Title
Privatization and Management Office vs. Court of Tax Appeals
Case
G.R. No. 211839
Decision Date
Mar 18, 2019
A government agency, PMO, contested Tacloban City's illegal tax collection method and won exemption from posting a surety bond, securing release of its GSIS bond.

Case Digest (G.R. No. L-26959)
Expanded Legal Reasoning Model

Facts:

  • Parties Involved
    • Petitioner: Privatization and Management Office (PMO)
    • Respondents:
      • The Court of Tax Appeals (CTA) – En Banc
      • City Government of Tacloban
    • Additional Co-owners of the Subject Property:
      • Province of Leyte
      • Philippine Tourism Authority (PTA), later reconstituted as Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
  • Subject Property and Leasing Arrangement
    • The subject property is Leyte Park Hotel, Inc. (LPHI), a real property with improvements located within the taxing jurisdiction of Tacloban City.
    • LPHI is co-owned by PMO, the Province of Leyte, and the PTA.
    • The property was leased to Unimaster Conglomeration, Inc. (UCI) for a period of 12 years at a monthly rental of P300,000.00.
    • UCI, being the actual user and beneficial possessor of the property, was tasked with the payment of real property taxes.
  • Dispute on Real Property Tax Collection
    • Tacloban City issued several demand letters to UCI for the payment of real property taxes totalling P23,377,353.08.
    • Despite repeated demands, UCI failed to remit the tax payment.
    • Consequently, on December 15, 2004, Tacloban City filed a complaint for Collection of Sum of Money before the CTA Special First Division against LPHI and UCI.
    • The complaint was later amended to include the Province of Leyte, PTA, and PMO as additional defendants.
  • Procedural Developments and CTA Decisions
    • The CTA Special First Division rendered a decision on November 15, 2011 (CTA OC No. 012), holding UCI liable for the unpaid real property taxes.
    • UCI sought reconsideration, which was denied, and subsequently filed a Petition for Review with the CTA En Banc.
    • Meanwhile, Tacloban City moved for Execution Pending Appeal, which was denied by the Special First Division.
    • Despite this refusal, the City proceeded to issue warrants of levy against the properties of PMO, aiming to facilitate an auction sale.
  • Motions and Resolutions by the CTA En Banc
    • Motion for Suspension and Cancellation:
      • On December 6, 2012, PMO filed a Motion for Suspension of Collection of Real Property Tax and Cancellation of Warrants of Levy before the CTA En Banc.
      • Resolution dated February 7, 2013, granted the motion subject to PMO’s posting a surety bond equal to one and one-half times the amount sought for collection.
    • Motion for Exemption from Posting of Surety Bond:
      • On February 14, 2013, PMO filed a Motion for Exemption from Posting of Surety Bond, arguing that as an agency of the national government, its solvency is unquestionable.
      • However, as a precautionary strategy, PMO filed a Compliance Ad Cautelam on February 15, 2013, submitting a Government Service Insurance System (GSIS) Surety Bond.
      • Resolution dated March 1, 2013, declared the motion for exemption moot because the surety bond had already been filed.
    • Motion for Reconsideration:
      • On April 3, 2013, PMO filed a Motion for Reconsideration.
      • Resolution dated January 29, 2014, denied the motion for reconsideration.
  • Legal and Jurisprudential Context
    • Legal Basis for Suspension of Tax Collection:
      • Section 9 of Republic Act (R.A.) No. 9282 (amending Section 11 of R.A. No. 1125) allows the CTA to suspend collection methods that may jeopardize the interests of the government and/or the taxpayer.
      • Under this provision, the taxpayer must either deposit the full amount claimed or file a surety bond not exceeding double that amount, ensuring the eventual payment should the final decision be against the taxpayer.
    • Petitioner’s Arguments on Exemption:
      • PMO asserted that, being an agency of the national government, it is presumed solvent and should therefore be exempt from the bond requirement.
      • The petitioner cited The Collector of Internal Revenue v. Reyes and several other cases underscoring that the state is not required to post such a bond owing to its inherent financial reliability.
    • Contention on the Collection Method:
      • PMO contended that the method utilized by Tacloban City—issuing warrants of levy leading to a potential public auction sale of a property of public dominion—was contrary to law.
      • It was argued that such a method not only targeted a government entity but also improperly shifted the focus from the actual and beneficial user (UCI) who should be held liable for the tax obligations.
  • Relevant Jurisprudence and Statutory Provisions
    • Precedents:
      • The Reyes case confirmed that, where collection procedures are found to be in clear contravention of law, the requirement for posting a surety bond may be waived.
      • Spouses Pacquiao v. Court of Tax Appeals further reinforced the principle that injunctive relief for tax collection can be granted without the bond requirement if the collection method is unlawful.
    • Statutory Interpretation:
      • Section 234(a) of the 1991 Local Government Code (R.A. No. 7160) provides an exemption from real property tax for properties owned by the Republic, except when the beneficial use is granted to a taxable private entity.
      • The doctrine that property of public dominion cannot be auctioned or encumbered was also emphasized based on Article 420 of the Civil Code.
    • Impact on the Case:
      • The improper issuance of levy and the prospect of public auction jeopardized the ownership rights of PMO, the PTA, and the Province of Leyte.
      • It was reiterated that the tax liability should be directed toward UCI, the private entity with beneficial use of the property, rather than the government entities that owned it.

Issues:

  • Exemption from Posting Surety Bond
    • Whether a government agency such as the PMO is exempt from the requirement to post a surety bond as a condition for suspending the collection of real property tax.
    • Whether the presumed solvency of the national government and its agencies provides sufficient basis for such an exemption.
  • Legality of the Collection Method Employed
    • Whether Tacloban City’s method of collecting unpaid real property taxes—through the issuance of warrants of levy aimed at a public auction sale of a property of public dominion—is permissible and in consonance with existing law and jurisprudence.
    • Whether the tax liability should be imposed on the actual and beneficial user of the property (UCI) rather than on the government entities that are co-owners.
  • Appropriateness of the CTA’s Resolutions
    • Whether the CTA committed grave abuse of discretion by:
      • Requiring the posting of a surety bond under its Resolution dated February 7, 2013;
      • Declaring the motion for exemption from posting such a bond moot through its Resolution dated March 1, 2013; and
      • Denying PMO’s Motion for Reconsideration in its Resolution dated January 29, 2014.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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