MANILA INTERNATIONAL AIRPORT AUTHORITY, PETITIONER, VS. COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARA…

Manila International Airport Authority versus Court of Appeals, City of Parañaque

The Case

This is a petition for review brought by the Manila International Airport Authority against the City of Parañaque, its City Mayor, its Sangguniang Panglungsod, its City Treasurer, and its City Assessor. The Authority sought to stop the City from imposing real estate tax on, levying against, and auctioning the Airport Lands and Buildings of the Ninoy Aquino International Airport Complex. The case matters because it settles two questions every local taxation examiner must know: whether the airport operator is a government-owned or controlled corporation, and whether its lands and buildings are taxable real property of the Republic.

Procedural History

The Authority first filed with the Court of Appeals an original petition for prohibition and injunction with a prayer for a preliminary injunction or temporary restraining order. The Court of Appeals dismissed the petition because it was filed beyond the 60-day reglementary period, and it later denied the Authority's motion for reconsideration and supplemental motion for reconsideration. The Authority then filed with the Supreme Court the present petition for review.

While the case was pending, the City posted and published notices of auction sale. A day before the scheduled auction, the Authority filed an urgent ex parte and reiteratory motion for the issuance of a temporary restraining order. The Supreme Court issued a temporary restraining order effective immediately, ordering the respondents to cease and desist from selling the Airport Lands and Buildings at public auction. The respondents received the order only after the public auction had already concluded, and the Court later confirmed the temporary restraining order nunc pro tunc. The Court heard the parties in oral arguments and received their respective memoranda.

Facts

The Manila International Airport Authority operates the Ninoy Aquino International Airport Complex in Parañaque City under Executive Order No. 903, the Revised Charter of the Manila International Airport Authority, issued on 21 July 1983, and later amended by Executive Order Nos. 909 and 298. As operator, the Authority administers the land, improvements, and equipment within the Complex. Its Charter transferred to it approximately 600 hectares of land, including the runways and buildings then under the Bureau of Air Transportation, and provides that no portion of the transferred land shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines.

On 21 March 1997, the Office of the Government Corporate Counsel issued Opinion No. 061, opining that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to the Authority under Section 21 of its Charter. The Authority negotiated with the City of Parañaque and paid some of the real estate tax already due. On 28 June 2001, the Authority received Final Notices of Real Estate Tax Delinquency from the City for the taxable years 1992 to 2001, with a grand total of 392,435,861.95 pesos in tax and 232,070,863.47 pesos in penalty, or 624,506,725.42 pesos all told. On 17 July 2001, the City, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings, and the Mayor threatened to sell them at public auction should the Authority fail to pay.

The Authority sought clarification, and on 9 August 2001 the Office of the Government Corporate Counsel issued Opinion No. 147, pointing out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption, and opining that Section 21 of the Charter is that proof. In January 2003, the City posted notices of auction sale and published them in the Philippine Daily Inquirer, announcing the public auction of the Airport Lands and Buildings on 7 February 2003. The auction proceeded before the respondents received the Court's restraining order.

Issues

• Whether or not the Airport Lands and Buildings of the Manila International Airport Authority are exempt from real estate tax under existing laws.
• Whether or not the Authority is a government-owned or controlled corporation, and therefore covered by the withdrawal of tax exemption privileges under the Local Government Code.
• Whether or not the Airport Lands and Buildings are owned by the Republic of the Philippines and thus exempt from real estate tax.

Applicable Provisions

Section 2, paragraph 13 of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation:

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock.

This definition controls whether the Authority falls within the class whose tax exemption privileges the Local Government Code withdrew.

Section 2, paragraph 10 of the same Introductory Provisions defines a government instrumentality:

Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.

This is the classification the Court ultimately assigns to the Authority.

Section 133 of the Local Government Code states the common limitations on the taxing powers of local government units:

Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.

This provision is the source of the Authority's exemption from local real estate tax.

Articles 419, 420, 421, and 422 of the Civil Code classify property:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion: (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; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State.

These articles establish that the Airport Lands and Buildings, being a port constructed by the State and intended for public use, are owned by the Republic.

Ruling

On the first issue, the Court ruled that the Airport Lands and Buildings are exempt from real estate tax imposed by local governments. The Court gave two reasons: the Authority is not a government-owned or controlled corporation but an instrumentality of the National Government, and the real properties are owned by the Republic of the Philippines.

On the second issue, the Court held that the Authority is not a government-owned or controlled corporation. A government-owned or controlled corporation must be organized as a stock or non-stock corporation. The Authority is not a stock corporation because it has no capital stock divided into shares, no stockholders, and no voting shares. It is not a non-stock corporation because it has no members, and because Section 11 of its Charter mandates it to remit 20 percent of its annual gross operating income to the National Treasury, which prevents it from qualifying as a non-stock corporation. The Court classified the Authority as a government instrumentality vested with corporate powers, like the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. As such, it falls under Section 133 of the Local Government Code, which bars local governments from levying taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities. The Court stressed that when local governments invoke the power to tax on national government instrumentalities, the power is construed strictly against local governments, and any doubt is resolved against taxation. While tax exemptions are strictly construed against the taxpayer, an exemption granted to a national government instrumentality from local taxation is construed liberally in favor of that instrumentality.

On the third issue, the Court held that the Airport Lands and Buildings are property of public dominion and therefore owned by the State or the Republic of the Philippines. The term ports in Article 420 of the Civil Code includes seaports and airports, and the Airport Lands and Buildings constitute a port constructed by the State. They are devoted to public use because they are used by the public for international and domestic travel and transportation. The charging of terminal fees and landing fees does not change their character, because the charging of fees does not determine whether property is of public dominion; what matters is that the property is intended for public use. As property of public dominion, the Airport Lands and Buildings are outside the commerce of man.

Doctrine

A government-owned or controlled corporation must be organized as a stock or non-stock corporation. An agency vested with corporate powers but not organized as a stock or non-stock corporation remains a government instrumentality, not a government-owned or controlled corporation.

Under Section 133 of the Local Government Code, local governments cannot levy taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities. When local governments invoke the power to tax national government instrumentalities, the power is construed strictly against local governments, and any doubt is resolved against taxation. An exemption granted by Congress to a national government instrumentality from local taxation is construed liberally in favor of the instrumentality.

Property of public dominion, such as ports, airports, and roads constructed by the State and intended for public use, is owned by the Republic of the Philippines and is outside the commerce of man. The collection of fees from the public does not convert such property into patrimonial property or remove its public character.

Disposition

The Supreme Court granted the petition and ruled that the Airport Lands and Buildings of the Manila International Airport Authority are exempt from real estate tax, making the real estate tax assessments issued by the City of Parañaque and all proceedings taken pursuant to them void.

Remember This

Memorize this line: an agency vested with corporate powers but not organized as a stock or non-stock corporation is a government instrumentality, not a government-owned or controlled corporation, and its properties of public dominion are exempt from local real estate tax. Examiners use this case in local taxation and in questions on the definition of government-owned or controlled corporations under the Administrative Code.