things that
must be viewed and treated separately. But so long as the assets or revenues are used actually, directly and exclusively
for educational purposes, they are exempt from duties and taxes.

The tax exemption granted by the

Constitution to non-stock, non-profit
educational institutions, unlike the exemption
that may be availed of by proprietary
educational institutions, is not subject to
limitations imposed by law.

That the Constitution treats non-stock, non-profit educational institutions differently from proprietary educational
institutions cannot be doubted. As discussed, the privilege granted to the former is conditioned only on the actual, direct
and exclusive use of their revenues and assets for educational purposes. In clear contrast, the tax privilege granted to the
latter may be subject to limitations imposed by law.

We spell out below the difference in treatment if only to highlight the privileged status of non-stock, non-profit educational
institutions compared with their proprietary counterparts.

While a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30 (Exemptions
from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered by Section 27 (Rates of
Income Tax on Domestic Corporations).

To be specific, Section 30 provides that exempt organizations like non-stock, non-profit educational institutions shall not
be taxed on income received by them as such.

Section 27 (B), on the other hand, states that "[p]roprietary educational institutions ... which are nonprofit shall pay a tax of
ten percent (10%) on their taxable income .. . Provided, that if the gross income from unrelated trade, business or other
activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions ... [the regular
corporate income tax of 30%] shall be imposed on the entire taxable income ... "92

By the Tax Code's clear terms, a proprietary educational institution is entitled only to the reduced rate of 10% corporate
income tax. The reduced rate is applicable only if: (1) the proprietary educational institution is nonprofit and (2) its gross
income from unrelated trade, business or activity does not exceed 50% of its total gross income.

Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not apply to non-stock, non-profit
educational institutions.

Thus, we declare the last paragraph of Section 30 of the Tax Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit educational institutions used
actually, directly and exclusively for educational purpose. We make this declaration in the exercise of and consistent with
our duty93 to uphold the primacy of the Constitution.94

Finally, we stress that our holding here pertains only to non-stock, non-profit educational institutions and does not cover
the other exempt organizations under Section 30 of the Tax Code.

For all these reasons, we hold that the income and revenues of DLSU proven to have been used actually, directly and
exclusively for educational purposes are exempt from duties and taxes.

II. The LOA issued to DLSU is

not entirely void. The

50
assessment for taxable year
2003 is valid.

DLSU objects to the CTA En Banc 's conclusion that the LOA is valid for taxable year 2003 and insists that the entire LOA
should be voided for being contrary to RMO No. 43-90, which provides that if tax audit includes more than one taxable
period, the other periods or years shall be specifically indicated in the LOA.

A LOA is the authority given to the appropriate revenue officer to examine the books of account and other accounting
records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities 95 and for the purpose of
collecting the correct amount of tax,96 in accordance with Section 5 of the Tax Code, which gives the CIR the power to
obtain information, to summon/examine, and take testimony of persons. The LOA commences the audit process 97 and
informs the taxpayer that it is under audit for possible deficiency tax assessment.

Given the purposes of a LOA, is there basis to completely nullify the LOA issued to DLSU, and consequently, disregard
the BIR and the CTA's findings of tax deficiency for taxable year 2003?

We answer in the negative.

The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which reads:

3. A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year. The practice of issuing [LO
As] covering audit of unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than one
taxable period, the other periods or years shall be specifically indicated in the [LOA].98

What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified prior years. RMO 43-90
does not say that a LOA which contains unverified prior years is void. It merely prescribes that if the audit includes more
than one taxable period, the other periods or years must be specified. The provision read as a whole requires that if a
taxpayer is audited for more than one taxable year, the BIR must specify each taxable year or taxable period on separate
LOAs.

Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of the
extent of the audit and the scope of the revenue officer's authority. Without this rule, a revenue officer can unduly burden
the taxpayer by demanding random accounting records from random unverified years, which may include documents from
as far back as ten years in cases of fraud audit.99

In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. The LOA does
not strictly comply with RMO 43-90 because it includes unverified prior years. This does not mean, however, that the
entire LOA is void.

As the CTA correctly held, the assessment for taxable year 2003 is valid because this taxable period is specified in the
LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Corollarily, the assessments for taxable
years 2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No. 43-90.

Lastly, the Commissioner's claim that DLSU failed to raise the issue of the LOA' s validity at the CTA Division, and thus,
should not have been entertained on appeal, is not accurate.

On the contrary, the CTA En Banc found that the issue of the LOA's validity came up during the trial.100 DLSU then raised
the issue in its memorandum and motion for partial reconsideration with the CTA Division. DLSU raised it again on appeal
to the CTA En Banc. Thus, the CTA En Banc could, as it did, pass upon the validity of the LOA. 101Besides, the
Commissioner had the opportunity to argue for the validity of the LOA at the CTA En Banc but she chose not to file her
comment and memorandum despite notice.102

III.The CTA correctly admitted

the supplemental evidence
formally offered by DLSU.

The Commissioner objects to the CTA Division's admission of DLSU's supplemental pieces of documentary evidence.

51
To recall, DLSU formally offered its supplemental evidence upon filing its motion for reconsideration with the CTA
Division.103 The CTA Division admitted the supplemental evidence, which proved that a portion of DLSU's rental income
was used actually, directly and exclusively for educational purposes. Consequently, the CTA Division reduced DLSU's tax
liabilities.

We uphold the CTA Division's admission of the supplemental evidence on distinct but mutually reinforcing grounds, to wit:
(1) the Commissioner failed to timely object to the formal offer of supplemental evidence; and (2) the CTA is not governed
strictly by the technical rules of evidence.

First, the failure to object to the offered evidence renders it admissible, and the court cannot, on its own, disregard such
evidence.104

The Court has held that if a party desires the court to reject the evidence offered, it must so state in the form of a timely
objection and it cannot raise the objection to the evidence for the first time on appeal.105 Because of a party's failure to
timely object, the evidence offered becomes part of the evidence in the case. As a consequence, all the parties are
considered bound by any outcome arising from the offer of evidence properly presented. 106

As disclosed by DLSU, the Commissioner did not oppose the supplemental formal offer of evidence despite notice. 107 The
Commissioner objected to the admission of the supplemental evidence only when the case was on appeal to the CTA En
Banc. By the time the Commissioner raised her objection, it was too late; the formal offer, admission and evaluation of
the supplemental evidence were all fait accompli.

We clarify that while the Commissioner's failure to promptly object had no bearing on the materiality or sufficiency of the
supplemental evidence admitted, she was bound by the outcome of the CTA Division's assessment of the evidence. 108

Second, the CTA is not governed strictly by the technical rules of evidence. The CTA Division's admission of the formal
offer of supplemental evidence, without prompt objection from the Commissioner, was thus justified.

Notably, this Court had in the past admitted and considered evidence attached to the taxpayers' motion for
reconsideration.1âwphi1

In the case of BPI-Family Savings Bank v. Court of Appeals,109 the tax refund claimant attached to its motion for
reconsideration with the CT A its Final Adjustment Return. The Commissioner, as in the present case, did not oppose the
taxpayer's motion for reconsideration and the admission of the Final Adjustment Return.110 We thus admitted and gave
weight to the Final Adjustment Return although it was only submitted upon motion for reconsideration.

We held that while it is true that strict procedural rules generally frown upon the submission of documents after the trial,
the law creating the CTA specifically provides that proceedings before it shall not be governed strictly by the technical
rules of evidence111 and that the paramount consideration remains the ascertainment of truth. We ruled that procedural
rules should not bar courts from considering undisputed facts to arrive at a just determination of a controversy. 112

We applied the same reasoning in the subsequent cases of Filinvest Development Corporation v. Commissioner of
Internal Revenue113 and Commissioner of Internal Revenue v. PERF Realty Corporation,114 where the taxpayers also
submitted the supplemental supporting document only upon filing their motions for reconsideration.

Although the cited cases involved claims for tax refunds, we also dispense with the strict application of the technical rules
of evidence in the present tax assessment case. If anything, the liberal application of the rules assumes greater force and
significance in the case of a taxpayer who claims a constitutionally granted tax exemption. While the taxpayers in the cited
cases claimed refund of excess tax payments based on the Tax Code,115 DLSU is claiming tax exemption based on the
Constitution. If liberality is afforded to taxpayers who paid more than they should have under a statute, then with more
reason that we should allow a taxpayer to prove its exemption from tax based on the Constitution.

Hence, we sustain the CTA's admission of DLSU's supplemental offer of evidence not only because the Commissioner
failed to promptly object, but more so because the strict application of the technical rules of evidence may defeat the
intent of the Constitution.

IV. The CTA's appreciation of

evidence is generally binding on

52
the Court unless compelling
reasons justify otherwise.

It is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its
function of being dedicated exclusively to the resolution of tax problems, has developed an expertise on the subject,
unless there has been an abuse or improvident exercise of authority.116 We thus accord the findings of fact by the CTA
with the highest respect. These findings of facts can only be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part of the CTA. In the absence of any clear and convincing
proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. 117

We sustain the factual findings of the CTA.

The parties failed to raise credible basis for us to disturb the CTA's findings that DLSU had used actually, directly and
exclusively for educational purposes a portion of its assessed income and that it had remitted the DST payments though
an online imprinting machine.

a. DLSU used actually, directly, and exclusively for educational purposes a portion of its assessed income.

To see how the CTA arrived at its factual findings, we review the process undertaken, from which it deduced that DLSU
successfully proved that it used actually, directly and exclusively for educational purposes a portion of its rental income.

The CTA reduced DLSU' s deficiency income tax and VAT liabilities in view of the submission of the supplemental
evidence, which consisted of statement of receipts, statement of disbursement and fund balance and statement of fund
changes.118

These documents showed that DLSU borrowed ₱93.86 Million, 119 which was used to build the university's Sports
Complex. Based on these pieces of evidence, the CTA found that DLSU' s rental income from its concessionaires were
indeed transmitted and used for the payment of this loan. The CTA held that the degree of preponderance of evidence
was sufficiently met to prove actual, direct and exclusive use for educational purposes.

The CTA also found that DLSU's rental income from other concessionaires, which were allegedly deposited to a fund (CF-
CPA Account),120 intended for the university's capital projects, was not proved to have been used actually, directly and
exclusively for educational purposes. The CTA observed that "[DLSU] ... failed to fully account for and substantiate all
the disbursements from the [fund]." Thus, the CTA "cannot ascertain whether rental income from the [other]
concessionaires was indeed used for educational purposes."121

To stress, the CTA's factual findings were based on and supported by the report of the Independent CPA who reviewed,
audited and examined the voluminous documents submitted by DLSU.

Under the CTA Revised Rules, an Independent CPA's functions include: (a) examination and verification of receipts,
invoices, vouchers and other long accounts; (b) reproduction of, and comparison of such reproduction with, and
certification that the same are faithful copies of original documents, and pre-marking of documentary exhibits consisting of
voluminous documents; (c) preparation of schedules or summaries containing a chronological listing of the numbers,
dates and amounts covered by receipts or invoices or other relevant documents and the amount(s) of taxes paid;
(d) making findings as to compliance with substantiation requirements under pertinent tax laws, regulations and
jurisprudence; (e) submission of a formal report with certification of authenticity and veracity of findings and conclusions
in the performance of the audit; (f) testifying on such formal report; and (g) performing such other functions as the CTA
may direct.122

Based on the Independent CPA's report and on its own appreciation of the evidence, the CTA held that only the portion of
the rental income pertaining to the substantiated disbursements (i.e., proved by receipts, vouchers, etc.) from the CF-CPA
Account was considered as used actually, directly and exclusively for educational purposes. Consequently, the
unaccounted and unsubstantiated disbursements must be subjected to income tax and VAT. 123

The CTA then further reduced DLSU's tax liabilities by cancelling the assessments for taxable years 2001 and 2002 due
to the defective LOA.124

53
The Court finds that the above fact-finding process undertaken by the CTA shows that it based its ruling on the evidence
on record, which we reiterate, were examined and verified by the Independent CPA. Thus, we see no persuasive reason
to deviate from these factual findings.

However, while we generally respect the factual findings of the CTA, it does not mean that we are bound by
its conclusions. In the present case, we do not agree with the method used by the CTA to arrive at DLSU' s
unsubstantiated rental income (i.e., income not proved to have been actually, directly and exclusively used for educational
purposes).

To recall, the CTA found that DLSU earned a rental income of ₱l0,610,379.00 in taxable year 2003.125 DLSU earned this
income from leasing a portion of its premises to: 1) MTG-Sports Complex, 2) La Casita, 3) Alarey, Inc., 4) Zaide Food
Corp., 5) Capri International, and 6) MTO Bookstore.126

To prove that its rental income was used for educational purposes, DLSU identified the transactions where the rental
income was expended, viz.: 1) ₱4,007,724.00127 used to pay the loan obtained by DLSU to build the Sports Complex; and
2) ₱6,602,655.00 transferred to the CF-CPA Account.128

DLSU also submitted documents to the Independent CPA to prove that the ₱6,602,655.00 transferred to the CF-CPA
Account was used actually, directly and exclusively for educational purposes. According to the Independent CPA' findings,
DLSU was able to substantiate disbursements from the CF-CPA Account amounting to ₱6,259,078.30.

Contradicting the findings of the Independent CPA, the CTA concluded that out of the ₱l0,610,379.00 rental
income, ₱4,841,066.65 was unsubstantiated, and thus, subject to income tax and VAT.129

The CTA then concluded that the ratio of substantiated disbursements to the total disbursements from the CF-CPA
Account for taxable year 2003 is only 26.68%.130 The CTA held as follows:

However, as regards petitioner's rental income from Alarey, Inc., Zaide Food Corp., Capri International and MTO
Bookstore, which were transmitted to the CF-CPA Account, petitioner again failed to fully account for and substantiate all
the disbursements from the CF-CPA Account; thus failing to prove that the rental income derived therein were actually,
directly and exclusively used for educational purposes. Likewise, the findings of the Court-Commissioned Independent
CPA show that the disbursements from the CF-CPA Account for fiscal year 2003 amounts to ₱6,259,078.30 only. Hence,
this portion of the rental income, being the substantiated disbursements of the CF-CPA Account, was considered by the
Special First Division as used actually, directly and exclusively for educational purposes. Since for fiscal year 2003, the
total disbursements per voucher is ₱6,259,078.3 (Exhibit "LL-25-C"), and the total disbursements per subsidiary ledger
amounts to ₱23,463,543.02 (Exhibit "LL-29-C"), the ratio of substantiated disbursements for fiscal year 2003 is 26.68%
(₱6,259,078.30/₱23,463,543.02). Thus, the substantiated portion of CF-CPA Disbursements for fiscal year 2003, arrived
at by multiplying the ratio of 26.68% with the total rent income added to and used in the CF-CPA Account in the amount of
₱6,602,655.00 is ₱1,761,588.35.131 (emphasis supplied)

For better understanding, we summarize the CTA's computation as follows:

1. The CTA subtracted the rent income used in the construction of the Sports Complex (₱4,007,724.00) from the rental
income (₱10,610,379.00) earned from the abovementioned concessionaries. The difference (₱6,602,655.00) was the
portion claimed to have been deposited to the CF-CPA Account.

2. The CTA then subtracted the supposed substantiated portion of CF-CPA disbursements (₱1,761,308.37) from the
₱6,602,655.00 to arrive at the supposed unsubstantiated portion of the rental income (₱4,841,066.65).132

3. The substantiated portion of CF-CPA disbursements (₱l,761,308.37)133 was derived by multiplying the rental income
claimed to have been added to the CF-CPA Account (₱6,602,655.00) by 26.68% or the ratio
of substantiated disbursements to total disbursements (₱23,463,543.02).

4. The 26.68% ratio134 was the result of dividing the substantiated disbursements from the CF-CPA Account as found by
the Independent CPA (₱6,259,078.30) by the total disbursements (₱23,463,543.02) from the same account.

We find that this system of calculation is incorrect and does not truly give effect to the constitutional grant of tax exemption
to non-stock, non-profit educational institutions. The CTA's reasoning is flawed because it required DLSU to substantiate
an amount that is greater than the rental income deposited in the CF-CPA Account in 2003.

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To reiterate, to be exempt from tax, DLSU has the burden of proving that the proceeds of its rental income (which
amounted to a total of ₱10.61 million)135 were used for educational purposes. This amount was divided into two parts: (a)
the ₱4.0l million, which was used to pay the loan obtained for the construction of the Sports Complex; and (b) the ₱6.60
million,136 which was transferred to the CF-CPA account.

For year 2003, the total disbursement from the CF-CPA account amounted to ₱23 .46 million.137 These figures, read in
light of the constitutional exemption, raises the question: does DLSU claim that the whole total CF-CPA disbursement
of ₱23.46 million is tax-exempt so that it is required to prove that all these disbursements had been made for
educational purposes?

We answer in the negative.

The records show that DLSU never claimed that the total CF-CPA disbursements of ₱23.46 million had been for
educational purposes and should thus be tax-exempt; DLSU only claimed ₱10.61 million for tax-exemption and should
thus be required to prove that this amount had been used as claimed.

Of this amount, ₱4.01 had been proven to have been used for educational purposes, as confirmed by the Independent
CPA. The amount in issue is therefore the balance of ₱6.60 million which was transferred to the CF-CPA which in turn
made disbursements of ₱23.46 million for various general purposes, among them the ₱6.60 million transferred by DLSU.

Significantly, the Independent CPA confirmed that the CF-CPA made disbursements for educational purposes in year
2003 in the amount ₱6.26 million. Based on these given figures, the CT A concluded that the expenses for educational
purposes that had been coursed through the CF-CPA should be prorated so that only the portion that ₱6.26 million bears
to the total CF-CPA disbursements should be credited to DLSU for tax exemption.

This approach, in our view, is flawed given the constitutional requirement that revenues actually and directly used for
educational purposes should be tax-exempt. As already mentioned above, DLSU is not claiming that the whole ₱23.46
million CF-CPA disbursement had been used for educational purposes; it only claims that ₱6.60 million transferred to CF-
CPA had been used for educational purposes. This was what DLSU needed to prove to have actually and directly used
for educational purposes.

That this fund had been first deposited into a separate fund (the CF -CPA established to fund capital projects) lends
peculiarity to the facts of this case, but does not detract from the fact that the deposited funds were DLSU revenue funds
that had been confirmed and proven to have been actually and directly used for educational purposes via the CF-CPA.
That the CF-CPA might have had other sources of funding is irrelevant because the assessment in the present case
pertains only to the rental income which DLSU indisputably earned as revenue in 2003. That the proven CF-CPA funds
used for educational purposes should not be prorated as part of its total CF-CPA disbursements for purposes of crediting
to DLSU is also logical because no claim whatsoever had been made that the totality of the CF-CPA disbursements had
been for educational purposes. No prorating is necessary; to state the obvious, exemption is based on actual and direct
use and this DLSU has indisputably proven.

Based on these considerations, DLSU should therefore be liable only for the difference between what it claimed and what
it has proven. In more concrete terms, DLSU only had to prove that its rental income for taxable year 2003
(₱10,610,379.00) was used for educational purposes. Hence, while the total disbursements from the CF-CPA Account
amounted to ₱23,463,543.02, DLSU only had to substantiate its Pl0.6 million rental income, part of which was the
₱6,602,655.00 transferred to the CF-CPA account. Of this latter amount, ₱6.259 million was substantiated to have been
used for educational purposes.

To summarize, we thus revise the tax base for deficiency income tax and VAT for taxable year 2003 as follows:

CTA
Decision138 Revised
Rental income 10,610,379.00 10,610,379.00
Less: Rent income used in construction of the Sports 4,007,724.00 4,007,724.00
Complex

Rental income deposited to the CF-CPA Account 6,602,655.00 6,602,655.00

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 1,761,588.35 6,259,078.30
Less: Substantiated portion of CF-CPA disbursements

Tax base for deficiency income tax and VAT 4,841,066.65 343.576.70

On DLSU' s argument that the CTA should have appreciated its evidence in the same way as it did with the evidence
submitted by Ateneo in another separate case, the CTA explained that the issue in the Ateneo case was not the same as
the issue in the present case.

The issue in the Ateneo case was whether or not Ateneo could be held liable to pay income taxes and VAT under certain
BIR and Department of Finance issuances139 that required the educational institution to own and operate the canteens, or
other commercial enterprises within its campus, as condition for tax exemption. The CTA held that the Constitution does
not require the educational institution to own or operate these commercial establishments to avail of the exemption. 140

Given the lack of complete identity of the issues involved, the CTA held that it had to evaluate the separate sets of
evidence differently. The CTA likewise stressed that DLSU and Ateneo gave distinct defenses and that its wisdom "cannot
be equated on its decision on two different cases with two different issues."141

DLSU disagrees with the CTA and argues that the entire assessment must be cancelled because it submitted similar, if
not stronger sets of evidence, as Ateneo. We reject DLSU's argument for being non sequitur. Its reliance on the concept
of uniformity of taxation is also incorrect.

First, even granting that Ateneo and DLSU submitted similar evidence, the sufficiency and materiality of the evidence
supporting their respective claims for tax exemption would necessarily differ because their attendant issues and
facts differ.

To state the obvious, the amount of income received by DLSU and by Ateneo during the taxable years they were
assessed varied. The amount of tax assessment also varied. The amount of income proven to have been used for
educational purposes also varied because the amount substantiated varied.142 Thus, the amount of tax assessment
cancelled by the CTA varied.

On the one hand, the BIR assessed DLSU a total tax deficiency of ₱17,303,001.12 for taxable years 2001, 2002 and
2003. On the other hand, the BIR assessed Ateneo a total deficiency tax of ₱8,864,042.35 for the same period. Notably,
DLSU was assessed deficiency DST, while Ateneo was not.143

Thus, although both Ateneo and DLSU claimed that they used their rental income actually, directly and exclusively for
educational purposes by submitting similar evidence, e.g., the testimony of their employees on the use of university
revenues, the report of the Independent CPA, their income summaries, financial statements, vouchers, etc., the fact
remains that DLSU failed to prove that a portion of its income and revenues had indeed been used for educational
purposes.

The CTA significantly found that some documents that could have fully supported DLSU's claim were not produced in
court. Indeed, the Independent CPA testified that some disbursements had not been proven to have been used actually,
directly and exclusively for educational purposes. 144

The final nail on the question of evidence is DLSU's own admission that the original of these documents had not in fact
been produced before the CTA although it claimed that there was no bad faith on its part.145 To our mind, this admission is
a good indicator of how the Ateneo and the DLSU cases varied, resulting in DLSU's failure to substantiate a portion of its
claimed exemption.

Further, DLSU's invocation of Section 5, Rule 130 of the Revised

Rules on Evidence, that the contents of the missing supporting documents were proven by its recital in some other
authentic documents on record,146 can no longer be entertained at this late stage of the proceeding. The CTA did not rule
on this particular claim. The CTA also made no finding on DLSU' s assertion of lack of bad faith. Besides, it is not our duty
to go over these documents to test the truthfulness of their contents, this Court not being a trier of facts.

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Second, DLSU misunderstands the concept of uniformity of taxation.

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class shall be taxed at
the same rate.147 A tax is uniform when it operates with the same force and effect in every place where the subject of it is
found.148 The concept requires that all subjects of taxation similarly situated should be treated alike and placed in equal
footing.149

In our view, the CTA placed Ateneo and DLSU in equal footing. The CTA treated them alike because their
income proved to have been used actually, directly and exclusively for educational purposes were exempted from taxes.
The CTA equally applied the requirements in the YMCA case to test if they indeed used their revenues for educational
purposes.

DLSU can only assert that the CTA violated the rule on uniformity if it can show that, despite proving that it used actually,
directly and exclusively for educational purposes its income and revenues, the CTA still affirmed the imposition of taxes.
That the DLSU secured a different result happened because it failed to fully prove that it used actually, directly and
exclusively for educational purposes its revenues and income.

On this point, we remind DLSU that the rule on uniformity of taxation does not mean that subjects of taxation similarly
situated are treated in literally the same way in all and every occasion. The fact that the Ateneo and DLSU are both non-
stock, non-profit educational institutions, does not mean that the CTA or this Court would similarly decide every case for
(or against) both universities. Success in tax litigation, like in any other litigation, depends to a large extent on the
sufficiency of evidence. DLSU's evidence was wanting, thus, the CTA was correct in not fully cancelling its tax liabilities.

b. DLSU proved its payment of the DST

The CTA affirmed DLSU's claim that the DST due on its mortgage and loan transactions were paid and remitted through
its bank's On-Line Electronic DST Imprinting Machine. The Commissioner argues that DLSU is not allowed to use this
method of payment because an educational institution is excluded from the class of taxpayers who can use the On-Line
Electronic DST Imprinting Machine.

We sustain the findings of the CTA. The Commissioner's argument lacks basis in both the Tax Code and the relevant
revenue regulations.

DST on documents, loan agreements, and papers shall be levied, collected and paid for by the person making, signing,
issuing, accepting, or transferring the same.150 The Tax Code provides that whenever one party to the document enjoys
exemption from DST, the other party not exempt from DST shall be directly liable for the tax. Thus, it is clear that DST
shall be payable by any party to the document, such that the payment and compliance by one shall mean the full
settlement of the DST due on the document.

In the present case, DLSU entered into mortgage and loan agreements with banks. These agreements are subject to
DST.151 For the purpose of showing that the DST on the loan agreement has been paid, DLSU presented its agreements
bearing the imprint showing that DST on the document has been paid by the bank, its counterparty. The imprint should be
sufficient proof that DST has been paid. Thus, DLSU cannot be further assessed for deficiency DST on the said
documents.

Finally, it is true that educational institutions are not included in the class of taxpayers who can pay and remit DST through
the On-Line Electronic DST Imprinting Machine under RR No. 9-2000. As correctly held by the CTA, this is irrelevant
because it was not DLSU who used the On-Line Electronic DST Imprinting Machine but the bank that handled its
mortgage and loan transactions. RR No. 9-2000 expressly includes banks in the class of taxpayers that can use the On-
Line Electronic DST Imprinting Machine.

Thus, the Court sustains the finding of the CTA that DLSU proved the

payment of the assessed DST deficiency, except for the unpaid balance of

₱13,265.48.152

WHEREFORE, premises considered, we DENY the petition of the Commissioner of Internal Revenue in G.R. No. 196596
and AFFIRM the December 10, 2010 decision and March 29, 2011 resolution of the Court of Tax Appeals En Banc in

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CTA En Banc Case No. 622, except for the total amount of deficiency tax liabilities of De La Salle University, Inc., which
had been reduced.

We also DENY both the petition of De La Salle University, Inc. in G.R. No. 198841 and the petition of the Commissioner of
Internal Revenue in G.R. No. 198941 and thus AFFIRM the June 8, 2011 decision and October 4, 2011 resolution of the
Court of Tax Appeals En Banc in CTA En Banc Case No. 671, with the MODIFICATION that the base for the deficiency
income tax and VAT for taxable year 2003 is ₱343,576.70.

SO ORDERED.

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