Government Service Insurance System vs. City Treasurer of the City of Manila; G.R. No. 186242.  December 23, 2009

Topic:

Real and Local Property Taxation

DOCTRINE: 

Beneficial Use Rule – the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner.

FACTS:

Petitioner GSIS owns or used to own two (2) parcels of land, Katigbak property and Concepcion-Arroceros property. The City Treasurer of Manila addressed a letter to GSIS President and General Manager Winston F. Garcia informed him of the unpaid real property taxes due on the aforementioned properties for years 1992 to 2002. The letter warned of the inclusion of the subject properties public auction of all delinquent properties in Manila should the unpaid taxes remain unsettled.

GSIS filed a petition for certiorari and prohibition with prayer for a restraining and injunctive relief before the RTC. GSIS emphasized that it is exempted from all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291. It further alleged that the Katigbak property in its name has since November 1991, been leased to and occupied by the Manila Hotel Corporation (MHC), which has contractually bound itself to pay any realty taxes that may be imposed on the subject property; and (b) the Concepcion-Arroceros property is partly occupied by GSIS and partly occupied by the MeTC of Manila.

The RTC dismissed the the assessment conducted by the respondents City of Manila on the subject real properties of GSIS as valid pursuant to law

ISSUE/S: 

1. whether GSIS under its charter is exempt from real property taxation;

(2) Whether the Katigbak properly leased to MHC shall be liable for real property tax.

(2.1) If yes, which between GSIS, as the owner of the Katigbak property, or MHC, as the lessee thereof, is liable to pay the accrued real estate tax.

(3) Whether the properties of GSIS are exempt from levy.

HELD: 

(1) Yes, Real property taxes assessed and due from GSIS are considered paid.  Sec. 39 of RA 8291 in 1997 provided that:

 SEC. 39. Exemption from Tax, Legal Process and Lien.—x x x Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provi-

Also, the subject properties under GSIS’s name are likewise owned by the Republic. The GSIS is but a mere trustee of the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the system.

History Notes: In 1936, Commonwealth Act No. (CA) 186, the GSIS was established to manage the pension system, life and retirement insurance, and other benefits of all government employees. Section 26 of CA 186 provided exemption from any legal process and liens but only for insurance policies and their proceeds.In 1977, PD 1146, otherwise known as the Revised Government Service Insurance Act of 1977, was issued, providing for an expanded insurance system for government employees. Sec. 33 of PD 1146 provided for a new tax treatment ; its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds.In 1991, RA 7160 provided the exercise of local government units (LGUs) of their power to tax, the scope and limitations thereof, and the exemptions from taxations. Sec. 193 of the LGC has a special provision on withdrawal of exemption from payment of real property taxes including government-owned or -controlled corporationsIn 1997, PD 1146 was further amended and expanded by RA 8291. Under it, the full tax exemption privilege of GSIS was restored. 

(2) Yes, the leased Katigbak property shall be taxable pursuant to the “beneficial use” principle under Sec. 234(a) of the LGC.

SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.”

The tax exemption the property of the Republic or its instrumentality carries ceases only if, as stated in Sec. 234(a) of the LGC of 1991, “beneficial use thereof has been granted, for a consideration or otherwise, to a taxable person.” GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak property when it contracted its beneficial use to MHC, doubtless a taxable person. Thus, the real estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax delinquency is concerned as assessed over said property.

(2.1) MHC ought to pay. In the case of Testate Estate of Concordia T. Lim, “the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. Actual use refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof. Being in possession and having actual use of the Katigbak property since November 1991, MHC is liable for the realty taxes assessed over the Katigbak property from 1992 to 2002.

Also, MHC has obligated itself under the GSIS-MHC Contract of Lease to shoulder such assessment.

(3) No. The Katigbak property cannot in any event be subject of a public auction sale, notwithstanding its realty tax delinquency. This means that the City of Manila has to satisfy its tax claim by serving the accrued realty tax assessment on MHC, as the taxable beneficial user of the Katigbak property and, in case of nonpayment, through

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