Philippine Fisheries Development Authority vs. Court of Appeals

A government instrumentality not organized as a stock or non-stock corporation is exempt from local taxes, but is liable for real property tax on Republic-owned properties whose beneficial use is granted to taxable private entities; however, such property of public dominion cannot be sold at public auction to satisfy the tax delinquency.

Presidential Decree No. 977 created the Philippine Fisheries Development Authority (PFDA), later amended by Executive Order No. 772, tasking it with promoting the development of the fishing industry. The Ministry of Public Works and Highways reclaimed a 21-hectare parcel in Barangay Tanza, Iloilo City, and constructed the Iloilo Fishing Port Complex (IFPC), subsequently turning over the facility to PFDA for governance and operation while title remained with the Republic. PFDA leased portions of the IFPC to private firms engaged in fishing-related businesses.

• Creation of PFDA: Presidential Decree No. 977 created PFDA, placing it under the Department of Natural Resources, later attached to the Department of Agriculture pursuant to the Administrative Code. PFDA exercises governmental powers, including eminent domain and the power to levy fees, alongside general corporate powers.
• Construction and Turnover of IFPC: Beginning October 31, 1981, the Ministry of Public Works and Highways reclaimed a 21-hectare area in Barangay Tanza, Iloilo City, and constructed the IFPC. The complex includes a breakwater, landing quay, refrigeration building, market hall, municipal shed, administration building, and port-related facilities. Upon completion, the Ministry turned over the IFPC to PFDA pursuant to Section 11 of PD 977, which places fishing port complexes under PFDA governance. Title to the land and buildings remained with the Republic.
• Lease to Private Entities: PFDA leased portions of the IFPC to private firms and individuals engaged in fishing-related businesses.
• Tax Assessment and Auction: In May 1988, the City of Iloilo assessed the entire IFPC for real property taxes. The alleged total delinquency for fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and interests. To satisfy the delinquency, the City scheduled a sale at public auction on August 30, 1990.

• Tax Exemption: Petitioner maintained that it is a national government instrumentality, not a government-owned or controlled corporation, and is thus exempt from local taxes under Section 133(o) of the Local Government Code.
• Immunity from Execution: Petitioner argued that the IFPC is property of public dominion and reclaimed land of the public domain, rendering it immune from public auction sale to satisfy tax delinquencies.

• Tax Liability: Respondents countered that PFDA is liable for real property taxes because it enjoys the beneficial use of the IFPC, invoking the exception under Section 234(a) of the Local Government Code.
• Auctionability: The Court of Appeals opined that the IFPC may be sold at public auction to satisfy the tax delinquency.

• Tax Liability: Whether PFDA is liable to pay real property tax to the City of Iloilo.
• Auction of Property: Whether the IFPC can be sold at public auction to satisfy the tax delinquency.

• Tax Liability: PFDA is liable for real property taxes only on the portions of the IFPC leased to private entities. PFDA is classified as a national government instrumentality, not a GOCC, because it is neither a stock corporation—having capital stock not divided into shares and no stockholders—nor a non-stock corporation—having no members and being mandated to remit income to the National Treasury. As an instrumentality, it is exempt from local taxes under Section 133(o) of the Local Government Code. However, Section 234(a) of the same code provides an exception: when the beneficial use of Republic-owned property is granted to a taxable person, real property tax attaches. Accordingly, the real property tax assessments issued by the City of Iloilo are void except those pertaining to portions leased to private parties.
• Auction of Property: The IFPC cannot be sold at public auction. Under Article 420 of the Civil Code, ports constructed by the State for public use or public service are property of public dominion and cannot be subject to execution or foreclosure sale. Furthermore, the reclaimed land on which the IFPC is built is land of the public domain under Commonwealth Act No. 141, which cannot be sold without Congressional authorization. Any doubt on whether the IFPC may be levied upon must be resolved against the local government.

• Distinction between GOCC and Instrumentality — A GOCC must be organized as a stock or non-stock corporation. A stock corporation requires: (1) capital stock divided into shares, and (2) authorization to distribute dividends to stockholders. A non-stock corporation requires: (1) members, and (2) non-distribution of income to members. An instrumentality is an agency not integrated within the department framework, vested with special functions, endowed with some or all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. When the law vests corporate powers in a government instrumentality, it does not become a corporation unless organized as a stock or non-stock corporation.
• Tax Exemption of National Government Instrumentalities — Local governments cannot impose any kind of tax on national government instrumentalities pursuant to Section 133(o) of the Local Government Code. This exemption admits an exception under Section 234(a) of the same code, where the national government becomes subject to real estate tax when it grants the beneficial use of its real properties to a taxable entity. The power to tax national government instrumentalities is construed strictly against local governments.
• Immunity of Property of Public Dominion from Execution — Properties intended for public use, such as ports constructed by the State, are property of public dominion under Article 420 of the Civil Code and cannot be subject to execution or foreclosure sale. Reclaimed lands are lands of the public domain under Commonwealth Act No. 141 and cannot be sold without Congressional authorization.

• "Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation."
• "By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA."
• "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."
• "The Iloilo fishing port which was constructed by the State for public use and/or public service falls within the term 'port' in the aforecited provision. Being a property of public dominion the same cannot be subject to execution or foreclosure sale."

• Manila International Airport Authority (MIAA) v. Court of Appeals, G.R. No. 155650, July 20, 2006 — Controlling precedent. Followed in distinguishing GOCCs from instrumentalities and in applying the tax exemption of instrumentalities subject to the exception for properties whose beneficial use is granted to taxable entities.
• Chavez v. Public Estates Authority, G.R. No. 133250, July 9, 2002 — Followed in holding that reclaimed lands are lands of the public domain and cannot be sold without Congressional authorization.
• Laurel v. Garcia, G.R. Nos. 92013 & 92047, July 25, 1990 — Cited in support of the principle that properties of public dominion cannot be subject to execution or foreclosure sale.

• Section 2(13), Introductory Provisions of the Administrative Code of 1987 — Defines a GOCC as an agency organized as a stock or non-stock corporation. Applied to determine that PFDA is not a GOCC.
• Section 133(o), Local Government Code — Prohibits local governments from imposing taxes on national government instrumentalities. Applied to grant PFDA general tax exemption.
• Section 234(a), Local Government Code — Exempts Republic-owned real property from real property tax, except when beneficial use is granted to a taxable person. Applied to hold PFDA liable for real property tax on leased portions.
• Article 420, Civil Code — Defines property of public dominion, including ports constructed by the State. Applied to classify IFPC as property of public dominion immune from execution sale.
• Commonwealth Act No. 141, Sections 59 and 61 — Classifies reclaimed lands and prescribes their disposition by lease only, unless declared unnecessary for public service. Applied to support the ruling that reclaimed lands cannot be sold without Congressional authorization.
• Presidential Decree No. 977 — Creates PFDA and places fishing port complexes under its governance. Applied to establish PFDA's charter, corporate powers, and operational mandate.

Austria-Martinez, Chico-Nazario, Nachura, Reyes, JJ.