Case Summary (No. RTJ-95-1303)
Factual Background
The plaintiff obtained a fifty-year lease from the Government by a contract dated August 22, 1919, covering one and one-half hectares adjacent to Mactan Island, near Cebu. The leased tract, commonly covered by high tide, was reclaimed and improved by the lessee to accommodate petroleum storage. Improvements included oil tanks, a wharf, warehouse, pump house, sheds, an office, a residence building, and coolie quarters. The lease recited that it was made pursuant to Act No. 1654, and the lease provisions governing lands under water were those found in sections 5 and 6 of that Act.
Tax Assessment and Payment Under Protest
For the years 1923 through 1925 local taxing authorities assessed taxes against the lessee both on the leased land and on the improvements erected thereon. The plaintiff paid the assessed taxes under protest and instituted the present action to recover P3,523.02 alleged to have been illegally exacted.
Trial Court Proceedings
The trial court entered judgment for the plaintiff for the full amount claimed, awarding lawful interest from May 28, 1925, the date of the complaint. The provincial treasurer appealed from that judgment.
Issues Presented
The central questions were (1) whether the lessee was liable for local taxes on the land that remained Government property, and (2) whether the lessee was liable for local taxes on the private improvements it had constructed upon the leased premises.
Parties' Contentions
The plaintiff contended that the land was Government property and thus exempt from local taxation under Administrative Code, section 344, and that any assessment against it for the land was illegal. The defendant and the provincial fiscal argued that the lessee was liable for taxes by virtue of the lease and of subsequent statutory provisions in Act No. 2874, which, by section 113 and section 129, were said to take effect retroactively to July 1, 1919, thereby making lessees liable for taxes even when the Government retained title. The plaintiff further argued that improvements should not be taxed because of the special nature of the lease or by implication from Act No. 1654.
Ruling (Disposition)
The Court affirmed the judgment in part and modified it in part. The Court held that the lessee was not taxable on the land because the land remained Government property and was exempt under Administrative Code, section 344, and under controlling precedent. The Court held that the assessments on the improvements were valid because those improvements were the property of the lessee during the lease. The Court therefore reduced the plaintiff's recovery to P2,270.88, the amount paid on the land alone, and ordered refund of that sum without interest under Administrative Code, section 1579. The judgment was affirmed as so limited, without costs. A dissent was filed by Chief Justice Avancena, joined by Justice Romualdez.
Legal Basis and Reasoning — Exemption of the Land
The Court applied Administrative Code, section 344, which exempted property owned by the United States or by the Government of the Philippine Islands from local taxation. The Court relied on its prior decision in Fairchild vs. Sarmiento (47 Phil., 485) to hold that a Government lease made for a fixed rental, when it contained no stipulation making the lessee liable for taxes, did not remove the exemption in the hands of the lessee. The Court rejected the contention that Act No. 2874, though approved November 29, 1919, applied retroactively to render the lessee taxable on the land. The Court held that victory for retroactivity could not extend to impairing the obligation of an existing contract, a result forbidden by the Organic Law (Act of Congress of August 29, 1916, sec. 3).
Legal Basis and Reasoning — Taxation of Improvements
The Court treated the improvements as private property of the lessee for the duration of the lease. It observed that the improvements were not public works but were constructed for private commercial use. The Court relied on Administrative Code, section 343, which made taxable improvements assessable against the owner of the improvements whether or not the owner also held the land. The Court rejected an argument drawn from the omission of a taxation clause in the sections of Act No. 1654 dealing with lands under water. The Court emphasized the principle that exemptions from taxation must rest upon clear statutory language and not upon ambiguous implication, citing authorities to that effect, including Memphis vs. U. & P. Bank, Ohio Life Ins. and Trust Co. vs. Debolt, and other United States precedents quoted in the opinion. The Court therefore sustained the tax assessments insofar as they related to the improvements.
Effect of Contractual Stipulations and Subsequent Ownership
The Court noted that under subsection (c) of section 6 of Act No. 1654 title to the improvements would vest in the Government at the termination of the lease. The Court nevertheless held that the prospective transfer at lease expiration did not alter the lessee’s present ownership and liability for taxation during the lease term. The Court distinguished cases in which leases expressly declared that constructed fixtures would be the lessor’s property during the lease, noting the absence of such a stipulation in the present contract and the express right of the lessee to assign, mortgage, or encumber the lease and the improvements during the term with assent of the specified officials.
Remedy and Interest
The Court reduced the recovery to the amount paid as taxes on the land, P2,270.88, and directed refund without interest pursuant to Administrative Code, section 1579. The Court affirmed the judgment as so modified and denied costs.
Dissenting O
...continue reading
Case Syllabus (No. RTJ-95-1303)
Parties and Procedural Posture
- Asiatic Petroleum Co. (P. I.), Ltd. sued A. Llanes, Provincial Treasurer of Cebu, to recover taxes paid under protest for 1923 to 1925 inclusive.
- The trial court rendered judgment for the plaintiff for PHP 3,523.02 with lawful interest from May 28, 1925, the date of the complaint.
- The defendant appealed the judgment to the Court that rendered the decision.
- Four justices concurred in the majority opinion and two justices dissented.
Key Factual Allegations
- The Government of the Philippine Islands, through the Governor-General, leased to Asiatic Petroleum Co. (P. I.), Ltd. on August 22, 1919, a one and one-half hectare tract adjoining Mactan Island for fifty years.
- The leased tract was accustomed to be covered by water at high tide and required reclamation and concrete foundations with retaining walls to support petroleum storage tanks.
- The lessee constructed improvements including oil tanks, a wharf, warehouse, pump house, sheds, an office and residence building, and coolie quarters.
- Taxing authorities assessed the lessee for taxes on both the land and the improvements for the years 1923 to 1925, which the lessee paid under protest.
Statutory Framework
- The lease recited it was made pursuant to Act No. 1654, as amended by Act No. 2570, and the lease related specifically to sections five and six of Act No. 1654 governing lands under water.
- Act No. 1654, sections two to four, addressed lands reclaimed by the Government and expressly declared that lands leased under those sections and "all improvements thereon" were subject to local taxation.
- Act No. 2874, section 113, provided that lands granted under that Act, except homesteads, shall be subject to ordinary taxes payable by the grantee even though title remains in the Government.
- Act No. 2874, though approved November 29, 1919, contained section 129 declaring that it should take effect July 1, 1919.
- Administrative Code, section 344, exempted from local taxation property owned by the United States or by the Government of the Philippine Islands.
- Administrative Code, section 343, made the tax on improvements assessable against the owner of such improvements whether he owned the land or not.
- Administrative Code, section 1579, prescribed the conditions governing refunds of taxes illegally exacted.
- The Organic Law prohibited enactments impairing the obligation of contracts, as provided in the Act of Congress of August 29, 1916, sec. 3.
Issues Presented
- Whether the lessee was liable for local taxation on the land that remained the property of the Government.
- Whether the lessee was liable for local taxation on the private improvements constructed by it upon the leased land.
- Whether Act No. 2874 could operate retroactively to impose tax liability on the lessee for a lease executed August 22, 1919.
Contentions of Parties
- The defendant contended that Act No. 2874 should be given retroactive effect to make the lessee liable for taxes on both the land and the improvements.
- The plaintiff contended that the leased land was Government property exempt under Administrative Code, section 344, and that Act No. 1654, sections five and six, contain