Title
Yamane vs. BA Lepanto Condominium Corp.
Case
G.R. No. 154993
Decision Date
Oct 25, 2005
A condominium corporation managing common areas for unit owners is not liable for business taxes, as its activities are non-profit and lack a profit-making purpose.

Case Summary (G.R. No. 154993)

Issues Presented

  1. Procedural: Whether an appeal from the denial of a tax protest under Section 195 of the Local Government Code (LGC) is subject to original or appellate jurisdiction in the RTC, and hence whether the proper mode of review is an ordinary appeal under Rule 41 or a petition for review under Rule 42 of the Rules of Civil Procedure.
  2. Substantive: Whether a condominium corporation may be subjected to business taxes under the LGC or the Makati Revenue Code.

Mode of Judicial Review: Original vs Appellate Jurisdiction

A denial of a tax protest by a local treasurer is an administrative act, not a judicial order. The RTC’s exercise of jurisdiction over such denials is therefore “original”—its first judicial cognizance of the matter—rather than “appellate,” which would require review of a lower court’s decision. Neither the LGC nor BP 129 grants the RTC appellate jurisdiction over local treasurer decisions; BP 129 limits RTC appellate jurisdiction to lower courts.

Procedural Remedy: Rule 41 vs Rule 42

Because the RTC’s review is original, the correct remedy is an ordinary appeal under Rule 41, not a petition for review under Rule 42. The City Treasurer correctly contends that Rule 42 was inapplicable, though this Court exercises discretion to overlook that procedural error in the interest of substantial justice—especially since the Corporation’s Rule 42 petition benefited the Treasurer by exposing the petition to a prima facie-error screening not required under Rule 41. Republic Act No. 9282, which later conferred exclusive CTA appellate jurisdiction over local tax cases, does not apply retroactively.

Local Government Taxing Power Framework

Under the 1987 Constitution (Art. X, Sec. 5) and the LGC (RA 7160), local government units may create sources of revenue and levy taxes, fees, and charges consistent with national guidelines. Business taxes are authorized by Sections 131(d) and 143 of the LGC, subject to limitations in Section 133. Cities like Makati may enact local revenue codes specifying taxable business classes and rates under Section 151.

Makati Revenue Code and Catch-All Provision

Makati’s Revenue Code (Ordinance No. 92-072) lists specific business categories subject to gross receipt or business taxes (e.g., contractors, service establishments, real estate lessors) at varying rates. Section 3A.02(m) provides a catch-all rate (2–3 percent of gross receipts) for “owners or operators of any business not specified above.” The City Treasurer never identified which provision formed the legal basis of the assessment.

Due Process and Notice of Assessment Requirements

Section 195 of the LGC requires a notice of assessment stating the nature of the tax and amount of deficiency, surcharges, and interest. While the notice informed the Corporation it owed business taxes, it failed to cite any specific ordinance provision, leaving the taxpayer—and the courts—unclear on the legal basis. Such ambiguity risks violating due process, as local taxes derive authority solely from the local tax ordinance they must cite.

Definition of “Business” under the LGC

The LGC defines “business” as a “trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.” To impose a business tax, the taxpayer’s activities must fall within this definition and within the classes enumerated in Section 143 or any valid catch-all clause.

Statutory Nature and Purposes of Condominium Corporations

Under RA 4726, a condominium corporation’s sole corporate purposes are (a) holding title to common areas, (b) managing the condominium project, and (c) performing acts necessary, incidental, or convenient thereto. Its articles of incorporation and by-laws limit it to collecting assessments from unit owners for operating expenses, maintenance, capital expenditures, insurance, and management.

Absence of Profit Motive in Assessments

Assessments collected by BA-Lepanto Condominium Corporation defray expenses of maintaining the common areas and managing the condominium. Any appreciation in unit values benefits individual owners, not the corporation. T

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