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PRIVATIZATION v. CTA

FACTS:

This petition for certiorari challenges the resolutions of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB Case No. 901. The petitioner, Privatization and Management Office (PMO), the Province of Leyte, and the Philippine Tourism Authority (PTA), are the owners of the Leyte Park Hotel, Inc. (LPHI), a real property with improvements situated within the jurisdiction of the respondent City Government of Tacloban. The facilities of LPHI were leased out to Unimaster Conglomeration, Inc. (UCI) for a monthly rental fee. Despite repeated demands from the respondent City, the real property taxes remained unpaid. In December 2004, the respondent City filed a complaint for the collection of the sum of money against LPHI and UCI. The petitioner argued that the liability to pay real property taxes devolves on UCI. After trial, the CTA Special First Division held UCI liable for the payment of the unpaid real property taxes. UCI filed a motion for reconsideration, which was denied. UCI then filed a petition for review with the CTA En Banc. During the pendency of the petition, the respondent City filed a motion for execution pending appeal, but it was denied. Nevertheless, the respondent City issued warrants of levy against the petitioner's properties. The petitioner filed a motion for suspension of collection of real property tax and cancellation of warrants of levy, which the CTA En Banc granted conditioned on the filing of a surety bond. The petitioner filed a motion for exemption from posting the surety bond, arguing that government agencies like itself should not be required to file a bond. The CTA En Banc considered the motion moot since the petitioner had already filed a surety bond. The petitioner's motion for reconsideration was subsequently denied. The petitioner filed this petition for certiorari, questioning the CTA's directive to post a surety bond, its declaration that the motion for exemption was moot, and the denial of its motion for reconsideration. The central issue is whether or not the petitioner, being a government agency, is exempt from posting a surety bond as a condition for the suspension of the collection of real property tax.

ISSUES:

  1. Whether the petitioner is exempt from filing a surety bond for the suspension of the collection of taxes.

  2. Whether the method employed by the respondent City in the collection of real property taxes contravened existing law.

  3. Whether the respondent City can proceed with the issuance of a warrant of levy against the subject property, which is owned by the government, in order to place it for public auction due to unpaid real property taxes.

  4. Whether the petitioner, as a government entity that owns the subject property, can be prejudiced by the method of collection of the deficiency of real property taxes, which involves the auction sale of the property.

RULING:

  1. The Court ruled that the petitioner is not exempt from filing a surety bond for the suspension of the collection of taxes. The requirement of a surety bond as a condition precedent to the issuance of a writ of injunction applies in cases where the collection processes are carried out in consonance with the law. It does not apply when the processes are obviously in violation of the law, which would jeopardize the interests of the taxpayer. In this case, there was a clear showing that the method employed by the respondent City in the collection of real property taxes contravened existing law and jurisprudence. Therefore, the petitioner is not required to file a surety bond.

  2. The Court found that the method employed by the respondent City in the collection of real property taxes contravened existing law. The petitioner, as a government entity, is exempt from payment of real property taxes under Section 234(a) of the 1991 Local Government Code. The petitioner, along with the PTA and the Province of Leyte, admitted that they are co-owners of the subject property and were leasing it to a private entity. Under the Local Government Code, when the beneficial use of a real property owned by the government is vested in a taxable person, the property is subject to tax. Therefore, UCI, the actual and beneficial user of the subject property, can be said to be directly liable for the real property taxes.

  3. The respondent City's issuance of a warrant of levy against the subject property and its subsequent public auction is a clear contravention of the law. Property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale, 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.

  4. The subject property, being a property of public dominion, cannot be subject to public auction sale, regardless of its realty tax delinquency. The respondent City should satisfy its realty tax claims by serving the accrued realty tax assessment upon the taxable beneficial user of the property. In case of non-payment, the respondent City can resort to other means of collection, but not the sale at public auction of the leased property. The petitioner, as a government entity that owns the property, cannot be prejudiced by this method of collection.

PRINCIPLES:

  • Property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale, 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.

  • Property owned by the government, even if subject to realty tax delinquency, cannot be sold at public auction. The government should satisfy its tax claims through means other than the auction sale of the property, which is a property of public dominion.