Case Summary (G.R. No. 142535)
Central legal issue
Whether lands and buildings owned by the Social Security System are exempt from real property taxation under Section 29 of the Charter of the City of Bacolod and related statutory and precedential law, notwithstanding the SSS’s characterization as an entity performing proprietary or ministrant functions.
Trial court’s reasoning and reliance on precedent
The trial court concluded that SSS did not fall within the exemption in Section 29 because it performs proprietary (ministrant) rather than purely governmental/sovereign functions. The court relied on the constituent-versus-ministrant functional distinction applied in NACOCO v. Bacani to exclude entities performing ministerial or proprietary functions from certain exemptions and analogized to prior rulings categorizing SSS as performing proprietary functions (SSS v. Soriano).
Statutory text governing exemption (Section 29, City Charter)
Section 29 of Commonwealth Act No. 326 was central: it exempts “lands and buildings owned by the United States of America, the Commonwealth of the Philippines, the City of Bacolod, the Province of Occidental Negros, and cemeteries, churches and their adjacent parsonages and convents, and lands, buildings and improvements used exclusively for religious, charitable, scientific or educational purposes, and not for profit….” The provision contains no explicit qualification limiting exemption to properties used for sovereign/governmental functions.
Analytical framework: ownership versus function
The Court emphasized that Section 29’s language focuses on ownership (“lands and buildings owned by … the Commonwealth of the Philippines”) rather than on the character of use (sovereign/governmental versus proprietary/private use). The Court held that where the statute grants an exemption to property owned by the government, the plain wording supplies a broad, dominion-based basis for exemption that does not require the property to be used for governmental or sovereign functions.
Supporting statutory and precedential amplification (Commonwealth Act No. 470 and Board of Assessment Appeals)
The Court compared Section 29 with the similarly worded exemption in Commonwealth Act No. 470 (section 3(a)), and relied on the Court’s interpretation in Board of Assessment Appeals v. Court of Tax Appeals that such statutory language makes no distinction between property held in sovereign/governmental capacity and property held in proprietary/patrimonial capacity. The Court reiterated the policy rationale that taxing government property is essentially shifting funds from one public pocket to another and would defeat the purpose of taxation and impose unnecessary administrative burdens.
Rejection of the constituent-ministrant functional test for tax exemption
The Court found the functional distinction applied in NACOCO v. Bacani (constituent versus ministrant) inapt for the question of real property tax exemption under the City Charter and Commonwealth Act. The decisive factor is ownership, not whether the entity performs proprietary or governmental functions. Thus, SSS-owned property, even if used for proprietary purposes, is exempt if it is in fact owned by the government.
Additional statutory confirmation (Presidential Decree No. 24)
The Court noted Presidential Decree No. 24’s amendment to the Social Security Act expressly exempting the SSS and all its assets, contributions, accruals, income, and related papers from any tax, assessment, fee, charge or customs/import duty, and making benefit payments likewise tax-exempt and immun
...continue readingCase Syllabus (G.R. No. 142535)
Case Facts
- Petitioner: Social Security System (SSS), a government agency created under Republic Act No. 1161, whose primary function is to "develop, establish gradually and perfect a social security system which shall be suitable to the needs of the people throughout the Philippines, and shall provide protection against the hazards of disability, sickness, old age, and death." [1]
- Petitioner maintains regional offices, including a five-storey building known as the SSS Building in Bacolod City, occupying four parcels of land.
- In 1970, the said lands and building were assessed for taxation at P1,744,840.00.
- Petitioner failed to pay real property taxes for the years 1968, 1969 and 1970; including penalties the unpaid amount was P104,956.06.
- Respondent City of Bacolod levied upon said lands and building sometime in early 1970 and on April 3, 1970 declared the properties forfeited in favor of the City.
- Petitioner protested by letter dated July 27, 1970 to the City Mayor, through respondent City Treasurer, requesting reconsideration of the forfeiture on the ground that petitioner, as a government-owned and controlled corporation, is exempt from payment of real estate taxes.
- No action being taken by the City Treasurer, petitioner filed suit in the Court of First Instance of Negros Occidental (Civil Case No. 5980) for nullification of the forfeiture proceedings and sought a writ of preliminary injunction to restrain the City from consolidating ownership over the forfeited properties.
- The trial court issued the preliminary injunction upon petitioner’s posting of a cash bond in the amount of P105,000.00.
Procedural History
- Trial court (Court of First Instance of Negros Occidental) after hearing dismissed the complaint and sustained the forfeiture, holding that the SSS properties were not exempt from real property tax and ordering costs against plaintiff.
- Petitioner appealed to the Supreme Court by filing the present petition for review.
- The Supreme Court reviewed the trial court’s interpretation and application of the exemption provision in the Charter of the City of Bacolod and relevant statutory and precedential authorities.
Issue Presented
- Whether the lands and buildings owned by the Social Security System (the SSS Building and the four parcels) are exempt from real property taxation under Section 29 of the Charter of the City of Bacolod and applicable national law and precedents.
Relevant Statutory Provisions and Authorities Quoted or Discussed
- Republic Act No. 1161 (Section 2): Defining the primary function of the SSS (quoted in the facts).
- Section 29, Commonwealth Act No. 326 (Charter of the City of Bacolod), quoted in full in the decision:
- "SECTION 29. Exemption from taxation. - Lands and buildings owned by the United States of America, the Commonwealth of the Philippines, the City of Bacolod, the Province of Occidental Negros, and cemeteries, churches and their adjacent parsonages and convents, and lands, buildings and improvements used exclusively for religious, charitable, scientific or educational purposes, and not for profit, shall be exempt from taxation; but such exemptions shall not extend to lands or buildings held for investment, though the income therefrom be devoted to religious, charitable, scientific or educational purposes."
- Commonwealth Act No. 470 (referred to as dealing specifically with incidence of real estate taxes and exemption; section 3(a) contains similarly worded exemption for properties owned by the Republic of the Philippines, provinces, cities, municipalities or municipal districts).
- Board of Assessment Appeals v. Court of Tax Appeals (8 SCRA 225) — interpretation cited at length indicating that section 3(a) of RA No. 470 makes no distinction between property held in a sovereign, governmental or political capacity and those possessed in a private, proprietary or patrimonial character; taxation of government property would merely transfer money from one government pocket to another and is generally counterproductive to the purpose of taxation.
- NACOCO v. Bacani (100 Phil. 468) — precedent relied upon by trial court, which drew a distinction between government agencies performing constituent/sovereign functions and those performing ministrant/proprietary functions; used by trial court to exclude entities like SSS from exemptions.
- SSS v. Hon. Soriano, et al. (7 SCRA 1016) — cited by trial court as categorizing SSS as a government agency performing proprietary functions.
- Republic Act No. 104 (Section 1) — quoted by the Supreme Court in the decision to show that government-owned or controlled corporations are liable for duties, taxes, fees and other charges imposed by law (contextualized by the Court but distinguished from the realty tax issue).
- Presidential Decree No. 24 (Section 16) — amend