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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9637 April 30, 1957
AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs. CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Nañawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Philippine agency established in Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines and translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since November, 1945, without providing itself with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid the closing of its business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in the aforementioned amount, giving at the same time notice to the City Treasurer that suit would be taken in court to question the legality of the ordinances under which, the said fees were being collected (Annex C), which was done on the same date by filing the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for such other relief and remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila, and praying that the complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances.
Before trial the parties submitted the following stipulation of facts:
COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfully submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila, Bibles, New Testaments, bible portions and bible concordance in English and other foreign languages imported by it from the United States as well as Bibles, New Testaments and bible portions in the local dialects imported and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as follows: Quarter | Amount of Sales | 4th quarter 1945 | P1,244.21 | 1st quarter 1946 | 2,206.85 | 2nd quarter 1946 | 1,950.38 | 3rd quarter 1946 | 2,235.99 | 4th quarter 1946 | 3,256.04 | 1st quarter 1947 | 13,241.07 | 2nd quarter 1947 | 15,774.55 | 3rd quarter 1947 | 14,654.13 | 4th quarter 1947 | 12,590.94 | 1st quarter 1948 | 11,143.90 | 2nd quarter 1948 | 14,715.26 | 3rd quarter 1948 | 38,333.83 | 4th quarter 1948 | 16,179.90 | 1st quarter 1949 | 23,975.10 | 2nd quarter 1949 | 17,802.08 | 3rd quarter 1949 | 16,640.79 | 4th quarter 1949 | 15,961.38 | 1st quarter 1950 | 18,562.46 | 2nd quarter 1950 | 21,816.32 | 3rd quarter 1950 | 25,004.55 | 4th quarter 1950 | 45,287.92 | 1st quarter 1951 | 37,841.21 | 2nd quarter 1951 | 29,103.98 | 3rd quarter 1951 | 20,181.10 | 4th quarter 1951 | 22,968.91 | 1st quarter 1952 | 23,002.65 | 2nd quarter 1952 | 17,626.96 | 3rd quarter 1952 | 17,921.01 | 4th quarter 1952 | 24,180.72 | 1st quarter 1953 | 29,516.21 |
2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated.
WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present further evidence on their behalf. (Record on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in the Philippines since 1899, and that its parent society is in New York, United States of America; that its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that it was never required to pay any municipal license fee or tax before the war, nor does the American Bible Society in the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it never made any profit from the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order to maintain its operating cost it obtains substantial remittances from its New York office and voluntary contributions and gifts from certain churches, both in the United States and in the Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here at P15 each; and those bearing the price of $11 each are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit from the sale of its bible, is evidently untenable.
After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in the way the legislative intent is expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that this case should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Us for the reason that the errors assigned to the lower Court involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of Republic Act No. 409;
3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to be valid under the new Charter of the City of Manila, must first be approved by the President of the Philippines; and
4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, it cannot escape from the operation of said municipal ordinances under the cloak of religious privilege.
The issues. — As may be seen from the proceeding statement of the case, the issues involved in the present controversy may be reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that:
(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political rights.
Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is concerned, because they provide for religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious literature to the people of the Philippines.
Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in connection with the society's alleged business of distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this litigation, plus the sum of P35 for compromise on account of plaintiff's failure to secure the permit required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general application and not particularly directed against institutions like the plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to conduct or engage in any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other businesses, trades, or occupations for which a permit is required for the proper supervision and enforcement of existing laws and ordinances governing the sanitation, security, and welfare of the public and the health of the employees engaged in the business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of the Ordinance, and the record does not show that a permit is required therefor under existing laws and ordinances for the proper supervision and enforcement of their provisions governing the sanitation, security and welfare of the public and the health of the employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads as follows:
79. All other businesses, trades or occupations not mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00.
Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation.
As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following:
SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised Ordinances of the City of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of the businesses or occupations below enumerated, quarterly, license fees based on gross sales or receipts realized during the preceding quarter in accordance with the rates herein prescribed: PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first time shall pay the initial license fee based on the probable gross sales or receipts for the first quarter beginning from the date of the opening of the business as indicated herein for the corresponding business or occupation. x x x x x x x x x
GROUP 2. — Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such as (1) retail dealers in general merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including stationery. x x x x x x x x x
As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended, are not imposed directly upon any religious institution but upon those engaged in any of the business or occupations therein enumerated, such as retail "dealers in general merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the combined total tax of any debtor or manufacturer, or both, enumerated under these subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM. and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however, contends that said ordinances are longer in force and effect as the law under which they were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in both legal provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute in its entirety and by the same enactment re-enact all or certain portions of the preexisting law. Of course, the problem created by this sort of legislative action involves mainly the effect of the repeal upon rights and liabilities which accrued under the original statute. Are those rights and liabilities destroyed or preserved? The authorities are divided as to the effect of simultaneous repeals and re-enactments. Some adhere to the view that the rights and liabilities accrued under the repealed act are destroyed, since the statutes from which they sprang are actually terminated, even though for only a very short period of time. Others, and they seem to be in the majority, refuse to accept this view of the situation, and consequently maintain that all rights an liabilities which have accrued under the original statute are preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore, continuing the law in force without interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot be considered as a substantial re-enactment of the provisions of the latter. We have quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry and livestock, agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may have any bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned therein, shall not be in excess of P500 per annum, the corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in accordance with the weight of the authorities above referred to that maintain that "all rights and liabilities which have accrued under the original statute are preserved and may be enforced, since the reenactment neutralizes the repeal, therefore continuing the law in force without interruption", We hold that the questioned ordinances of the City of Manila are still in force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as follows:
(ii) To tax, license and regulate any business, trade or occupation being conducted within the City of Manila,not otherwise enumerated in the preceding subsections, including percentage taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except amusement taxes. but this requirement of the President's approval was not contained in section 2444 of the former Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said business does not have to be approved by the President to be effective, as it is not among those referred to in said subsection (ii). Moreover, the questioned ordinances are still in force, having been promulgated by the Municipal Board of the City of Manila under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are inapplicable, invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of the Philippines by a religious corporation like the American Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant contends that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to an active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his relations to His Creator and to the obligations they impose of reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent". (Tañada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be obtained before a person could canvass or solicit orders for goods, paintings, pictures, wares or merchandise cannot be made to apply to members of Jehovah's Witnesses who went about from door to door distributing literature and soliciting people to "purchase" certain religious books and pamphlets, all published by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five cents each, the "price" of the pamphlets five cents each. It was shown that in making the solicitations there was a request for additional "contribution" of twenty-five cents each for the books and five cents each for the pamphlets. Lesser sum were accepted, however, and books were even donated in case interested persons were without funds.
On the above facts the Supreme Court held that it could not be said that petitioners were engaged in commercial rather than a religious venture. Their activities could not be described as embraced in the occupation of selling books and pamphlets. Then the Court continued:
"We do not mean to say that religious groups and the press are free from all financial burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a tax on the income of one who engages in religious activities or a tax on property used or employed in connection with activities. It is one thing to impose a tax on the income or property of a preacher. It is quite another to exact a tax from him for the privilege of delivering a sermon. The tax imposed by the City of Jeannette is a flat license tax, payment of which is a condition of the exercise of these constitutional privileges. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can close all its doors to all those who do not have a full purse. Spreading religious beliefs in this ancient and honorable manner would thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this activity is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax — a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a license tax on the exercise of these freedom is indeed as potent as the power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax."
Nor could dissemination of religious information be conditioned upon the approval of an official or manager even if the town were owned by a corporation as held in the case of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed the opinion that the right to enjoy freedom of the press and religion occupies a preferred position as against the constitutional right of property owners.
"When we balance the constitutional rights of owners of property against those of the people to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that the latter occupy a preferred position. . . . In our view the circumstance that the property rights to the premises where the deprivation of property here involved, took place, were held by others than the public, is not sufficient to justify the State's permitting a corporation to govern a community of citizens so as to restrict their fundamental liberties and the enforcement of such restraint by the application of a State statute." (Tañada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following organizations shall not be taxed under this Title in respect to income received by them as such —
(e) Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is purely religious and does not fall under the above legal provisions.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any person can engage in any of the businesses, trades or occupations enumerated therein, We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are being delivered free, or whether same are being sold within the city limits of the City of Griffin, without first obtaining written permission from the city manager of the City of Griffin, shall be deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive defendant of his constitutional right of the free exercise and enjoyment of religious profession and worship, even though it prohibits him from introducing and carrying out a scheme or purpose which he sees fit to claim as a part of his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it. Without pronouncement as to costs. It is so ordered.
Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10448 August 30, 1957
IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT REGARDING THE VALIDITY OF MUNICIPAL ORDINANCE NO. 3659 OF THE CITY OF MANILA. PHYSICAL THERAPY ORGANIZATION OF THE PHILIPPINES, INC., petitioner-appellant, vs. THE MUNICIPAL BOARD OF THE CITY OF MANILA and ARSENIO H. LACSON, as Mayor of the City of Manila,respondents-appellees.
Mariano M. de Joya for appellant.
City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Nañawa for appellees.
MONTEMAYOR, J.:
The petitioner-appellant, an association of registered massagists and licensed operators of massage clinics in the City of Manila and other parts of the country, filed an action in the Court of First Instance of Manila for declaratory judgment regarding the validity of Municipal Ordinance No. 3659, promulgated by the Municipal Board and approved by the City Mayor. To stop the City from enforcing said ordinance, the petitioner secured an injunction upon filing of a bond in the sum of P1,000.00. A hearing was held, but the parties without introducing any evidence submitted the case for decision on the pleadings, although they submitted written memoranda. Thereafter, the trial court dismissed the petition and later dissolved the writ of injunction previously issued.
The petitioner appealed said order of dismissal directly to this Court. In support of its appeal, petitioner-appellant contends among other things that the trial court erred in holding that the Ordinance in question has not restricted the practice of massotherapy in massage clinics to hygienic and aesthetic massage, that the Ordinance is valid as it does not regulate the practice of massage, that the Municipal Board of Manila has the power to enact the Ordinance in question by virtue of Section 18, Subsection (kk), Republic Act 409, and that permit fee of P100.00 is moderate and not unreasonable. Inasmuch as the appellant assails and discuss certain provisions regarding the ordinance in question, and it is necessary to pass upon the same, for purposes of ready reference, we are reproducing said ordinance in toto.
ORDINANCE No. 3659
AN ORDINANCE REGULATING THE OPERATION OF MASSAGE CLINICS IN THE CITY OF MANILA AND PROVIDING PENALTIES FOR VIOLATIONS THEREOF.
Be it ordained by the Municipal Board of the City of Manila, that:
Section 1. Definition. — For the purpose of this Ordinance the following words and phrases shall be taken in the sense hereinbelow indicated:
(a) Massage clinic shall include any place or establishment used in the practice of hygienic and aesthetic massage;
(b) Hygienic and aesthetic massage shall include any system of manipulation of treatment of the superficial parts of the human body of hygienic and aesthetic purposes by rubbing, stroking, kneading, or tapping with the hand or an instrument;
(c) Massagist shall include any person who shall have passed the required examination and shall have been issued a massagist certificate by the Committee of Examiners of Massagist, or by the Director of Health or his authorized representative;
(d) Attendant or helper shall include any person employed by a duly qualified massagist in any message clinic to assist the latter in the practice of hygienic and aesthethic massage;
(e) Operator shall include the owner, manager, administrator, or any person who operates or is responsible for the operation of a message clinic.
SEC. 2. Permit Fees. — No person shall engage in the operation of a massage clinic or in the occupation of attendant or helper therein without first having obtained a permit therefor from the Mayor. For every permit granted under the provisions of this Ordinance, there shall be paid to the City Treasurer the following annual fees:
(a) Operator of a massage P100.00
(b) Attendant or helper 5.00
Said permit, which shall be renewed every year, may be revoked by the Mayor at any time for the violation of this Ordinance.
SEC. 3. Building requirement. — (a) In each massage clinic, there shall be separate rooms for the male and female customers. Rooms where massage operations are performed shall be provided with sliding curtains only instead of swinging doors. The clinic shall be properly ventilated, well lighted and maintained under sanitary conditions at all times while the establishment is open for business and shall be provided with the necessary toilet and washing facilities.
(b) In every clinic there shall be no private rooms or separated compartment except those assigned for toilet, lavatories, dressing room, office or kitchen.
(c) Every massage clinic shall "provided with only one entrance and it shall have no direct or indirect communication whatsoever with any dwelling place, house or building.
SEC. 4. Regulations for the operation of massage clinics. — (a) It shall be unlawful for any operator massagist, attendant or helper to use, or allow the use of, a massage clinic as a place of assignation or permit the commission therein of any incident or immoral act. Massage clinics shall be used only for hygienic and aesthetic massage.
(b) Massage clinics shall open at eight o'clock a.m. and shall close at eleven o'clock p.m.
(c) While engaged in the actual performance of their duties, massagists, attendants and helpers in a massage clinic shall be as properly and sufficiently clad as to avoid suspicion of intent to commit an indecent or immoral act;
(d) Attendants or helpers may render service to any individual customer only for hygienic and aesthetic purposes under the order, direction, supervision, control and responsibility of a qualified massagist.
SEC. 5. Qualifications — No person who has previously been convicted by final judgment of competent court of any violation of the provisions of paragraphs 3 and 5 of Art. 202 and Arts. 335, 336, 340 and 342 of the Revised Penal Code, or Secs. 819 of the City of Manila, or who is suffering from any venereal or communicable disease shall engage in the occupation of massagist, attendant or helper in any massage clinic. Applicants for Mayor's permit shall attach to their application a police clearance and health certificate duly issued by the City Health Officers as well as a massagist certificate duly issued by the Committee or Examiners for Massagists or by the Director of Health or his authorized representatives, in case of massagists.
SEC. 6. Duty of operator of massage clinic. — No operator of massage clinic shall allow such clinic to operate without a duly qualified massagist nor allow, any man or woman to act as massagist, attendant or helper therein without the Mayor's permit provided for in the preceding sections. He shall submit whenever required by the Mayor or his authorized representative the persons acting as massagists, attendants or helpers in his clinic. He shall place the massage clinic open to inspection at all times by the police, health officers, and other law enforcement agencies of the government, shall be held liable for anything which may happen with the premises of the massage clinic.
SEC. 7. Penalty. — Any person violating any of the provisions of this Ordinance shall upon conviction, be punished by a fine of not less than fifty pesos nor more than two hundred pesos or by imprisonment for not less than six days nor more than six months, or both such fine and imprisonment, at the discretion of the court.
SEC. 8. Repealing Clause. — All ordinances or parts of ordinances, which are inconsistent herewith, are hereby repealed.
SEC. 9. Effectivity. — This Ordinance shall take effect upon its approval.
Enacted, August 27, 1954.
Approved, September 7, 1954.
The main contention of the appellant in its appeal and the principal ground of its petition for declaratory judgment is that the City of Manila is without authority to regulate the operation of massagists and the operation of massage clinics within its jurisdiction; that whereas under the Old City Charter, particularly, Section 2444 (e) of the Revised Administrative Code, the Municipal Board was expressly granted the power to regulate and fix the license fee for the occupation of massagists, under the New Charter of Manila, Republic Act 409, said power has been withdrawn or omitted and that now the Director of Health, pursuant to authority conferred by Section 938 of the Revised Administrative Code and Executive Order No. 317, series of 1941, as amended by Executive Order No. 392, series, 1951, is the one who exercises supervision over the practice of massage and over massage clinics in the Philippines; that the Director of Health has issued Administrative Order No. 10, dated May 5, 1953, prescribing "rules and regulations governing the examination for admission to the practice of massage, and the operation of massage clinics, offices, or establishments in the Philippines", which order was approved by the Secretary of Health and duly published in the Official Gazette; that Section 1 (a) of Ordinance No. 3659 has restricted the practice of massage to only hygienic and aesthetic massage prohibits or does not allow qualified massagists to practice therapeutic massage in their massage clinics. Appellant also contends that the license fee of P100.00 for operator in Section 2 of the Ordinance is unreasonable, nay, unconscionable.
If we can ascertain the intention of the Manila Municipal Board in promulgating the Ordinance in question, much of the objection of appellant to its legality may be solved. It would appear to us that the purpose of the Ordinance is not to regulate the practice of massage, much less to restrict the practice of licensed and qualified massagists of therapeutic massage in the Philippines. The end sought to be attained in the Ordinance is to prevent the commission of immorality and the practice of prostitution in an establishment masquerading as a massage clinic where the operators thereof offer to massage or manipulate superficial parts of the bodies of customers for hygienic and aesthetic purposes. This intention can readily be understood by the building requirements in Section 3 of the Ordinance, requiring that there be separate rooms for male and female customers; that instead of said rooms being separated by permanent partitions and swinging doors, there should only be sliding curtains between them; that there should be "no private rooms or separated compartments, except those assigned for toilet, lavatories, dressing room, office or kitchen"; that every massage clinic should be provided with only one entrance and shall have no direct or indirect communication whatsoever with any dwelling place, house or building; and that no operator, massagists, attendant or helper will be allowed "to use or allow the use of a massage clinic as a place of assignation or permit the commission therein of any immoral or incident act", and in fixing the operating hours of such clinic between 8:00 a.m. and 11:00 p.m. This intention of the Ordinance was correctly ascertained by Judge Hermogenes Concepcion, presiding in the trial court, in his order of dismissal where he said: "What the Ordinance tries to avoid is that the massage clinic run by an operator who may not be a masseur or massagista may be used as cover for the running or maintaining a house of prostitution."
Ordinance No. 3659, particularly, Sections 1 to 4, should be considered as limited to massage clinics used in the practice of hygienic and aesthetic massage. We do not believe that Municipal Board of the City of Manila and the Mayor wanted or intended to regulate the practice of massage in general or restrict the same to hygienic and aesthetic only.
As to the authority of the City Board to enact the Ordinance in question, the City Fiscal, in representation of the appellees, calls our attention to Section 18 of the New Charter of the City of Manila, Act No. 409, which gives legislative powers to the Municipal Board to enact all ordinances it may deem necessary and proper for the promotion of the morality, peace, good order, comfort, convenience and general welfare of the City and its inhabitants. This is generally referred to as the General Welfare Clause, a delegation in statutory form of the police power, under which municipal corporations, are authorized to enact ordinances to provide for the health and safety, and promote the morality, peace and general welfare of its inhabitants. We agree with the City Fiscal.
As regards the permit fee of P100.00, it will be seen that said fee is made payable not by the masseur or massagist, but by the operator of a massage clinic who may not be a massagist himself. Compared to permit fees required in other operations, P100.00 may appear to be too large and rather unreasonable. However, much discretion is given to municipal corporations in determining the amount of said fee without considering it as a tax for revenue purposes:
The amount of the fee or charge is properly considered in determining whether it is a tax or an exercise of the police power. The amount may be so large as to itself show that the purpose was to raise revenue and not to regulate, but in regard to this matter there is a marked distinction between license fees imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not restrict, and those which areinimical and dangerous to public health, morals or safety. In the latter case the fee may be very large without necessarily being a tax. (Cooley on Taxation, Vol. IV, pp. 3516-17; underlining supplied.)
Evidently, the Manila Municipal Board considered the practice of hygienic and aesthetic massage not as a useful and beneficial occupation which will promote and is conducive to public morals, and consequently, imposed the said permit fee for its regulation.
In conclusion, we find and hold that the Ordinance in question as we interpret it and as intended by the appellees is valid. We deem it unnecessary to discuss and pass upon the other points raised in the appeal. The order appealed from is hereby affirmed. No costs.
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39086 June 15, 1988
ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is valid;
That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the amount of P5,140.31 and back taxes and penalties from the promulgation of this decision;
That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply for the payment of the back taxes and for the redemption of the property in question, if the amount is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who represents the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be returned to said Municipal Treasurer of Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.
On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. Said Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed stipulation of facts:
1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial Treasurer of the Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in Bangued, Abra under Original Certificate of Title No. 0-83;
3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.
5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by the parties.
WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point agreed upon by the parties.
Bangued, Abra, April 12, 1973.
Sgd. Agripino Brillantes
Typ AGRIPINO BRILLANTES
Attorney for Plaintiff
Sgd. Loreto Roldan
Typ LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra
Sgd. Demetrio V. Pre
Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare (Rollo, pp. 17-18)
Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos.
From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision.
After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of error:
I
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."
Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void.
On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvementsused exclusively for religious, charitable or educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as the Assessment Law, provides:
The following are exempted from real property tax under the Assessment Law: xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, scientific or educational purposes. xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions.
The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus —
Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.
It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).
Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.
SO ORDERED.
Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Abra Valley College v. Aquino
G.R. No. L-39086 June 15, 1988
Paras, J.

Facts: Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the “Notice of Seizure’ and the “Notice of Sale” of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said “Notice of Seizure” by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The trial court ruled for the government, holding that the second floor of the building is being used by the director for residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary injunction before the Supreme Court, by filing said petition on 17 August 1974.

Issue: Whether or not the lot and building are used exclusively for educational purposes

Held: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes.ン Reasonable emphasis has always been made that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes (leased) and the second floor being used as incidental to education (residence of the director).

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.
D E C I S I O N
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows: TAX DECLARATION | TAXABLE YEAR | TAX DUE | PENALTY | TOTAL | E-016-01370 | 1992-2001 | 19,558,160.00 | 11,201,083.20 | 30,789,243.20 | E-016-01374 | 1992-2001 | 111,689,424.90 | 68,149,479.59 | 179,838,904.49 | E-016-01375 | 1992-2001 | 20,276,058.00 | 12,371,832.00 | 32,647,890.00 | E-016-01376 | 1992-2001 | 58,144,028.00 | 35,477,712.00 | 93,621,740.00 | E-016-01377 | 1992-2001 | 18,134,614.65 | 11,065,188.59 | 29,199,803.24 | E-016-01378 | 1992-2001 | 111,107,950.40 | 67,794,681.59 | 178,902,631.99 | E-016-01379 | 1992-2001 | 4,322,340.00 | 2,637,360.00 | 6,959,700.00 | E-016-01380 | 1992-2001 | 7,776,436.00 | 4,744,944.00 | 12,521,380.00 | *E-016-013-85 | 1998-2001 | 6,444,810.00 | 2,900,164.50 | 9,344,974.50 | *E-016-01387 | 1998-2001 | 34,876,800.00 | 5,694,560.00 | 50,571,360.00 | *E-016-01396 | 1998-2001 | 75,240.00 | 33,858.00 | 109,098.00 | GRAND TOTAL | | P392,435,861.95 | P232,070,863.47 | P 624,506,725.42 |
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque ("respondents") — from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to 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. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management and the Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not 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. Thus, MIAA exercises the governmental powers of eminent domain,12 police authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."15
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. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body"16 will make its operation more "financially viable."17
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 government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: x x x x
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesand local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically 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."18
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. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 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. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable — a principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air traffic,"22 are properties of public dominion because they are intended for public use.As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man: xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public usethe Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall benon-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation; x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x x x x
The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities, runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory Provisions. — The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished. x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air traffic, is required to provide standards of airport accommodation and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of providing high standards of accommodation and service within the context of a financially viable operation, will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the Philippines is given continuing authority to reorganize the National Government, which authority includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines." This only means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides:
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; x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesx x x." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. 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.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when 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. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to ataxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: x x x x
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states: x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the Local Government Code grants an express authorization, local governments have no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:
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. x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the government gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions prevail over Section 133. Thus, the minority asserts: x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can impose any kind of tax on the national government, its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception — which is an exception to the exemption of the Republic from real estate tax imposed by local governments — refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: x x x x
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority sees no reason why government corporations with special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those corporations owned by the government or its instrumentalities which are created not by legislative enactment, but formed and organized under the Corporation Code through registration with the Securities and Exchange Commission. In short, these are GOCCs without original charters. x x x x
It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations organized as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are available for subscription by the National Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-owned or controlled corporations because they are not registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good — meaning for economic development purposes — these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities — known as "government-owned or controlled corporations" — must meet the test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public.
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.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. MIAA does not compete in the market place because there is no competing international airport operated by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an international airport requires the presence of personnel from the following government agencies: 1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those without visas or travel documents, or those with hold departure orders; 2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations; 3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into the country; 4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country; 5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure; 6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and 7. The MIAA, to provide the proper premises — such as runway and buildings — for the government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:
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. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.
Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 79307 August 29, 1989
COMMISSIONER OF CUSTOMS, petitioner, vs. THE HON. RAMON P. MAKASIAR, RTC Judge, Branch 35, Manila and THE DISTILLERS CO. LTD. OF ENGLAND, respondents.
Quasha, Asperilla, Ancheta, Pena & Nolasco for private respondent.
CORTES, J.:
Petitioner Commissioner of Customs seeks the reversal of respondent judge's decision dated 20 July 1987 in Civil Case No. 82-12821 entitled "The Distillers Co. Ltd., of England v. Victorio Francisco, et al.," the dispositive portion of which reads as follows:
WHEREFORE, having been issued by the Collector of Customs in excess of his jurisdiction the disputed Warrant of Seizure and Detention dated January 2, 1979, in Seizure Identification No. 2-79 of the Bureau of Customs, as well as all the proceedings taken thereon are declared NULL and VOID, and the writ of prohibition prayed for is GRANTED. The public respondent is ordered to REFRAIN and DESIST from conducting any proceedings for the seizure and forfeiture of the articles in question until after the Court having taken cognizance and legal custody thereof has rendered its final judgment in the criminal cases which involve the same articles. Without costs.
SO ORDERED. [RTC Decision, p. 7; Rollo, p. 26].
The undisputed acts are as follows:
On 7 December 1978, the then Court of First Instance of Manila (herein referred to as CFI-MANILA) issued Search and Seizure Warrants in Criminal Case Nos. 8602 and 8603 entitled "People of the Philippines vs. Howard J. Sosis,, et al.," for violation of Section 11 (a) and/or 11(e) of Republic Act No. 3720, * and violation of Article 188 of the Revised Penal Code (captioned as "Substituting and altering trademarks, tradenames, or service marks"), respectively, and ordering the seizure of the following:
a) Materials:
All whisky, bottles, labels, caps, cartons, boxes, machinery equipment or other materials used or intended to be used, or suitable for use, in connection with counter-feiting or imitation of Johnnie Walker Scotch Whisky (Emphasis supplied)
b) Documents: x x x under the control and possession of:
1. Howard J. Sosis
2. George Morrison Lonie
3. Hercules Bottling Co.
4. Lauro Villanueva
5. Vicente Velasco
6. Manuel Esteban
7. Eugenio Mauricio
[Rollo, pp. 106-107].

On 8 December 1978, a composite team from the Ministry of Finance Bureau of Investigation and Intelligence (herein referred to as BII), the Bureau of Customs and the Integrated National Police enforced the search and seizure warrants, and seized and confiscated the following articles, among others, found in the premises of the Hercules Bottling Co., Inc. (herein referred to as HERCULES) at Isla de Provisor, Paco, Manila:
Six (6) Tanks of Scotch Whisky; 417 cartons each containing I doz. bottles of "Johnnie Walker Black Label Whisky"; 109 empty bottles; Empty Cartons of "Johnnie Walker Black Label Scotch Whisky" number 900-2044 empty cartons. [Rollo, p. 21].
The articles seized remained in the premises of HERCULES guarded and secured by BII personnel.
On 2 January 1979, the Collector of Customs for the Port of Manila, after being informed of the seizure of the subject goods and upon verification that the same were imported contrary to law, issued a warrant of seizure and detention, in Seizure Identification No. 2-79, and ordered the immediate seizure and turnover of the seized items to its Auction and Cargo Disposal Division at the Port of Manila. Seizure and forfeiture proceedings were then initiated against the above-enumerated articles for alleged violation of Section 2530 (f) of the Tariff and Customs Code, in relation to Republic Act 3720, to wit:
Sec. 2530. Property subject to forfeiture under Tariff and Customs law: x x x
(f) Any article the importation or exportation of which is effected or attempted contrary to law, or any article of prohibited importation or exportation, and all other articles which, in the opinion of the collector have been used, are or were entered to be used as instruments in the importation or exportation of the former. x x x
On 29 January 1979, the CFI-MANILA issued an order authorizing the transfer and delivery of the seized articles to the customs warehouse located at South Harbor, Port of Manila, subject to the following conditions:
1. The Commissioner of Customs is willing to have custody of the same and guarantees their safekeeping at all times in the same quantity, quality, manner and condition when the articles shall be turned over to and received by the Bureau of Customs in custodia legis, subject to the further orders from the Court;
2. No article shall be transferred without the presence of a representative of the applicant, the defendants, the Commissioner of Customs and the Court; these representatives to secure the necessary escort as guarantee that nothing will happen during the transfer of the articles.
3. The Commissioner of Customs to issue the proper and necessary receipt for each and every article transferred to and received by the Bureau of Customs pursuant to this order [Rollo, p. 22].
Meanwhile, the validity and constitutionality of the issuance and service of the search and seizure warrants issued by the CFI- MANILA were contested in and upheld by the Court of Appeals in CA-G.R. No. SP-09153-R entitled "Hercules Bottling Co. Inc., et al., v. Victoriano Savellano, et al." HERCULES filed a petition for certiorari in the Supreme Court but in a resolution dated 26 November 1986 in G.R. No. 55061 captioned as Hercules Bottling Co., Inc. v. The Court of Appeals, the Court dismissed the petition.
Consequently, the City Fiscal of Manila proceeded with the preliminary investigation of the criminal cases, where private respondent, The Distillers Co. Ltd. of England, claiming to be the owner and exclusive manufacturer of Johnnie Walker Scotch Whiskey was the private complainant [Rollo, p. 61], With the dismissal of HERCULES' petition, the Bureau of Customs also resumed hearing the seizure and forfeiture proceedings over the said articles.
The present controversy arose when private respondent, on 11 June 1982, objected to the continuation by the Collector of Customs of the seizure proceedings claiming, among others, that these proceedings would hamper or even jeopardize the preliminary investigation being conducted by the fiscal. The Collector of Customs ignored the objections.
In order to stop and enjoin the Hearing Officer of the Bureau of Customs from taking further action in the seizure proceedings of the subject goods, private respondent on 24 September 1982 filed a petition for prohibition with preliminary injunction and/or temporary restraining order, docketed as Civil Case No. 82-12721. It must be noted at this juncture that the petition was heard not before the CFI-MANILA which originally issued the search warrants, but before another sala, that of respondent judge of the Regional Trial Court, Branch 35, Manila.
Respondent judge issued a temporary restraining order on 29 September 1982. Subsequently, a writ for preliminary injunction was issued as well. Petitioner filed an answer on 12 November 1982. On 20 July 1987, respondent judge rendered a decision holding that the Collector of Customs acted in excess of its jurisdiction in issuing the warrant of seizure and detention considering that the subject goods had already come under the legal custody of the CFI-MANILA. Hence, petitioner represented by the Solicitor General, filed the instant petition on 11 August 1987.
In the meantime, Howard Sosis and company were charged for violation of Chapter VI, Sec. 11(a) & (e) of Republic Act 3720 in Criminal Case No. 88-63157 and for violation of Article 188 of the Revised Penal Code in Criminal Case No. 88-63156 before the Regional Trial Court and the Metropolitan Trial Court of Manila, respectively [Rollo, p. 83].
In his petition, the Commissioner of Customs assigns as errors the following:
I. RESPONDENT JUDGE ERRED IN ISSUING A TEMPORARY RESTRAINING ORDER AND SUBSEQUENTLY A WRIT OF INJUNCTION IN CIVIL CASE NO. 82-12721 NOTWITHSTANDING THE FACT THAT PRIVATE RESPONDENT, THE DISTILLERS CO., LTD., OF ENGLAND HAS NO VALID CAUSE OF ACTION AGAINST HEREIN PETITIONER;
II. RESPONDENT RTC JUDGE GRAVELY ERRED IN TAKING COGNIZANCE OF THE PETITION AND IN PROCEEDING TO HEAR AND RENDER A DECISION IN CIVIL CASE NO. 82-12721 NOTWITHSTANDING THE FACT THAT THE TRIAL COURT HAS NO JURISDICTION OVER THE CASE [Rollo, pp. 10-11].
Petitioner contends that the authority of the Bureau of Customs over seizure and forfeiture cases is beyond the judicial interference of the Regional Trial Court, even in the form of certiorari, prohibition or mandamus which are really attempts to review the Commissioner's actions [Rollo, p. 98]. Petitioner argues that judicial recourse from the decision of the Bureau of Customs on seizure and forfeiture cases can only be sought in the Court of Tax Appeals and eventually in this Court.
Private respondent however contends that while the law may have vested exclusive jurisdiction in the Bureau of Customs over forfeiture and seizure cases, in this case respondent judge had jurisdiction to enjoin the Bureau of Customs from continuing with its seizure and forfeiture proceedings since the articles here were already in custodia legis, by virtue of the search warrants issued by the CFI-MANILA. Private respondent contends that respondent judge may properly take cognizance of the instant case since unlike the cases cited by petitioner, the action for prohibition was brought not to claim ownership or possession over the goods but only to preserve the same and to prevent the Bureau of Customs from doing anything prejudicial to the successful prosecution of the criminal cases [Rollo, p. 123].
The issue thus presented is whether or not respondent judge may enjoin the Collector of Customs from continuing with its seizure and forfeiture proceedings over goods earlier seized by virtue of search warrants issued by the CFI-MANILA.
The instant petition is impressed with merit.
This Court finds that respondent-judge has failed to adhere to the prevailing rule which denies him jurisdiction to enjoin the Bureau of Customs from taking further action in the seizure and forfeiture proceedings over the subject goods.
Jurisprudence is replete with cases which have held that regional trial courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted in the Bureau of Customs, and to enjoin, or otherwise interfere with, these proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The regional trial courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus [See General Travel Service v. David, G.R. No. L-19259, September 23, 1966, 18 SCRA 59; Pacis v. Averia, G.R. No. L-22526, November 29, 1966, 18 SCRA 907; De Joya v. Lantin, G.R. No. L-24037, April 27, 1967, 19 SCRA 893; Ponce Enrile v. Vinuya G.R. No. L-29043, January 30, 1971, 37 SCRA 381; Collector of Customs v. Torres, G.R. No. L-22977, May 31, 1972, 45 SCRA 272; Pacis v. Geronimo, G.R. No. L-24068, April 23, 1974,56 SCRA 583; Commissioner of Customs v. Navarro, G.R. No. L-33146, May 31, 1977, 77 SCRA 264; Republic v. Bocar, G.R. No. L-35260, September 4, 1979,93 SCRA 78; De la Fuente v. De Veyra, G.R. No. L-35385, January 31, 1983, 120 SCRA 451].
It is likewise well-settled that the provisions of the Tariff and Customs Code and that of Republic Act No. 1125, as amended ** specify the proper fora for the ventilation of any legal objections or issues raised concerning these proceedings. Actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decisions, in turn, are subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. Thereafter, an appeal lies to this Court through the appropriate petition for review by writ of certiorari. Undeniably, regional trial courts do not share these review powers.
The above rule is anchored upon the policy of placing no unnecessary hindrance on the government's drive not only to prevent smuggling and other frauds upon customs, but also, and more importantly, to render effective and efficient the collection of import and export duties due the state. For tariff and customs duties are taxes constituting a significant portion of the public revenue which are the lifeblood that enables the government to carry out functions it has been instituted to perform.
Notwithstanding these considerations, respondent judge entertained private respondent's petition for prohibition holding that the seizure and forfeiture proceedings instituted in the Bureau of Customs was null and void because the subject goods were earlier seized by virtue of the warrants issued by the CFI-MANILA in Criminal Cases Nos. 8602 and 8603.
This holding is erroneous.
Even if it be assumed that a taint of irregularity may be imputed to the exercise by the Collector of Customs of his jurisdiction to institute seizure and forfeiture proceedings over the subject goods because he had accepted custody of the same under conditions specified in the CFI-Manila order dated January 29, 1979, it would not mean that respondent judge was correspondingly vested with the jurisdiction to interfere with such proceedings (See Ponce Enrile v. Vinuya supra]. It bears repeating that law and settled jurisprudence clearly deprive the regional trial courts of jurisdiction to enjoin the Collector of Customs from exercising his exclusive authority to order seizure and forfeiture proceedings over imported goods.
Moreover, there is no legal basis for respondent judge's conclusion that the Collector of Customs is deprived of his jurisdiction to issue the assailed warrant of seizure and detention, and to institute seizure and forfeiture proceedings for the subject goods simply because the same were first taken in custodia legis.
Undeniably, the subject goods have been brought under the legal control of the CFI-MANILA by virtue of its search and seizure warrants and are, therefore, in custodia legis. But this fact merely serves to deprive any other court or tribunal, except one having supervisory control or superior jurisdiction in the premises, of the right to divest the CFI-MANILA of its custody and control of the said property [Collector of Internal Revenue v. Flores Vda. de Codinera G.R. No. L-9675, September 28, 1957], or to interfere with and change its possession without its consent[National Power Corporation v. De Veyra, G.R. No. L-15763, December 22, 1961, 3 SCRA 646; De Leon v. Salvador, G.R. Nos. L-30871 & L-31603, December 28, 1970, 36 SCRA 567; Vlasons Enterprises Corporation v. Court of Appeals, G.R. No. 61688, October 28, 1987, 155 SCRA 186].
In the instant case, the CFI-Manila was not divested of its jurisdiction over the subject goods, nor were its processes interfered with by the Collector of Customs. It, in fact, authorized the transfer and delivery of the subject goods from the premises of HERCULES to the Bureau of Customs warehouse/bodega at the South Harbor, Port of Manila thereby entrusting the Bureau of Customs with the actual possession and control of the same.
On the other hand, since the Collector of Customs herein had actual possession and control over the subject goods, his jurisdiction over the goods was secured for the purpose of instituting seizure and forfeiture proceedings to determine whether or not the same were imported into the country contrary to law [See Papa v. Mago, G.R. No. L-27360, February 28, 1968, 22 SCRA 857]. This is consistent with the principle that the basic operative fact for the institution and perfection of proceedings in rem like the seizure and forfeiture proceedings pursuant to the Tariff and Customs Code, is the actual or constructive possession of the res by the tribunal empowered by law to conduct the proceedings [See Dodge v. US, 71 L. ed. 392 (1926); US v. Mack, 79 L. ed. 1559 (1935) citing The Ann, 3 L. ed. 734 (1815); Fettig Canning Co. v. Steckler, 188 F. 2d 715 (1951) citing Strong v. US, 46 F. 2d 257, 79 ALR 150 (1931)].
Therefore, contrary to the import of respondent judge's decision, the Collector of Customs was not precluded by law or legal principle from assuming jurisdiction over the subject goods. No legal infirmity attended the seizure and forfeiture proceedings over the subject goods.
The Court must emphasize at this point that the instant case does not involve a conflict of jurisdictions. Proceedings before the regular courts for criminal prosecutions against Howard Sosis, et al., and seizure and forfeiture proceedings for the subject goods conducted by the Bureau of Customs may be maintained simultaneously and independently of each other. For the nature of the two proceedings are entirely different such that a resolution in one is not decisive of the issue in the other. The latter, which is administrative and civil in nature, is directed against the res or articles imported and entails a determination of the legality of its importation. The former is directed against those persons who may be held liable for violating the penal laws in connection with the importation [See Diosamito v. Balanque, G.R. No. L-30734, July 28,1969,28 SCRA 836; People v. CFI, G.R. No. L-41686, November 17, 1980, 101 SCRA 86].
Private respondent, however, argues that conflict may arise regarding the disposition of the subject goods if the proceedings before the Collector of Customs and the regular courts were allowed to proceed simultaneously. Private respondent contends that in view of the nature of the seizure and forfeiture proceedings, a judgment in favor of HERCULES will result in the release of the subject goods to the claimants thereof, while an unfavorable decision will entail their destruction or sale. It is asserted that either of the two outcomes will hamper or even jeopardize the ongoing criminal prosecutions, said goods comprising the substantial part of the evidence for the People of the Philippines.
Proper adherence by both tribunals to the rules of comity as defined in the leading case of The Government of the Philippines v. Gale [24 Phil. 95 (1931)] will forestall the conflict feared. In that case the Court had established the rule that where the preservation and safekeeping of the subject matter of an action is demanded, as it is made to appear that these articles may prove to be of vital importance as exhibits in the prosecution of other charges in another proceeding, the rules for the orderly course of proceedings in courts and tribunals forbid the disposition or destruction thereof in one action which would prejudice the other, and vice versa [Id. at pp. 98-99].
The State in the instant case must be given reasonable opportunity to present its cases for the proper enforcement of the applicable provisions of the Revised Penal Code, Republic Act No. 3720, and the Tariff and Customs Code, and the prosecution of the violators thereof. It follows then that the execution of any final decision in the seizure and forfeiture case before the Bureau of Customs, whether it requires the destruction, sale or the release of the subject goods, should not frustrate the prosecution's task of duly presenting and offering its evidence in Criminal Cases Nos. 88-63156 and 88-63157.
It is apropos to note that for evidentiary purposes, it would not be necessary to present each and every item of the goods in question before the courts trying the criminal cases. Thus, a representative quantity of the goods, as may be agreed upon by the authorized customs officials and fiscals prosecuting the criminal cases, shall be set aside as evidence to be presented in the above criminal cases and retained in custodia legis until final judgment is secured in these cases. The rest of the goods may be disposed of in accordance with the final decision rendered in the seizure and forfeiture proceedings pursuant to the Tariff and Customs Code.
WHEREFORE, in view of the foregoing, the respondent judge's decision dated 20 July 1987 is REVERSED. The seizure and forfeiture proceedings involving the goods in question before the Bureau of Customs may proceed subject to the above pronouncements relative to the setting aside of so much of the goods as may be required for evidentiary purposes.
SO ORDERED.

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