Title
Philippine Fisheries Development Authority vs. Court of Appeals
Case
G.R. No. 169836
Decision Date
Jul 31, 2007
The Philippine Fisheries Development Authority, a national government instrumentality, was exempt from real property taxes on the Iloilo Fishing Port Complex, except for leased portions. The Supreme Court ruled the IFPC, as public dominion property, could not be auctioned for tax delinquency.

Case Summary (G.R. No. 169836)

Petitioner, Respondent and Legal Instruments

Petitioner: Philippine Fisheries Development Authority (created by PD 977 and amended by EO 772; attached to the Department of Agriculture under EO 292/Administrative Code). Respondents include local taxing authority (City of Iloilo) and national bodies that ruled on the tax-exemption claim (Iloilo City Assessor, Department of Finance, Office of the President, Court of Appeals).

Key Dates

Creation of Authority: PD 977 (Aug. 11, 1976); amendment and renaming: EO 772 (Feb. 8, 1982); reclamation and construction of IFPC: beginning Oct. 31, 1981; City assessment for real property tax: May 1988; alleged tax delinquency for FY 1988–1989; scheduled auction: Aug. 30, 1990; DOF letter-decision on beneficial use and tax liability: Mar. 6, 1992; Court of Appeals decision affirmed by City and Office of the President: June 21, 2005; Supreme Court resolution of issues: July 31, 2007. Applicable constitutional framework: 1987 Philippine Constitution.

Facts

The Ministry of Public Works and Highways reclaimed a 21-hectare parcel in Barangay Tanza, Iloilo City, and constructed the IFPC and related facilities. Upon completion, the Ministry turned over governance and operation of IFPC to the Authority pursuant to PD 977; ownership/title of the land and buildings, however, remained with the Republic. The Authority leased portions of IFPC to private firms and individuals engaged in fishing-related businesses. The City of Iloilo assessed real property taxes beginning May 1988; the Authority did not pay and a tax delinquency accrued (P5,057,349.67 inclusive of penalties/interests), prompting the City to schedule a public auction to satisfy delinquency.

Procedural History

The Authority sought injunctive relief in the Regional Trial Court and agreed at pre-trial to pursue administrative remedies. The Iloilo City Assessor denied the exemption claim; the Authority appealed to the Department of Finance, which ruled (Mar. 6, 1992) that the Authority is liable for real property taxes because it enjoys the beneficial use of IFPC, but that only properties owned by the Authority may be auctioned (not IFPC owned by the Republic). The Office of the President dismissed the Authority’s petition and denied reconsideration. The Court of Appeals affirmed the Office of the President and held that the IFPC may be sold to satisfy the Authority’s tax delinquency. The Supreme Court granted the Authority’s petition for review.

Issues Presented

  1. Whether the Philippine Fisheries Development Authority is a government-owned or controlled corporation (GOCC) or an instrumentality of the national government. 2. Whether the Authority is liable to pay real property tax to the City of Iloilo. 3. If liable, whether the Iloilo Fishing Port Complex may be sold at public auction to satisfy the tax delinquency.

Classification of the Authority (GOCC vs Instrumentality)

Applying the legal tests articulated in prior jurisprudence (notably the MIAA decision), an entity qualifies as a GOCC only if it is organized as a stock or non-stock corporation. A stock corporation requires (a) capital stock divided into shares and (b) authorization to distribute dividends; a non-stock corporation requires members and prohibition on distribution of income to members. The Authority, although provided an authorized capital stock in its charter, has no capital divided into shares, no stockholders or voting shares, and no members; it therefore is not a stock or non-stock corporation. The Authority instead is a national government instrumentality: an agency vested by law with special functions, endowed with some corporate powers, administering special funds, and enjoying operational autonomy through its charter. Consequently, the Authority is classified as an instrumentality, not a GOCC.

Tax Exemption and Beneficial Use Doctrine

Instrumentalities of the national government are generally exempt from local taxation under the Local Government Code (Section 133[o]) subject to exceptions expressly provided in the Code. Section 234(a) of the Local Government Code provides that real property owned by the Republic is exempt from real property tax except when the beneficial use of such property has been granted, for consideration or otherwise, to a taxable person. Under the beneficial-use exception as applied in MIAA and reiterated here, an instrumentality that grants beneficial use of national government-owned real property to private, taxable persons becomes liable for real property tax in respect of those portions granted to taxable users. Applying these principles, the Supreme Court held that the Authority is liable to pay real property taxes only for those portions of IFPC that were leased to private entities and thereby granted for the beneficial use of taxable persons. Real property tax assessments against portions of IFPC not leased to private parties are void.

Nature of IFPC as Property of Public Dominion and Sale Prohibition

The IFPC is a port constructed by the State on reclaimed land. Under Article 420 of the Civil Code, ports and similar installations constructed by the State are property of public dominion (intended for public use or public service). Reclaimed lands

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