Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS Manila

TACLOBAN FAR EAST MARKETING CORP.,
Petitioner-Appellant,

– versus –

BOARD OF ASSESSMENT APPEALS OF TACLOBAN CITY,
Appellee,

CBAA CASE NO. V-01-92 Re: Tax Declaration
Nos. 42555 & 42556

– and –

THE CITY ASSESSOR AND TREASURER OF TACLOBAN,
Respondents-Appellees. x – – – – – – – – – – – – – – – – – – – – – – – – – – – x

DECISION

The Petitioner-Appellant, TACLOBAN FAR EAST MARKETING

CORPORATION, duly represented by its President, FRANCISCO Y.

ROMUALDEZ, in its appeal before this Board seeks to annul and/or modify

Resolution No. 0191, of Appellee Local Board of Assessment Appeals of

Tacloban City, dated November 21, 1991, the dispositive portion of which is

herein-below quoted, viz:

“Lastly, the fact that under the management contract, one of the prerogatives given to the appellant is to engage in all terminal services as well as collection of any income generating business to the Appellant’s financial gain, while it is true that the bus terminal is still owned by the City of Tacloban, the City Government in the exercise of its governmental functions, does not tax itself, but in the exercise of its proprietory functions, such as in the subject management contract, when the property of the city government had been granted for consideration or otherwise to a taxable person, the exemption will not apply as stated in paragraph (a) Sec. 40 of P.D. 464, otherwise known as the Real Property Tax Code.

WHEREFORE, viewed in the light of the foregoing, the appeal on Assessment filed by Far East Marketing Corporation is hereby DENIED.”

and raised the following issues to wit:

First:

Second:

Whether the Contract (Exhibit C, Expediente pages 29-32) is one of lease of real property or a contract for management and operation of the bus terminal; and

Whether an Assessment of a property is proper and valid in the absence of a Written Notice to the Owner or Administrator.

Reference: Book VII, pp. 153-163

As culled from the records, as well as from the hearing of the appeal, it

appears that the City Government of Tacloban, under the “PROGRAM For

Essential Municipal Infrastructure Service Maintenance and Engineering

Development” acronymed, “PREMIUMED”, as its project, constructed a bus

terminal, on its lot, located at Barangay 37, District of Kapangi-an (Quezon

Boulevard) in the City of Tacloban. Complying with one of the conditions of the

program, the management and operation of said bus terminal was awarded by

the City to the Petitioner-Appellant, as per its Resolution No. 91-85, dated June

30, 1990 of the Sangguniang Panlungsod of Tacloban. By virtue of said award,

a “Contract and Agreement for the Management of the Tacloban Bus Terminal”

was executed by and between the City Mayor of Tacloban, representing the

City Government of Tacloban and Francisco Y. Romualdez, representing the

Tacloban Far East Marketing Corporation, the Petitioner-Appellant herein, and

this contract was ratified and confirmed by the Sangguniang Panlungsod of

Tacloban, as per Resolution No. 90-103, of the same, dated June 27, 1990,

(Exhibit “C-2”, Expediente p. 64). On the basis of the said agreement and upo

compliance with the preliminary terms and conditions set forth therein,

Petitioner-Appellant entered into and commenced operation and the

management of the aforesaid bus terminal. Likewise on the basis of the same

contract, Respondent-Appellee, City Assessor of Tacloban, declared and

assessed the aforementioned properties in question in the name of the City

Government of Tacloban, as owner, BUT the Tacloban Far East Marketing

Corporation, as the manager and operator thereof, and Petitioner-Appellant

herein, as the “beneficial user” in accordance with Section 40(a) of P.D 464, as

amended, under Tax Declaration No. 42555 for the lot assessed at

P8,065,880.00 and Tax Declaration No. 42556, for the improvements consisting

of a Bus Terminal, the Main Building, a guard house, covered walks, a

perimeter fence and concrete pavement, assessed at P5,186,000.00, taxes to

take effect with the year 1992 (Exhibit Nos. “A & B”, Expediente pp. 55-56).

Reference: Book VII, pp. 153-163

Subsequently, the City Treasurer of Tacloban advised the Petitioner-Appellant

to pay its taxes. Petitioner-Appellant contested and questioned the

assessments made by Respondent-Appellee, City Assessor, before the

Appellee Local Board of Assessment Appeals, on the ground that the “contract

and agreement”, which was the basis of the assessments, is not a contract of

lease over a real property but that of a contract for management and operation

over a real property (bus terminal). Said appeal was dismissed by the Local

Board of Assessment Appeals of Tacloban contained in its Resolution No.

0191, dated November 21, 1991, (Expediente pp. 1-3).

HENCE, this appeal.

It may be of note that in this appeal, the City Assessor of Tacloban was

omitted as party Respondent, however, on records and upon the hearing of the

case, it appears that the City Assessor of Tacloban is the real party in interest.

The Central Board in CBAA Case No. 243, ruled that:

“Nonetheless, this Board is of the considered opinion that the mere failure of Petitioner-Appellant to include the Provincial Assessor as a real party in interest in the appeal before the Appellee Local Board does not warrant the dismissal of this case or its remand to the Appellee Local Board. This Board is not bound by the technical rules and regulations. Moreover, the rule is “Misjoinder of parties is not a ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms that are just. (CBAA Case No. 243, Municipal Assessor of Paracale, Camarines Norte, Respondent-Appellant, versus Provincial Board of Assessment Appeals of Camarines Norte, Appellee, and United Paracale Mining Company, Petitioner-Appellee).”

This Board in the exercise of its special and appellate jurisdiction, motu

proprio, impleaded the City Assessor of Tacloban as Respondent-Appellee

without objection from the other parties.

As regards the first issue raised by Petitioner-Appellant whether the

contract is one of lease on real property, if viewed on that basis, Petitioner-

Appellant is liable to pay real property taxes, as “Beneficial User” under Section

40(a) of P.D. 464, as amended, quoted hereunder, viz:

“X x x. – Real property owned by the Republic of the Philippines or any of its political subdivision and any government owned corporation so exempt by its charter: Provided, however, that this exemption shall not apply to real property of the above-named entities as the beneficial use of

Reference: Book VII, pp. 153-163

which has been granted, for consideration or otherwise to a taxable person.”

On the other hand, if it is a management and operation contract over thre

bus terminal/real properties, owned by the City Government, then the aforecited

provision of law is not applicable, and Petitioner-Appellant is not liable for the

payment of real property taxes on the said real properties.

Accordingly, the question of whether Petitioner-Appellant should pay

taxes on the subject real properties can only be resolved after a close

examination of the contract and its determination as to its nature, character and

legal qualifications. The issue devolves on the contract itself.

On a close perusal of the contract, it appears in capsule, that the City

Government of Tacloban and the Petitioner-Appellant, agreed that the latter will

render services and perform certain acts, more specifically the management

and operation of the bus terminal, at its own expense, unto the City

Government of Tacloban, and that the former (The City Government) in

consideration of these services, acts and performances, as a matter of course

allowed the use by Petitioner-Appellant of its pensable to the effective and

efficient management and operation of the bus terminal. In effect, on the basis

of this contract, the City Government ha not granted to the Petitioner-Appellant

the “beneficial use” of the properties in question within the contemplation of

Section 40 (a) of P.D. 464, supra. It is our view, therefore, that the beneficial

use of the land remains with the City of Tacloban while Petitioner is merely a

Manager of the bus terminal.

Nevertheless, improvements introduced and exclusively owned by

Petitioner-Appellant, built inside the bus terminal, which are necessary for the

efficient, systematic and healthful management of the bus terminal, in

accordance with paragraph 5, page 2 of the contract (Expediente, page 31), in

the performance of its contractual obligations, shall be assessed in accordance

with the assessment law. This covers all improvements built and constructed by

Petitioner-Appellant, now existing, as well as those to be constructed during the

Reference: Book VII, pp. 153-163

life of this contract. Conversely, if the improvements were constructed by the

City Government of Tacloban within the subject premises they shall be

assessed as exempt.

On a similar case, where a ruling on the claim for real property tax

exemption of the Telecommunications (DOTC) was requested, it appearing

thereat that the Department-owned assets and facilities (buildings) which are

being used by FILPHONE Management Corporation in the municipality of

Alicia, Isabela, under Management and Operation Agreement, wherein

FILPHONE, a private corporation, assumed the management, maintenance and

operation of the Regional Telecommunications Development Project of the

DOTC and that DOTC in return, shall provide FILPHONE with the adequate use

of its office space, equipment and facilities for the effective and efficient

management, operation and maintenance of the System, the Department of

Finance, it its 6th Indorsement, dated October 17, 1990, to the Regional

Director, Region II, of the Bureau of Local Government Finance, Department of

Finance, ruled that:

“The issue to be resolved, therefore, is whether or not Section 40(a) of the Real Property Tax Code (PD 464, as amended, which is quoted hereunder, is applicable in the instant case;

‘Sec. 40. Exemption from Real Property Tax. – (a) Real property owned by the Republic of the Philippines or any of its political subdivision and any government –owned corporation so exempt by its charter: Provided, however, that this exemption shall not apply to real property of the above-named entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person.’

In this connection, attention is invited to Opinion No. 36, series of 1983, of the Office of the President, on the demand of the City Treasurer of Lucena for payment by the Market Corporation of the Philippines (MCP) of the real property tax due on the land and building comprising the Lucena City Public Market, the pertinent portion of which reads to wit:

‘A careful perusal of the Agreement shows that the covenant between the City of Lucena and MCP is basically a management contract. x x x.’

x x x
‘Under the terms of the Agreement, the public market remains the property of the City of Lucena which is exempt from real property tax. Nevertheless, real property tax cannot be assessed or collected from the MCP since it is merely a manager and not an owner or user.
x x x
x x x. The management agreement between the City of Lucena and the MCP did not grant to the latter the beneficial use of the land. As shown earlier, the MCP is merely the manager of the public market of the City of

Reference: Book VII, pp. 153-163

Lucena. Therefore, the beneficial use of the land remained with the City of Lucena.

Accordingly, from the foregoing, the real property tax pertaining to the

City-owned bus terminal including the land where it is constructed should not be

assessed or collected from the Petitioner-Appellant, considering that the

aforesaid management contract between the City Government of Tacloban and

the Tacloban Far East Marketing Corporation, did not grant unto the latter the

“Beneficial Use” of land and buildings subject matter of the said contract.

Granting en arguendo, that the subject contract is that of a contract of

lease, but without admitting the same, still Petitioner-Appellant is not liable to

pay real property taxes under the “Beneficial Use” theory pursuant to Section

40(a) for the reason that “(U)nder this subsection, real property owned by the

Republic of the Philippines or its political subdivision (provinces, cities,

municipalities and barangays) to be taxable in the name of the person who is

using it, refers to their patrimonial or private properties under Article 421 and

423 of the Civil Code of the Philippines, and excludes real properties for public

use and for public services. Which are beyond the commerce of man, and to

lands of public domain granted, sold or leased under Commonwealth Act No.

141 and Forestry Laws.” (page 168, Real Property Tax Code, Annotated by

Cabaluna).

Thus, under the foregoing, only patrimonial property of the state which

are not intended for public use or for public service or for development of

national wealth, may be subject to the said “beneficial use” theory, BUT,

properties of the City intended for public use such as roads, bridges, plazas and

public works, or public service such as markets, schools, office buildings and

bus terminal as in the instant case, are excluded from the application of the law.

As to the second issue, whether an assessment of properties is proper

and valid in the absence of a written notice of assessment to the owner or

administrator, the assessment made by Respondent-Appellee, under Tax

Declaration No. 42555 and 42556, declaring Petitioner-Appellant as taxable,

Reference: Book VII, pp. 153-163

having been found to be null and void in accordance to the aforesaid findings,

the issue of the notice of assessment is rendered moot and academic.

However, with respect to the assessment made and declared in the name of

the City Government of Tacloban, Respondent-Appellee is deemed to be an

agent of the City Government of Tacloban, hence, the notice is presumed to be

valid and subsisting.

WHEREFORE, in view of the foregoing, the Resolution of the Local

Board of Assessment Appeals of Tacloban City, dated November 21, 1991, is

hereby modified to state that the provisions of Section 40(a) P.D. 464 is not

applicable to the Tacloban Far East Marketing Corporation, the Petitioner-

Appellant, herein, and that under the same provision of law, it is exempt from

the payment of real property taxes. Respondent-Appellee, City Assessor of

Tacloban, is hereby ordered to cancel Tax Declaration Nos. 42555 and 42556,

Petitioner-Appellant being exempt, and further to assess under new tax

declaration all improvements which are exclusively belonging to Petitioner-

Appellant, built and constructed within the premises of the bus terminal, now

existing, in accordance with the assessment law.

Respondent-Appellee, City Treasurer of Tacloban City is hereby ordered

to act accordingly.

SO ORDERED.

Manila, Philippines, December 10, 1992.

(Signed) MARGARITA G. MAGISTRADO
Chairman

(Signed) ELEANOR A. SANTOS
Member

(Signed) ALFONSO M. MEDADO
Member

Reference: Book VII, pp. 153-163