453 Phil. 927
AZCUNA, J.:
This is an action for the "recovery of sum of money" filed by [respondent] City of Iloilo, a public corporation organized under the laws of the Republic of the Philippines, represented by the Hon. Rodolfo T. Ganzon as City Mayor, against petitioner, Philippine Ports Authority (PPA), a government corporation created by P.D. 857.The court a quo rendered its decision holding petitioner liable for real property taxes from the last quarter of 1984 to December 1986, and for business taxes with respect to petitioner's lease of real property from the last quarter of 1984 up to 1988. It, however, held that respondent may not collect business taxes on petitioner's arrastre and stevedoring services, as these form part of petitioner's governmental functions. The dispositive portion of said decision states:
[Respondent] seeks to collect from [petitioner] real property taxes as well as business taxes, computed from the last quarter of 1984 up to fourth quarter of 1988.
[Respondent] alleges that [petitioner] is engaged in the business of arrastre and stevedoring services and the leasing of real estate for which it should be obligated to pay business taxes. It further alleges that [petitioner] is the declared and registered owner of a warehouse which is used in the operation of its business and is also thereby subject to real property taxes.
It demands the aggregate amount of P510,888.86 in realty and business taxes as of December 1988 (real property tax - last quarter of 1984 to 1988; business tax- 1984 to 1988) including its corresponding interests and penalty charges.
On July 19, 1989, [petitioner] filed a motion to dismiss but [it] was denied by this court. A motion for reconsideration was filed, but the same was still denied, after which [petitioner] filed its answer.
During the pre-trial conference, the following factual and legal issues were defined and clarified.Factual Issues:
- Whether or not [petitioner] is engaged in business;
- Whether or not the assessment of tax by [respondent] is accurate as of 4th quarter of 1988 from the year 1984; real property tax in the amount of P180,953.93 and business tax in the amount of P329,934.93 as of December 31, 1988.
Legal Issues: During trial, [respondent] presented two witnesses, namely: Mrs. Rizalina F. Tulio and Mr. Leoncio Macrangala.
- Whether or not Philippine Ports Authority is exempt from the payment of real property tax and business tax;
- Whether by filing a motion to dismiss, [petitioner] impliedly admitted the allegations in the complaint;
- Whether Philippine Ports Authority is engaged in business. If in the negative, whether or not it is exempt from payment of business taxes.
x x x x x x x x x
After [respondent] had rested its case, [petitioner] did not present any evidence. Instead, its counsel asked the court to give him time to file a memorandum, as said counsel is convinced that the issues involved in this case are purely legal issues.
He has no quarrel as regards the computation of the real property and business taxes made by [respondent]. He is convinced, however, that the issue in this case involves a question of law and that [petitioner] is not liable to pay any kind of taxes to the City of Iloilo.[1]
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay the plaintiff, as follows:Petitioner now seeks a review of the case, contending that the court a quo decided a question of substance which has not been decided by us in that:
- the amount of P98,519.16 as real property tax, from [the] last quarter of 1984 up to December 1986;
- the amount of P3,828.07, as business tax, for leasing of real estate from [the] last quarter of 1984 up to 1988.[2]
(i) It decreed a property of public dominion (port facility) as subject to realty taxes just because the mentioned property is being administered by what it perceived to be a taxable government corporation. And,In its Comment, respondent in addition raises the issue of whether or not petitioner may change its theory on appeal. It points out that petitioner never raised the issue that the subject property is of public dominion during the trial nor did it mention it in the memorandum it filed with the lower court. It further contends that such change of theory patently contradicts petitioner's admission in its pleadings and is disallowed under applicable jurisprudence.[4]
(ii) It declared that petitioner PPA is subject to "business taxes" for leasing to private persons or entities real estate without considering that petitioner PPA is not engaged in "business."[3]
(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;
e) "port" means a place where ships may anchor or tie up for the purpose of shelter, repair, loading or discharge of cargo, or for other such activities connected with water-borne commerce, and including all the land and water areas and the structures, equipment and facilities related to these functions. [Emphasis supplied]A perusal of the records shows that this thesis was never presented nor discussed at the trial stage.
[I]n the interest of justice and within the sound discretion of the appellate court, a party may change his theory on appeal only when the factual bases thereof would not require presentation of any further evidence by the adverse party in order to enable it to properly meet the issue raised in the new theory.Petitioner contends that its new theory falls under the aforecited exception, as the issue does not involve any disputed evidentiary matter.
Under Art. 420, canals constructed by the State and devoted and devoted to public use are of public ownership. Conversely, canals constructed by private persons within private lands and devoted exclusively for private use must be of private ownership.In the case at bar, no proof was adduced to establish that the port was constructed by the State. Petitioner cannot have us automatically conclude that its port qualified as "property of public dominion." It would be unfair to respondent, which would be deprived of its opportunity to present evidence to disprove the factual basis of the new theory. It is thus clear that the Lianga exception cannot apply in the case at bar.
Defendant is likewise the declared and registered owner of a warehouse standing on Lot No. 1065 situated at Bgy. Concepcion, City Proper, declared under Tax Declaration No. 56325. Xerox copy of the said Tax Declaration is hereto attached as annex "D" and form[s] an integral part of herein complaint;[13]In its Answer, referring to the abovecited complaint, petitioner stated, "Paragraph 3 is admitted."[14] Notably, this admission was never questioned nor put at issue during the trial.
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.[15] [Emphasis supplied]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.
...[T]he properties of petitioner are not exclusively considered as public roads being improvements placed upon the public road, and this [separable] nature of the structure in itself physically distinguishes it from a public road. Considering further that carriageways or passenger terminals are elevated structures which are not freely accessible to the public, vis-à-vis roads which are public improvements openly utilized by the public, the former are entirely different from the latter.Using the same reasoning, the warehouse in the case at bar may not be held as part of the port, considering its separable nature as an improvement upon the port, and the fact that it is not open for use by everyone and freely accessible to the public. In the same way that we ruled in one case that the exemption of public property from taxation does not extend to improvements made thereon by homesteaders or occupants at their own expense,[24] we likewise uphold the taxability of the warehouse in the instant case, it being a mere improvement built on an alleged property of public dominion, assuming petitioner's port to be so. Moreover, petitioner may not invoke the definition of "port" in its charter to expand the meaning of "ports constructed by the State" in the Civil Code to include improvements built thereon. It must be noted that the charter itself limited the use of said definition only for the interpretation of Presidential Decree (P.D.) No. 857, its by-laws, regulations and rules,[25] and not of other statutes such as the Civil Code. Given these parameters, therefore, petitioner's move to present its new theory, even if allowed, would nonetheless prove to be futile.
SECTION 40. Exemptions from Real Property Tax. - The exemption shall be as follows:Petitioner's charter, P.D. 857,[27] further specifically exempted it from real property taxes:(a) Real property owned by the Republic of the Philippines or any of its political subdivisions 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.
SECTION 25. Exemption from Realty Taxes - The Authority shall be exempt from the payment of real property taxes imposed by the Republic of the Philippines, its agencies, instrumentalities or political subdivisions; Provided, That no tax exemptions shall be extended to any subsidiaries of the Authority that may be organized; Provided, finally, That investments in fixed assets shall be deductible for income tax purposes.It can thus be seen from the foregoing that petitioner, as a government-owned or controlled corporation, enjoyed an exemption from real property taxes.
Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of government-owned or controlled corporations including their subsidiaries, are hereby withdrawn.Under the same law, the exemption can be restored in special cases through an application for restoration with the Secretary of Finance,[28] which, notably, petitioner did not avail.
SECTION 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except:
e) those conferred under four basic codes namely:[Emphasis supplied]
(i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended;
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subject to control by a mere Local government. [Emphasis supplied]Petitioner points out that its exercise of regulatory functions as decreed by its charter[31] places it within the category of an "agency or instrumentality of the government," which, according to Basco, is beyond the reach of local taxation.
The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since P.D. 1869 remains an "operative" law until "amended, repealed or revoked"...its "exemption clause" remains an exemption to the exercise of the power of local governments to impose taxes and fees.[32]Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos,[33] where the Basco case was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom." The fact that tax exemptions of government-owned or controlled corporations have been expressly withdrawn by the present Local Government Code[34] clearly attests against petitioner's claim of absolute exemption of government instrumentalities from local taxation.
Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level.Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government was that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.[39]x x x x x x x x x
To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the government be said to have lost anything.
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.[35] National Power Corp. v. Presiding Judge, RTC, Br. XXV, 190 SCRA 477 (1990).
(b) The corporate powers of the Authority shall be as follows:[37] CIR v. CA and Commonwealth Management and Services Corp., 329 SCRA 237 (2000).xxx xxx xxx
(vii) To acquire, purchase, own, lease, mortgage, sell, or otherwise dispose of any land, port facility, wharf, quay, or property of any kind, whether movable or immovable.