Title
Philippine Ports Authority vs. City of Iloilo
Case
G.R. No. 109791
Decision Date
Jul 14, 2003
The Philippine Ports Authority (PPA) contested unpaid real property and business taxes by Iloilo City. The Supreme Court ruled PPA liable for taxes during periods its exemption was withdrawn, barred PPA from changing its legal theory on appeal, and upheld local taxation of government corporations unless explicitly exempted by law.

Case Summary (G.R. No. 109791)

Case Background and Legal Context

The City of Iloilo filed a civil action to recover real property tax on a warehouse owned by PPA and business taxes on PPA’s arrastre, stevedoring services, and leasing of real estate. The City claimed PPA was engaged in taxable business activities and owned taxable real property. PPA contested the tax liability, arguing exemption based on its status as a government corporation and the nature of the property as public dominion.

Issues Presented

The factual issues included whether PPA was engaged in business and the accuracy of the tax assessments made by the City. The legal issues involved whether PPA was exempt from real property and business taxes, the implication of PPA’s motion to dismiss, and whether its activities qualified as government functions exempt from taxation.

Trial Court Decision

The Regional Trial Court ruled PPA liable for real property taxes for the period from the last quarter of 1984 to December 1986 and business taxes on leasing real estate to private persons from the last quarter of 1984 up to 1988. However, it exempted PPA’s arrastre and stevedoring services, recognizing these as governmental functions.

Petitioner’s Arguments on Appeal

PPA sought review on the grounds that (i) its property, being a port facility, was a property of public dominion subject to exemption from real property tax, and (ii) it was not engaged in “business” and thus should not be subject to business taxes. PPA relied on Article 420 of the Civil Code defining ports constructed by the State as property of public dominion and invoked its charter’s definition of “port.”

Respondent’s Counterarguments and Procedural Posture

The City of Iloilo opposed PPA’s new theory on appeal, noting PPA never raised the public dominion issue during trial or pre-trial, and that such change contravened its prior admissions in pleadings and jurisprudential rules against changing theories on appeal.

Court’s Rationale on Change of Theory and Factual Issues

The Court emphasized that a party cannot adopt a new position or theory on appeal that was not raised during trial as it violates due process by depriving the opposing party of the opportunity to present counter-evidence. The doctrine restricting such change serves to avoid unfair surprise and ensure judicial efficiency. PPA’s attempt to shift the basis of exemption for the first time on appeal was disallowed.

Judicial Admissions and Ownership of Property

PPA admitted ownership of the warehouse in its answer to the complaint. The Court held that this judicial admission was binding and precluded PPA’s claim that the warehouse was property of public dominion. Ownership under property of public dominion means collective ownership by the public and differs from ownership by a government corporation. Thus, PPA could not claim exemption on the ground that the warehouse formed part of public dominion property.

Ownership Issue and Pre-trial Proceedings

The Court noted that ownership was not listed as an issue during the pre-trial conference, to which PPA made no objection, thereby waiving any claim thereto. Issues not timely raised and included in the pre-trial order are generally barred on appeal, reinforcing the procedural fidelity demanded in litigation.

Distinction Between Port and Warehouse

Even if the port itself might be classified as property of public dominion, the Court distinguished PPA’s warehouse as a separate, taxable improvement on the land rather than constitutive part of the port. The Court relied on precedent involving the Light Rail Transit Authority rejecting tax exemption for structures distinct from properties of public dominion.

Effect of Charter Definitions

The Court restrained from expanding definitions found in PPA’s charter for purposes beyond that charter’s regulatory context. Thus, the charter definition of “port” could not override civil law classification for taxation purposes.

Withdrawal and Restoration of Tax Exemptions

PPA’s exemption from real property taxes under its charter and the Real Property Tax Code was withdrawn by Presidential Decree No. 1931 effective June 11, 1984, which rescinded all tax exemptions previously granted to government-owned or controlled corporations. Although Executive Order No. 93 restored some exemptions as of December 17, 1986, PPA remained liable for real property taxes on the warehouse from the last quarter of 1984 until late 1986.

Inapplicability of Exemption Based on Government Instrumentality Status

PPA relied on the ruling in Basco v. PAGCOR to claim exemption from local taxation due to its governmental functions. However, the Court clarified that such ruling did not establish absolute tax immunity for government agencies or instrumentalities, especially given subsequent legislation like the Local Government Code explicitly withdrawing such exemptions.

No Distinction Between Government-Owned Corporations Performing Governmental vs. Non-Governmental Functions

The Court rejected PPA’s claim that the withdrawal of exemptions applied only to government-owned corporations not performing governmental functions. The law’s plain language covers all government-owned or controlled corporations regardless of their functions.

Liability for Business Taxes on Leasing Activity

PPA admitted leasing property to private persons and earned income therefrom. The Court held that leasing real estate for income is a taxable business a

    ...continue reading

    Analyze Cases Smarter, Faster
    Jur helps you analyze cases smarter to comprehend faster—building context before diving into full texts.

    About Privacy Terms