Republic of the Philippines

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

PALAWAN ELECTRIC COOPERATIVE (PALECO), Represented by its General Manager, MR. PONCIANO D. PAYUYO,
Petitioner-Appellant,

– versus –

THE PROVINCIAL ASSESSOR OF PALAWAN,
Respondent-Appellee,

CBAA Case No. L-66

Re: LBAA Case No. 5-2004

– and –

THE LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF PALAWAN,
Appellees. x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

This case pertains to the Notice of Appeal and Memorandum of Appeal

filed by Petitioner-Appellant herein with the Local Board of Assessment Appeals

of the Province of Palawan on October 5, 2005 which pleadings, together with

the complete original records in LBAA Case No. 5-2004, were forwarded by the

said Local Board to the Central Board of Assessment Appeals and received by

the latter in Manila on October 14, 2005.

Said appeal is from the decision rendered by the said Local Board on

August 25, 2005, the dispositive portion of which reads as follows:

“WHEREFORE, in view of the foregoing, the assessment filed by appellant is hereby dismissed for lack of merit; and

“The appellant shall pay the taxes due to the government as assessed by the Municipal Assessor of Aborlan.”

Alleging that it received a copy of the questioned decision on September 7,

2005. Petitioner-Appellant raised the following issues:

“ASSIGNMENT OF ERRORS

“a) THE LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF PALAWAN, WITH DUE RESPECT,

Reference: Book XII, pp. 200-215

ERRED IN RULING THAT HEREIN APPELLANT IS NOT A GOVERNMENT CONTROLLED COOPERATIVE;

“b) WITH DUE RESPECT, THE ASSESSMENT APPEALS OF

LOCAL BOARD OF THE PROVINCE OF

PALAWAN ERRED IN RULING THAT THE PROPERTIES OF THE APPELLANT DO NOT FALL WITHIN THE SPECIAL CLASSES OF PROPERTIES;

“c) THE LOCAL BOARD OF ASSESSMENT APPEAL OF THE PROVINCE OF PALAWAN ERRED IN NOT RULING THAT THE PROPERTIES CONSISTING OF TRANSMISSION LINES DISTRIBUTION LINES POST AND TRANSFORMER COVERED BY TAX DECLARATION NO. 001-0293-S EXEMPTED FROM REAL PROPERTY TAXES;

“d) WITH DUE RESPECT, THE ASSESSMENT APPEALS OF

LOCAL BOARD OF THE PROVINCE OF

PALAWAN COMMITTED AN ERROR IN HOLDING THAT THE ASSESSMENT OF THE PROPERTIES OF THE APPELLANT MADE BY THE MUNICIPAL ASSESSOR OF THE MUNICIPALITY OF ABORLAN IS EXCESSIVE, UNJUST, ERRONEOUS AND CONFISCATORY.”

FIRST AND SECOND ISSUES

We shall discuss the first two assigned errors together since the second

is a necessary consequence of the first.

Petitioner-Appellant claims that it is a government-controlled cooperative.

In support of such claim, Petitioner-Appellant invoked on the provisions of PD

269, Section 10 of which, as amended by Section 5 of PD 1645, reads as

follows:

“SEC. 10. ENFORCEMENT OF POWERS AND REMEDIES. – In the exercise of its powers of supervision and control over electric cooperatives and other borrowers, supervised or controlled entities, the NEA is empowered to issue orders, rules and regulations and motu propio or upon petition by any parties, to conduct investigations, referenda and other similar actions in all matters affecting said electric cooperatives and other borrowers, or supervised or controlled entities.

“If the electric cooperative concerned or other similar entity fails after the notice to comply with NEA orders, rules and regulations and/or decisions, or with any of the terms of the Loal Agreement, the NEA Board of Administrators may avail of any or all of the following remedies:

“(a) Refuse to make or approve any new loans to the borrower or to release funds to implement loans that are otherwise already approved;

Reference: Book XII, pp. 200-215

“(b) Withhold NEA advances, or withhold approval of advances or fund release in behalf of any other lender with respect to which the NEA has such power relative to loans made;

“(c) Withhold any technical or professional assistance otherwise being furnished or that might be furnished to the borrower;

“(d) Foreclose any mortgage or deed of trust of fund or other security held by the NEA on the properties of such borrower, in connection with which the NEA may, subject to any superior or co-equal rights in such lien held by any other lender, (1) bid for and purchase or otherwise acquire such properties; (2) pay the purchase price thereof and any costs and expenses incurred in connection therewith out of the revolving fund; (3) accept title such properties in the name of the Republic of the Philippines; and (4) even prior to the institution of foreclosure proceedings, operate or lease such properties for such period, and in such manner as may be deemed necessary or advisable to protect the investment therein, including the improvement, maintenance and rehabilitation of systems to be foreclosed, but the NEA may, within five years after acquiring such properties in foreclosure proceedings, sell the same for such consideration as it determines to be reasonable and upon such terms and conditions as it determines most conducive to the achievement of the purposes of this Decree; or

“(e) Take preventive and/or disciplinary measures including suspension and/or removal and replacement of any or all of the members of the Board of Directors, officers or employees of the Cooperative, other borrowing institutions or supervised or controlled entities as the NEA Board of Administrators may deem fit and necessary and to take any other remedial measures as the Law or the Loan Agreement may provide.

“No cooperative shall borrow money from any source without the Board of Administrators’ prior approval: Provided, That the NEA Board of Administrators may, by appropriate rule or regulation, grant general permission to Cooperatives to secure short-term loans not requiring the encumbrance of their real properties or of a substantial portion of their other properties or assets.”

Clearly, Petitioner-Appellant would like us to believe that, since it is

“controlled” by NEA, a government agency, Palawan Electric Cooperative

(PALECO) is a “government-controlled” cooperative and, being so, its real

Reference: Book XII, pp. 200-215

properties subject of this appeal should be classified as “special” in accordance

with the provisions of Sections 215, 216 and 218 of RA 7160, otherwise known

as the Local Government Code of 1991, which Sections are quoted hereunder,

thus:

SEC. 215. Classes of Real Property for Assessment Purposes. – For purposes of assessment, real property shall be classified as residential, agricultural, commercial, industrial, mineral, timberland, or special . . .”

“SEC. 216. Special Classes of Real Property. – All lands, buildings and other improvements thereon, actually, directly and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or-controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power shall be classified as special.” (Underling supplied)

‘SEC. 218. Assessment Levels. – The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang panlungsod or sangguniang bayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding the following:

“x x x

“(d) On Special Classes: The assessment levels for all lands, buildings, machineries and other equipment:

“ Actual Use

“x x x
“Government-owned or-controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power

Assessment Level

10%

The meaning of the phrase “supervision and control” used in Section 10

of PD 269, as amended by PD 1645, could not even approximate the meaning

of the phrase “government-owned or –controlled” used in Section 216 of RA

7160.

Whenever a loan is obtained from NEA by an electric cooperative or any

other borrowing entity, PD 269, particularly Section 10 thereof, provides that, as

a condition for the approval and/or release of the loan, NEA shall have certain

Reference: Book XII, pp. 200-215

“supervision and control” powers over the borrower. The purposes of this

condition is to protect the investment of the government by seeing to it that loan

is used for the purposes intended, that the borrower is competently managed

and that the loan is repaid according to the terms. This power of supervision

and control possessed by NEA ceases the moment the subject loan is

extinguished.

In Philippine Rural Electric Cooperative Association, Inc. (Philreca), et al.

vs. The Secretary of the Department of Interior and Local Government, G.R.

No. 143076, June 10, 2003, the Supreme Court said:

“The extent of government control over electric cooperatives covered by P.D. No. 269, as amended, is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of the electric cooperatives. Consequently, amendments to P.D. No. 269 were primarily geared to expand the powers of the NEA over the electric cooperatives to ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under R.A. No. 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation.”

On the other hand, the phrase “government-owned or-controlled”, as

used in Section 216 of RA 7160, supra, refers to the extent of the ownership or

interest in a given corporation by the government, either directly or through its

instrumentalities. When a corporation is “government-owned”, it means that the

corporation is “wholly owned” by the government. When a corporation is

“government-controlled”, it means that the government owns only a majority

portion – at least fifty-one percent (51%) – of the corporations’ capitalization.

Thus, in Philippine National Construction Corporation vs. Pabion, et al.,

G.R. No. 131715, December 8, 1999, the Supreme Court held:

“. . . The President does not “determine” whether a corporation is a GOCC or not. It is the law that does. PNCC’s status as a GOCC can be ruled upon by SEC – as well as by other competent authorities for that matter – based on law, specifically the Revised Administrative Code of 1987 which provides inter alia as follows:

Reference: Book XII, pp. 200-215

“Sec. General Terms Defined. – Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning.

“xxx xxx xxx

“(13) Government-owned or controlled corporation – refers to any agency organized as a stock or non-stock corporation,

vested with governmental

functions relating to public needs whether or proprietary in nature, and owned by the

Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the

extent of Provided,

at least fifty-one (51) percent of its capital stock: That government owned or controlled corporations

may be further categorized by the Department of Budget, the

Civil Service Commission, purposes of the exercise

and the Commission on Audit for and discharge of their respective

powers, functions and responsibilities with respect to such corporations.” (emphasis ours)

There is no showing that the government has any interest in the

ownership or capitalization of Petitioner-Appellant. Petitioner-Appellant,

therefore, does not qualify as one of those corporations mentioned in said

Section 216. Consequently, its real properties could not be legally classified as

“special” under the provisions of Section 218, in relation to Section 216 of the

Code.

THIRD ISSUE

Petitioner-Appellant argues that, “While it is true that herein Appellant no

longer enjoys tax exemption as a cooperative because it is not a registered

cooperative with the CDA, however under Section 234 par. c of the Local

Government Code of 1991, herein Appellant is exempted in the payment of real

property taxes on those machineries and equipment that are actually used by it

in the generation and transmission of electric powers. The transmission and

generation lines, electric posts and transmissions mentioned above and

subjected by the Municipality of Aborlan to real property taxation are exclusively

used by herein Appellant in the generation and transmission of electric power

when the same are, under Section 234 par. c of the Local Government Code of

1991 exempted for real property taxation.”

Quoted hereunder are the provisions of Section 234 of RA 7160, thus:

Reference: Book XII, pp. 200-215

SEC. 234. Exemption from Real Property Tax. – The following are exempted from payment of the real property tax:

“xxx xxx xxx

“(c) All machineries and equipment that directly and exclusively used by local water

are actually, districts and

government-owned or –controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;

“xxx xxx xxx

Section 234(c), above, provides that, in order for its machinery and

equipment to be exempt from payment of the real property tax, the taxpayer,

aside from being engaged in the “. . . generation and transmission of electric

power”, must also be, a “government-owned or –controlled” corporation.

Petitioner-Appellant may be engaged in the generation and transmission of

electric power but, certainly, it is not a “government-owned or –controlled”

corporation in the context of Section 234(c). As stated in our discussion of the

first two issues, there is no evidence showing that the government owns any

portion of Petitioner-Appellant’s capitalization.

FOURTH ISSUE

The fourth issue states that the Local Board committed an error in

holding that the assessment “Is excessive, unjust, erroneous and

confiscatory.” We think if this, however, as a pure typographical error, by way

of omitting the word ‘not’ since Petitioner-Appellant, in its arguments, does

protest against the assessment as “excessive, confiscatory, unreasonable

unjust and erroneous.”

Petitioner-Appellant considers the fair market values fixed by the

Respondent-Appellee as prepared without factual basis and “it is incumbent

upon the Municipal Assessor of Aborlan, not on the shoulder of the property

owner, to show proof of corrections, (sic) reasonableness and justness of the

on the (sic) market value of the property assessed.”

Reference: Book XII, pp. 200-215

Petitioner-Appellant states that the assessor was required “to take

evidence/information to which to based (sic) the fair market value of the

property subject to an assessment by summoning the owners of the properties

to be affected or the persons having legal interest therein”, clearly implying that

Respondent-Appellee did not ask Petitioner-Appellant to show proof of actual

values of the subject real properties.

We find Petitioner-Appellant’s statement in the immediately preceding

paragraph as somewhat strange. The records show that the Municipal

Assessor of Aborlan, Palawan, sent two (2) letters to Petitioner-Appellant: the

first, dated November 5, 2003, requested Petitioner-Appellant to submit a

sworn statement declaring the true value of their real properties in the

municipality pursuant to the provisions of Provincial Ordinance No. 3, Series of

1993, and Municipal Ordinance No. 30, Series of 1993; and the second, dated

August 12, 2004, requested the filing of the same sworn statement pursuant to

the provisions of Provincial Ordinance No. 332-A, Chapter II, Section 7, and, for

failure to file said statement, a fine of P20,000.00 was imposed.

The above-mentioned letters were alleged and discussed by the

Respondent-Appellee in its Answer dated February 11, 2005 and in its

Memorandum dated April 7, 2005, filed with the Local Board on February 11,

2005 and April 7, 2005, respectively. In fact, these things were given due

course and weight by the Local Board in its decision appealed from.

Petitioner-Appellant was given the chance to present its side with respect

to the valuation of the real properties in question but chose not to avail of said

opportunity. It (Petitioner-Appellant) should not now be allowed, belatedly, to

question such valuations.

In its Reply dated January 26, 2006 to Respondent-Appellee’s

Comment/Answer, Petitioner-appellant insisted that it (Appellant) is a

government-controlled cooperative being under the supervision and control of

the NEA, ‘an agency wholly owned by the government’, and that it’s real

Reference: Book XII, pp. 200-215

properties are exempt from real property taxes by virtue of the provisions of

Section 39 of PD 269, as amended, thus:

“SECTION 39. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from National Power Corporation. – Pursuant to the national policy declared in Section 2, the Congress hereby finds and declares that the following assistance to cooperative is necessary and appropriate;

“(a) Provided that it operates in conformity with the purposes and provisions of the Decree, cooperatives (1) shall be permanently exempt from paying income taxes, and (2) for a period ending on December 31 of the thirtieth full calendar year after the date of a cooperative’s organization or conversion hereunder, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs, shall be exempt from the payment of (a) of all National Government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court of administrative proceeding in which it may be a party, and (b) of all duties or imposts on foreign goods acquired for its operations, the period of such exemption for a new cooperative formed by consolidation, as provided for in Section 29, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under the Decree: Provided, that the Board of Administrators shall, after consultation with the Bureau of Internal Revenue, promulgates rules and regulations for the proper implementation of the tax exemptions provided for in this Decree.”

We wonder what Petitioner-Appellant tried to imply when it stated that

NEA is “agency wholly owned by the government.” In any case, it is not

relevant. What is, however, relevant is that the real property tax exemption

which may have been granted to electric cooperatives under Section 39 of PD

269, as amended, had been expressly withdrawn with the passage of the Local

Government Code of 1991, Section 193 of which provides as follows:

“SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned and – controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (emphasis ours)

Reference: Book XII, pp. 200-215

In the same Reply, Petitioner-Appellant argued to the effect that, based

on an opinion contained in a letter dated January 18, 2005 from the Executive

Director of the Cooperative Development Authority (CDA) to the Executive

Director of the Bureau of Local Government Finance, PALECO is or was

exempted from the payment of real property tax. Portions of the said letter-

opinion are quoted hereunder, as follows:

“This refers to you letter dated November 19, 2004 requesting for a favorable opinion as to whether or not electric cooperatives with provisional registration with this Authority are exempt from the payment of taxes, fees and charges pursuant to Section 133 (n) of the Local Government Code (LGC).

“In this connection, please be informed that this Authority posit the view that the provisional registration granted by the CDA to electric cooperatives has the force and effect of a duly registered cooperatives (sic) albeit in a temporary basis. As such, these electric cooperatives enjoys (sic) the same benefits and advantages accorded to CDA-registered cooperatives including the exemption to pay local taxes, fees and other charges imposed under the LGC.

“However, the exemption to pay local taxes imposed under the LGC shall only be applicable to electric cooperatives who failed to obtain a permanent registration with CDA from the time they were provisionally registered with CDA in 1993 up to the expiration of the Omnibus Rules and Regulations on the Registration of Electric Cooperatives with CDA which was on May 4, 1997 including the 3-year extension granted and approved by the Office of the President which expired on May 4, 2000.”

If we may simplify, the last paragraph of the opinion above-cited means

that electric cooperatives granted by the CDA provisional registrations – but

failed to obtain permanent ones – were, nevertheless, exempted from payment

of the local taxes imposed under the LGC from the time they were provisionally

registered with the CDA in 1993 up to May 4, 2000.

The record show that, during the proceedings in the Local Board,

Petitioner-Appellant agreed to limit the issues to only two (2), which were: (1)

Whether or not PALECO is a government-controlled corporation, and (2)

Whether or not PALECO’s real properties in question are “special properties”

as defined under Section 216 of RA 7160.

Reference: Book XII, pp. 200-215

The matter of PALECO’s provisional registration with the CDA was never

discussed in the Local Board. Too, the issues raised in the current appeal to

this Board do not include this matter either.

As provided for under Section 229(c) of RA 7160, the function of the

Central Board of Assessment Appeals is to review on appeal decisions of the

Local Boards of Assessment Appeals. This considered, this Board cannot now

consider the additional issue raised at this late hour. To do so, this Board would

not be reviewing on appeal a determination by a Local Board, but determining

and deciding for the first time, a question not raised in the Local Board.

In Aguinaldo Industries Corporation vs. Commissioner of Internal

Revenue and the Court of Tax Appeals (L-29790, February 25, 1982, 112

SCRA 136), cited in Benguet Corporation vs. Central Board of Assessment

Appeals, et al. (G.R. No. 100959, June 29, 1992), the Supreme Court said:

“To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would to sanction a procedure whereby the court – which is supposed to review administrative determinations – would not review, but determine

and decide for the first time, a administrative forum. This cannot

question not raised in the be permitted, for the same

reason that underlies the requirement of prior exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide controversies within its competence, and in much the same way that, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal.” (Emphasis ours)

WHEREFORE, premises considered, the instant appeal is hereby

DISMISSED for lack of merit and the decision of the Local Board of

Assessment Appeals of the Province of Palawan dated August 25, 2004 in

LBAA Case No. 5-2004 is hereby AFFIRMED in toto.

SO ORDERED.

Manila, Philippines, February 14, 2006.

(Signed) CESAR S. GUTIERREZ
Chairman

Reference: Book XII, pp. 200-215

(Signed)
ANGEL P. PALOMARES Member

(Signed) RAFAEL O. CORTES
Member

Reference: Book XII, pp. 200-215