Government Service Insurance System vs. City Treasurer and City Assessor of the City of Manila

GSIS is fully exempt from all taxes, including real property taxes, as an instrumentality of the national government under RA 8291, which retroactively condoned any prior assessment by deeming it paid; the beneficial use doctrine renders the lessee of government property liable for real property tax, but the property cannot be levied upon or sold at public auction to satisfy the delinquency.

GSIS owned two parcels of land in Manila — the Katigbak property and the Concepcion-Arroceros property. The Katigbak property had been under lease to Manila Hotel Corporation (MHC) since November 1991 under a contract obligating MHC to pay any taxes assessed on the property. The Concepcion-Arroceros property was partly occupied by GSIS and partly by the Metropolitan Trial Court of Manila. In September 2002, the City Treasurer demanded payment of real property tax deficiencies for the years 1992–2002, amounting to PhP 54,826,599.37 for the Katigbak property and PhP 48,498,917.01 for the Concepcion-Arroceros property, with a warning that the properties would be sold at public auction if the taxes remained unpaid. GSIS asserted its tax-exempt status under its charter and sought judicial nullification of the assessments.

• The Subject Properties: GSIS held title to two parcels in Manila. The Katigbak property, covered by TCT Nos. 117685 and 119465, had been leased to Manila Hotel Corporation (MHC) since November 1991. The lease contract stipulated that MHC would shoulder any tax, assessment, or levy subsequently imposed on the property. The Concepcion-Arroceros property was partly occupied by GSIS and partly by the MeTC of Manila; it was later transferred to the Supreme Court in 2005 by virtue of Proclamation No. 835, which traced its earlier cession to GSIS in 1954 for office purposes.
• Assessment and Demand: In a letter dated September 13, 2002, the City Treasurer of Manila informed GSIS of outstanding real property tax deficiencies for the years 1992 to 2002 in the amounts of PhP 54,826,599.37 (Katigbak) and PhP 48,498,917.01 (Concepcion-Arroceros). Separate Notices of Realty Tax Delinquency dated September 16, 2002 followed, warning that the properties would be included in the October 30, 2002 public auction of delinquent properties.
• GSIS’s Response: GSIS replied through counsel on October 8, 2002, asserting its exemption from all taxes under Republic Act No. 8291. Two days later, it filed an amended petition for certiorari and prohibition before the Manila RTC, praying for nullification of the assessments and a permanent injunction against further proceedings.

• Full Tax Exemption under Charter: Petitioner argued that both its original charter under Presidential Decree No. 1146 and the current GSIS Act of 1997 (RA 8291) exempt the GSIS, its assets, revenues, and benefits from all taxes, assessments, fees, and charges of every kind. Section 39 of RA 8291, in particular, expressly and unconditionally exempts it from real property taxes and further declares that any assessment against GSIS as of the law's approval is considered paid.
• Status as Government Instrumentality: Petitioner maintained that it is an instrumentality of the national government, not a government-owned or controlled corporation, because its capital is not divided into shares and it has no members. As such, it is immune from local taxation by force of Section 133(o) of the Local Government Code, consistent with the ruling in Manila International Airport Authority v. Court of Appeals.
• Exemption from Levy: Petitioner contended that the third paragraph of Section 39 of RA 8291 expressly exempts GSIS funds and properties from attachment, garnishment, execution, levy, or other legal processes, a safeguard rooted in the legislative policy of preserving the actuarial solvency of the system.

• Withdrawal of Exemption by the Local Government Code: Respondents countered that Sections 193 and 234 of Republic Act No. 7160 (the Local Government Code of 1991) withdrew all previously granted real property tax exemptions, including that of GSIS under PD 1146, effective 1 January 1992. They cited City of Davao v. RTC, in which the Court held GSIS liable for real property taxes for the years 1992–1994.
• Taxability under the Beneficial Use Doctrine: Respondents argued that the Katigbak property, having been leased to a taxable private entity, was subject to real property tax pursuant to Section 234(a) of the Local Government Code, which lifts the exemption when beneficial use is granted to a taxable person.
• Validity of Assessment and Collection: Respondents asserted that the City of Manila acted within its legal authority in assessing and demanding payment of delinquent real property taxes and in resorting to levy and public auction to enforce collection.

• Exemption from Real Property Tax: Whether GSIS is exempt from the payment of real property taxes for the period 1992 to 2002 under its charter.
• Tax Liability on Leased Property: Whether GSIS is liable for the real property taxes assessed on the Katigbak property that it leased to Manila Hotel Corporation, a taxable entity.
• Exemption from Levy: Whether the properties of GSIS are exempt from levy and from tax sale for non-payment of real property taxes.

• Exemption from Real Property Tax: GSIS is fully exempt from real property taxes. Under PD 1146, GSIS enjoyed a blanket tax exemption that was withdrawn by the Local Government Code of 1991 effective 1992. However, RA 8291, which took effect on 24 June 1997, re-enacted the full tax exemption in Section 39 in terms virtually identical to those of Section 33 of PD 1146. Critically, the same section contains an express condoning clause: “any assessment against the GSIS as of the approval of this Act are hereby considered paid.” This provision retroactively extinguishes any real property tax liability that accrued during the interim period (1992–1996). Moreover, GSIS is an instrumentality of the national government, not a government-owned or controlled corporation: its capital is not divided into shares and it has no corporate members, and the properties it holds are owned by the Republic — GSIS acts as a mere trustee. Under Section 133(o) of the Local Government Code, local government units are prohibited from levying taxes, fees, or charges of any kind on the national government, its agencies, and instrumentalities. Consequently, no valid real property tax may be assessed against GSIS itself.

• Tax Liability on Leased Property: The Katigbak property, though owned by the Republic and administered by GSIS, falls within the beneficial use exception of Section 234(a) of the Local Government Code because its beneficial use was granted to a taxable person — Manila Hotel Corporation. The tax liability, however, does not fall on GSIS as the owner. Under controlling jurisprudence — Testate Estate of Concordia T. Lim, Meralco v. Barlis, and Republic v. City of Kidapawan — the unpaid real property tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession, regardless of ownership. Since MHC has been in possession and actual use of the Katigbak property since November 1991, it is the party liable for the realty taxes. Contractually, MHC likewise assumed the obligation to pay any taxes assessed on the leased property. The City of Manila must therefore serve the assessment on MHC and pursue remedies against the lessee.

• Exemption from Levy: The properties of GSIS are absolutely exempt from attachment, garnishment, execution, levy, or other legal process by virtue of the third paragraph of Section 39 of RA 8291. The provision was enacted to protect the actuarial solvency of the GSIS fund from legal processes that could impair it. Even assuming a tax liability attached during the period of exemption withdrawal, the governing law at the time of the threatened levy — RA 8291 — prohibits it. This prohibition extends to the Katigbak property despite its taxable status under the beneficial use doctrine; the property cannot be sold at public auction to satisfy the tax delinquency. The City of Manila’s recourse is limited to enforcing its claim against MHC through means other than the sale of the leased property.

• Full Tax Exemption and Condonation under RA 8291 — GSIS is exempt from all taxes, assessments, fees, charges, or duties of all kinds under Section 39 of RA 8291. The provision adopts an explicit state policy of preserving the actuarial solvency of the GSIS fund. It further retroactively extinguishes any outstanding assessment by deeming it paid as of the law’s approval. Any future express repeal of this exemption is ineffective unless the repealing law (1) expressly, specifically, and categorically revokes Section 39, and (2) enacts a substitute provision essential to maintain or protect the solvency of the fund.
• Beneficial Use Doctrine (Section 234(a), LGC) — Real property owned by the Republic is exempt from real property tax except when its beneficial use is granted, for consideration or otherwise, to a taxable person. In such a case, the realty tax attaches to the property and is chargeable against the taxable beneficial user, not the government owner. The doctrine was applied to hold the private lessee MHC liable for the taxes on the Katigbak property even as GSIS retained its exempt status.
• Instrumentality of the National Government versus GOCC — An entity is an instrumentality of the national government, not a government-owned or controlled corporation, if its capital is not divided into shares of stock and it has no members in the corporate sense. As an instrumentality, it administers property owned by the Republic as a trustee and is outside the taxing power of local government units under Section 133(o) of the Local Government Code, as held in Manila International Airport Authority v. Court of Appeals.

• “Notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. … any assessment against the GSIS as of the approval of this Act are hereby considered paid.” (Sec. 39, RA 8291) — This is the core provision restoring the exemption and condoning prior assessments.
• “GSIS is not, in the context of the afore quoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS’ capital is not divided into unit shares. Also, GSIS has no members to speak of.” — The pronouncement categorically classifies GSIS as an instrumentality.
• “The unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner.” — Restates the beneficial use rule applied to shift liability to the lessee.
• “The funds and/or the properties referred to herein … shall be exempt from attachment, garnishment, execution, levy or other processes issued by the courts, quasi-judicial agencies or administrative bodies …” (Sec. 39, RA 8291) — The basis for the absolute prohibition on levy and execution.

• Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 (1996) — Established that the Local Government Code withdrew tax exemptions of government instrumentalities and GOCCs. Distinguished on the ground that RA 8291 subsequently restored GSIS’s exemption and included a condonation clause.
• City of Davao v. RTC, Branch XII, Davao City, 467 SCRA 280 (2005) — Previously held GSIS liable for real property taxes for 1992–1994 due to the LGC withdrawal. The present decision clarified that the earlier ruling did not appreciate the condoning proviso in Section 39 of RA 8291, which deemed all assessments as paid.
• Manila International Airport Authority v. Court of Appeals, 495 SCRA 591 (2006) — Applied by analogy to hold that GSIS, like MIAA, is an instrumentality of the national government, not a GOCC, and is therefore exempt from local taxation under Section 133(o) of the LGC.
• Testate Estate of Concordia T. Lim; Manila Electric Company v. Barlis, 357 SCRA 832 (2001); Republic v. City of Kidapawan, 477 SCRA 324 (2005) — Consistently applied the rule that the liability for real property tax falls on the person having actual or beneficial use and possession, not necessarily the owner.

• Section 39, Republic Act No. 8291 (GSIS Act of 1997) — Exempts GSIS, its assets, revenues, and benefits from all taxes, assessments, fees, charges, or duties; deems any assessment as of approval paid; and exempts GSIS funds and properties from attachment, garnishment, execution, levy, or other legal processes. The provision was applied to hold GSIS fully exempt and its properties immune from levy.
• Section 33, Presidential Decree No. 1146 (Revised GSIS Act of 1977) — Original full tax exemption provision, withdrawn by the LGC but essentially reenacted by RA 8291.
• Sections 193 and 234, Republic Act No. 7160 (Local Government Code of 1991) — Section 193 withdrew general tax exemption privileges; Section 234 withdrew exemptions from real property tax, with the exception in paragraph (a) for property owned by the Republic unless beneficial use is granted to a taxable person. The latter exception triggered taxability for the leased Katigbak property.
• Section 133(o), Republic Act No. 7160 — Prohibits LGUs from imposing taxes, fees, or charges of any kind on the national government, its agencies, and instrumentalities. Applied to shield GSIS, as an instrumentality, from local taxation.

RENATO C. CORONA (Chairperson), ANTONIO EDUARDO B. NACHURA, DIOSDADO M. PERALTA, MARIANO C. DEL CASTILLO (additional member per Special Order No. 805 dated December 4, 2009)