Case Digest: LRTA v. CBAA G.R. No. 127316 October 12, 2000

Taxation | Inherent Limitation: Exemption from Taxation

Facts: 
  • The Light Rail Transit Authority (LRTA) is a government-owned and controlled corporation established under Executive Order No. 603, responsible for constructing, operating, maintaining, and leasing light rail transit systems in the Philippines.
    • Under Executive Order 603, LRTA acquired real properties and constructed various structures such as buildings, carriageways, and passenger terminal stations, along with installing machinery, equipment, and facilities.
  • LRTA entered into a Contract of Management with the Meralco Transit Organization (METRO) to manage, operate, and maintain the Light Rail Transit System, including payment of management fees and real property taxes.
  • In 1984, LRTA commenced its operations.
  • The City Assessor of Manila assessed its real properties for taxation, except carriageways and passenger terminal stations  including the land where it is constructed, claiming they were not taxable or were exempt due to being for public use.
  • Local Board of Assessment Appeals: Declared that carriageways and passenger terminal stations are improvements, therefore, are real property under the Code, and not exempt from the payment of real property tax.
  • Court of Appeals: ruled that these properties constituted real property or improvements subject to taxation under the Real Property Tax Code, as they were not exempted and were beneficially used by LRTA, a taxable entity.
    • The assessment that LRTA's activities were proprietary and profit-oriented, serving the paying public.
Issue: Whether petitioner's carriageways and passenger terminal stations are subject to real property taxes. YES

Held:
Main Issue:
May Real Property Taxes be Assessed and Collected?

The Real Property Tax Code, the law in force at the time of the assailed assessment in 1984, mandated that "there shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property such as lands, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted."

Petitioner does not dispute that its subject carriageways and stations may be considered real property under Article 415 of the Civil Code. However, it resolutely argues that the same are improvements, not of its properties, but of the government-owned national roads to which they are immovably attached. They are thus not taxable as improvements under the Real Property Tax Code. In essence, it contends that to impose a tax on the carriageways and terminal stations would be to impose taxes on public roads.

The argument does not persuade. We quote with approval the solicitor general's astute comment on this matter:

"There is no point in clarifying the concept of industrial accession to determine the nature of the property when what is fundamentally important for purposes of tax classification is to determine the character of the property subject [to] tax. The character of tax as a property tax must be determined by its incidents, and form the natural and legal effect thereof. It is irrelevant to associate the carriageways and/or the passenger terminals as accessory improvements when the view of taxability is focused on the character of the property. 

The latter situation is not a novel issue as it has already been resolved by this Honorable Court in the case of City of Manila vs. IAC (GR No. 71159, November 15, 1989) wherein it was held:

'The New Civil Code divides the properties into property for public and patrimonial property (Art. 423), and further enumerates the property for public use as provincial road, city streets, municipal streets, squares, fountains, public waters, public works for public service paid for by said [provinces], cities or municipalities; all other property is patrimonial without prejudice to provisions of special laws. (Art. 424, Province of Zamboanga v. City of Zamboanga, 22 SCRA 1334 [1968])

x x x

'...while the following are corporate or proprietary property in character, viz: 'municipal water works, slaughter houses, markets, stables, bathing establishments, wharves, ferries and fisheries.' Maintenance of parks, golf courses, cemeteries and airports, among others, are also recognized as municipal or city activities of a proprietary character (Dept. of Treasury v. City of Evansville; 60 NE 2nd 952)'

"The foregoing enumeration in law does not specify or include carriageway or passenger terminals as inclusive of properties strictly for public use to exempt petitioner's properties from taxes. Precisely, the properties of petitioner are not exclusively considered as public roads being improvements placed upon the public road, and this separability nature of the structure in itself physically distinguishes it from a public road. Considering further that carriageways or passenger terminals are elevated structures which are not freely accessible to the public, viz-a-viz roads which are public improvements openly utilized by the public, the former are entirely different from the latter.

"The character of petitioner's property, be it an improvements as otherwise distinguished by petitioner, needs no further classification when the law already classified it as patrimonial property that can be subject to tax. This is in line with the old ruling that if the public works is not for such free public service, it is not within the purview of the first paragraph of Art. 424 if the New Civil Code."

Though the creation of the LRTA was impelled by public service -- to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila -- its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government-owned or controlled corporation.

True, petitioner's carriageways and terminal stations are anchored, at certain points, on public roads. However, it must be emphasized that these structures do not form part of such roads, since the former have been constructed over the latter in such a way that the flow of vehicular traffic would not be impeded. These carriageways and terminal stations serve a function different from that of the public roads. The former are part and parcel of the light rail transit (LRT) system which, unlike the latter, are not open to use by the general public. The carriageways are accessible only to the LRT trains, while the terminal stations have been built for the convenience of LRTA itself and its customers who pay the required fare.

Basis of Assessment Is Actual Use of Real Property

Under the Real Property Tax Code, real property is classified for assessment purposes on the basis of actual use,1 which is defined as "the purpose for which the property is principally or predominantly utilized by the person in possession of the property."

Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways and terminal stations are the commuting public. It adds that the public-use character of the LRT is not negated by the fact that revenue is obtained from the latter's operations.

We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business and earns money therefrom.

Petitioner Not Exempt from Payment of Real Property Taxes

In any event, there is another legal justification for upholding the assailed CA Decision. Under the Real Property Tax Code, real property "owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporation so exempt by its charter, provided, however, that this exemption shall not apply to real property of the abovenamed entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person."

Executive Order No. 603, the charter of petitioner, does not provide for any real estate tax exemption in its favor. Its exemption is limited to direct and indirect taxes, duties or fees in connection with the importation of equipment not locally available, as the following provision shows:

"ARTICLE 4
TAX AND DUTY EXEMPTIONS

Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and Materials. - The importation of equipment, machineries, spare parts, accessories and other materials, including supplies and services, used directly in the operations of the Light Rails Transit System, not obtainable locally on favorable terms, out of any funds of the authority including, as stated in Section 7 above, proceeds from foreign loans credits or indebtedness, shall likewise be exempted from all direct and indirect taxes, customs duties, fees, imposts, tariff duties, compensating taxes, wharfage fees and other charges and restrictions, the provisions of existing laws to the contrary notwithstanding."

Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity.

Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly construed against the claimant. LRTA has not shown its eligibility for exemption; hence, it is subject to the tax.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against the petitioner.

SO ORDERED.

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