G.R. No. 189999 - Angeles University Foundation vs. City of Angeles

Case Summary (G.R. No. 189999)

Factual Background

AUF applied for a building permit in August 2005 to construct an 11‑storey medical center on its main campus. The City issued assessments for building permit and locational clearance fees and related charges totalling P645,906.84, and additional amounts (real property tax, SEF, locational clearance) relating to a Marisol Village property, bringing payments under protest to P826,662.99. AUF invoked DOJ opinions and its R.A. No. 6055 conversion status to claim exemption. Despite DOJ opinions favorable to AUF, respondents refused to cancel assessments; AUF paid under protest, sought refunds administratively, was denied, then filed suit for refund with interest and attorney’s fees.

Procedural History

Trial Court (Regional Trial Court, Angeles City, Branch 57) found AUF exempt from payment of building permit and other fees, ordered refund of P826,662.99 with 12% legal interest from date of extrajudicial demand, awarded attorney’s fees (P70,000) and costs.
Court of Appeals reversed, holding AUF not exempt from building permit and related regulatory fees and not entitled to refund of assessed real property tax for the Marisol Village parcel. AUF timely elevated the matter to the Supreme Court by petition for review on certiorari under Rule 45.

Issues Presented

Whether AUF is exempt from the payment of building permit and related fees imposed under the National Building Code (P.D. No. 1096); and
Whether the parcel assessed for real property tax is exempt under constitutional and statutory provisions for properties actually, directly and exclusively used for educational purposes.

Governing Statutory and Constitutional Provisions

R.A. No. 6055, Sec. 8: exemption from "all taxes, import duties, assessments, and other charges imposed by the Government on all income derived from or property, real or personal, used exclusively for the educational activities of the Foundation."
P.D. No. 1096 (National Building Code): requires building permits for construction/alteration and prescribes building permit fees (Sec. 301; Sec. 209 enumerates exemptions limited to public buildings and traditional indigenous family dwellings). IRR defines building permit and building permit fees and prescribes bases of assessment. Section 208 contemplates that collections are partly retained by the Building Official and the remainder deposited to the LGU general fund.
1987 Constitution, Art. VI, Sec. 28(3): exempts "lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable or educational purposes" from taxation.
Local Government Code (R.A. No. 7160): Sec. 193 (withdrawal of tax exemptions generally, with certain exceptions retained), Sec. 234(b) (implementation of constitutional real property tax exemption), and definitions of "charges" and "fee" under Sec. 131.

Court’s Legal Characterization of Building Permit Fees

The Court characterized building permit fees as regulatory in nature — imposed as part of the exercise of the police power to safeguard life, health, property and public welfare by regulating the construction, design, use, occupancy and maintenance of buildings and structures. The National Building Code and its IRR show that permits and fees are tied to regulated activities (construction, alteration, repair, demolition, etc.) and require conformity with zoning, structural, sanitary, electrical, and similar standards. Ancillary permits and clearances (electrical, sanitary, zoning, locational clearances) are part of the regulatory scheme, underscoring the regulatory purpose of these fees.

Analysis of Whether Building Permit Fees Are "Other Charges" Under R.A. No. 6055

The Court examined Sec. 8 of R.A. No. 6055 and concluded that the phrase "other charges imposed by the Government on . . . property . . . used exclusively for the educational activities of the Foundation" is qualified: the exemptions in R.A. No. 6055 apply to impositions on property used exclusively for educational activities. Building permit fees, however, are not impositions on property per se but on the activity of constructing, altering or repairing structures — i.e., they are regulatory charges tied to conduct subject to the Building Code. The Court therefore held that the "other charges" clause in Sec. 8 does not encompass building permit fees because the fees are not impositions on property used exclusively for educational activities but are regulatory fees imposed in connection with building‑related activities.

Consideration of the Claim that the Fees Are De Facto Taxes

AUF argued that the building permit and related fees were essentially taxes because they raised revenue and seemed disproportionate to regulatory costs. The Court applied the established test distinguishing taxes from regulatory fees: the primary purpose of the exaction controls — if primarily for revenue-raising, it is a tax; if primarily for regulation (police power), it is regulatory even if revenue is incidentally raised. The Court noted that the Secretary of Public Works and Highways, through the IRR of the Building Code, prescribed specific bases of assessment (character of occupancy/use, cost of construction, floor area, height, and fixed cost per sq.m. categories) and that AUF failed to demonstrate that these bases were arbitrary or unrelated to the regulation. AUF also failed to prove that the amounts collected were unreasonable or excessive relative to the cost of regulation and inspection. Accordingly, the Court rejected AUF’s contention that the assessed fees were really taxes and thus covered by R.A. No. 6055.

Application of Local Government Code Sec. 193 Argument

AUF relied on Sec. 193 of the Local Government Code to argue retention of exemption privileges after conversion. The Court rejected that reliance because Sec. 193 preserves only those exemptions actually granted under prior law. Since R.A. No. 6055 did not grant an exemption from regulatory building permit fees, there was nothing to be retained under Sec. 193. Therefore AUF could not claim continued exemption from building permit fees based on Sec. 193.

Real Property Tax Exemption Analysis

For the Marisol Village parcel, the Court applied the constitutional test under Art. VI, Sec. 28(3) of the 1987 Constitution and its implementing statute (Local Government Code Sec. 234(b)): exemption from real property tax applies only to lands, buildings and improvements actual

Case Syllabus (G.R. No. 189999)

Case Caption, Nature of Case and Relief Sought

Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, filed in the Supreme Court (G.R. No. 189999; Decision dated June 27, 2012).
Parties: Angeles University Foundation (AUF) as petitioner; City of Angeles, city treasurer Juliet G. Quinsaat, and Engr. Donato N. Dizon as respondents.
Relief sought by petitioner: reversal of the Court of Appeals Decision dated July 28, 2009 and Resolution dated October 12, 2009 in CA-G.R. CV No. 90591; refund of building permit and related fees and real property taxes it paid under protest, with legal interest; award of attorney’s fees and litigation expenses.

Procedural History

Trial Court (Regional Trial Court, Angeles City, Branch 57) rendered judgment in favor of petitioner on September 21, 2007, declaring AUF exempt from payment of building permit and other fees, ordering respondents to refund P826,662.99 plus 12% legal interest from date of extrajudicial demand, awarding attorney’s fees and litigation expenses, and costs of suit.
Respondents appealed to the Court of Appeals (CA). The CA reversed the trial court decision by Decision dated July 28, 2009 and denied petitioner’s motion for reconsideration by Resolution dated October 12, 2009.
Petitioner filed the present petition for review on certiorari before the Supreme Court, which issued the challenged Decision (denying the petition) on June 27, 2012, thereby affirming the CA.

Factual Background — Institutional Status and Development Project

Angeles University Foundation (AUF) was established on May 25, 1962 and was converted into a non-stock, non-profit educational foundation under Republic Act No. 6055 on December 4, 1975.
In August 2005, AUF applied with the Office of the City Building Official for a building permit to construct an 11-storey AUF Medical Center on its main campus at MacArthur Highway, Angeles City, Pampanga.
The City Building Official issued a Building Permit Fee Assessment in the amount of P126,839.20 and the City Planning and Development Office issued an Order of Payment requiring payment of P238,741.64 as Locational Clearance Fee.

Administrative Correspondence, DOJ and BLGF Opinions

By letters dated November 15, 2005, AUF informed respondents it was exempt from building permit and locational clearance fees and cited Department of Justice (DOJ) legal opinions.
AUF cited prior instances where city authorities issued building permits that acknowledged exemption (AUF Information Technology Center building, 4-storey, July 27, 2000; AUF Professional Schools building, March 15, 2004).
The City Treasurer referred the matter to the Bureau of Local Government Finance (BLGF) of the Department of Finance; BLGF endorsed the query to the DOJ.
Justice Secretary Raul M. Gonzalez, by letter-reply dated December 6, 2005, cited DOJ Opinion No. 157, s. 1981 and Opinion No. 147, s. 1982, declaring AUF exempt from building permit fees.
BLGF, by Indorsement dated January 6, 2006, reiterated the DOJ opinion and stated the Department of Finance has no authority to review the resolution or decision of the DOJ.

Payments Made by AUF (Under Protest) and Administrative Denials

AUF paid under protest the following fees to obtain permits:
- For Medical Center (new construction): Building Permit and Electrical Fee — P217,475.20
- Locational Clearance Fee — P283,741.64
- Fire Code Fee — P144,690.00
- Total for building-related fees — P645,906.84
AUF also paid amounts required by the City Assessor’s Office for property at Marisol Village:
- Real Property Tax basic fee — P86,531.10
- Special Education Fund (SEF) — P43,274.54
- Locational Clearance Fee — P1,125.00
- Total property-related fees — P130,930.64
Grand total paid under protest: P826,662.99.
AUF requested refund on June 9, 2006; City Treasurer denied the refund in letters dated June 15, 2006 and August 7, 2006.

Complaint and Relief Sought in Trial Court

AUF filed a Complaint on August 31, 2006 before the RTC seeking:
- Refund of P826,662.99 plus interest at 12% per annum from date of extrajudicial demand (June 14, 2006).
- Award of attorney’s fees in amount of P300,000.00 and litigation expenses (trial court awarded attorney’s fees of P70,000).
Respondents filed an Answer asserting, inter alia:
- The structures are not among those enumerated in Section 209 of the National Building Code (P.D. No. 1096) as exempt from the building permit fee.
- R.A. No. 6055 should be considered repealed by Sec. 2104 of the National Building Code.
- The disputed assessments are regulatory fees, not taxes, and are therefore not covered by the exemptions sought.
- The Marisol Village premises would be used as a school dormitory and thus not exclusively for educational activities for purposes of real property tax exemption.

Issues Presented for Resolution

Whether AUF is exempt from the payment of building permit and related fees imposed under the National Building Code (P.D. No. 1096) pursuant to R.A. No. 6055, Sec. 8.
Whether the parcel of land owned by AUF and assessed for real property tax is exempt under constitutional and statutory provisions (Section 28(3), Article VI of the 1987 Constitution; Section 234(b) of the Local Government Code of 1991).

Statutory and Regulatory Provisions Considered

Section 8, R.A. No. 6055: expressly provides that the Foundation "shall be exempt from the payment of all taxes, import duties, assessments, and other charges imposed by the Government on all income derived from or property, real or personal, used exclusively for the educational activities of the Foundation."
Presidential Decree No. 1096 (National Building Code of the Philippines), adopted February 19, 1977:
- Section 102 — Declaration of Policy: purpose to safeguard life, health, property and public welfare; provide framework of minimum standards to regulate location, design, construction, use, occupancy, maintenance.
- Section 103 — Scope and Application: Code applies to design, location, sitting, construction, alteration, repair, conversion, use, occupancy, maintenance, moving, demolition and addition to public and private buildings and structures (except traditional indigenous family dwellings).
- Section 209 — Exempted from building permit fees: (1) public buildings; (2) traditional indigenous family dwellings.
- Section 301 — Building Permits: No person shall erect, construct, alter, repair, move, convert or demolish any building without first obtaining a building permit from the Building Official.
- Section 303 — Building Official’s role: ensure applicant conforms with zoning, structural, sanitary, environmental, electrical and mechanical safety requirements.
- Section 203(4) — Secretary of Public Works and Highways mandated to prescribe and fix fees and other charges to be collected.
- Section 208 — Fees: Building Official to keep permanent record of all fees; Building Official may retain not more than 20% for office operating expenses; remaining 80% to be deposited to local general fund.
Implementing Rules and Regulations (2004 Revised IRR of P.D. No. 1096):
- Rule I, Sec. 106 — Definition of building permit: document issued by Building Official to proceed with construction etc., after accompanying plans/specs are found satisfactory and substantially conforming to the National Building Code and its IRR.
- Rule 11, No. 3(1) (IRR) — Bases for assessment: character of occupancy or use of building; cost of construction (prescribed rates per sq.m for various occupancy classifications); floor area; height.
Local Government Code of 1991:
- Section 131(g) and (l) — definitions: "charges" as pecuniary liability such as rents or fees against persons or property; "fee" means a charge fixed by law or ordinance for regulation or inspection of a business or activity.
- Section 193 — Withdrawal of tax exemption privileges: non-stock and non-profit educational institutions retain tax exemptions or incentives previously granted is referenced by petitioner but the Court examines applicability.
- Section 234(b) — Exemptions from Real Property Tax: provides exemption for lands, buildings and improvements actually, directly and exclusively used for educational purposes.
Constitutional provision: Section 28(3), Article VI of the 1987 Constitution — exemption for lands, buildings and improvements actually, directly and exclusively used for educational purposes.
Definitions and dictionary authorities cited: Black's Law Dictionary definitions of "charge" and "fee."

Petitioner’s Contentions (AUF)

RA No. 6055 grants broad tax exemptions to institutions converted into non-stock, non-profit educational foundations and the exemption in Section 8 includes "other charges imposed by the Government," which AUF interprets to include building permit and related fees.
The incentive to convert to a foundation would be hollow if exemption were limited only to taxation rather than to other government charges; therefore, building permit fees fall within the exemption.
Building permit and related fees are, in substance, taxes because their primary purpose is revenue raising for the local government unit; fees charged are exorbitant and exceed the probable cost of regulation and inspection.
Cites jurisprudence (e.g., Philippine Airlines, Inc. v. Edu) for the proposition that the nature of an exaction is determined by its primary purpose; if revenue generation is