16.

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY

(PRA) vs. CITY OF PARANAQUE
G.R. No. 191109 July 18, 2012
PETITIONER’S CLAIM: Philippine Reclamation Authority (PRA) asserts that it is not a
government-owned and controlled corporation (GOCC) under Section 2(13) of the Introductory
Provisions of the Administrative Code. Neither is it a GOCC under Section 16, Article XII of the
1987 Constitution because it is not required to meet the test of economic viability. 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. Although it has a capital stock divided into shares, it is not authorized to
distribute dividends and allotment of surplus and profits to its stockholders. Therefore, it may
not be classified as a stock corporation because it lacks the second requisite of a stock
corporation which is the distribution of dividends and allotment of surplus and profits to the
stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members
and it is not organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers as provided in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as there was
no competing reclamation company operated by the private sector. Also, while PRA is vested
with corporate powers under P.D. No. 1084, such circumstance does not make it a corporation
but merely an incorporated instrumentality and that the mere fact that an incorporated
instrumentality of the National Government holds title to real property does not make said
instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987
recognizes a scenario where a piece of land owned by the Republic is titled in the name of a
department, agency or instrumentality.
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. Hence, the assessment of real
property taxes made on said lands, as well as the levy thereon, and the public sale thereof on
April 7, 2003, including the issuance of the certificates of sale in favor of the respondent
Parañaque City, are invalid and of no force and effect.
SUPREME COURT’S RULING: The Court finds merit in the petition.
PRA is a government instrumentality but it is not a GOCC. 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.
Introductory Provisions of the Administrative Code of 1987 defines a GOCC as 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.
From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, 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.
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a GOCC.
The fundamental provision above authorizes Congress to create GOCCs through special
charters on two conditions: 1) the GOCC must be established for the common good; and 2) the
GOCC must meet the test of economic viability. In this case, PRA may have passed the first
condition of common good but failed the second one - economic viability. Undoubtedly, the
purpose behind the creation of PRA was not for economic or commercial activities. Neither was
it created to compete in the market place considering that there were no other competing
reclamation companies being operated by the private sector.
Further, when local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The rule is that a
tax is never presumed and there must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality.
 17. MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) vs. CITY OF LAPU-LAPU
and ELENA T. PACALDO
G.R. No. 181756 June 15, 2015
PETITIONER’S CLAIM: Petitioner claims that the Supreme Court, in the 2006 MIAA case, had
expressly declared that petitioner, while vested with corporate powers, is not considered a
government-owned or controlled corporation, but is a government instrumentality like the
Manila International Airport Authority (MIAA), Philippine Ports Authority (PPA), University of
the Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed
by respondent City.44Petitioner alleges that Republic Act No. 6958 placed "a limitation on
petitioner’s administration of its assets and properties" as it provides under Section 4(e) that
"any asset in the international airport important to national security cannot be alienated or
mortgaged by petitioner or transferred to any entity other than the National Government."
SUPREME COURT’S RULING: The petition has merit. The petitioner is an instrumentality of the
government; thus, its properties actually, solely and exclusively used for public purposes,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, are not subject to real property tax and respondent City is not justified in
collecting taxes from petitioner over said properties.

18. COMMISSIONER OF INTERNAL REVENUE, vs. MARUBENI CORPORATION

G.R. No. 137377 December 18, 2001

PETITIONER’S CLAIM: Petitioner claims that respondent is disqualified from availing of the
amnesties under Executive Orders Nos. 41 and 64 because the latter falls under the exception
in Section 4 (b) of E.O. No. 41 which provides that those with income tax cases already filed in
Court as of the effectivity of E.O. No. 41 may not avail themselves of the amnesty granted
therein. Petitioner argues that at the time respondent filed for income tax amnesty on October
30, 1986, CTA Case No. 4109 regarding its assessed deficiency internal revenue taxes had
already been filed and was pending before the Court of Tax Appeals. Respondent therefore fell
under the exception in Section 4 (b) of E.O. No. 41.

SUPREME COURT’S RULING: Petitioner's claim cannot be sustained. Section 4 (b) of E.O. No. 41
is very clear and unambiguous. It excepts from income tax amnesty those taxpayers "with
income tax cases already filed in court as of the effectivity hereof." The point of reference is
the date of effectivity of E.O. No. 41. The filing of income tax cases in court must have been
made before and as of the date of effectivity of E.O. No. 41. Thus, for a taxpayer not to be
disqualified under Section 4 (b) there must have been no income tax cases filed in court against
him when E.O. No. 41 took effect. This is regardless of when the taxpayer filed for income tax
amnesty, provided of course he files it on or before the deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency
income, branch profit remittance and contractor's tax assessments was filed by respondent
with the Court of Tax Appeals on September 26, 1986. When E.O. No. 41 became effective on
August 22, 1986, CTA Case No. 4109 had not yet been filed in court. Respondent corporation
did not fall under the said exception in Section 4 (b), hence, respondent was not disqualified
from availing of the amnesty for income tax under E.O. No. 41.

However, when E.O. No. 64 took effect on November 17, 1986, CTA Case No. 4109 was already
filed and pending in court. By the time respondent filed its supplementary tax amnesty return
on December 15, 1986, respondent already fell under the exception in Section 4 (b) of E.O. Nos.
41 and 64 and was disqualified from availing of the business tax amnesty granted therein.

In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore
be construed strictly against the taxpayer. A tax amnesty, much like a tax exemption, is never
favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption,
must be construed strictly against the taxpayer and liberally in favor of the taxing authority.

19. COMMISSIONER OF INTERNAL REVENUE vs. BRITISH OVERSEAS AIRWAYS CORPORATION

and COURT OF TAX APPEALS
G.R. No. L-65773-74 April 30, 1987
PETITIONER’S CLAIM: British Overseas Airways Corporation (BOAC), a 100% British
Government-owned corporation organized and existing under the laws of the United Kingdom,
and is engaged in the international airline business, alleges that income derived from
transportation is income for services, with the result that the place where the services are
rendered determines the source; and since BOAC's service of transportation is performed
outside the Philippines, the income derived is from sources without the Philippines and,
therefore, not taxable under our income tax laws.
SUPREME COURT’S RULING: BOAC’s claim is untenable. The source of an income is the
property, activity or service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity
that produces the income. The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The site of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government. In consideration of such protection, the
flow of wealth should share the burden of supporting the government.