CASE DIGEST: Metropolitan Waterworks and Sewerage System vs. Central Board of Assessment Appeals

 

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS, THE PASAY CITY LOCAL BOARD OF ASSESSMENT APPEALS, PASAY CITY, THE PASAY CITY TREASURER AND CITY ASSESSOR, respondent

G.R. No. 215955                 |              Jan. 13, 2021

 

FACTS:

RA No. 6234 created MWSS "to insure an uninterrupted and adequate supply and distribution of potable water for domestic and other purposes and the proper operation and maintenance of sewerage systems." It was vested with the power to exercise supervision and control over all waterworks and sewerage systems within Metro Manila, Rizal, and a portion of Cavite.

In 1997, pursuant to RA No. 8041 or the "National Water Crisis Act of 1995," MWSS entered into a  concessionaire agreement with Maynilad to service the West Zone of the Metropolitan Area that includes Pasay City.

On February 21, 2008, MWSS received Real Property Tax Computations from the Pasay City Treasurer for taxable year 2008, demanding payment of real property taxes in the total amount of P166,629.36. Allegedly on the same day, MWSS filed a Protest Letter dated February 3, 2008, addressed to then Pasay City Mayor Wenceslao Peewee Trinidad. MWSS argued that it is a public utility and a government instrumentality, and its properties and facilities are exempt from real property tax. This claim was anchored upon the case of Manila International Airport Authority v. CA, that declared MIAA a government instrumentality exercising corporate powers, and thus, exempt from real property taxes under Section 133(0) and Sec. 243(a) of the LGC.

ISSUE:

WON Pasay City is authorized to assess and collect real property taxes from MWSS

RULING:

The 2018 MWSS case has already settled with finality that MWSS is a government instrumentality vested with corporate powers, and as such, exempt from payment of real property taxes. The Court explained that with the issuance of Executive Order No. 596, as well as the passage of RA No. 10149, the Executive and the Legislative Branches have explicitly classified MWSS as a government instrumentality with corporate powers.

Consistent with the ruling in the 2018 MWSS Case, in relation to MIAA, the tax exemptions under Sections 133(0) and 234(a) of the LGC apply to MWSS.

These provisions are clear as to a government instrumentality’s tax exemption. In brief, explained that this limitation to the local government's taxing power recognizes the basic principle that local governments cannot tax the national government, which merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide." Thus, when local governments invoke their power to tax on government instrumentalities, such power is construed strictly against local governments.

The tax exemption under Section 234(a), however, ceases when the beneficial use of the real properties is alleged and proved to have been granted, for a consideration or otherwise, to a taxable person. 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.

In this case, 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 factual allegation, however, was not proved and 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 this point, the Court cannot make a judicious determination of such factual matter due to the insufficiency of evidence on records. 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. The LGC also leaves no room for interpretation on the corresponding liability of the taxable beneficial user for the payment of real property taxes on a government instrumentality property.

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. In as early as 1980 in the case of City of Baguio v. Busuego, the Court ruled that the taxable person who purchased in installment the property belonging to a tax-exempt person was held liable to pay the real property taxes from the time the possession of the property was transferred to him despite such tax-exempt person's retention of ownership and title over the property pending full payment of the purchase price.

In sum, the Court held that MWSS is not liable to the local government of Pasay City for real property taxes. The tax exemption of its properties, however, ceases when the beneficial or actual use is alleged and proven to have been extended to a taxable person. All the assessments issued in the name of MWSS should thus, be declared void. To be clear, Pasay City is not precluded from availing of the appropriate remedies under the law to assess and collect real property taxes from the private entities to whom MWSS may have granted the beneficial use of its properties.