Title
Domato-Togonon vs. Commission on Audit
Case
G.R. No. 224516
Decision Date
Jul 6, 2021
Koronadal City purchased property for a new city hall, agreeing to cover transfer expenses. COA disallowed payments, citing indirect taxation. SC upheld disallowance but excused petitioner from liability, finding no bad faith or double recovery.
taxes and fees
city government
indirect imposition of tax
A

Case Summary (G.R. No. 173120)

Factual Background and Transaction Terms

The City Appraisal Committee sought land for a new city hall and solicited offers. The heirs of Plomillo initially offered P30,000,000 inclusive of all costs; they later lowered the offer to P22,000,000 on condition that the city would shoulder all transfer expenses (documentation, capital gains tax, estate tax, transfer tax, documentary stamp tax, but excluding realty taxes). The Sangguniang Panlungsod adopted Resolution No. 746 authorizing the mayor to enter into a deed of sale and explicitly recited that the P22,000,000 offer was “excluding all the expenses that may be incurred relative to the transfer of ownership of the lot except realty taxes,” but also contained a resolved clause stating “all other expenses relative to the transfer … such as documentation, estate tax, documentary tax, capital gain tax and transfer tax will be borne by the City Government.” The executed Deed of Absolute Sale, however, recited consideration of P22,000,000 and did not expressly state that the vendee (Koronadal City) would shoulder the expenses of execution and registration.

Audit Findings, Notices of Disallowance, and Grounds

COA’s post-audit found the city’s payments of taxes and fees irregular and contrary to law and regulations. COA issued Notices of Disallowance disallowing P2,398,403.02 (the amount representing registration and tax-related costs) for violation of BIR Regulation No. 13-85 and related laws. COA held that payment by the city of national taxes and other transfer-related fees constituted an indirect imposition of taxes on the local government unit, forbidden under Section 133(o) of the Local Government Code, and also noted that the Deed of Absolute Sale did not expressly provide that the city would bear the notarial and registration fees.

COA Administrative Proceedings and Petition for Review

The COA Legal and Adjudication Office affirmed the Notices of Disallowance, excluding some sanggunian members from liability. COA Proper denied the petition for review, and the decision became final; subsequent procedural motions led to petitioner Marites Domato-Togonon being given the opportunity to move for reconsideration, which was denied by COA for lack of new matters. Petitioner then sought certiorari relief in the Supreme Court, alleging COA’s grave abuse of discretion for not treating the city’s payment of taxes as part of the contract consideration and for disregarding other administrative or criminal determinations that upheld the sale’s validity.

Standard of Review: COA Powers and Grave Abuse of Discretion

The Court reiterated COA’s constitutional authority under Article IX-D, Section 2(2) of the 1987 Constitution to define audit scope and promulgate rules to prevent and disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. The Court noted deference to COA’s expertise and that intervention is warranted only upon a clear showing of grave abuse of discretion — defined as caprice, whim, despotism, or an evasion of a duty, i.e., decisions not based on law and evidence.

Contract Interpretation: Deed of Absolute Sale and Parol Evidence Rule

The Deed of Absolute Sale contained no stipulation that the vendee would shoulder execution and registration expenses. Under Civil Code Article 1487, absent a contrary stipulation, the vendor bears execution and registration expenses. The Court held that the Deed’s written terms are the primary evidence of the parties’ agreement under the Parol Evidence Rule (Rule 130, Sec. 9). Petitioner’s attempt to rely on prior written offers and Resolution No. 746 to show agreement on the city shouldering taxes was examined against the exceptions to the Parol Evidence Rule. The Court found that neither intrinsic ambiguity nor failure to express true intent in the deed existed such that parol evidence should be admitted; the deed’s terms were clear and unambiguous, so extrinsic evidence changing or adding terms was inadmissible.

Local Government Authority and Section 133(o) — Indirect Imposition of Taxes

The Court analyzed the Local Government Code’s scope and limitations on local taxing powers, emphasizing that local taxing authority is prescribed by law and constrained by Section 133(o), which bars local taxation “on the National Government, its agencies and instrumentalities, and local government units.” COA concluded that Resolution No. 746 and the city’s payments impermissibly shifted national tax burdens (capital gains, documentary stamp, estate tax) to the local government, representing an indirect imposition of taxes on the city by the sanggunian. The Court agreed that a sanggunian cannot validly legislate an exemption or shift the burden of national taxes in a manner that privileges a particular individual, and that contractual devices cannot be used to accomplish indirectly what is prohibited directly under the Code.

Nature and Allocation of the Specific Taxes Involved

The Court examined the legal nature and statutory allocation of the specific taxes:

  • Capital gains tax: a final tax imposed on presumed gain from sale of real property, generally the seller’s liability under Section 24(D) and related provisions; prescribed payment timing and taxpayer responsibility are set in Section 56(A)(3) of the NIRC.
  • Documentary stamp tax (DST): generally imposed on parties making, signing, issuing, accepting, or transferring taxable documents; under Section 173 and Section 196 of the NIRC and Revenue Regulations, any party to a taxable document may be primarily liable, and parties may internally agree on who bears it; where an exempt party is involved, the other party bears the tax.
  • Estate tax: payment primarily falls on the executor or administrator, with heirs subsidiarily liable, per Section 91 and implementing Revenue Regulations.
  • Local transfer taxes: under Local Government Code Sections 135 and 151, cities may impose transfer taxes with the duty of payment placed on the seller/transferor.

Applying these statutes and regulations, the Court concluded that the taxes primarily fall on the sellers/heirs (or the estate/executor, as applicable) and that the sanggunian could not lawfully mandate a shift of national tax burdens onto the local government.

Hiring Private Counsel and Notarization: COA Circulars and Legal Officers

COA disallowed payment of notarial fees to a private lawyer and relied on COA Circulars (86-255, 95-011, 98-002) which generally prohibit the use of public funds to pay private lawyers for legal services, absent written conformity of higher authorities or exceptional circumstances. The Court explained the evolution and purpose of these circulars: to prevent unauthorized and unnecessary disbursement of public funds for private legal retainers when legal officers are available. The Court acknowledged that the COA circulars allow limited exceptions and noted Section 481(b)(3)(i) of the Local Government Code and judicial precedents addressing when a local government may employ private counsel (e.g., when the provincial fiscal is disqualified or in specified adversarial circumstances). The record showed public funds were paid to Atty. Montefrio for notarization but did not show compliance with COA’s procedural requirements before payment; COA’s disallowance on this ground was sustained as regulatory noncompliance.

Liability for Return of Disallowed Amount and Standards Applied

The Court analyzed the nature of the liability to return disallowed amounts as civil and rooted in public accountability. It reviewed governing principles from recent precedents (Madera; Abellanosa; Torreta) to determine when approving or authorizing public officers and recipients must return disallowed amounts. Key principles applied: (1) civil return requires a showi

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