ABRA VALLEY COLLEGE, INC. REPRESENTED BY PEDRO V. BOKGONL A, PETITIONER, VS. HON. JUAN P. AQUINO, JUDGE, COURT OF FIRST INSTANCE, ABRA; ARMIN M. CARIAGA, PROVINCIAL TREASURER, A…

Abra Valley College versus Aquino

The Case

This is a petition for review on certiorari brought by Abra Valley College, Incorporated, represented by its director Pedro Borgonia, against Judge Juan Aquino of the Court of First Instance of Abra, the provincial and municipal treasurers of Abra, and Paterno Millare. The school asked the Court to annul the seizure and public sale of its lot and building for unpaid real property taxes, claiming exemption because the property is used exclusively for educational purposes. The case matters because it fixes the meaning of the phrase used exclusively for educational purposes in the constitutional and statutory tax exemption, and draws the line between an incidental use that is tolerated and a commercial use that destroys the exemption.

Procedural History

The school filed a complaint in the Court of First Instance of Abra to annul the notice of seizure and the notice of sale of its lot and building. The parties entered into a stipulation of facts, and the trial court rendered judgment declaring the seizure and sale valid, ordering the school to pay back taxes and penalties, and confiscating the deposit it had made. The school moved for time to appeal, but instead filed a petition for review on certiorari with prayer for preliminary injunction before the Supreme Court, which gave the petition due course.

Facts

Abra Valley College is an educational corporation incorporated in 1948, recognized by the government and offering primary, high school, and college courses to more than one thousand students. Its lot and building in Bangued, Abra, covered by a certificate of title in its name, were subjected to a notice of seizure for unpaid real property taxes and penalties amounting to 5,140 pesos and 31 centavos. The property was sold at public auction, and Paterno Millare, then municipal mayor, offered the highest bid of 6,000 pesos, for which a certificate of sale was issued in his favor.

The trial court found that the school stands in the heart of the town, that the elementary pupils are housed in a separate two-storey building across the street, that the high school and college students occupy the main building, and that the director and his family live on the second floor of that main building. The provincial fiscal, in a memorandum for the government, opined that the school building and lot used for educational purposes are exempt from taxation. The trial court nevertheless ruled for the government, solely because the director used the second floor for residential purposes.

Before the Supreme Court, the private respondents added that the ground floor of the college building was being rented and used by a commercial establishment, the Northern Marketing Corporation. This fact had not been raised in the trial court, was not in the stipulation of facts, and was not disputed even after it was raised on appeal.

Issues

• Whether or not the seizure and sale of the college lot and building for unpaid real property taxes were valid.
• Whether or not the lot and building are used exclusively for educational purposes, considering that the director and his family reside on the second floor.
• Whether or not the property is exempt from property taxes.
• Whether or not the deposit made by the school may be confiscated and applied to the back taxes.

Applicable Provisions

Section 22, paragraph 3, Article VI of the 1935 Constitution provides:

Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes shall be exempt from taxation.

This is the constitutional grant on which the school anchored its claim of exemption.

Section 54, paragraph c of Commonwealth Act Number 470, as amended by Republic Act Number 409, otherwise known as the Assessment Law, provides:

The following are exempted from real property tax under the Assessment Law: churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, scientific or educational purposes.

This is the statutory counterpart that the Court construed together with the Constitution.

Ruling

On the first issue, the Court held that the validity of the seizure and sale depends on whether the property is exempt, because property exempt from tax cannot be distrained and sold for a tax it does not owe.

On the second issue, the Court read the phrase used exclusively for educational purposes liberally, so that the exemption is not limited to property actually indispensable but extends to facilities incidental to and reasonably necessary for the accomplishment of the educational purpose. Under this test, the use of the second floor as the residence of the director and his family may be justified as an incidental use complementary to the main purpose. But the lease of the first floor to a commercial establishment cannot, by any stretch of the imagination, be considered incidental to education.

On the third issue, the Court held that the trial court reached the correct conclusion, though for a different reason: the property is taxable not because of the residential use of the second floor, but because of the commercial use of the first floor. Since only a portion is used for commerce, the Court held it only fair that half of the assessed tax be returned to the school.

On the fourth issue, the Court did not sustain the confiscation of the deposit as ordered below; it modified the judgment so that half of the assessed tax is returned to the petitioner.

Doctrine

The test of exemption from taxation is the use of the property for the purposes mentioned in the Constitution. The phrase used exclusively for educational purposes is not limited to property actually indispensable, but extends to facilities incidental to and reasonably necessary for the accomplishment of the educational purpose, such as a residence for the school director. However, the use of the school building or lot for commercial purposes is neither contemplated by law nor by jurisprudence, and destroys the exemption. Where only a portion of the property is used for commerce, the exemption is lost only as to that portion, and the corresponding share of the tax may be refunded.

Disposition

The petition was granted in part: the decision of the trial court was affirmed, subject to the modification that half of the assessed tax be returned to the petitioner.

Remember This

Memorize the line that the use of a school building or lot for commercial purposes is neither contemplated by law nor by jurisprudence, while an incidental residential use is tolerated. Examiners use this case to test the exclusive use requirement in the educational tax exemption and the treatment of incidental versus commercial use.