Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS Manila

ARMED FORCES AND POLICE SAVINGS AND LOAN ASSOCIATION, INC.
Petitioner-Appellant,

– versus –

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

CBAA CASE NO. M-19

Re:

LBAA Case #1, S. 2003

– and –

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

D E C I S I O N

Before this Board is an appeal from the resolution of the Appellee Local

Board rendered on December 15, 2003, the dispositive portion of which reads as

follows:

“WHEREFORE and in view of the foregoing the Board believes and so holds that Petitioner-s office building is subject to real property tax and the assessment made by Respondent should not be disturbed, the same being made with legal basis and being reasonable and fair.”

Alleging that it received a copy of the Local Board’s resolution on

December 18, 2003, Petitioner-Appellant listed the following as its grounds for

the appeal, viz:

THE APPELLEE ERRED IN HOLDING THAT PETITIONER-APPELLANT’S BUILDING LOCATED INSIDE THE 4TH INFANTRY DIVISION COMPOUND, ACP CAMP, BANCASI, BUTUAN CITY WHICH WAS CONSTRUCTED ON A GOVERNMENT LOT IS SUBJECT TO REAL PROPERTY TAX.

THE APPELLEE ERRED IN HOLDING THAT PETITIONER-APPELLANT IS NOT A TAX EXEMPT ENTITY.

THE APPELLEE ERRED IN HOLDING THAT THE ASSESSMENT MADE BY RESPONDENT-APPELLEE IS LEGAL, FAIR AND REASONABLE.

The records show that Petitioner-Appellant received on July 23, 2003 from

Respondent-Appellee a copy of the “Notice of New/Revised Assessment” of

Petitioner-Appellant’s building subject of this case. Enclosed therewith was a

copy of Tax Declaration No. 96GR-06-001-0944-C covering the same building

effective the calendar year 2001. Said building was classified as “Commercial”

Reference: Book X, pp. 282-289

with a market value of P970,946.00 and an assessed value of P486,470.00 at

50% assessment level.

On September 19, 2003, Petitioner-Appellant filed its protest with the Local

Board on the following grounds, to wit:

1. The subject property is exempt from the payment of real property tax; and

2. The market value of the subject property is over-assessed.

In its protest before the Local Board, Appellant stated that:

1. Since subject building is on a piece of land under lease from the Philippine Army, a government entity, who, at the end of the lease, shall own the same building, it follows that said building is exempt from the payment of the real property tax under Section 234 of R.A. 7160 being “real property owned by the Republic of the Philippines.”; and

2. Subject building is located some ten (10) kilometers away from the city proper and “not exactly in mint condition” without, however, offering any statement, nay, evidence, to support its contention that the subject building was indeed over-valued.

Respondent-Appellee, on the other hand, submitted a coy of a “2nd

Indorsement” of the Bureau of Local Government Finance (BLGF), CARAGA

Administrative Region, Butuan City, and adopted said indorsement as his own

answer to Appellant’s protest. Basically, said indorsement states:

1. That Section 5 (Tax Exemption) of RA 8367, otherwise known as the

Revised Non-Stock Savings and Loan Association Act of 1997, does not provide

that Non-Stock Savings and Loan Associations, such as Petitioner-Appellant, are

exempt from payment of realty tax; and

2. That the CTA ruling in Board of Assessment Appeals of Zamboanga

del Sur vs. Samar Mining Company, Inc. which was affirmed by the Supreme

Court “could not be used as reference as the said case dwelt on the road as an

integral part of the land, but this petition is about an office building which in all

intents and purposes is not an integral part of the land. It is an independent and

distinct improvement of the land subject to real property tax.

On the first ground of the instant appeal, Petitioner-Appellant relies on the

provisions of Articles 440 and 445 of the New Civil Code and cited the case of

BAA of Zamboanga del Sur vs. Samar Mining Co. (37 SCRA 734) where the

Supreme Court said that:

Reference: Book X, pp. 282-289

“What is emphasized in the Bislig case is that the improvement is exempt from taxation because it is an integral part of the public land on which it is constructed and the improvement is the property of the government by right of accession.”

Petitioner-Appellant also said that, in essence, Appellant is not liable for

the realty tax on subject property because it is only a lessee and, therefore,

considered a “usufructuary” under Article 597 of the New Civil Code; and that, in

fact, if the lessee paid for said realty tax, the owner would have been obligated to

refund the amount to the lessee, thus:

“Art. 597. The taxes which, during the usufruct, may be imposed directly on the capital, shall be at the expense of the owner.

“If the latter has paid them the usufructuary shall pay him the proper interest on the sums which may have been paid in that character; and, if the said sums have been advanced by the usufructuary, he shall recover the amount thereof at the termination of the usufruct.”

The law which is applicable on this matter is R.A. 7160, particularly Section

234 thereof which provides as follows:

“SEC. 234. Exemption from Real Property Tax. – The following are exempted from the 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, nonprofit 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 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.

The above-quoted provision of law is so explicit that resort to the New Civil

Code is completely out of the question. Besides which, as correctly observed by

the Bureau of Local Government Finance (BLGF), CARAGA Administrative

Region, in its 2nd Indorsement dated September 30, 2003, “The Court of Tax

Appeals case as affirmed by the Supreme Court could not be used as reference

Reference: Book X, pp. 282-289

as the said case dwelt on the road as an integral part of the land, but this petition

is about an office building which in all intents and purposes is not integral part of

the land. It is an independent and distinct improvement of the land subject to real

property tax.”

Petitioner-Appellant insists that, since the subject building in on a lot

owned by the government, it follows that the said building is also owned by the

government. Therefore, under the provisions of Section 234 of the Local

Government Code, the same building is exempt from the real property tax.

Real property owned by the Republic of the Philippines or any of its

political subdivisions are exempted from payment of the real property tax except

when the beneficial use thereof has been granted, for consideration or

otherwise, to a taxable person.

The term “beneficial use” is the “right to use and enjoy property according

to one’s own liking or so as to derive a profit or benefit from it, including all that

makes it desirable and habitable, as light, air and access, as distinguished from a

mere right of occupancy or possession” (Christiansen vs. Department of Social

Security, 15 Wash. 2d. 485, 131, p. 191, cited in Black’s Law Dictionary, 5th

Edition). It is the “right to its enjoyment as exists where the legal title is in one

person and the right to such beneficial use or intent is in another” (Roman

Catholic Missions vs. Missoula County, 200 U.S. 118, 127, 26 SCT 197, 200,

50L. ed. 398, cited in 7 C.S. 1047)

By its own admission, Petitioner-Appellant is a lessee of the lot, consisting

of about three hundred (300) square meters, owned by the Philippine Army on

which subject building is constructed. The circumstances surrounding this lot fall

squarely under the provisions of Section 234, paragraph (a) of R.A. 7160.

Petitioner-Appellant is the “beneficial user” of said lot and should, therefore, be

liable for the real property tax on the same lot for the duration of the lease

contract between Petitioner-Appellant and the Philippine Army. However, we

desist from ordering Respondent-Appellee to assess said lot against Petitioner-

Reference: Book X, pp. 282-289

Appellant for the simple reason that this matter is not brought before us in the

instant appeal.

Petitioner-Appellant also admits that, as provided in the said contract of

lease, the Philippine Army shall own the subject building at the termination of the

said contract.

Even if we assume, for a moment, that the subject building were owned by

the Philippine Army, Petitioner-Appellant would still be liable for the realty tax

thereon as the “beneficial user” thereof. Of course, Petitioner-Appellant’s position

as to the ownership of subject building is so wanting in substance that it should

not merit further discussion.

On the second ground of the instant appeal, Petitioner-Appellant seesm to

convey that, since it is exempted from the payment of income tax under Section

5 of R.A. 8367, otherwise known as the Revised Non-Stock Savings and Loan

Association Act, it (Petitioner-Appellant) is a “tax-exempt entity” for all intents and

purposes, meaning that it is exempt from the payment of any and all taxes

including particularly, real property tax.

The absence of any provision in R.A. 8367 to the effect that entities like the

Petitioner-Appellant is liable for payment of the real property tax does not make

Petitioner-Appellant exempt from payment of the said tax. Real property taxes

are governed by the provisions of Real Property Taxation under Book II, Title

Two of R.A. 8367 is a completely different law and has no bearing whatsoever on

real property taxation.

On the third ground, Appellant says that subject building should not have

been classified as “commercial” since the same is not open to the general public

and operation conducted therein is limited to certain sectors of the bureaucracy;

that, since subject property is located some ten (10) kilometers away from the

city proper and is not in mint condition, the market value placed thereon should

be reconsidered; and that respondent-appellee committed a grave abuse of

discretion in making a very high assessment of the building.

Reference: Book X, pp. 282-289

Sections 215 and 217 of R.A. 7160, which are pertinent to this issue,

provide as follows:

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

“The city or municipality within the Metropolitan Manila Area, through their respective sanggunian, shall have the power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or special in accordance with their zoning ordinance.”

“SEC. 217. Actual Use of Real Property as Basis for Assessment. – Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it and whoever uses it.”

Petitioner-Appellant says that its operation conducted inside the subject

building “is limited only to certain sectors of the bureaucracy” and, therefore,

subject building “could not be classified as commercial.” Petitioner-Appellant did

not, however, suggest any other classification.

Subject building being used as an office of an association, notwithstanding

the limited clientele of Petitioner-Appellant, could not be classified as residential,

agricultural, industrial, mineral, timberland, or special. It is inevitable, therefore,

that it be classified as commercial.

Respondent-Appellee, in his “Position Paper” dated December 5, 2003 and

filed with the Local Board on the same day, stated that “the market values

employed by respondent is that one approved in Ordinance No. 935-93 which

was put together in 1992 for the 1993 general revision of real properties and to

be implemented in the year 1994. In other words, the basis of the cost of

materials was the price of construction materials in the years 1991 and 1992.

Eleven years have passed and it is of public knowledge that since then prices

have more than doubled.”

To rebut Respondent-Appellee’s findings, Petitioner-Appellant could have

presented documentary or other kind of evidence relative to the actual

construction cost of the said subject building. However, except for the empty

statement that the assessment is unjust, unfair, and unreasonable, Petitioner-

Appellant did nothing to support its contention.

Reference: Book X, pp. 282-289

WHEREFORE, this Board resolved to DISMISS the instant appeal for lack

of merit.

SO ORDERED.

Manila, Philippines, March 18, 2004.

(Signed) CESAR S. GUTIERREZ
Chairman

(Signed)
ANGEL P. PALOMARES Member

(Signed) RAFAEL O. CORTES
Member

Reference: Book X, pp. 282-289