Case Summary (G.R. No. 227748)
Factual Background
The records established that the Lucena Fishing Port Complex (LFPC) was constructed on reclaimed land at Barangay Dalahican, Lucena City, covering approximately 8.7 hectares at a reported cost of PHP 296,764,618.77. The project formed part of the Nationwide Fish Port Package and was financed by loans from the Overseas Economic Cooperation Fund of Japan. PFDA, created under P.D. 977 as amended by E.O. 772 with the mandate to manage and operate fishing port complexes, took over management and operation of LFPC in February 1992. The City Government of Lucena sent demand letters to PFDA dated October 26, 1999 and October 17, 2000 claiming unpaid real property taxes for periods beginning 1993 through 1999 and through 2000 in amounts shown in the records.
Procedural History
On December 18, 2000 PFDA appealed the tax assessment to the Local Board of Assessment Appeals of Lucena City; the appeal was dismissed and a motion for reconsideration was denied on December 10, 2001. PFDA then appealed to the Central Board of Assessment Appeals (CBAA), which dismissed the appeal in a Decision dated October 5, 2005 and denied reconsideration in a Resolution dated June 7, 2006. PFDA filed a petition for review with the Court of Tax Appeals, which affirmed the CBAA Decision in a May 9, 2007 decision. PFDA thereafter filed the present petition for review under Rule 45.
Issues Presented
The sole issue presented was whether PFDA was liable for the real property tax assessed on the Lucena Fishing Port Complex.
Positions of the Parties
PFDA contended that it was an instrumentality of the national government under its charter and relevant jurisprudence, that LFPC was a property of public dominion intended for public use, and that LFPC therefore was exempt from local real property taxation except for portions leased to private entities. The City respondents contended that PFDA was a government-owned or controlled corporation subject to taxation and that exemptions previously enjoyed were withdrawn by the Local Government Code, specifically invoking Sections 193, 232, and 234.
Ruling of the Court of Tax Appeals
The Court of Tax Appeals held that PFDA was a government-owned or controlled corporation and thus subject to local real property tax under Section 232 in relation to Sections 193 and 234 of the Local Government Code. The CTA concluded that PFDA failed to prove entitlement to exemption under Section 234 or any other provision and denied relief.
Supreme Court's Ruling
The Supreme Court granted the petition. The Court held that the CTA rested on the incorrect premise that PFDA was a government-owned or controlled corporation. Relying on the Court's earlier decisions, notably Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 169836, 31 July 2007, and subsequent authority, the Court ruled that PFDA is a government instrumentality and not a GOCC. Because PFDA is an instrumentality of the national government, it is generally exempt from local real property tax. The Court further held that LFPC is a property of public dominion intended for public use and therefore is owned by the Republic of the Philippines and exempt from real property tax under Section 234(a) of the Local Government Code. The Court nonetheless clarified that portions of LFPC leased to private persons or entities for their beneficial use remained taxable.
Legal Basis and Reasoning
The Court relied on the established distinction between a government instrumentality and a government-owned or controlled corporation. The Court observed that PFDA had features of a national government instrumentality: chartered by law, vested with special functions, endowed with corporate powers without being organized as a stock or non-stock corporation, and lacking stockholders or members. When the law confers corporate powers upon an instrumentality without organizing it as a corporation, the entity remains a government instrumentality. The Court further invoked Section 133(o) of the Local Government Code, which bars local taxing power over the national government, its agencies, and instrumentalities. On property status, the Court applied Article 420 of the Civil Code to classify ports among things of public dominion and read Article 420 together with Section 234(a) to conclude that LFPC, being a port intended for public use and a national infrastructure project, is owned by the Republic and exempt from real property tax. Prior decisions treating PFDA-managed fishing ports likewise supported the conclusion that only leased portions used beneficially by taxable private parties were subject to property tax.
Disposition
The Court set aside the May 9, 2007 Decision of the Court of Tax Appeals in C.T.A. EB No. 193. The Court declared the Lucena Fishing Port Complex exempt from real property tax imposed by the City
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Case Syllabus (G.R. No. 227748)
Parties and Procedural Posture
- Philippine Fisheries Development Authority (PFDA) filed an appeal from the decision of the Local Board of Assessment Appeals of Lucena City dismissing its claim that the Lucena Fishing Port Complex was exempt from real property tax.
- The Central Board of Assessment Appeals (CBAA) dismissed PFDA's appeal in its Decision dated 5 October 2005.
- The Court of Tax Appeals affirmed the CBAA Decision in its Decision dated 9 May 2007, prompting this petition for review under Rule 45.
- PFDA's motions for reconsideration before both the CBAA and the Court of Tax Appeals were denied as reflected in the lower tribunals' resolutions.
Key Factual Allegations
- The Lucena Fishing Port Complex (LFPC) was constructed on approximately 8.7 hectares of reclaimed land at a total cost of PHP 296,764,618.77 and was financed by loans from the Overseas Economic Cooperation Fund of Japan.
- The LFPC was undertaken under the Nationwide Fish Port-Package and is located in Barangay Dalahican, Lucena City.
- PFDA assumed management and operation of the LFPC in February 1992 pursuant to its charter under P.D. 977 as amended.
- The City of Lucena issued demand letters to PFDA dated October 26, 1999 and October 17, 2000 seeking payment of real property taxes for the periods 1993–1999 and 1993–2000 in the amounts of P39,397,880.00 and P45,660,080.00, respectively.
- PFDA filed an administrative appeal with the Local Board on December 18, 2000, which the Local Board dismissed, and PFDA's motion for reconsideration was denied on December 10, 2001.
Statutory Framework
- Section 193 of the Local Government Code provides that tax exemptions or incentives previously enjoyed by persons and juridical entities, including government-owned or -controlled corporations, are withdrawn upon the Code's effectivity.
- Section 232 of the Local Government Code grants provinces or cities the power to levy an annual ad valorem tax on real property “not hereinafter specifically exempted.”
- Section 234 of the Local Government Code enumerates exemptions from real property tax, including real property owned by the Republic of the Philippines except when its beneficial use has been granted to a taxable person.
- Section 133(o) of the Local Government Code limits local taxing power by prohibiting taxes, fees or charges on the National Government, its agencies and instrumentalities.
- Article 420 of the Civil Code classifies things intended for public use, such as ports, as property of public dominion which belong to the State.