LRTA vs. City of Pasay

A government entity that is neither organized as a stock nor a non-stock corporation is not a GOCC but a government instrumentality vested with corporate powers, exempt from local real property tax under Section 133(o) of the LGC, and its properties devoted to public use are properties of public dominion owned by the Republic, exempt from real property tax under Section 234(a), except portions leased to taxable persons.

The Light Rail Transit Authority (LRTA) was created under Executive Order No. 603, series of 1980, as a corporate body primarily responsible for the construction, operation, maintenance, and/or lease of light rail transit systems in the Philippines. It is attached to the Department of Transportation (DOTr), and its authorized capital is fully subscribed by the Republic of the Philippines. From 1985 to 2001, the City of Pasay assessed LRTA real property taxes on its properties consisting of lands, buildings, machineries, carriageways, and passenger terminal stations. LRTA admitted its tax liabilities and proposed installment payments, even requesting condonation of penalties on its arrears, but failed to settle its outstanding obligations despite repeated demands. The City thereafter issued a notice of delinquency with warrants of levy.

From 1985 to 2001, the City of Pasay assessed the Light Rail Transit Authority (LRTA) real property taxes on its properties consisting of lands, buildings, machineries, carriageways, and passenger terminal stations. LRTA admitted its tax liabilities and proposed to pay them on an installment basis. It even requested condonation of penalties on its arrears. However, LRTA failed to settle its outstanding obligations despite repeated demands from the City, which later issued a notice of delinquency with warrants of levy.

Aggrieved, LRTA filed a Petition for Certiorari, Prohibition and Mandamus against the City before the Regional Trial Court (RTC) of Pasay, docketed as R-PSY-12-09347-CV. Citing the 2006 case of Manila International Airport Authority vs. Court of Appeals (2006 MIAA Case), LRTA claimed that it is a government instrumentality exempt from local taxation, operating the light rail transit system for the Republic of the Philippines, which is the true owner of the subject real properties. It also invoked the ruling in Ty vs. Trampe, which permitted immediate resort to judicial action without exhaustion of administrative remedies. LRTA specifically questioned the authority of the city assessor to impose tax assessments on its property and the authority of the city treasurer to collect such taxes, asserting that as a non-taxable entity, the local officials lacked the power to assess and collect real property taxes against it.

The RTC dismissed the petition on January 3, 2013, finding it to be an improper remedy and lacking in merit, holding that LRTA should have availed of administrative remedies before resorting to the courts. The RTC denied LRTA's Motion for Reconsideration on March 7, 2013. LRTA then appealed to the Court of Appeals, which on October 8, 2013 denied the appeal and affirmed the RTC ruling in toto. The CA found that LRTA had not exhausted administrative remedies and that it should not be extended a similar tax exemption accorded to MIAA, citing the 2000 LRTA Case where LRTA had already been declared a taxable entity. The CA denied LRTA's Motion for Reconsideration on January 29, 2014. LRTA thereafter filed the instant petition before the Supreme Court.

• Exhaustion of Administrative Remedies: LRTA argued that the rule on exhaustion of administrative remedies should be set aside in light of the ruling in Ty vs. Trampe, asserting that the instant petition raises primarily questions of law — specifically, whether the assessor is authorized to impose assessments and the treasurer to collect taxes against a non-taxable entity — and thus falls under the recognized exception to the general rule.
• Supervening Basis for Reexamination: LRTA maintained that the 2000 LRTA Case, while involving the same parties, does not involve the same issues because new facts or conditions — namely the 2006 MIAA Case — have intervened before the present suit, furnishing a new basis for its claim and defenses, such that the former judgment cannot be pleaded as a bar to the subsequent action.
• Classification as Government Instrumentality: LRTA argued that under the standards laid down in the 2006 MIAA Case, it is a government instrumentality exempt from real property tax, not a GOCC, because it was not organized as a stock or non-stock corporation, having no capital stock divided into shares, no stockholders or voting shares, and no members.

• Exhaustion of Administrative Remedies: The City countered that LRTA failed to exhaust administrative remedies, arguing that Ty vs. Trampe does not apply because LRTA was questioning the assessments themselves and not the authority of the city assessor to collect taxes; the City relied on Napocor vs. Province of Quezon for the proposition that claiming exemption from realty taxation is simply raising a question of the correctness of the assessment.
• Taxable Entity Under Prior Ruling: The City argued that LRTA is a taxable entity as already ruled by the Supreme Court in the 2000 LRTA Case, that LRTA's charter does not exempt it from real estate tax, and that taxation is the rule and exemption is the exception, with any claim for tax exemption to be strictly construed against the claimant.
• Integrated Within Department Framework: The City posited that LRTA cannot be a government instrumentality because it is attached to the DOTr, and thus allegedly integrated within the department framework, which the City claimed is inconsistent with the definition of a government instrumentality under the Administrative Code.

• Exhaustion of Administrative Remedies: Whether LRTA was required to exhaust administrative remedies before resorting to the courts, given its assertion that it was questioning the authority of the assessor and treasurer rather than the correctness of the assessments.
• Classification of LRTA: Whether LRTA is a government instrumentality vested with corporate powers — and thus exempt from local taxation — rather than a GOCC, in light of the principles laid down in the 2006 MIAA Case.
• Tax Exemption of LRTA's Properties: Whether LRTA's properties, consisting of rail roads and terminals, are exempt from real property tax as properties of public dominion owned by the Republic of the Philippines.

• Exhaustion of Administrative Remedies: No. LRTA was not required to exhaust administrative remedies because the issues raised were purely legal questions on the authority of the assessor and treasurer, falling under the recognized exceptions to the exhaustion doctrine.
• Classification of LRTA: Yes. LRTA is a government instrumentality vested with corporate powers, not a GOCC, because it was neither organized as a stock nor a non-stock corporation, satisfying all the elements of a government instrumentality with corporate powers under the Administrative Code and the GOCC Governance Act of 2011.
• Tax Exemption of LRTA's Properties: Yes. LRTA's properties devoted to public use are properties of public dominion owned by the Republic, exempt from real property tax under Section 234(a) of the LGC, except for portions leased to private taxable persons.

• Exhaustion of Administrative Remedies: The Court found that the issues in the petition were purely legal, as LRTA was questioning the very authority of the city assessor to assess and the city treasurer to collect real property taxes on its properties, given its alleged status as a government instrumentality. The nature of a petition under Rule 65 inherently involves questions of jurisdiction, which are necessarily legal. The administrative protest under Section 226 of the LGC was not an adequate remedy because such protest is limited to questioning the assessment itself, not the authority of the assessor. The Local Board of Assessment Appeals conducts proceedings solely for fact-finding and has no jurisdiction to rule upon legal issues. The Court distinguished Napocor vs. Province of Quezon, where the petitioner was claiming tax exemption under Section 206 of the LGC (which implies the assessor's authority to assess), from the present case where LRTA never invoked Section 206 or filed a protest under Section 252, but instead questioned the assessor's authority from the outset. The application of Ty vs. Trampe was thus appropriate.

• Classification of LRTA: The Court reexamined the 2000 LRTA Case — which had held LRTA taxable as a GOCC — in light of the 2006 MIAA Case, finding compelling reason to depart from the earlier ruling. The 2000 LRTA Case was decided by a Division, while the 2006 MIAA Case was decided En Banc; under Article VIII, Section 4(3) of the Constitution, no doctrine laid down by the Court may be modified or reversed except by the Court sitting En Banc. The doctrine of stare decisis demands adherence to precedent, but a strong or compelling reason can impel the Court to abandon a prior ruling — here, the revolutionary principles of the 2006 MIAA Case, which had already caused the reclassification of similarly situated entities like MCIAA and BCDA. Under the 2006 MIAA Case, the primary test for determining whether an entity is a GOCC is how it was organized: unless a government instrumentality is organized as a stock or non-stock corporation, it is not a GOCC. LRTA is not a stock corporation because it has capital but no capital stock divided into shares, no stockholders, and no voting shares. LRTA is not a non-stock corporation because it has no members and was not organized for any of the purposes enumerated in Section 88 of the Corporation Code. Under Section 3(n) of the GOCC Governance Act of 2011, the elements of a government instrumentality with corporate powers are: (a) agency of the government; (b) neither a corporation nor agency integrated within the departmental framework; (c) vested by law with special functions or jurisdiction; (d) endowed with some if not all corporate powers; (e) administering special funds; and (f) enjoying operational autonomy usually through a charter. LRTA satisfies all these elements. The City's argument that LRTA's attachment to the DOTr makes it "integrated within the department framework" was rejected, as the Court had already ruled attached agencies like MIAA, MCIAA, PPA, and PFDA to be government instrumentalities despite their attachment to departments.

• Tax Exemption of LRTA's Properties: As a government instrumentality, LRTA falls under Section 133(o) of the LGC, which prohibits local governments from levying taxes, fees, or charges on the National Government, its agencies and instrumentalities. The general rule that tax exemptions are strictly construed against the claimant does not apply here, because the legislature itself created the exemption for national government instrumentalities; such exemption is construed liberally in favor of the government instrumentality. LRTA's rail roads and terminals are properties of public dominion under Article 420 of the Civil Code, as they are intended for public use — the LRT was constructed to provide mass transportation and alleviate traffic in Metro Manila. Rail roads are of a similar character to roads, both being man-made constructions on land to facilitate the passage of vehicles. The collection of fees from passengers does not remove the public character of the property, as such fees constitute a user's tax. Even assuming the LRT was not constructed for public use, the properties are owned by the State and intended for public service under Article 420(2), having been acquired through expropriation and subsidized by the national government. As properties of public dominion, they are outside the commerce of man and cannot be subject to levy, encumbrance, or auction sale. Under Section 234(a) of the LGC, real property owned by the Republic is exempt from real property tax, except when the beneficial use thereof has been granted to a taxable person. LRTA, as a government instrumentality, is not a taxable person under Section 133(o). However, portions of LRT properties leased to private entities are subject to real property tax, which must be paid by the taxable person, not LRTA.

• Doctrine of Exhaustion of Administrative Remedies — Exceptions — The general rule requires exhaustion of administrative remedies before resort to courts, but exceptions exist where: (1) there is a violation of due process, (2) the issue is purely a legal question, (3) the administrative action is patently illegal, (4) estoppel on the part of the administrative agency, (5) irreparable injury, (6) the respondent is a department secretary acting as alter ego of the President, (7) requiring exhaustion would be unreasonable, (8) it would amount to nullification of a claim, (9) the subject matter is private land in land case proceedings, (10) the rule does not provide a plain, speedy and adequate remedy, and (11) urgency of judicial intervention. The Court applied exception (2) — purely legal question — because LRTA was questioning the authority of the assessor and treasurer, not the correctness of assessments.

• Government Instrumentality vs. GOCC — Organizational Test — Under the 2006 MIAA Case, the primary test for determining whether an entity is a GOCC is how it was organized. A government instrumentality is broader than a GOCC. Unless a government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising governmental and corporate powers, not a GOCC. A stock corporation requires capital stock divided into shares, stockholders, and voting shares; a non-stock corporation requires members and must be organized for charitable, religious, educational, or similar purposes. LRTA has neither, and thus qualifies as a government instrumentality with corporate powers.

• Tax Exemption of National Government Instrumentalities — Under Section 133(o) of the LGC, local governments cannot levy taxes, fees, or charges on the National Government, its agencies, and instrumentalities. When local governments invoke the power to tax national government instrumentalities, such power is construed strictly against local governments. Tax exemptions granted to government agencies are construed liberally in favor of non-tax liability, because the practical effect is merely to reduce the amount of money handled by government in its operations. There is no point in national and local governments taxing each other.

• Properties of Public Dominion — Under Article 420 of the Civil Code, property intended for public use (such as roads, bridges, and others of similar character) and property belonging to the State intended for public service or development of national wealth are properties of public dominion. Properties of public dominion are outside the commerce of man and cannot be subject to levy, encumbrance, or auction sale. Rail roads and terminals are of similar character to roads, both being devoted to public use and facilitating transportation. The collection of fees does not change the public character of the property.

• Stare Decisis and Compelling Reason to Depart — The doctrine of stare decisis demands adherence to precedent once the Court lays down a principle of law applicable to a certain state of facts, applying it to all future cases where facts are substantially the same. Only a strong or compelling reason can impel the Court to abandon a prior ruling. The revolutionary principles of the 2006 MIAA Case, decided En Banc, constituted such compelling reason to reexamine the 2000 LRTA Case, decided by a Division, particularly since no En Banc case had expressly overturned the 2000 ruling.

• "The issues involved in this petition are purely legal issues. It is evident that from the outset, LRTA primarily intended to question the authority of the tax assessor to impose tax assessments on its property, and the authority of the treasurer to collect said tax, as LRTA claims to be a non-taxable entity." — This passage establishes the ratio decidendi for the procedural ruling: that LRTA's petition raised purely legal questions on the authority of local officials, thereby falling within the exception to the exhaustion of administrative remedies doctrine.

• "Since the LRTA is neither a stock nor a non-stock corporation, LRTA does not qualify as a GOCC." — This is the canonical formulation of the organizational test from the 2006 MIAA Case as applied to LRTA, articulating the controlling principle that the legal classification of a government entity turns on whether it was organized as a stock or non-stock corporation.

• "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." — This passage states the fundamental rule on local taxation of national government instrumentalities, frequently cited in subsequent jurisprudence on the limits of local taxing power.

• "Thus, the inescapable conclusion is that the properties of the LRTA are not merely patrimonial properties, but are properties of the public dominion that cannot be subjected to real property tax." — This encapsulates the Court's holding on the character of LRTA's properties as properties of public dominion, with the consequent exemption from real property taxation.

• Manila International Airport Authority vs. Court of Appeals, 528 Phil. 181 (2006) (2006 MIAA Case) — Controlling precedent. The Court applied its framework for distinguishing government instrumentalities from GOCCs, holding that the organizational test (stock vs. non-stock corporation) is determinative. This case provided the compelling reason to reexamine the 2000 LRTA Case.

• LRTA vs. Central Board of Assessment Appeals, 396 Phil. 860 (2000) (2000 LRTA Case) — Prior ruling reexamined and effectively overturned. The Court found that this Division-decided case, which held LRTA taxable as a GOCC, must yield to the En Banc principles of the 2006 MIAA Case.

• Ty vs. Trampe, 321 Phil. 81 (1995) — Followed. The Court applied its ruling that immediate resort to judicial action is proper where the issue is purely legal — specifically, the authority of the assessor to impose assessments and the treasurer to collect taxes.

• Napocor vs. Province of Quezon, 624 Phil. 738 (2010) — Distinguished. The Court clarified that in Napocor, the petitioner was claiming tax exemption under Section 206 of the LGC (implying the assessor's authority), whereas LRTA questioned the assessor's authority from the outset.

• Mactan-Cebu International Airport Authority vs. City of Lapu-Lapu, 759 Phil. 296 (2015) (2015 MIAA Case) — Followed. The Court cited this case as an example of a similarly situated entity that was reclassified as a government instrumentality after the 2006 MIAA Case, despite an earlier ruling to the contrary.

• Philippine Fisheries Development Authority vs. Court of Appeals, 555 Phil. 661 (2007) — Followed. The Court cited this case to demonstrate that an agency attached to a department (there, the Department of Agriculture) can still be a government instrumentality, refuting the City's argument that attachment equates to integration within the department framework.

• Curata vs. Philippine Ports Authority, 608 Phil. 9 (2009) — Followed. The Court cited this case holding that PPA, an agency attached to the DOTr like LRTA, is a government instrumentality similarly situated as MIAA.

• Lung Center of the Philippines vs. Quezon City, 477 Phil. 141 (2004) — Applied by analogy. The Court cited the principle that portions of land leased to private entities are not exempt from real property tax, while portions used for the entity's public purpose are exempt.

• Basco vs. Philippine Amusements and Gaming Corporation — Cited for the doctrine of supremacy of the National Government over local governments in taxation, and the principle that the power to tax is the power to destroy.

• Section 133(o), Local Government Code (RA 7160) — Prohibits local governments from levying "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities." Applied to hold that LRTA, as a government instrumentality, is exempt from local real property tax.

• Section 234(a), Local Government Code (RA 7160) — Exempts from real property tax "[r]eal 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." Applied to hold that LRTA's properties owned by the Republic are exempt, except portions leased to private taxable persons.

• Section 2(10), Introductory Provisions, Administrative Code of 1987 — Defines "instrumentality" as 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. Applied to classify LRTA as a government instrumentality.

• Section 2(13), Introductory Provisions, Administrative Code of 1987 — Defines "government-owned or controlled corporation" as any agency organized as a stock or non-stock corporation, vested with functions relating to public needs, and owned by the Government directly or through its instrumentalities. Applied to determine that LRTA does not qualify as a GOCC because it is neither a stock nor non-stock corporation.

• Section 3(n), GOCC Governance Act of 2011 (RA 10149) — Defines "Government Instrumentalities with Corporate Powers (GICP)/Government Corporate Entities (GCE)" and lists their elements. Applied to confirm LRTA's classification as a GICP/GCE, satisfying all six elements.

• Article 420, Civil Code — Classifies property of public dominion as (1) those intended for public use, such as roads, bridges, and others of similar character, and (2) those belonging to the State intended for some public service or development of national wealth. Applied to hold that LRTA's rail roads and terminals are properties of public dominion.

• Section 3, Corporation Code — Defines a stock corporation as one whose capital stock is divided into shares. Applied to determine LRTA is not a stock corporation because its capital is not divided into shares.

• Sections 87 and 88, Corporation Code — Define non-stock corporations as those with no income distributable as dividends to members, organized for charitable, religious, educational, or similar purposes. Applied to determine LRTA is not a non-stock corporation because it has no members and was not organized for such purposes.

• Section 15, Executive Order No. 603 (LRTA Charter) — Provides for LRTA's capitalization of ₱500,000,000, fully subscribed by the Republic of the Philippines. Applied to show LRTA has capital but no shares of stock, stockholders, or voting shares.

• Article VIII, Section 4(3), 1987 Constitution — Provides that no doctrine laid down by the Court may be modified or reversed except by the Court sitting En Banc. Applied to justify the En Banc reexamination of the 2000 LRTA Case, which was decided by a Division.

• Sections 226 and 229, Local Government Code (RA 7160) — Provide for the Local Board of Assessment Appeals and its fact-finding jurisdiction. Applied to show that administrative remedies under these sections are inadequate for resolving purely legal questions on the assessor's authority.

Gesmundo, C.J., Lazaro-Javier, Gaerlan, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, JJ., concurred.

Leonen, SAJ., and Caguioa, J., filed separate concurring opinions. Caguioa, J., emphasized that the real property tax on portions leased to private parties must be paid by the taxable person (the private lessee), not by LRTA.

Zalameda, J., filed a concurring opinion.

Inting, J., was on leave on official time. M. Lopez, J., took no part.