Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS 7th Floor, EDPC Building, BSP Complex Roxas Boulevard, Manila

LIGHT RAIL TRANSIT AUTHORITY,
Petitioner-Appellant, CBAA Case No. L-06

– versus – Re: Tax Dec. No. B-071000417

BOARD OF ASSESSMENT APPEALS OF MANILA,
Appellee,

– and –

CITY ASSESSOR OF MANILA, Respondent-Appellee.
x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

THIS is an appeal of the Petitioner-Appellant, the LIGHT RAIL TRANSIT

AUTHORITY, hereinafter knows as LRTA, assailing the validity of the

Resolution of Appellee Board of Assessment Appeals of Manila, dated June 26,

1992, sustaining the assessments of the Respondent-Appellee, City Assessor

of Manila, dispositive portion of which is hereinbelow quoted, viz:

“The Board finds no cogent reason to sustain the contention of LRTA that it is exempt from realty tax when the law creating it does not provide any grant or exemption. To do so the City government of Manila would virtually denounce the taxation of LRTA’s properties as real property and inevitably, a failure on the part of the city government, being a self-reliant and stable local government unit, to provide adequate funds for development and underwrite basic and essential public service.

WHEREFORE, the Light Rail Transit Authority (LRTA) is hereby required to pay the assessment on its properties made by the City Assessor of Manila effective 1985.”

In support of its appeal LRTA contended that:

(1) Carriageways and passenger terminal stations are not improvements for purposes of the Real Property Tax Code (P.D. 464) and thus not subject to assessments and therefore exempt from the payment of real property taxes;

(2) Carriageways and passenger terminal stations being constructed on the National Road owned by the national government, may be considered as property of the National Government according to Article 445 of the Civil Code of the Philippines, and therefore exempt from the payment of real property taxes under Section 40(a) of P.D. 464, as amended, known as the Real Property Tax Code; and

(3) Carriageways and passenger terminal stations are for public use.

Reference: Book VII, pp. 53-76

On the other hand, Respondent-Appellee, in his comment/answer to

Petitioner-Appellant’s appeal countered and raised the following issues, viz:

“1. Whether or not the Central Board, acquired jurisdiction over the herein appeal;

2. Whether or not LRTA is a taxable person;

3. Whether or not the carriageways and terminals of the LRTA are considered real estate;

4. Whether or not the carriageways and terminals are used for public purpose; and

5. Whether or not the land on which each post of the carriageways and terminals are erected is taxable.”

As it appears, some of the issues involved are interrelated, except the

issues on the non-payment of taxes. The main points at issue therefore may be

simplified, as follows, to wit:

I. Whether or not the Local Board has the authority to entertain the

appeal, inspite of the non-payment of real property taxes as a

condition precedent of any appeal before this Board;

II. Whether or not carriageways and passenger terminal stations are

considered improvements under the Real Property Tax Code and

being constructed on the land belonging to the government belong

to the government and for purposes of taxation are exempt;

III. Whether or not carriageways and passenger terminal stations are

for public use; and

IV. Whether or not the LRTA is exempt under its charter.

The facts of the case, according to the findings of this Board as culled

from the records are as follows:

1. The LRTA is a government-owned and controlled corporation

created and organized under Executive Order No. 603, dated July 12, 1980,

“which made the body primarily responsible for the construction, operation,

maintenance and/or lease of light rail transit system in the Philippines, giving

Reference: Book VII, pp. 53-76

due regard to the reasonable requirements of the public transportation of the

country” (LRTA vs. The Hon. Commission on Audit G.R. No. 88365);

2. That by reason of the foregoing Executive Order No. 603, LRTA,

acquired real properties, such as lands, constructed structural improvements,

such as buildings, carriageways, passenger terminal stations, and installed

various kinds of machineries and equipments and facilities for the purpose of its

operations;

3. That for the purpose of an effective maintenance, operation and

management, it entered into a Contract of Management with the Meralco

Transit Organization (METRO) in which the latter undertook to manage, operate

and maintain the Light Rail Transit System owned by the LRTA subject to the

specific stipulations contained in said agreement, including payments of a

management fee and real property taxes; (Additional Exhibit “I”, Records.)

4. That it commenced its operations in 1984, and that sometime in

that year, Respondent-Appellee City Assessor of Manila assessed the real

properties of Petitioner-Appellant, consisting of lands, buildings, carriageways

and passenger terminal stations, machineries and equipments which he

considered real properties under the Real Property Tax Code, to commence

with the year 1985;

5. That Petitioner-Appellant paid its real property taxes on all its real

property holdings, except the carriageways and passenger terminal stations

including the land where it is constructed, on the ground that the same are not

real properties under the Real Property Tax Code, and if the same are real

properties, these properties are for public use/purpose, therefore exempt from

realty taxation, which claim was denied by the Respondent-Appellee City

Assessor of Manila; and

6. That Petitioner-Appellant, aggrieved by the action of the

Respondent-Appellee City Assessor, filed an appeal with the Local Board of

Assessment Appeals of Manila. The Board of Assessment Appeals of Manila,

Reference: Book VII, pp. 53-76

Appellee, herein, after due hearing, in its resolution dated June 26, 1992,

denied Petitioner-Appellant’s appeal, and declared that carriageways and

passenger terminal stations are improvements, therefore are real properties

under the Code, and not exempt from the payment of real property tax.

A motion for reconsideration filed by Petitioner-Appellant, was likewise

denied.

HENCE, this appeal.

Subject to the following discussions, WE find for Respondent-Appellee,

City Assessor of Manila. It appearing that the herein appeal was filed before the

effectivity of the New Local Government Code of 1991, this Board shall resolve

the issues in consonance with the provisions of P.D. 464, as amended.

As to the first issue: Whether or not the Local Board of Assessment

Appeals of Manila, the Appellee, herein, had the authority to entertain the

subject appeal, inspite of the non-payment of real property taxes due on the

questioned properties, WE have this to say:

Section 37 of P.D. 464, provides as follows, viz:

“Sec. 37. Effect of Appeal on the Payment of the Real Property Tax. – Appeals on assessments of real property made under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment depending upon the final outcome of the appeal.”

In CBAA Case No. 10 (Manila Electric Company vs. BAA of Batangas and

Provincial Assessor of Batangas), it was held that “this provision of law is

explicit and self-explanatory. Collection of the realty taxes as assessed by the

city assessor shall not be suspended by an appeal filed thereunder. While the

law does not contain any express provision that an appeal to this Board may

not be entertained unless the taxes in question are paid as expressly provided

in Section 54 of Commonwealth Act No. 470, the result of the implementation of

the above-quoted provision would substantially be the same. For under the

latter, the protestant-appellant is obligated to pay the realty taxes as assessed

by the city assessor notwithstanding the filing of the appeal. We believe that

Reference: Book VII, pp. 53-76

any other interpretation would defeat or nullify this provision — for if the appeal

were entertained without requiring the protestant-appellant to pay the realty tax

as assessed by the provincial or city assessor the effect would be that the

appeal will have suspended the collection of the said taxes, contrary to the

express mandated of said provision. Any interpretation which would defeat or

nullify a provision is by settled rules of construction to be abhorred and

avoided.”

From the context thereat, Petitioner-Appellant should pay the realty taxes

on the properties in question before this Board may entertain its appeal.

However, as ruled by this Board in CBAA Case No. 69, Fortune Cement

Corporation vs. BAA of Batangas et al., in granting Fortune Cement

Corporation’s alternative prayer that it be allowed to file a surety bond in lieu of

cash which shall guarantee the real property taxes due the government, this

Board believes that the surety bond when approved can serve the same

purpose as the payment of taxes under protest if it will guarantee the payment

of realty taxes due the government.

This Board, therefore, for purposes of the herein appeal, on its own by

reason of its special jurisdiction, may allow Petitioner-Appellant to file the

aforestated surety bond. However, considering that it is a government-owned

and controlled corporation, whose financial standing is duly guaranteed and

subsidized by the government, the filing of the surety bond, in lieu of cash

payment of taxes due, to guarantee the payment of the realty taxes due on the

said property may not be required. It is our considered view that the

presumption of the solvency of the LRTA is guaranteed.

As to the issue of whether or not “carriageways and passenger terminal

stations” are considered improvements under the provisions of the Real

Property Tax Code (P.D. 464), Petitioner-Appellant insisted that the

carriageways and passenger terminal stations are not improvements as

Reference: Book VII, pp. 53-76

contemplated in the Real Property Tax Code, and therefore should not be

assessed as such and declared taxable.

This is untenable.

The records reveal that pursuant to the provisions of Executive Order No.

603, creating and organizing the LRTA, it constructed, maintained and operated

an elevated railway system. For that purpose carriageways were constructed

from a certain point at Baclaran, Pasay City, over and along a national road

(Taft Avenue and Rizal Avenue) to a certain point at Monumento, Kalookan

City, interspaced at regular intervals by a building which houses and serves as

the passenger terminal stations, and linked to the aforesaid buildings are

carriageways. The carriageways are those portions of the elevated railways,

constructed in a U-shape form, of concrete with sidings of concrete and a

roadbed at the center, where two sets of twin rails attached end to end and laid

on crossties, anchored in the concrete roadbed and cushioned by crushed

rocks, and serves as the track where the electric railway cars run or pass along.

It is akin to that of a railroad track, where the train passes.

To remove, separate, repair or replace there rails would eventually stop

the operations of the LRT and will greatly affect the riding public and as a result

they would render the railroad system ineffective. Along these carriageways

and part thereof, a building was erected to house the passenger terminal

station, where the activities of ticketing, loading and unloading of passengers

take place. While the carriageways are not actually embedded in the land, they

are supported by a solid reinforced concrete which serves as the post or

abutment, erected at a regular interval from Baclaran to Kalookan. Said

carriageways are constructed at an A-one engineering specifications and are

immovable. Both the carriageways and the passenger terminal stations are

constructed over a national road so as not to impede the flow of vehicular traffic

below.

Reference: Book VII, pp. 53-76

Article 415, (1) and (3) of the Civil Code of the Philippines which provides

as follows, viz:

“Art. 415 – The following are immovable property:

(1) Lands, buildings, roads and construction of all kinds adhered to the soil:

(2) x x x.

(3) Everything attached to an immovable in a fixed manner in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object.”

classifies the aforementioned properties as immovables, these are real

properties. The Supreme Court in the case of Meralco Securities Industrial

Corporation vs. Central Board of Assessment Appeals, G.R. No. 46245, May

31, 1982, ruled that pipeline system of Meralco Securities is classified as real

property and subject to tax the same being machinery or improvements as

contemplated in the Assessment Law and the Real Property Tax Code and

does not fall within the classes of exempt real property. Section 2 of the

Assessment Law provides that the realty tax is due “on real property, including

land, buildings, machinery, and other improvements” not specifically exempted

in Section 3 thereof. Likewise, Article 415 [1] and [3] provides that real property

may consist of constructions of all kinds adhered to the soil and everything

attached to an immovable in a fixed manner, in such a way that it cannot be

separated therefrom without breaking the material or deterioration of the object.

Furthermore, Section 38, P.D. 464, provides as follows:

“Section 38. Incidence of Real Property Tax. – There shall be levied, assessed, and collected in the province, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not herein after specifically exempted.”

There is no question that carriageways and the building housing the

passenger terminal stations are real properties, and under the foregoing

provisions of law the same are not those classes of exempt properties

enumerated under Section 40 of P.D. 464, hence the assessment by

Respondent-Appellee on the said properties in question is believed to be in

accordance with the provisions of the Real Property Tax Code.

Reference: Book VII, pp. 53-76

As to the contention of Petitioner-Appellant that carriageways and

passenger terminal stations being built and/or attached to the road owned by

the national government belongs to the national government and may be

considered as property of the national government, thus exempt from the

payment of real property taxes, in accordance to Section 40(a) of P.D. 464, as

amended, the same is not sustainable under the provisions of the Real Property

Tax Code (P.D. 464). It may be of note that under the provisions of the previous

assessment law, as well as the charter of Manila City, ownership is the test for

real property tax assessments. However, upon the effectivity of P.D. 464,

otherwise known as the Real Property Tax Code, which took effect in 1974, it

changed the basis of real property taxation. It adopted the policy of taxing real

property on the basis of “actual use”, even if the user is not the owner. The

Supreme Court in the case of Nueva Ecija vs. Imperial Mining Co., Inc., L-

59463, November 19, 1982, ruled that P.D. 464,

“ X x x, changed the basis of real property taxation. It adopted the policy of taxing real property on the basis of actual use even if the user is not the owner. (underlining supplied)

Sections 3(a) and 19 of P.D. 464 provides as follows:

“Sec. 3 (a) Actual Use – shall refer to the purpose for which the property is principally or predominantly utilized by the person in possession of the property.”

“Sec. 19 Actual/Use of Real Property as Basis for Assessment – Real Property shall be assessed on the basis of is actual use regardless of where located and whoever uses it.”

The above policy declaration is given substance in various provisions of

the Real Property Tax Code. Thus, Section 40 (a) of P.D. 464, which is quoted

hereinbelow, specifies exemptions from real property tax:

“Section 40. Exemption from Real Property Tax. – The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government owned 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.” (Underlining supplied)

For all intents and purposes therefore, Petitioner-Appellant may be

considered merely as “beneficial user” and under the aforesaid provision of law,

Reference: Book VII, pp. 53-76

the exemption shall not apply, including the land where the properties in

question are constructed.

As to its contention that the LRT is for public use, hence should be

exempt from the payment of real property taxes, the same cannot be

countenanced.

The term public works for public service or use, must be viewed in the

light of the ruling of the Supreme Court in the case of the City of Cebu, vs. The

NAWASA, L-12892 April 30, 1960, as follows:

“The term “public works for public service” must be interpreted, following the principle of ejusdem generic, in the concept of the preceding words: provincial roads, city streets, municipal streets, the squares, fountains, public waters and promenades – under Article 424 of the New Civil Code – which are used freely by all. Without distinction. Hence, if the public works is not for free public service, it is not within the purview of the first paragraph, but of the second paragraph of Article 424, and consequently, patrimonial in character. A municipal water system designed to supply water to the inhabitants for profit is a corporate function of the municipality.” (Mendoza vs. De Leon, 33 Phil. 508, citing Omaha Water Co. vs. Omaha 12 L.R.A. (N.S.) 736; 77 C.C.A. 267; 147 Fed. 1; Jodson vs. Borough of Winsted, 80 Conn. 834; 15 L.R.A. (N.S.), 91).

“X x x. The flaw in appellant’s contention that system is a public works for public service is due to an apparent misapprehension that because the System serves the public is not necessarily for public service. The contention overlooks the fact that only those of the general public, who pay the required rental or charge authorized and collected by the System, do make use of the water. In other words, the System serves all who pay the charges. It is open to the public (in this sense, it is public service), but upon the payment only of a certain rental x x x. (Underlining supplied)

Accordingly, the LRTA was created to serve the needs of the riding

public, who pays the required rates for the use of the Light Rail Transit System

from which the Authority derives material gains. It is in this concept that the

LRTA may not be considered to be engaged in purely governmental or public

service which does not qualify the LRTA for tax exemptions.

Finally, Petitioner-Appellant maintains that being a government owned

entity, created and organized under Executive Order No. 603, it should be

exempt from the payment of real property taxes. However, a close scrutiny of

the provisions of the aforesaid law discloses that nowhere is there a provision

exempting Petitioner-Appellant from payment of real property taxes. Section 8,

Article 4 of Executive Order No. 603, titled Tax and Duty Exemptions, wherein

Petitioner-Appellant banks its exemptions, provides as follows:

Reference: Book VII, pp. 53-76

“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 Light Rail Transit System not obtainable locally on favorable terms, out of any funds from 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, custom duties, fees, imposts, tariff duties, compensating taxes, wharfage fees and provisions of existing laws to the contrary notwithstanding.”

The abovecited law allows only certain tax and duty exemptions and does not

clearly and expressly provide the grant of real property tax exemptions on its

real properties. While it grants certain tax and duty exemptions, it does not

include real property taxes.

In fact LRTA, paid its real property taxes as to its lands, buildings and

machineries and other real properties, except the properties in question.

(Additional Exhibits: Certificate of Payment, Folder 2, BTAA Records).

Accordingly, therefore, LRTA under its charter is a taxable entity with

respect to real property taxes. There is no cogent reason to conclude that LRTA

is exempt from realty tax when the law creating it does not provide for such

exemptions, with respect to real property taxes.

To sustain its claim for tax exemptions, Petitioner-Appellant submitted as

additional evidence the letter of Acting Secretary of Finance Ms. Juanita D.

Amatong, which in effect concurs with the opinion of the Office of the

Government Corporate Counsel, viz:

“x x x. With regard to the issue on jurisdiction over real property taxes, we concur to the opinion of the Office of the Government Corporate Counsel (OGCC) that LRT structures should not be subjected to real estate taxes inasmuch as they are similar in nature to railroads and are, therefore, public property. Since the matter is now pending appeal with the CBAA, which is the proper tribunal under Section 229 (c) of the Local Government Code of 1991, we suggest that we wait for the decision of CBAA. The Department of Finance has jurisdiction only over claims for refund of real property tax payments.” (Exhibit “A” for Appellant, Records).

In effect, from the context of the said letter, the Acting Secretary of

Finance merely agrees with the opinion of the OGCC which in this particular

case is the legal counsel of Petitioner-Appellant. However, she acknowledges

in the aforesaid letter that the final disposition of the matter behooves upon this

Reference: Book VII, pp. 53-76

Board. Her opinion is not binding on this Board, being an independent tribunal

clothed and entrusted with the specific jurisdiction to decide the issues at hand.

It should be noted that additional exhibits submitted by Petitioner-

Appellant to bolster its theory that it is exempt from the payment of real property

taxes do not justify its allegations. The need therefore to discuss the relevancy

of these additional exhibits is believed not necessary.

To recapitulate, the findings of this Board are as follows:

(a) Carriageways and passenger terminal stations are real properties under the provisions of the Real Property Tax Code:

(b) Actual use of the real property shall be the basis for realty tax assessment and not ownership;

(c) It is not for public use or public service, its use is limited to the public who can afford to pay the charges of fares imposed and collected by LRTA; and

(d) The charter creating the LRTA does not so provide realty tax exemption.

WHEREFORE, in view of the foregoing, the decision of the Board of

Assessment Appeals of Manila, declaring subject properties as taxable, is

hereby affirmed in toto and that the herein appeal of the LRTA is hereby

dismissed for lack of merit.

SO ORDERED.

Manila, Philippines, October 15, 1994.

(Signed) MARGARITA G. MAGISTRADO
Chairman

(Signed) ELEANOR A. SANTOS
Member

(Signed) ALFONSO M. MEDADO
Member

Reference: Book VII, pp. 53-76