Social Security System vs. City of Bacolod

Lands and buildings owned by the government are exempt from real property taxes under Section 29 of the Charter of the City of Bacolod regardless of whether the government entity using them performs governmental or proprietary functions; when public property is involved, exemption is the rule and taxation the exception. Presidential Decree No. 24 likewise expressly exempts the SSS and all its assets from any tax, assessment, fee, or charge.

The Social Security System is a government agency created under Republic Act No. 1161, with the primary function of developing, establishing gradually, and perfecting a social security system suitable to the needs of the people throughout the Philippines and providing protection against disability, sickness, old age, and death. It maintains regional offices, including a five-storey building known as the SSS Building in Bacolod City, occupying four parcels of land. The City of Bacolod is governed by Commonwealth Act No. 326, the Charter of the City of Bacolod, Section 29 of which exempts from taxation lands and buildings owned by the United States, the Commonwealth or Republic of the Philippines, the City of Bacolod, the Province of Occidental Negros, and certain religious, charitable, scientific, or educational properties not for profit. Commonwealth Act No. 470 and Presidential Decree No. 24 provide related real property tax and SSS exemption provisions.

The Social Security System is a government agency created under Republic Act No. 1161, whose primary function is to develop, establish gradually, and perfect a social security system suitable to the needs of the people throughout the Philippines and to provide protection against disability, sickness, old age, and death. In pursuance of its operations, it maintains a number of regional offices, one of which is the five-storey building known as the SSS Building in Bacolod City, occupying four parcels of land. In 1970, those lands and building were assessed for taxation at P1,744,840.00.

For failure to pay the realty taxes for the years 1968, 1969, and 1970, which including penalties amounted to P104,956.06, the City of Bacolod, through respondent Miguel Reynaldo as City Treasurer, sometime in early 1970 levied upon the lands and building. On April 3, 1970, the city declared the properties forfeited in its favor.

In protest, the SSS addressed a letter dated July 27, 1970 to the City Mayor of Bacolod, through the city treasurer, seeking reconsideration of the forfeiture proceedings on the ground that the SSS, being a government-owned and controlled corporation, was exempt from payment of real estate taxes. When no action was taken by the city treasurer, the SSS filed an action in the Court of First Instance of Negros Occidental for nullification of the forfeiture proceedings. In the same complaint, it sought a writ of preliminary injunction to restrain the city from consolidating its ownership over the forfeited properties; the court issued the writ upon the SSS's posting of a cash bond in the amount of P105,000.00.

After due hearing, the lower court found that the SSS did not fall under Section 29 of the Charter of the City of Bacolod and that no law exempted it from real property tax, and it therefore treated the properties as taxable like those of any other corporation under Section 27 of the City Charter.

• Exemption from Real Estate Taxes: Petitioner maintained that, as a government-owned and controlled corporation, it is exempt from payment of real estate taxes.
• Nullification of Forfeiture: Petitioner sought reconsideration of the forfeiture proceedings and, when no action was taken, filed an action for nullification of the forfeiture on the ground of its exemption.

• Real Property Tax Exemption: Whether the SSS properties in Bacolod City are exempt from real property taxes under Section 29 of the Charter of the City of Bacolod.
• Governmental or Proprietary Function: Whether the exemption from real property taxes of government-owned lands and buildings depends on whether the government entity using them performs governmental or proprietary functions.
• Effect of Presidential Decree No. 24: Whether Presidential Decree No. 24, amending the Social Security Act, exempts the SSS and its assets from taxation.
• Validity of Forfeiture: Whether the forfeiture of the SSS properties in favor of the City of Bacolod for real property tax delinquency is valid.

• Real Property Tax Exemption: Yes. Section 29 of the Charter of the City of Bacolod exempts lands and buildings owned by the government from real property taxes, and the SSS properties are concededly owned by the government.
• Governmental or Proprietary Function: No. The exemption does not depend on whether the property is devoted to a governmental or proprietary purpose, because Section 29 contains no such qualification and public property is exempt as a rule.
• Effect of Presidential Decree No. 24: Yes. Presidential Decree No. 24 amended the Social Security Act to exempt the SSS and all its assets from any tax, assessment, fee, or charge.
• Validity of Forfeiture: No. The forfeiture is set aside because the properties are exempt from real property taxes.

• Real Property Tax Exemption: Section 29 of Commonwealth Act No. 326 exempts lands and buildings owned by the Commonwealth or Republic of the Philippines and other specified properties. It contains no qualification whatsoever. The lower court restricted the exemption to government agencies exercising governmental or sovereign functions, relying on NACOCO vs. Bacani and SSS vs. Hon. Soriano, et al. But the issue is not liability for legal fees under Rule 130; it is whether government-owned properties are exempt from realty taxes. Commonwealth Act No. 470, Section 3(a), similarly exempts properties owned by the Republic, any province, city, municipality, or municipal district. Board of Assessment Appeals vs. Court of Tax Appeals interpreted that provision as making no distinction between property held in a sovereign, governmental, or political capacity and property possessed in a private, proprietary, or patrimonial character. A tax on government property merely takes money from one pocket to put it in another. Thus, the SSS properties, owned by the government, are exempt.
• Governmental or Proprietary Function: The constituent-ministrant distinction in NACOCO vs. Bacani has no relevance to the issue. What is decisive is that the properties possessed by the SSS, albeit devoted to a private or proprietary purpose, are in fact owned by the government of the Philippines. As such, they are exempt from realty taxes. When public property is involved, exemption is the rule and taxation the exception.
• Effect of Presidential Decree No. 24: Presidential Decree No. 24 amended the Social Security Act of 1954 and removed all doubts as to the exemption of the SSS from taxation. Section 16 exempts the SSS and all its assets, all contributions collected and accruals thereto and income therefrom, all benefit payments, and all papers or documents required in connection with the operation or execution of the Act from any tax, assessment, fee, charge, or customs or import duty, subject only to the exception for payment of any debt of the covered employee to the SSS.
• Validity of Forfeiture: Because the properties are exempt from real property taxes, the delinquency and forfeiture cannot stand. The decision under review was set aside and the surety bond filed by petitioner cancelled.

• Government-Owned Property Exemption from Real Property Tax — Under Section 29 of the Charter of the City of Bacolod and Section 3(a) of Commonwealth Act No. 470, lands and buildings owned by the government are exempt from real property taxes. The exemption is broad and comprehensive and does not depend on whether the property is devoted to governmental or proprietary purposes. The Court applied this to the SSS-owned lands and building in Bacolod City.
• Exemption Is the Rule; Taxation Is the Exception for Public Property — When public property is involved, exemption is the rule and taxation is the exception. The Court used this axiom to reject the City's attempt to tax SSS-owned lands and building.
• Constituent-Ministrant Distinction Irrelevant to Real Property Tax Exemption — The distinction between government agencies exercising constituent functions and those performing ministrant functions, relied on in NACOCO vs. Bacani, has no relevance to whether government-owned properties are exempt from realty taxes. The decisive fact is government ownership. The footnote states that the criterion was abandoned in Agricultural Credit and Cooperative Financing Administration vs. Confederation of Unions in Government Corporations and Offices, et al.
• SSS Tax Exemption Under Presidential Decree No. 24 — Presidential Decree No. 24 amended Section 16 of the Social Security Act to exempt the SSS and all its assets, contributions, accruals, income, benefit payments, and related documents from any tax, assessment, fee, charge, or customs or import duty. This removed doubts as to the SSS exemption from taxation.

• "It bears emphasis that the said section does not contain any qualification whatsoever in providing for the exemption from real estate taxes of "lands and buildings owned by the Commonwealth or Republic of Philippines." Hence, when the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose." — This passage states the ratio decidendi that Section 29's exemption is broad and not limited by governmental or proprietary use.
• "The distinction laid down in "NACOCO vs. Bacani" between government agencies exercising constituent functions, on the one hand, and those performing ministrant functions, on the other, has therefore no relevance to the issue before Us. What is decisive is that the properties possessed by the SSS, albeit devoted to private or proprietary purpose, are in fact owned by the government of the Philippines. As such they are exempt from realty taxes. It is axiomatic that when public property is involved, exemption is the rule and taxation, the exception." — This passage rejects the lower court's reliance on the constituent-ministrant distinction and states the controlling axiom for public property.
• "In connection with the issue at hand, it would not be amiss to state that Presidential Decree No. 24, which amended the Social Security Act of 1954, has already removed all doubts as to the exemption of the SSS from taxation." — This passage cites Presidential Decree No. 24 as confirming the SSS exemption from taxation.

• NACOCO vs. Bacani, 100 Phil. 468 — Relied upon by the lower court to restrict exemption to government agencies exercising governmental or sovereign functions. Distinguished and held irrelevant because it concerned legal fees under Rule 130 and the constituent-ministrant distinction, not real property tax exemption of government-owned property. The footnote notes the criterion was abandoned in Agricultural Credit and Cooperative Financing Administration vs. Confederation of Unions in Government Corporations and Offices, et al.
• SSS vs. Hon. Soriano, et al., 7 SCRA 1016 — Cited by the lower court to categorize the SSS as performing proprietary functions. Held not decisive because the issue is not the SSS's functional classification but whether government-owned properties are exempt from realty taxes.
• Board of Assessment Appeals vs. Court of Tax Appeals, 8 SCRA 225 — Interpreted Section 3(a) of Commonwealth Act No. 470 as making no distinction between property held in a sovereign, governmental, or political capacity and property held in a private, proprietary, or patrimonial character. Followed and quoted to support the broad exemption of government-owned property.
• Agricultural Credit and Cooperative Financing Administration vs. Confederation of Unions in Government Corporations and Offices, et al., 30 SCRA 649 — Cited in footnote as abandoning the constituent-ministrant criterion applied in NACOCO vs. Bacani.

• Section 29, Commonwealth Act No. 326 (Charter of the City of Bacolod) — Exempts from taxation lands and buildings owned by the United States of America, the Commonwealth of the Philippines, the City of Bacolod, the Province of Occidental Negros, and certain religious, charitable, scientific, or educational properties not for profit, but not lands or buildings held for investment. The Court held the exemption of government-owned lands and buildings is broad and without qualification as to governmental or proprietary use.
• Section 3(a), Commonwealth Act No. 470 — Exempts properties owned by the Republic of the Philippines, any province, city, municipality, or municipal district from real property taxes. The Court cited it as similarly worded and relied on Board of Assessment Appeals vs. Court of Tax Appeals to interpret it as not distinguishing sovereign, governmental, or political property from private, proprietary, or patrimonial property.
• Section 1, Republic Act No. 104 — Requires all corporations, agencies, or instrumentalities owned or controlled by the government to pay duties, taxes, fees, and other charges imposed by law upon individuals, associations, or corporations engaged in taxable business, except on goods or commodities imported or purchased and sold or distributed for relief purposes. The Court noted this liability for legal fees but distinguished it from the real property tax exemption issue.
• Section 16, Presidential Decree No. 24 — Amended the Social Security Act of 1954 to exempt the SSS and all its assets, contributions, accruals, income, benefit payments, and related papers from any tax, assessment, fee, charge, or customs or import duty, and from attachment, garnishment, levy, or seizure, except to pay any debt of the covered employee to the SSS. The Court cited it as removing all doubts as to the SSS exemption.
• Section 27, Charter of the City of Bacolod — Cited by the lower court as basis for taxing the SSS like any other corporation. The Supreme Court set aside the lower court's reliance on it by holding the properties exempt under Section 29.
• Section 2, Republic Act No. 1161 — Defines the SSS primary function to develop, establish gradually, and perfect a social security system suitable to the needs of the people throughout the Philippines and provide protection against disability, sickness, old age, and death. Cited to describe petitioner.
• Rule 130, Rules of Court (now Section 8, Rule 141, New Rules of Court) — Governs legal fees for transcripts of stenographic notes. The lower court's reliance on NACOCO vs. Bacani involved this provision, but the Court held that liability for legal fees is distinct from real property tax exemption.

Barredo (Chairman), Concepcion, Jr., Guerrero, Abad Santos, and De Castro, JJ., concurred. Aquino, J., filed a separate concurring opinion, reasoning that the SSS is controlled and directed by a Social Security Commission headed by the Minister of Labor and Employment and six members appointed by the President of the Philippines; it is an agency of the Republic providing sickness, unemployment, retirement, disability, and death benefits, indubitably a part of the Government, and thus exempt from realty tax under the Assessment law and the Real Property Tax Code, and expressly exempt under Presidential Decree No. 24. He compared it to the Government Service Insurance System, exempt under Section 33 of Presidential Decree No. 1146, and to the Civil Service Commission or any bureau, and stated it is not in the category of government-owned or controlled corporation.