Case Summary (G.R. No. 212136)
Key Dates and Procedural History
Notice of Assessment: dated 14 December 1998 (received 15 December 1998), assessing P1,601,013.77 for 1995–1997 (tax deficiency, 25% surcharge, interest). Tax protest filed by the Corporation: 12 February 1999. City Treasurer’s denial: 4 March 1999. RTC (Branch 57) decision dismissing appeal: 1 March 2000. Court of Appeals (Special Sixteenth Division) decision reversing RTC and absolving the Corporation: 7 June 2002. City Treasurer elevated the matter to the Supreme Court by petition for review under Rule 45.
Facts Relevant to the Dispute
BA‑Lepanto is incorporated under the Condominium Act and its Amended Articles and By‑Laws authorize collection of regular assessments from unit owners to defray operating expenses, capital expenditures for common areas, and other assessments per the Master Deed. The Notice of Assessment asserted liability for “city business taxes, fees and charges” for 1995–1997 but did not identify the specific provision of the Makati Revenue Code or municipal ordinance serving as the statutory basis. The City Treasurer characterized the collection of assessments as a profit‑oriented activity intended to enhance resale values; the Corporation maintained that it is not organized for profit and that assessments are for maintenance and administration only.
Procedural Issue Presented
The petition raised whether the RTC’s review of a local treasurer’s denial of a tax protest under Section 195 of the Local Government Code is an exercise of original jurisdiction (so that an ordinary appeal under Rule 41 is the proper remedy) or appellate jurisdiction (so that review under Rule 42 or analogous procedures is proper). The practical consequence concerned the timeliness and mode of appeal and whether the RTC decision could become final for failure to file the correct appeal.
Supreme Court’s Analysis on Jurisdiction
The Court adopted the traditional definitions distinguishing original and appellate jurisdiction and concluded that the RTC’s review of a denial of a tax protest is an exercise of original jurisdiction because it is the initial judicial cognizance of a matter that did not originate as a judicial decision of a lower court. The Local Government Code does not expressly confer appellate jurisdiction on RTCs in these circumstances, and B.P. Blg. 129 confines RTC appellate jurisdiction to specified lower courts. The Court therefore agreed in principle with the City Treasurer that the correct mode of review to the Court of Appeals is an ordinary appeal under Rule 41. The Court nevertheless qualified its ruling: it would overlook the procedural error in this particular case for reasons of justice and finality, and its doctrinal pronouncement is confined to cases decided before the enactment of Republic Act No. 9282 (which later expanded the jurisdiction of the Court of Tax Appeals and altered review procedures in local tax controversies).
Reasons for Overlooking the Procedural Error
The Court emphasized the principle that procedural rules should not be mechanically applied when doing so would defeat the ends of justice and the goals of just, speedy, and inexpensive disposition. It recognized precedent allowing courts to treat an erroneously filed petition under the remedy it should have been, rather than dismiss it on procedural grounds. The Court also noted that Rule 42 imposes a prima facie requirement of showing error that may work to the petitioner’s disadvantage; the Corporation’s use of Rule 42 exposed it to a greater risk of dismissal than an ordinary appeal. Given these considerations and the absence of prejudice to the City Treasurer from treating the case on the merits, the Court sustained the Court of Appeals’ exercise of jurisdiction in this instance while reiterating the correct procedural posture for future cases.
Substantive Issue Presented
Whether a condominium corporation organized under the Condominium Act and collecting assessments from unit owners for maintenance and administration is a “business” within the meaning of the Local Government Code (Section 131(d)) and therefore subject to local business taxation under Section 143 of the Local Government Code or under applicable provisions of the Makati Revenue Code.
Statutory and Charter Framework for Local Business Taxation
The Court reiterated the constitutional basis for local taxing power (1987 Constitution, Art. X, Sec. 5) and the Local Government Code as the enabling framework. The LG Code authorizes local business taxes (Section 143) but defines “business” as “trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit” (Section 131[d]). The Makati Revenue Code specifies categories of taxable businesses (e.g., Section 3A.02(f) enumerating many service and contractor activities, ending with “etc.”) and contains a catch‑all provision (Section 3A.02[m]) imposing a gross receipts tax on owners or operators of businesses not specified. The Condominium Act (RA 4726) and the Corporation’s Articles and By‑Laws circumscribe the lawful corporate purposes and expressly permit assessments for maintenance and common expenses.
Notice of Assessment and Due Process Concerns
The Court observed that the City Treasurer failed to identify the specific provision of the Makati Revenue Code forming the legal basis of the assessment at any stage of the administrative or judicial proceedings. Although Section 195 of the Local Government Code requires that the notice state the nature of the tax and the amounts due, here the omission of a precise statutory citation created uncertainty because the Revenue Code contains multiple distinct business tax provisions with varying rates. The Court stressed that the local treasurer must inform the taxpayer with sufficient particularity of the statutory basis for the assessment so as to permit meaningful protest and defense. The record did not show that the taxpayer specifically alleged injury from the lack of statutory citation, but the Court noted the deficiency as problematic.
Interpretation of “Business” in Relation to a Condominium Corporation
Applying the LG Code definition, the Court examined the Condominium Act’s structure and the Corporation’s organic documents. The Condominium Act authorizes condominium corporations primarily to hold title to common areas, manage the condominium project, and make reasonable assessments to meet authorized expenditures (Sections 2, 9[d], 10). The Corporation’s Articles of Incorporation and By‑Laws—mirroring statutory limits—showed the power to collect assessments for salaries, maintenance, repairs, insurance, utilities and similar items necessary for administration, not to engage in profit‑oriented commerce. The Court concluded that such assessment collection, undertaken to defray common expenses, is not a “trade or commercial activity” regularly engaged as a means of livelihood or with a view to profit.
Rejection of the City Treasurer’s “Appreciative Living Values” Rationale
The City Treasurer’s contention that assessments are made with an “end view” of enhancing unit market values and thereby producing profit was rejected. The Court explained that any increase in resale value benefits individual unit owners, not the condominium corporation; owners would in any event be subject to capital gains tax. The Court found the “full appreciative living values” standard arbitrary, nonspecific, and without statutory mooring; reliance upon such amorp
...continue readingCase Syllabus (G.R. No. 212136)
Case Summary and Core Holding
- The petition presents two primary questions: (a) a procedural question concerning the proper mode of judicial review from regional trial court (RTC) decisions resolving denials of tax protests by local treasurers under the Local Government Code (LGC); and (b) a substantive question whether a local government unit (LGU) may, under the LGC, require a condominium corporation to pay local business taxes.
- The Supreme Court agreed with the City Treasurer’s position on the procedural issue (that the RTC’s exercise of jurisdiction is original and hence the proper appellate remedy is an ordinary appeal under Rule 41), but exercised discretion to overlook procedural error in this particular case.
- On the substantive issue, the Supreme Court upheld the respondent BA-Lepanto Condominium Corporation and held that, on the facts and law presented, condominium corporations are generally not subject to local business taxation under the LGC and the Makati Revenue Code; consequently, the petition was denied.
- The Court emphasized that the assessed tax had "utterly no basis in law" and that judicial relief was imperative to prevent deprivation of property without due process.
Facts
- Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a condominium corporation organized pursuant to Republic Act No. 4726 (the Condominium Act) and holds title to the common and limited common areas of the BA-Lepanto Condominium in Paseo de Roxas, Makati City.
- The Corporation’s membership consists of the condominium unit owners; Article V of its Amended By-Laws authorizes it to collect regular assessments from members for operating expenses, capital expenditures on common areas, and other special assessments in accordance with the Master Deed and Declaration of Restrictions.
- On 14 December 1998 a Notice of Assessment (received by the Corporation on 15 December 1998) assessed business taxes, fees and charges totaling P1,601,013.77 for the years 1995–1997 (broken down as: tax deficiency P800,855.66; 25% surcharge P200,213.91; interest P601,944.20).
- The Notice of Assessment did not specify the statutory basis under the Makati Revenue Code or otherwise for the assessment.
- By written tax protest dated 12 February 1999, the Corporation protested the assessment, arguing that it was not an owner or operator of a business within the meaning of the Makati Revenue Code or the LGC, and that its assessments were non-profit collections for maintenance and capital expenditures.
- The City Treasurer denied the protest by letter dated 4 March 1999, characterizing the Corporation’s collection of dues as a profit venture aimed at achieving "full appreciative living values" to command better market prices for condominium units.
- The Corporation appealed the denial to RTC Makati Branch 57 (docketed Civil Case No. 99-748); the RTC dismissed the appeal on 1 March 2000, finding the Corporation’s activities fell within the LGC definition of "business" (Section 13[b] in the RTC’s language).
- The Corporation filed a petition for review with the Court of Appeals under Rule 42; initially dismissed for improper mode of appeal, the petition was reinstated after the Corporation invoked Section 195 of the LGC (the statutory remedy to appeal denials of tax protests to the court of competent jurisdiction).
- On 7 June 2002 the Court of Appeals (Special Sixteenth Division) reversed the RTC and held that the Corporation was not liable for local business taxes.
- The City Treasurer moved for reconsideration in the Court of Appeals and, upon denial, elevated the case to the Supreme Court by petition for review under Rule 45.
Procedural Issue Presented
- Whether the RTC, in hearing appeals taken from denials of tax protests by local treasurers under Section 195 of the LGC, exercises original jurisdiction (making the proper remedy an ordinary appeal under Rule 41) or appellate jurisdiction (permitting a petition for review under Rule 42).
Procedural Analysis and Rationale
- The Court examined differing views: (a) the Court of Appeals’ view that the RTC exercises appellate jurisdiction based on the LGC language that the taxpayer may "appeal with the court of competent jurisdiction"; versus (b) the City Treasurer’s view that the RTC’s jurisdiction is original because the judicial cognizance taken by the RTC is the first judicial action on the denied administrative protest.
- The Court invoked the definitions of original jurisdiction and appellate jurisdiction from Garcia v. De Jesus, quoting Justice Regalado’s commentaries: original jurisdiction is power to take judicial cognizance of a case instituted for the first time; appellate jurisdiction is the authority of a higher court to re-examine final orders of a lower court.
- The Court found that review by the RTC of a local treasurer’s denial is the RTC’s initial judicial cognizance of the matter and not review of a lower court’s judgment; thus it is original jurisdiction.
- Batas Pambansa Blg. 129 (B.P. 129) was examined: Section 22 delineates appellate jurisdiction of RTCs and confines that appellate jurisdiction to Metropolitan, Municipal, and Municipal Circuit Trial Courts. B.P. 129 does not expressly confer appellate jurisdiction on RTCs to review rulings of non-judicial entities.
- The Court concluded that as a matter of law the City Treasurer’s position is correct: the RTC’s jurisdiction in such matters is original, and the proper mode of review from the RTC decision would be an ordinary appeal under Rule 41.
- Two important qualifications limited the doctrinal sweep: (1) the Court exercised discretion to overlook the procedural error in this case and allowed review by the Court of Appeals; and (2) the Court confined its doctrinal pronouncement to cases before the enactment of Republic Act No. 9282 (which later expanded the Court of Tax Appeals’ jurisdiction).
- The Court explained that Republic Act No. 9282 (Section 7[a][3]) later gave the Court of Tax Appeals exclusive appellate jurisdiction to review RTC decisions in local tax cases, by a petition for review analogous to Rule 42; RA 9282 did not apply here because the case arose before its effectivity.
- The Court stressed that procedural rules should not be applied mechanically when doing so would defeat substantive justice and the ends of civil procedure (just, speedy and inexpensive disposition), and observed precedent treating erroneous modes of appeal as proper for court discretion to treat petitions appropriately.
- The Court noted that the Corporation’s use of Rule 42 instead of Rule 41 arguably created a disadvantage to the Corporation (Rule 42 requires a prima facie showing of error), but that this procedural error worked to the City Treasurer’s benefit rather than to its prejudice.
Substantive Issue Presented
- Whether a condominium corporation such as BA-Lepanto is subject to local business taxation under the Local Government Code and the Makati Revenue Code when it collects assessments from unit owners for maintenance, operations and capital expenditures of common areas.
Legal Framework Considered
- Constitutiona