City of Pasig v. Republic
REITERATIONFacts
The Antecedents: Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land in Pasig City. In 1986, Jose Y. Campos, the registered owner of MPLDC, voluntarily surrendered MPLDC and its properties to the Republic of the Philippines, acknowledging them as ill-gotten wealth of former President Ferdinand E. Marcos. Despite this surrender, Pasig City Assessor’s Office issued notices of tax delinquency to MPLDC for unpaid real property taxes from 1979 to 2001. MPLDC, through its representatives, contended that the taxes for a portion of that period had been paid and that the properties were exempt from tax beginning in 1987. Pasig City maintained the properties were not exempt, leading to further demands for payment and eventual warrants of levy. Procedural History: Following the warrants of levy and a public auction where Pasig City purchased the properties, the Republic of the Philippines, represented by the Presidential Commission on Good Government (PCGG), filed a petition for prohibition with a prayer for injunctive relief before the Regional Trial Court (RTC). The RTC granted the petition, declaring the tax assessments, warrants of levy, and auction sale void, and ordering Pasig City to assess and collect taxes from the actual occupants. Pasig City appealed to the Court of Appeals (CA), which initially reversed the RTC’s decision, ruling that the RTC lacked jurisdiction. However, upon reconsideration, the CA reinstated the RTC’s decision, finding that the Republic had raised a pure question of law regarding the City's power to tax state-owned properties. The Petition: This case is a petition for review on certiorari under Rule 45 of the Rules of Court, filed by the City of Pasig. The City challenges the Court of Appeals' decision that affirmed the RTC's ruling in favor of the Republic. Pasig City argues that the lower courts erred in granting the PCGG's petition for certiorari, prohibition, and mandamus and in ordering the City to assess and collect real property taxes from the lessees of the properties. The core of Pasig City's argument is that the properties, despite being surrendered as ill-gotten wealth, remained subject to taxation, particularly the portions leased to taxable entities, and that the PCGG's recourse to extraordinary remedies was improper without exhausting administrative remedies and paying the taxes under protest.
Issue(s)
Whether the City of Pasig acted with grave abuse of discretion amounting to lack or excess of jurisdiction in assessing, levying, and selling in public auction the subject properties for non-payment of real property taxes; and whether the subject properties, having been surrendered ill-gotten wealth, are exempt from real property tax. Whether the beneficial use of portions of the properties by taxable entities subjects those portions to real property tax. Whether the properties of public dominion can be sold at public auction to satisfy tax delinquency; and on the voiding of the initial assessment and auction. On the procedural issue of administrative remedies.
Ruling
The Supreme Court partially granted the petition, setting aside the Court of Appeals' decision that reversed the RTC's ruling. The Court declared void the real property tax assessment, warrants of levy, and the auction sale. Pasig City was directed to issue new assessments only for the portions of the properties leased to taxable entities and only for the period of such leases.
Ratio Decidendi
On the issue of grave abuse of discretion and tax exemption of state-owned properties: The Court affirmed the RTC's finding that the properties, having been voluntarily surrendered by Jose Y. Campos as ill-gotten wealth, belong to the Republic of the Philippines. As properties owned by the Republic, they are generally exempt from real property tax under Section 234(a) of Republic Act No. 7160 (Local Government Code of 1991). The Court reiterated that the exemption ceases only when the beneficial use of the property has been granted to a taxable person. Therefore, Pasig City's assessment and subsequent actions were deemed to be done with grave abuse of discretion as they were levied against state-owned property without considering the exemption. On the issue of beneficial use and taxability of leased portions: The Court clarified that while the properties are owned by the Republic and thus generally exempt, the exception under Section 234(a) of RA 7160 applies to portions whose beneficial use has been granted to taxable entities. Citing jurisprudence such as Philippine Fisheries Development Authority v. Central Board of Assessment Appeals and Government Service Insurance System v. City Treasurer of the City of Manila, the Court held that portions of the properties leased to business establishments are subject to real property tax. The liability to pay this tax is imposed on the Republic of the Philippines as the owner, with the assumption that this cost is passed on to the lessees as part of the rent. On the issue of properties of public dominion and sale at public auction: The Court distinguished between properties owned by the Republic and properties of public dominion. While the subject properties are owned by the Republic, they are not properties of public dominion as they are not intended for public use or public service, but are leased to private business establishments. However, drawing from rulings in cases like Philippine Fisheries Development Authority v. Court of Appeals and Manila International Airport Authority v. Court of Appeals, the Court emphasized that properties of public dominion, even if leased, cannot be sold at public auction to satisfy tax delinquency. Although the subject properties are not of public dominion, the Court reiterated that portions leased to taxable entities are subject to tax and can be sold at public auction if the tax remains unpaid, unlike properties of public dominion. Given that the initial assessment and subsequent actions were based on a flawed premise of taxing state-owned property without proper consideration of the beneficial use exception, the Court found it necessary to declare the original assessment, warrants of levy, and auction sale void. This paved the way for the directive to issue new, correct assessments based on the established principles. On the procedural issue of administrative remedies: The Court, in resolving the merits, implicitly acknowledged that the case presented a pure question of law, thus justifying the resort to judicial action via certiorari, prohibition, and mandamus, bypassing the usual administrative remedies. This was consistent with the Court of Appeals' eventual ruling on reconsideration, which the Supreme Court affirmed in principle by ruling on the substantive issues.
Main Doctrine
Properties owned by the Republic of the Philippines are exempt from real property tax, except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. Portions of properties of public dominion leased to taxable entities are subject to real property tax but cannot be sold at public auction to satisfy tax delinquency.