MANILA INTERNATIONAL AIRPORT AUTHORITY v. COURT OF APPEALS, et al. GR No. 155650, 20 July 2006, Carpio, J. (En Banc)

Section 243(a) of the Local Government Code (LGC) exempts from real estate tax any real property owned by the Republic of the Philippines. This exemption should be read in relation with Sec. 133(o) of the LGC, which provides that the exercise of the taxing powers of local governments shall not extend to the levy of taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. This rule applies with greater force when local governments seek to tax national government instrumentalities. Moreover, a tax exemption is construed liberally in favor of national government instrumentalities. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Also, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery.

The Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paranaque City under Executive Order No. 903 (MIAA Charter), as amended. As such operator, it administers the land, improvements and equipment within the NAIA Complex. In March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061 to the effect that the Local Government Code of 1991 (LGC) withdrew the exemption from real estate tax granted to MIAA under Section 21 of its Charter. Thus, MIAA paid some of the real estate tax already due. In June 2001, it received Final Notices of Real Estate Tax Delinquency from the City of Paranaque for the taxable years 1992 to 2001. The City Treasurer subsequently issued notices of levy and warrants of levy on the airport lands and buildings.

At the instance of MIAA, the OGCC issued Opinion No. 147 clarifying Opinion No. 061, pointing out that Sec. 206 of the LGC requires persons exempt from real estate tax to show proof of exemption. According to the OGCC, Sec. 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. MIAA, thus, filed a petition with the Court of Appeals seeking to restrain the City of Paranaque from imposing real estate tax on, levying against, and auctioning for public sale the airport lands and buildings, but this was dismissed for having been filed out of time. Hence, MIAA filed this petition for review, pointing out that it is exempt from real estate tax under Sec. 21 of its charter and Sec. 234 of the LGC. It invokes the principle that the government cannot tax itself as a justification for exemption, since the airport lands and buildings, being devoted to public use and public service, are owned by the Republic of the Philippines. On the other hand, the City of Paranaque invokes Sec. 193 of the LGC, which expressly withdrew the tax exemption privileges of government-owned and controlled corporations (GOCC) upon the effectivity of the LGC. It asserts that an international airport is not among the exceptions mentioned in the said law.

Meanwhile, the City of Paranaque posted and published notices announcing the public auction sale of the airport lands and buildings. In the afternoon before the scheduled public auction, MIAA applied with the Court for the issuance of a TRO to restrain the auction sale. The Court issued a TRO on the day of the auction sale, however, the same was received only by the City of Paranaque three hours after the sale.

ISSUE:

Whether or not the airport lands and buildings of MIAA are exempt from real estate tax under existing laws

RECENT JURISPRUDENCE TAXATION LAW

HELD:

The airport lands and buildings of MIAA are exempt from real estate tax imposed by local governments. Sec. 243(a) of the LGC exempts from real estate tax any real property owned by the Republic of the Philippines. This exemption should be read in relation with Sec. 133(o) of the LGC, which provides that the exercise of the taxing powers of local governments shall not extend to the levy of taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities. These provisions recognize the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. This rule applies with greater force when local governments seek to tax national government instrumentalities. Moreover, a tax exemption is construed liberally in favor of national government instrumentalities.

MIAA is not a GOCC, but an instrumentality of the government.

Sec. 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as follows:

(13) 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: x x x (Emphasis supplied)

MIAA is not organized as a stock or non-stock corporation. It is not a stock corporation because it has no capital stock divided into shares. It has capital but it is not divided into shares of stock. It has no stockholders or voting shares. MIAA is also not a non-stock corporation because it has no members. Even assuming that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Being a public utility, MIAA is not organized for any of the purposes provided for under the Corporation Code for which a non-stock corporation may be organized. Also, it is mandated by its charter to remit 20% of its annual gross operating income to the National Treasury. Non-stock corporations cannot distribute any part of their income to their members.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. Sec. 2(10) of the Introductory Provisions of the Administrative Code defines a government instrumentality as follows:

(10) 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. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Also, when the law makes a government instrumentality operationally

The Petition is GRANTED.

RECENT JURISPRUDENCE TAXATION LAW

autonomous, the instrumentality remains part of the National Government machinery. Being a government instrumentality, MIAA falls under Sec. 133(o) of the LGC. As such, it is not a taxable person.

The airport lands and buildings are owned by the Republic of the Philippines, hence, exempt from tax.

Properties of public dominion mentioned in Article 420 of the Civil Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the State. The term ports includes seaports and airports. The MIAA airport lands and buildings constitute a port constructed by the State. Also, the said properties are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that MIAA collects terminal fees and other charges from the public does not remove the character of the airport lands and buildings as properties for public use. Such fees are often termed users tax, which means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A users tax is more equitable.

MIAA is merely holding title to the airport lands and buildings in trust for the Republic. In fact, MIAA cannot dispose of the properties without the Presidents approval. The transfer of these properties from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the properties. MIAA itself is owned solely by the Republic. At any time, the President can transfer back to the Republic title to the airport lands and buildings without the Republic paying MIAA any consideration.

As long as the airport lands and buildings are reserved for public use, their ownership remains with the State. Unless the President issues a proclamation withdrawing these properties from public use, they remain properties of public dominion. As such, they are inalienable, hence, they are not subject to levy on execution or foreclosure sale, and they are exempt from real estate tax.

However, portions of the airport lands and buildings that MIAA leases to private entities are not exempt from real estate tax. In such a case, MIAA has granted the beneficial use of such portions for a consideration to a taxable person.