Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS Manila

SMART COMMUNICATIONS, INC. Petitioner-Appellant,

– versus –

CBAA CASE NO. M-13 CITY ASSESSOR OF SURIGAO CITY,
Respondent-Appellee,

– and –

LOCAL BOARD OF ASSESSMENT APPEALS OF SURIGAO CITY,
Appellee. x – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

It appears that Smart Communications, Inc. (SMART, for brevity) filed with

the Local Board of Assessment Appeals of Surigao City an appeal dated at

Makati, Philippines on 26 September 2000. (The machine copy of the appeal

does not show the date when the LBAA received the original copy thereof.) The

appeal concerned the assessment of SMART’s various machineries located in

Washington, Surigao City.

SMART paid the total sum of One Hundred Twenty-Six Thousand Eight

Hundred Fifteen & 92/100 Pesos (P126,815.92) as shown by machine copies of

Official Receipt Nos. 3956026-T and 3955985-T, both dated August 14, 2000 for

P63,407.96 and marked “paid under protest”.

SMART contended that it was exempt from payment of the real property

tax under Section 23 of R.A. 7925 (Public Telecommunications Act of the

Philippines passed on February 20, 1995), in relation to R.A. 7229 which

approved the merger between Globe Mackay Cable and Radio Corporation and

Clavecilla Radio Systems. Further, SMART stated that even granting without

admitting, that SMART was liable for the said real property tax, the aforesaid

assessment was exhorbitant, arbitrary and did not reflect the fair market value of

the real property.

Reference: Book X, pp. 223-230

Quoted hereunder is the Order made by the Local Board of Assessment

Appeals of the City of Surigao on January 30, 2001:

“RE: APPEAL BY SMART COMMUNICATION FOR TAX EXEMPTION
X – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – /

O R D E R

“This pertains to the appeal filed by SMART COMMUNICATIONS against the assessment imposed by the City Assessor of Surigao City. The main appeal of appellant – that the assessed values far exceeded the fair market value of the real property of appellants and consequently appellant seeks refund of what has been paid under protest and further requests for exemption from paying real property tax or at least modification or decrease in the assessment of its real properties.

“A copy of the appeal was sent to the City Assessor for comment and answer. The City Assessor submitted its answer-comment which was forwarded to appellant for answer. More than one month has already and the appellant did not answer the answer of the City Assessor. The Board can no longer wait without prejudicing its own interest. Hence the decision.

“After a thorough study of the facts and the issues involved in the appeal, the Board unanimously decided to dismiss the appeal for lack of merit.

“Surigao City, January 30, 2001.”

Hence, this instant appeal which was filed with this Board on March 01,

2001.

Petitioner-Appellant assigned the following errors:

1. The Local Board of Assessment Appeals did not take into

consideration Petitioner-Appellant’s exemption from real property tax; and

2. The Local Board of Assessment Appeals assessed values far

exceeded the fair market value of Petitioner-Appellant’s machinery/equipment.

On the first error or issue, Petitioner-Appellant argues that it is exempt

from payment of the real property tax because of the passage of R.A. 7925,

otherwise known as the Telecommunications Act of the Philippines, on February

20, 1995, in relation to R.A. 7229 approving the merger between Globe Mackay

Cable and Radio Corporation (Globe) and Clavecilla Radio Systems (CRS).

Section 23 of R.A. 7925 reads as follows:

“Sec. 23. Equality of Treatment in the Telecommunications Industry. – Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises, Provided, however, That the foregoing shall neither apply or affect provisions of

Reference: Book X, pp. 223-230

telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or type or service authorized by the franchise.”

Republic Act 7229 (approving the merger between Globe and CRS) was

passed on March 19, 1992. The franchise of CRS was granted under R.A. 402,

as amended by R.A. Nos. 1608 and 4540. Section 5 of R.A. 4540 reads as

follows:

“SEC. 5. Section twenty of the same Act is hereby amended to read as follows:

“Section 20. This franchise shall not be interpreted to mean an exclusive grant of the privileges herein provided for, however, in the event of any competing individual, partnership, or corporation receiving from the Congress of the Philippines more favourable than those herein granted or tending to place the herein grantee at any disadvantage, then such term or terms shall ipso fact become part of the terms hereof, and shall operate equally in favor of the grantee as in the case of said competing individual, partnership or corporation.”

SMART claims that Globe enjoys exemption from the payment of the real

property tax per opinion of the Executive Director of the Bureau of Local

Government Finance (BLGF) contained in a letter dated February 24, 1998

addressed to Globe Telecom. The conclusion of said opinion reads as follows:

“Considering therefore, that RA 7229 having been approved on March 19, 1992 is a later law, its provisions should prevail over those of the LGC which took effect on January 1, 1992.

“Accordingly, the Globe should be considered exempt from the franchise and business taxes that local governments may impose under Sections 137 and 143, respectively, of the Code. However, all real properties of the corporation not directly, actually and exclusively used in the telecommunication operations or services shall be subject to the real property taxes that provinces and cities levy under the pertinent provisions of the Code. . .”

SMART argues that, since Globe is exempt from the real property tax, it

follows that SMART must likewise be exempt from the same tax because the

grant of exemption to Globe ipso facto extended the same privilege to SMART by

virtue of Section 23 of R.A. 7925.

In Philippine Long Distance Telephone Company vs. City of Davao (G.R.

No. 143867 August 22, 2001), the Supreme Court said:

“To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts . . . the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of Section 23 of R.A. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.”

Reference: Book X, pp. 223-230

The opinion of the BLGF does not expressly state that Globe was

exempted from payment of the real property tax but, by saying that “However, all

real properties of the corporation not directly, actually and exclusively used in the

telecommunication operations or services shall be subject to the real property

taxes that provinces and cities levy under the pertinent provisions of the Code,

“nevertheless, seems to convey that Globe was indeed exempt from payment of

said tax on its real properties which were directly, actually and exclusively used

in the telecommunication operations or service.

The above-quoted pronouncement by the Supreme Court notwithstanding,

we are at a loss as to the basis of BLGF’s opinion as far as it concerned the real

property tax. We venture to say that the same opinion may have been based on

the tax provision common to telecommunications facilities. SMART was granted

a franchise under R.A. 7294 which lapsed into law on March 27, 1992, Section 9

of which reads as follows:

“SEC. 9. Tax Provisions. – The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof . . .” (Underscoring Supplied.)

With due respect, the BLGF might have misconstrued the phrase

“exclusive of this franchise” as to include real property as part of its franchise. We

find this interpretation erroneous. In jurisprudence, a franchise as a right and

privilege is regarded as property, separate and distinct from the property which

the corporation itself may acquire. As property, a franchise is of great value to the

corporation and its members. (Fletcher’s Cyclopedia of the Law of Private

Corporation, Vol. 6A, pages 427-428, citing Horn Silver Min. Co. vs. New York,

143 U.S. 305 36 L. Ed. 164, 12 Sup. Ct.-403; City of Campbell vs. Arkansas –

Missouri Power Co., 55F (2d) 560, as cited in the City Government of Batangas

vs. Republic Telephone Company, Inc., CA-G.R. CV No. 21897, January 21,

1992.)

Reference: Book X, pp. 223-230

We hasten to add that a franchise, as a right and privilege, is not even a

real property for purposes of the real property tax. The tax provision aforequoted

(Sec. 9, R.A. 7294) states that “The grantee, its successors or assigns shall be

liable to pay the same taxes on their real estate, buildings and personal property,

exclusive of this franchise.” This could only mean that the grantee shall also be

liable to pay taxes on all its personal properties, excluding the franchise itself.

The tax exemption must be expressed in the statute in clear language that

leaves no doubt of the intention of the legislature to grant such exemption. And,

even, if it is granted, the exemption must be interpreted in strictissimi juris against

the taxpayer and liberally in favor of the taxing authority. [(Commissioner of

Internal Revenue v. Court of Appeals, 298 SCRA 83 (1988); Commissioner of

Customs v. Philippine Acetylene Company, 39 SCRA 70 (1971); Commissioner

of Internal Reveneu v. Guerrero 21 SCRA 180 (1967)]

In Asiatic Petroleum Co. vs. Llanes (49 Phil. 466, 472 (1926), cited in

PLDT vs. City of Davao, G.R. No. 143867), the Supreme Court held:

“. . . Exemptions from taxation are highly disfavoured, so much so that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right . . . As was said by the Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91, Tenn., 546, 550), “The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims an exemption from the common burden must justify his claim by the clearest grant of organic or statute law.” Other utterances equally or more emphatic come readily to hand from the highest authority. In Ohio Life Ins. And Trust Co. vs. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held to have been surrendered, “unless the intention to surrender it is manifested by words too plain to be mistaken.” In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said that the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. In Erie Railway Company vs. Commonwealth of Pennsylvania 921 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of the most essential power of taxation by doubtful words. “It cannot, by ambiguous language, be deprived of this highest attribute of sovereignty.” In Tennessee vs. Whitworth (117 U.S., 129, 136), it was said: “In all cases of this kind the question is as to the intent of the legislature, the presumption always being against any surrender of the taxing power.” In Farrington vs. Tennessee and County of Shelby (95 U.S., 679, 686), Mr. Justice Swayne said: “. . . When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim, It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.”

In Philippine Long Distance Telephone Company, Inc. vs. City of Davao, et

al (G.R. No. 143867, August 22, 2001), the Supreme Court said:

Reference: Book X, pp. 223-230

“R.A. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of Section 23 of R.A. 7925 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.” (Underscoring Supplied)

We believe, therefore, and so hold, that the machineries of petitioner-

appellant Smart Communications, Inc. Located in Washington, Surigao City,

covered by Tax Declaration No. 5627, are subject to payment of the real property

tax.

On the second issue, SMART offered neither evidence nor arguments to

support its claim, except to restate the issue itself. If the appeal on this matter

were not frivolous, it would have been smart of petitioner-appellant to present

documents of acquisition, installation, etc. of the machineries involved to support

its claim.

On the other hand, Respondent-Appellee, through counsel, presented,

during the hearing of this case in Cebu City on May 20, 2002 two (2) exhibits:

Exhibit “1”, which was a machine copy of the “Sworn Statement of the True

Current and Fair Market Value of Real Properties” signed, subscribed and sworn

to on May 12, 1999 by Rina-Lorena E. Reyes-Manuel, as authorized

representative of SMART; and Exhibit “2”, which was a machine reproduction of

a true copy of Tax Declaration No. 5627 covering the properties described in the

“Sworn Statement” (Exh. “1”).

A comparison of the two exhibits would show that Respondent-Appellee

adopted completely the respective market values declared by Petitioner-

Appellant SMART in its said sworn statement.

WHEREFORE, premises considered, the instant appeal is DENIED for

lack of merit and the Order of the Local Board of Assessment Appeals of the City

of Surigao dated January 30, 2001 is hereby AFFIRMED.

SO ORDERED.

Reference: Book X, pp. 223-230

Manila, Philippines, February 16, 2002.

(Signed) CESAR S. GUTIERREZ
Chairman

(Signed)
ANGEL P. PALOMARES Member

(VACANT) Member

Reference: Book X, pp. 223-230