CASE DIGEST
Metropolitan Waterworks
and Sewerage System v. Central Board of Assessment Appeals, G.R. No. 215955,
[January 13, 2021]
SECOND, LOPEZ, M.V
Local Taxation; Real
Property Taxation; Remedies of Taxpayer in Local Tax Disputes (RPT); Exhaustion
of Administrative Remedies
The tax-exempt status of a government
instrumentality is not lost when it grants the beneficial use of its real
property to a taxable person; only the exemption of the real property ceases in
such case. Indeed, it is a fundamental principle in real property taxation that the
assessment of real property shall be based on its actual use. The Court has
consistently ruled that while the liability for taxes generally rests on the
owner of the real property, personal liability for real property taxes may also
expressly rest on the entity with the beneficial use of the real property at
the time the tax accrues.
The case involves MWSS (Metropolitan Waterworks and Sewerage System) disputing the imposition of real property taxes by Pasay City for the taxable year 2008. Established by RA No. 6234 in 1971, MWSS was granted authority over waterworks and sewerage systems in Metro Manila, Rizal, and part of Cavite. In 1997, under RA No. 8041, MWSS entered a concessionaire agreement with Maynilad to service the West Zone, including Pasay City. Pasay City demanded P166,629.36 in real property taxes, prompting MWSS to protest, claiming exemption as a government instrumentality under the Local Government Code (LGC). The LBAA ruled against MWSS, asserting it is a government-owned corporation (GOCC) and subject to taxation. Despite acknowledging MWSS as a government instrumentality, the CBAA upheld the tax, arguing that MWSS's tax exemption under RA No. 6234 had been withdrawn by Section 234 of the LGC. The CA dismissed MWSS's appeal for failure to exhaust administrative remedies. Hence this petition.
Whether it is correct to dismiss the
appeal for failure to exhaust administrative remedies.
NO. The CA erred in dismissing MWSS's
appeal solely on the ground of the alleged non-exhaustion of administrative
remedies under the LGC. Administrative remedies are inapplicable when the issue
presented is a pure question of law. A careful reading of MWSS's arguments and allegations
reveals that it is assailing the authority of the city assessor and treasurer
to assess and collect real property taxes against it. The issue of whether a
local government is authorized to assess and collect real property taxes from a
government entity is a pure question of law, which is beyond the LBAA and
CBAA's jurisdiction. The protest contemplated under Section 252 of the LGC is
required when there is question as to the reasonableness or correctness of the
amount assessed, while an appeal to the LBAA under Section 226 is fruitful only
where questions of fact are involved. When the very authority and power of the
assessor to impose the assessment, and of the treasurer to collect real
property taxes are in question, the proper recourse is a judicial action. Thus,
despite the alleged non-exhaustion of administrative remedies, the Court gives
due course to this petition on the ground that the controversy only involves a
question of law.
Whether the City of Pasay is authorized
to assess and collect real property taxes from MWSS.
NO. MWSS is a government
instrumentality with corporate powers, not liable to the local government of
Pasay City for real property taxes. The tax exemption that its properties carry,
however, ceases when their beneficial use has been extended to a taxable
person. The liability to pay real property taxes on government-owned
properties, the beneficial or actual use of which was granted to a taxable entity,
devolves on the taxable beneficial user. Beneficial use means actual use or
possession of the property. Actual use refers to the purpose for which the
property is principally or predominantly utilized by the person in possession
thereof.
The respondents have not alleged that
the beneficial use of any of MWSS’s properties was extended to a taxable
person. In the absence of any allegation to the contrary, MWSS’s properties in
Quezon City are not subject to the levy of real property taxes. Although there
was an allegation that the beneficial use of MWSS's properties in Pasay were
given to Maynilad by virtue of a concession agreement, this however, was not
proved and was merely based on a sweeping conclusion that when MWSS entered
into a concession agreement, all its properties were effectively turned over to
the concessionaires for their operations. At any rate, the tax-exempt status of
a government instrumentality is not lost when it grants the beneficial use of
its real property to a taxable person; only the exemption of the real property ceases
in such case.
Indeed, it is a fundamental principle
in real property taxation that the assessment of real property shall be based
on its actual use. The Court has consistently ruled that while the liability
for taxes generally rests on the owner of the real property, personal liability
for real property taxes may also expressly rest on the entity with the
beneficial use of the real property at the time the tax accrues.
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