Republic of the Philippines
CENTRAL BOARD OF ASSESSMENT APPEALS
M a n i l a

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM,
Petitioner-Appellant, CBAA CASE NO. L-98
LBAA CASE NO. 2008-01
-versus- Antipolo City

LOCAL BOARD OF ASSESSMENT APPEALS OF THE CITY OF ANTIPOLO,
Appellee,

-and-

THE CITY OF ANTIPOLO, THE CITY TREASURER AND THE CITY ASSESSOR OF ANTIPOLO CITY,
Respondents-Appellees.
X- – – — – – – – – – – – – – – – – – – – – – – /

D E C I S I O N

This appeal is from the Resolution rendered on May 27, 2009 by Appellee Local Board of Assessment Appeals of the City of Antipolo (“LBAA”) in LBAA Case No. 2008-01.

Alleging that it received a copy of the assailed resolution on July 2, 2009, Petitioner-Appellant Metropolitan Waterworks and Sewerage System filed the instant Appeal to this Board by registered mail through the Quezon City Post Office on August 3, 2009 as shown on the envelope containing the appeal. The same appeal ultimately reached this Board on August 10, 2009.

Petitioner-Appellant METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (“MWSS”) avers:
“Appellant MWSS is an instrumentality of the government of the Republic of the Philippines created by virtue of its Charter Republic Act No. 6234, as amended, (“R.A. 6234”). Appellant MWSS has jurisdiction, supervision and control over all waterworks and sewerage systems within Metropolitan Manila, the entire province of Rizal and portions of the province of Cavite and holds office at the MWSS Compound, Katipunan Road, Balara, Quezon City. Appellant MWSS may be served with notices and other processes of this Honorable Board through the undersigned counsel.

“Respondent-Appellee City of Antipolo (Appellee Antipolo) is a local government unit in whose territorial jurisdiction part of the Appellant MWSS’ waterworks properties and facilities are located. Appellee Antipolo is being impleaded herein as the local government unit that assessed the real property taxes against Appellant MWSS, through the other Respondents-Appellees, namely JOSEFINA O. DE JESUS, the City Treasurer of Antipolo (the ‘City Treasurer’) and CANDIDA G. LAWIS, the City Assessor of Antipolo (the ‘City Assessor’) who are impleaded in their official capacity. Respondent-Appellees City Treasurer and City Assessor of Antipolo hold their respective offices at the City Hall of Antipolo, where they may be served with notices and other processes of this Honorable Board.

“By way of background, Appellant MWSS was created under R.A. 6234, with the following declaration of policy by the State:

‘The proper operation and maintenance of waterworks system to insure an uninterrupted and adequate supply and distribution of potable water for domestic and other purposes and the proper operation and maintenance of sewerage systems are essential public services because they are vital to public health and safety. It is therefore declared a policy of the state that the establishment, operation and maintenance of such systems must be supervised and controlled by the state.’

“Under R.A. 6234, therefore, Appellant MWSS’ mandate is to generate and provide water supply for Metro Manila including the province of Rizal and portions of the province of Cavite. Pursuant to and in compliance with this mandate, Appellant MWSS administers, for and on behalf of the Republic of the Philippines, certain properties comprising of land, machineries, and other facilities constructed by the State (the ‘MWSS Properties’).

“These MWSS Properties are intended for public purpose and devoted to public use, being properties exclusively used for the supply and generation of water, and are declared in the name of Appellant MWSS, but owned by the Republic of the Philippines. The MWSS Properties include the following:

TAX DEC.
NUMBER ASSESSED
VALUE LOCATION
AN-001-00643 P44,700.00 Malinta, San Roque

AN-003-11566
12,770.00 Cr. Mabini& M.L. Quezon Sts., San Isidro, Antipolo
AN-002-07611 6,180.00 San Jose, Boso-boso
AN-002-07641 5,720.00 San Jose, Boso-boso
AN-002-07642 5,940.00 San Jose, Boso-boso
AN-002-07791 20,000.00 San Jose, Boso-boso
AN-002-07820 401,529.00 Banuhan, San Jose
AN-002-10360 141,120.00 San Jose, Boso-boso
AN-002-11722 54,030.00 San Jose, Boso-boso
AN-002-11723 54,000.00 San Jose, Boso-boso
AN-002-11724 54,000.00 Mananta, Boso-boso
AN-002-11755 14,722,410.00 San Ysiro, Boso-boso
AN-002-11756 2,685,120.00 San Ysiro, Boso-boso

Copies of Tax Declaration Nos. AN-001-00643, AN-003-11566, AN-002-07611, AN-002-07641, AN-002-07642, AN-002-07791, AN-002-07820, AN-002-10360, AN-002-11722, AN-002-11723, AN-002-11724, AN-002-11755, and AN-002-11756 are hereto attached as Annexes ‘B’ to ‘B-12’, respectively, and made integral parts hereof.

ANTECEDENTS

1. On 17 March 2008, Appellant MWSS received Notices of Assessment from the Appellee City Treasurer, demanding payment in the total amount of Philippine Pesos: Three Hundred Twenty-Seven Thousand Seven Hundred Thirty-Four Pesos and 68/100 (sic) centavos (Php327,734.68), covering the period 1 January 2008 to 31 December 2008, representing RPT allegedly payable on the subject MWSS Properties. Thus:

NOTICE OF ASSESSMENT
DATED 6 FEBRUARY 2008

TAX DEC.
NUMBER ASSESSED
VALUE LOCATION PERIOD
COVERED TAX DUE
AN-001-00643 P44,700.00 Malinta, San Roque CY 2008 804.60

AN-003-11566
12,770.00 Cr. Mabini & M.L. Quezon Sts., San Isidro, Antipolo
CY 2008 229.90
AN-002-07611 6,180.00 San Jose, Boso-boso CY 2008 111.24
AN-002-07641 5,720.00 San Jose, Boso-boso CY 2008 102.96
AN-002-07642 5,940.00 San Jose, Boso-boso CY 2008 106.92
AN-002-07791 20,000.00 San Jose, Boso-boso CY 2008 360.00
AN-002-07820 401,529.00 Banuhan, San Jose CY 2008 7,227.58
AN-002-10360 141,120.00 San Jose, Boso-boso CY 2008 2,540.16
AN-002-11722 54,030.00 San Jose, Boso-boso CY 2008 972.58
AN-002-11723 54,000.00 San Jose, Boso-boso CY 2008 972.00
AN-002-11724 54,000.00 Mananta, Boso-boso CY 2008 972.00
AN-002-11755 14,722,410.00 San Ysiro, Boso-boso CY 2008 265,003.42
AN-002-11756 2,685,120.00 San Ysiro, Boso-boso CY 2008 48,332.16

Copies of the Notices of Assessment are attached to the Appeal as Annexes “C” to “C-12” and made integral parts thereof.

2. On March 17, 2008 Appellant MWSS paid under protest the total amount stated in the Notice (sic) of Assessment (Annexes “C to C-12”), while the protest letter was timely filed on 17 March 2008. A copy of the Protest Letter is attached to the Appeal as Annex “D” and made an integral part thereof.

3. After the lapse of sixty (60) days from the time the Protest Letter was duly received by the Appellee City Treasurer, no action was taken thereto by the City Treasurer. Appellant MWSS had sixty (60) days from 17 May 2008 or until 17 July 2008 within which to file its Petition to the LBAA. Within the reglementary period, Appellant MWSS filed its Petition to the LBAA, a copy of which is attached to the Appeal and made an integral part thereof as Annex “E”.

4. An Answer/Comment was filed by Appellee City Assessor on 31 July 2008, admitting most allegations of the Petition, except the fact that Appellant MWSS is exempt from the payment of real property tax and that there was no ordinance that exempted herein Appellant from real property tax.

5. Hearings were held and thereafter, the parties were ordered to submit their respective Memoranda, thereafter, the matter was considered submitted for resolution.

6. On 2 July 2009, herein Appellant MWSS received a copy of the assailed Resolution of the Local Board of Assessment Appeals dismissing Appellant’s Petition and finding that Appellant MWSS’ exemption has been withdrawn by the passage of R.A. 7160, thereby making Appellant MWSS a taxable person. The dispositive portion of the assailed Resolution reads:

“WHEREFORE, in light of the foregoing and finding merit on respondents City Government of Antipolo’s assessment of real property tax on petitioner’s MWSS properties, the instant petition is hereby denied and accordingly DISMISSED.

SO ORDERED.”

A copy of the Resolution is attached to the Appeal as Annex “A” and made an integral part thereof.

7. On September 23, 2009, this Board received Respondents-Appellees’ “Comment (to the Appellant’s Memorandum)” dated September 1, 2009.

8. On October 6, 2009, this Board received Respondents-Appellees’ “Answer (To the Appellant’s Memorandum)” dated September 1, 2009.

9. On April 4, 2011, this Board received Petitioner-Appellant’s “Memorandum” dated April 1, 2011.

10. On April 8, 2011, this Board received Respondents-Appellees’ “Memorandum (For the Respondents-Appellees)” dated April 1, 2011.

In its Appeal dated July 31, 2009, MWSS submitted the following:

“ASSIGNMENT OF ERRORS

“I. The LBAA erred in holding that the tax exemption of Appellant MWSS under its Charter has been withdrawn upon the effectivity of R.A. 7160, as amended.

“II. The LBAA erred in not holding that Appellant MWSS is a government instrumentality and is exempt from payment of real property tax under Section 133(o) of R.A. 7160.

“III. The LBAA erred in not finding that the properties titled in the name of appellant MWSS, are properties of public dominion and, thus, are beyond the commerce of man.

“IV. The LBAA erred when it failed to take into consideration the damaging impact the assessment will have to the numerous beneficiaries of water supply within Appellant’s service area.”

DISCUSSIONS

ERROR #1:
The LBAA erred in holding that the tax exemption of Appellant MWSS under its Charter has been withdrawn upon the effectivity of R.A. 7160, as amended.

ERROR #2:
The LBAA erred in not holding that Appellant MWSS is a government instrumentality and is exempt from payment of real property tax under Section 133(o) of R.A. 7160.

Petitioner-Appellant’” Arguments:

“The first and second assignment of errors, being intrinsically connected, are collectively discussed.

“16. Section 133(o) of R.A. 7160 clearly provides that government instrumentalities are beyond the reach of the local government units’ power to tax, to wit:

‘SEC. 133. COMMON LIMITATIONS ON THE TAXING POWERS OF LOCAL GOVERNMENT UNITS.- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following:

xxx xxx xxx

‘(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.’ (Underscoring supplied.)

“17. Appellant MWSS is, in truth and in fact, an instrumentality of the government as provided under Section 2 (10) of Executive Order No. 292, otherwise known as the Administrative Code of 1987 (‘E.O No. 292’). Considering the very nature of Petitioner MWSS pursuant to its Charter, MWSS falls squarely within the definition of ‘Instrumentality’ under Section 2(10) of E.O. No. 292, which provides:

‘Section 2 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

‘(10) ‘Instrumentality’ refers to any agency of the National Government, not integrated within the department framework vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations.’ (Underscoring supplied.)

“18. Considering its creation, powers and jurisdiction under R.A. 6234, Appellant MWSS is, by law, clearly an instrumentality of the national government. Following the aforesaid Section 133(o) and the ruling of the Supreme Court in the case of Basco v. PAGCOR (197 SCRA 52, 53), that “local governments have no power to tax instrumentalities of the National Government”, Appellant MWSS should not be subject to liability for RPT as assessed and imposed by the City of Antipolo.

“19. The Supreme Court, in the landmark case of Manila International Airport Authority v. Court o Appeals G.R. No.18125, 20 July 2006, (MIAA case) and in the case of Philippine Fisheries Development Authority v. Court of Appeals G.R. No. 169836, 31 July 2007 (the ‘Philippine Fisheries Case’), has confirmed the general exemption from real property taxation granted to government instrumentalities under Section 133 of R.A. 7160 when it said:

‘xxx the Court made a distinction between a GOCC and an instrumentality. Thus:

‘SEC. 2. General Terms Defined. – xxx

‘(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether government or proprietary in nature, and owned by the Government directly or its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: xxx

‘A Government-owned or controlled corporation must be “organized as a stock or non-stock corporation.” MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares.

‘xxx xxx xxx

‘Section 3 of the Corporation Code defines a stock corporation as one whose ‘capital stock is divided into shares and x x x.’ MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

‘MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as ‘one where no part of its income is distributable as dividends to its members, trustees or officers.’ A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock corporation.

‘Section 88 of the Corporation Code provides that non-stock corporations are ‘organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers.’ MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.

‘Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. (Emphasis supplied)’

‘Thus, for an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has a capital stock divided into shares, and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their income to said members.

‘On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality of the national government. As such, it is generally exempt from payment of real property tax, except those portions which have been leased to private entities.’ (Emphasis and underscoring supplied)

“20. It bears underscoring that appellant MWSS is neither a stock or non-stock corporation as defined under the MIAA case and the Philippine Fisheries case. Therefore, appellant MWSS does not qualify as a government-owned or controlled corporation like MIAA and PFDA, Appellant MWSS is not a stock corporation because although Appellant MWSS has capitalization and share, Appellant MWSS has no authority to distribute dividends and allotments of surplus and profits to its stock holders. The capital stock of MWSS pursuant to its Charter cannot be transferred, negotiated, pledged, mortgaged or otherwise given as a security for payment of obligation. MWSS does not have blanket authority in the disposition of its income. According to its Charter, any income should be disposed to be used for its capital expenditures and operating expenses. Appellant MWSS is likewise characterized as non-profit. All its returns and income shall be used for its operation, expansion and improvements. Neither is Appellant MWSS organized for charitable or religious purposes. Clearly, Appellant MWSS is an instrumentality of the National Government.

“21. Based on R.A. 6234, Appellant MWSS is vested with regulatory functions in that it has jurisdiction and power to supervise and control all waterworks and sewerage systems within its stated territory, to wit:

‘Section 2 (c) – The System shall own and/or have jurisdiction, supervision and control over all waterworks and sewerage systems in the territory comprising the cities of Manila, Pasay, Quezon, Cavite and Caloocan, and the municipalities of Antipolo, Cainta, Las Piñas, Makati, Malabon, Mandaluyong, Marikina, Montalban, Navotas, Parañaque, Pasig, Pateros, San Juan, San Mateo, Taguig, Taytay, all of Rizal province, the municipalities of Bacoor, Imus, Kawit, Noveleta, Rosario, all of Cavite province and Valenzuela, Bulacan. All other waterworks and sewerage systems now under the supervision and control of National Waterworks and Sewerage Authority (NWSA), shall remain with the System xxx.’ (Underscoring replied [sic])

“22. As an administrative or regulatory body, the MWSS is also given the power to grant franchises and approve the operation of waterworks within its territory, to wit:

‘Section 3 (j) – To acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose of real and personal property, including rights and franchises, consistent with the purpose for which the System is created and reasonable (sic) required for the transaction of the lawful business of the same;

xxx

‘Section 3(n) – To approve, regulate, and supervise the establishment, operation and maintenance of waterworks and deepwells within its jurisdiction operated fo commercial, industrial and governmental purposes and to fix just and equitable rates or fees that may be charged to customers thereof; xxx” (Underscoring supplied.)

“23. Furthermore, Sections 13 and 18 of R.A. 6234 clearly provides (sic) that the income of Appellant MWSS shall be devoted exclusively for the enhancement of its public utility service, thus:

‘SECTION 13. Disposition of Income. – The income of the System shall dispose (sic) of according to the following priorities:

‘First, to pay its contractual and statutory obligations and to meet its essential current operating expenses;

‘Second, to serve at least fifty per cent (50%) of the balance exclusively for the expansion, development and improvement of the System; and

‘Third, to allocate the residue to enhance the efficient operation and maintenance of the System which include increase of administrative expenses or increases or adjustment of salaries and other benefits of the employees.’

‘SECTION 18. Non-Profit Character of the System. Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. – The System shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operations, for expansion and improvement. To enable the System to pay its indebtedness and obligations and the furtherance and effective implementation of the policy enumerated in Section one of this Act, the System is hereby declared exempt:

‘(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities, municipalities, and other government agencies and instrumentalities including taxes, duties, fees, imposts, and other (sic) provided for under the Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen Hundred Thirty Seven, as amended and further amended by Presidential Decree No. 34, dated October 27, 1972, and costs and service fees in any Court of administrative proceedings in which it may be a party;

‘(b) From all income taxes, franchise taxes, and realty taxes to be paid in the National Government, its provinces, cities, municipalities and other Government agencies and instrumentalities; and

‘(c) From all imposts, duties, compensating taxes, and advance sales tax, and wharfage fees on import of foreign goods required for its operation and projects.’ (Underscoring supplied)

“24. To ensure that Appellant MWSS will be able to sustain its operations and services to the public, the law clearly provided that it should not be taxed by either by (sic) the National Government or any of its provinces, cities, municipalities and other government agencies and instrumentalities. Allowing a different interpretation to the intent of the law could pose a detrimental effect, not only to the Appellant’s ability to provide the service required of it, but also in the areas over which it generates and supplies water, including the City of Antipolo.

“25. Applying the foregoing principles enunciated by the Supreme Court and the express provisions in the Charter of MWSS (R.A. 6234), it is indubitably obvious that Appellant MWSS is an instrumentality of the government and, as instrumentality, is exempt from the payment of real property tax, among others as expressly exempted by the Local Government Code (RA 7160).

“26. Appellant MWSS respectfully reiterates its humble submission that the general exemption from real property taxation granted to government instrumentalities under Section 133(o) of R.A. 7160 should be respected and that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision or instrumentality (Cooley on the Law of Taxation, 4th edition, 1414 [1927]). As further explained by the Supreme Court in the case of Maceda v. Macaraig Jr., G.R. No. 88291, 31 May 1991 (Citing C. Dallas Sands, Statutes and Statutory Construction, Vol. 3, p. 207, citing Crosby vs. U.S. 292F, Supp. 314; Pasadena vs. Los Angeles County, 187 P. 418 and other cases):

‘The basis of applying the rules of strict construction to statutory provisions granting exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness and equality of treatment among tax payers.

The reason for the rule does not apply in case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies.’ (Italicization on the original, emphasis supplied)

“27. Clearly, there can be no other conclusion than that Appellant MWSS is an instrumentality of the national government as defined in the MIAA case and Philippine Fisheries case. Therefore, Appellant MWSS cannot be made liable for taxes imposed by the local government unit such as that of the City of Antipolo as clearly exempted by R.A. 7160. More importantly, Appellant MWSS’ Charter, R.A. 6234, expressly exempted Appellant MWSS from payment of national and local tax.

CBAA’s Findings/Ruling

The LBAA pointed out that MWSS’ exemption under Section 18 of its Charter, R.A. 6234, had been withdrawn under Sections193 and 234 of R.A. 7160, otherwise known as the Local Government Code of 1991 (“LGC”), which took effect on January 1, 1992, thus:
“SEC. 193. Withdrawal of Tax Exemptions 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 or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospital and educational institutions, are hereby withdrawn upon the effectivity of this Code.”

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

“(a) Real property owned by the Republic of the Philippines, or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

“(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes;

“(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or –controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;

“(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

“(e) Machinery and equipment used for pollution control and environmental protection.

“Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or –controlled corporations are hereby withdrawn upon the effectivity of this Code.”

In its petition before the LBAA, MWSS claimed that it was exempt from real property taxation under its Charter, R.A. 6234, and quoted Section 18 thereof as follows:
“SECTION 18. Non-Profit Character of the System. Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. – The System shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operations, for expansion and improvement.”

The above (incomplete) quotation led the LBAA into discussing MWSS’ exemption “from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities.” The complete provisions of Section 18 of R.A. 6234 are as follows:
‘SECTION 18. Non-Profit Character of the System. Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. – The System shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operations, for expansion and improvement. To enable the System to pay its indebtedness and obligations and the furtherance and effective implementation of the policy enumerated in Section one of this Act, the System is hereby declared exempt:

‘(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities, municipalities, and other government agencies and instrumentalities including taxes, duties, fees, imposts, and other (sic) provided for under the Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen Hundred Thirty Seven, as amended and further amended by Presidential Decree No. 34, dated October 27, 1972, and costs and service fees in any Court of administrative proceedings in which it may be a party;

‘(b) From all income taxes, franchise taxes, and realty taxes to be paid in the National Government, its provinces, cities, municipalities and other Government agencies and instrumentalities; and

‘(c) From all imposts, duties, compensating taxes, and advance sales tax, and wharfage fees on import of foreign goods required for its operation and projects.’ (Underscoring supplied)

Anyway, the LBAA was right in concluding that MWSS’ exemption under Section 18 of R.A. 6234 had been withdrawn with the effectivity of the LGC on January 1, 1992. However, such withdrawal was not due to the provisions of Section 193 of the LGC, but due to the provisions of Section 234 thereof.

Book II of the LGC is divided into six (6) Titles, the first two of which are: (1) TITLE ONE. – LOCAL GOVERNMENT TAXATION; and (2) TITLE TWO. – REAL PROPERTY TAXATION.

Section 128 through Section 196 of the LGC govern only “Local Government Taxation” just as Section 197 through Section 283 of the same Code govern only “Real Property Taxation”.

For every significant provision in Local Government Taxation , an equivalent provision is found under Real Property Taxation .

For instance, Section 133 provides that local government units cannot impose local taxes, fees or charges on the “National Government, its agencies and instrumentalities, and local government units”; Section 193 exempts “local water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospital and educational institutions” from the withdrawal of exemption privileges; and Section 234 exempts: (a) real property owned by the Republic of the Philippines or any of its political subdivisions; (b) real property owned by charitable, religious and educational institutions; (c)machinery and equipment actually, directly and exclusively used by local water districts and GOCC’s engaged in the engaged in the supply and distribution of water and/or generation and transmission of electric power; (d)real property owned by cooperatives duly registered under R.A. 6938; and (e) machinery and equipment used for pollution control and environmental protection.

It is noteworthy that, as shown by the table below, all three Sections provide for exemption of “National Government, its agencies and instrumentalities, and local government units”, thus:

SUBJECT SEC. 133
Exempt From Local Taxes, Fees & Charges SEC. 193
Exempt From Withdrawal of Exemption from Local Taxes, etc. SEC. 234
Exempt from Real Property Tax
Republic of the Philippines, agencies,
instrumentalities & local government units
Provided
Provided
Provided
Cooperatives registered under R.A. 6938 Provided Provided
Non-profit hospital/educational institutions Provided Provided
Local Water Districts Provided Provided
Charitable institutions Provided
Religious institutions Provided
GOCCs engaged in generation/trans. of power Provided

Now, if Sections 133 and 193 were applicable to Real Property Taxation, it would mean that both Sections would be exempting the “National Government, its agencies and instrumentalities, and local government units”, among others, from payment of the real property tax.

Section 193 provides:

“SEC. 193. Withdrawal of Tax Exemptions 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 or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospital and educational institutions, are hereby withdrawn upon the effectivity of this Code.”

The last paragraph of Section 234 provides:

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

“Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or –controlled corporations are hereby withdrawn upon the effectivity of this Code.”

Note that, although they differ a little bit in “expression”, Section 193 and the last paragraph of Section 234 are identical in their intention.

A question may be asked, if Sections 133 and 193 under “Local Government Taxation” (Title One, Book II of the Code) were applicable to “Real Property Taxation” (Title Two, Book II of the Code), why did Congress bother to include the exemption of real properties owned by the Republic of the Philippines or any of its political subdivisions from real property taxation when Section 133 or 193 would have sufficed?

The inescapable interpretation is that Congress was well aware of what it was doing. It was, and is, the intention of Congress to make Real Property Taxation independent from the LGC provisions on Local Government Taxation.

Appellant did not dwell or elaborate on its first-assigned “error”. Instead, MWSS focused on its being supposedly exempt from real property taxation under Section 133(o) of the LGC.
As held in the MIAA case, citing Sec. 2(10) of the Introductory Provisions of the Administrative Code and quoted by the Petitioner-Appellant, a government instrumentality is defined as follows:
“SEC. 2 General Terms Defined. – x xx

“(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government owned or controlled corporations.”(Emphasis ours).

It is as clear that for a government agency to be considered an instrumentality it must NOT be INTEGRATED within a department framework, meaning it must not be included, incorporated or attached to any department under the executive branch of the government. In the case of Petitioner-Appellant, it is a government corporation attached to the Department of Public Works and Highways, specifically provided under Section 24, Chapter 6, Title V, Book IV of Executive Order No. 292, to wit:
‘Sec. 25. Attached Agencies and Corporation. – Agencies and corporation attached to the Department shall continue to operate and function in accordance with their respective charters/laws/executive orders creating them. Accordingly, Metropolitan Waterworks and Sewerage System, the Local Water Utilities Administration, the National Irrigation Administration, and the National Water Resources Council, among others, shall continue to be attached to the Department. x x x (Emphasis ours)

Considering therefore, the foregoing provision of the Administrative Code, Petitioner-Appellant being attached to DPWH cannot claim that it is an instrumentality of the government.

If MWSS were really an “instrumentality” of the government, then MWSS could not be subjected to any local tax, fee or charge by the local government units since the latter are prohibited from doing so under Section 133(o) of the LGC.
As to exemptions from real property taxation, Section 234 of the LGC governs. It is, however, pointless to discuss this Section because MWSS did not invoke the same.

ERROR #3:
The LBAA erred in not finding that the properties titled in the name of appellant MWSS, are properties of public dominion and, thus, are beyond the commerce of man.

Petitioner-Appellant’s Arguments:

“28. As previously elucidated under R.A. 6234, the mandate of Appellant MWSS is to generate and provide water supply for Metro Manila and its environs. Pursuant to and in compliance with this mandate, Appellant MWSS administers for and on behalf of the Republic of the Philippines, the MWSS Properties, which comprise of land, machineries, and facilities constructed by the State. It bears special emphasis that these MWSS Properties are intended for public use and devoted to public use, as the same are exclusively used for the supply and generation of water for the public.

“29. The following provisions of the New Civil Code of the Philippines clearly prove that the MWSS Properties should be properly classified as properties forming part of public dominion:

‘Article 419. Property is either of public dominion or of private ownership.

‘Article 420. The following properties are property of public dominion:

‘(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

‘(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of national wealth.

‘Article 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.’ (Emphasis supplied).

“30. It is emphasized that Section 217 of R.A. 7160 provides that the actual use of real property must be the basis of assessment. It cannot be doubted that the MWSS Properties, which are being exclusively used for the supply and generation of water, are intended for public use and public service. Being properties forming part of public dominion, the MWSS Properties are undoubtedly properties which belong to the State or the Republic of the Philippines, with Appellant MWSS merely holding such properties in trust on behalf of or for the benefit of the Republic of the Philippines, in accordance with Appellant MWSS’ mandate to generate and provide water supply for Metro Manila and its environs.

“31. The Supreme Court, sitting en banc, in the case of Manila International Airport Authority v. Court of Appeals, supra, clearly held that properties of public dominion belongs (sic) to the State of the Republic of the Philippines, declaring thus:

‘The Airport Lands and Buildings of MIAA, which its Charter calls the ‘principal airport of the Philippines for both international and domestic air traffic,’ are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.’ (Underscoring supplied.)

“32. Likewise in the case of Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeals, G.R. No. L-18125, 8 SCRA 225 (1963) (the ‘Board of Assessment Case’), the Supreme Court, again sitting en banc, categorically held that the water pipes, reservoir, intake and buildings of the National Waterworks and Sewerage Authority (the predecessor of Appellant MWSS) being used in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa and Biñan, Province of Laguna, are part of public dominion and hence, exempt from real property taxation. The properties in the Board of Assessment Case are similar in nature and use to the MWSS Properties which are now the subject of the assessment made by the Appellee City of Antipolo.

“33. The State, being the source of the power to tax, its own properties cannot be presumed to be within the contemplation of any tax it imposes. Otherwise, a farcical situation arises. It is thus humbly submitted that this Honorable Board must adhere to the legal precept that “when public property is involved, exemption is the rule and taxation, the exemption.” (SSS v. City of Bacolod, 15 SCRA 412, 417).

CBAA’s Findings/Ruling

Petitioner-Appellant posits the view that being properties forming part of public dominion, the MWSS properties are undoubtedly properties which belong to the State or the Republic of the Philippines, with Petitioner-Appellant merely holding such properties in trust on behalf of or for the benefit of the Republic of the Philippines, in accordance with its mandate to generate and provide water supply for Metro Manila and its environs.

The Supreme Court explains the concept of what public dominion means, citing Tolentino in this wise:
“Private ownership is defined elsewhere in the Code; but the meaning of public dominion is nowhere defined. From the context of various provisions, it is clear that public dominion does not carry the idea of ownership; property of public dominion is not owned by the State, but pertains to the State, which as territorial sovereign exercises certain judicial prerogatives over such property. The ownership of such property, which has the special characteristics of a collective ownership for the general use and enjoyment, by virtue of their application to the satisfaction of collective needs, is in the social group, whether national, provincial, or municipal. Their purpose is not to serve the State as a juridical person, but the citizens; they are intended for the common and public welfare, and so they cannot be the object of appropriation, either by the State or by private persons.”

Following the above, properties of public dominion are owned by the general public and cannot be declared to be owned by a public corporation, such as Petitioner-Appellant . As aforesaid, title to the properties subject of this case are registered under the name of the Petitioner-Appellant through its predecessors NWSA and MWD. Moreover, the charter, per se, of the Petitioner-Appellant specifically provides that it shall own all waterworks and sewerage system in the territory and it shall have the power to acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose of real and personal property xxx . The contention of Petitioner-Appellant that it merely holds these properties in trust is without any basis either in fact or in law. The titles to the real properties speak for itself that they are under the full ownership and control of the Petitioner-Appellant, and not the Republic of the Philippines.

Besides, though the purpose for which the MWSS was created was impelled by public service, however, its services are accessible only to those who pay the required fees. It is thus apparent that the Petitioner-Appellant, acting upon its proprietary function, does not exist solely for public service and its services are not exclusively for public use. As held in the aforecited case of Napocor.
“Section 2 of Pres. Decree No. 2029 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:

‘A government-owned or controlled corporation is a stock or non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or a subsidiary corporation, to the extent of at least a majority or its outstanding voting capital sock x xx. (emphasis supplied)

‘Governmental functions are those pertaining to th administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government. Included in the class of GOCCs performing proprietary functions are “business-like” entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), among others.

“Petitioner was created to “undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis.” Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants. Ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.”

Accordingly, the Petitioner-Appellant’s properties, being used by it in the performance of its proprietary functions, do not fall under the category of those properties forming part of the public dominion.

ERROR #4:
The LBAA erred when it failed to take into consideration the damaging impact the assessment will have to the numerous beneficiaries of water supply within Appellant’s service area.

Petitioner-Appellant’s Arguments:

“34. It also bears special emphasis that should Appellees be allowed to continue its (sic) unfounded and baseless assessment upon herein Appellant MWSS, it will not be Appellant who shall stand to suffer the tremendous exactions being made by all the local government units in general, and the City of Antipolo in particular, but the residents of Metro Manila and other surrounding provinces within Appellant’s service area and jurisdiction, including the province of Rizal of which the City of Antipolo is an essential part and to whom Appellant is generating and supplying water through the MWSS Properties that were made subject of the contested assessment.

“35. Furthermore, should this Honorable Board decide that the MWSS Properties are taxable properties and may be the subject of levy, the same would result to the possible deprivation of water of the entire service area and jurisdiction of Appellant MWSS. The same shall also result in the takeover of government property, installations and facilities, to the detriment of the public and even impede the financial and booming investment areas in the covered service area of Appellant MWSS.

CBAA’s Findings/Ruling

The fear of the Petitioner-Appellant that the assessment made will cause undue damage to the public is more imaginary than real.

WHEREFORE, in view of all the foregoing, the instant Appeal is DISMISSED for lack or merit.

SO ORDERED.

Manila, Philippines, July 20, 2012.

SIGNED
OFELIA A. MARQUEZ
Chairman

SIGNED SIGNED
ROBERTO D. GEOTINA CAMILO L. MONTENEGRO
Member Member