REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION

AUTHORITY (PRA) vs. CITY OF PARANAQUE

G.R. No. 191109 ; July 18, 2012
Ponente: MENDOZA, J.:
FACTS:
The Public Estates Authority (PEA) is a government corporation created by virtue of PD
No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions,
Providing Funds Therefor and For Other Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the
government with the object of maximizing their utilization and hastening their
development consistent with public interest.
On February 14, 1979, by virtue of EO No. 525 issued by then President Marcos, PEA
was designated as the agency primarily responsible for integrating, directing and
coordinating all reclamation projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the
PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore
areas of Manila Bay, including those located in Parañaque City.
On February 19, 2003, then Parañaque City Treasurer Carabeo issued Warrants of
Levy on PRA’s reclaimed properties located in Parañaque City based on the
assessment for delinquent real property taxes.
Thus, PRA insists that, as an incorporated instrumentality of the National
Government, it is exempt from payment of real property tax except when the beneficial
use of the real property is granted to a taxable person. PRA claims that based on
Section 133(o) of the LGC, local governments cannot tax the national government
which delegate to local governments the power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State,
thus, exempt from the payment of real estate taxes. Reclaimed lands retain their
inherent potential as areas for public use or public service. While the subject
reclaimed lands are still in its hands, these lands remain public lands and form part of
the public domain.
On the other hand, the City of Parañaque argues that PRA’s very own charter declared
it to be a GOCC and that it has entered into several thousands of contracts where it
represented itself to be a GOCC.
ISSUE:
Whether PRA is a GOCC which is not exempt from the payment of real property tax.
RULING:
No.
A GOCC must be "organized as a stock or non-stock corporation" while an
instrumentality is vested by law with corporate powers. When the law makes a
government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the
department framework.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not necessarily 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.
Two requisites must concur before one may be classified as a stock corporation,
namely: (1) that it has capital stock divided into shares; and (2) that it is authorized to
distribute dividends and allotments of surplus and profits to its stockholders. If only
one requisite is present, it cannot be properly classified as a stock corporation. As for
non-stock corporations, they must have members and must not distribute any part of
their income to said members.
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a
capital stock divided into no par value shares as provided in Section 7 of P.D. No.
1084, it is not authorized to distribute dividends, surplus allotments or profits to
stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the
subsequent executive issuances pertaining to PRA, that authorizes PRA to distribute
dividends, surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have
members. A non-stock corporation must have members. Moreover, it was not
organized for any of the purposes mentioned in Section 88 of the Corporation Code.
Specifically, it was created to manage all government reclamation projects.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that
are usually organized under their special charters as stock corporations, like the Land
Bank of the Philippines and the Development Bank of the Philippines. These are the
government-owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the
Introductory Provisions of the Administrative Code or under Section 16, Article XII of
the 1987 Constitution. The facts, the evidence on record and jurisprudence on the
issue support the position that PRA was not organized either as a stock or a non-stock
corporation. Neither was it created by Congress to operate commercially and compete
in the private market. Instead, PRA is a government instrumentality vested with
corporate powers and performing an essential public service pursuant to Section 2(10)
of the Introductory Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands
managed by PRA. On the other hand, Section 234(a) of the LGC, in relation to its
Section 133(o), exempts PRA from paying realty taxes and protects it from the taxing
powers of local government units.
Section 234 provides that real property owned by the Republic of the Philippines is
exempt from real property tax unless the beneficial use thereof has been granted to a
taxable person. In this case, there is no proof that PRA granted the beneficial use of
the subject reclaimed lands to a taxable entity. There is no showing on record either
that PRA leased the subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which
prohibits local governments from imposing "taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The Administrative
Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by
the Republic and continue to be exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when the title of the real
property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the tax
exemption, unless "the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person."
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 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. [Emphases
supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and
offshore areas of Manila Bay. As such, these lands remain public lands and form part
of the public domain. The fact that alienable lands of the public domain were
transferred to the PEA (now PRA) and issued land patents or certificates of title in
PEA’s name did not automatically make such lands private. This Court also held
therein that reclaimed lands retained their inherent potential as areas for public use
or public service.