Yamane vs. BA Lepanto Condominium Corporation

A condominium corporation is generally exempt from local business taxation under the Local Government Code because its collection of assessments from unit owners for the maintenance of common areas does not constitute a trade or commercial activity engaged in as a means of livelihood or with a view to profit.

BA Lepanto Condominium Corporation, organized under the Condominium Act to hold title to and manage common areas, received a Notice of Assessment from the Makati City Treasurer demanding payment of business taxes for the years 1995 to 1997. The assessment was predicated on the corporation's collection of dues from unit owners, which the City Treasurer characterized as a profit venture because the maintenance funded by these dues purportedly enhanced the market value of the condominium units.

• Nature of the Corporation: Respondent BA Lepanto Condominium Corporation is organized under the Condominium Act to hold title to the common and limited common areas of the BA-Lepanto Condominium and to manage the project. Its Articles of Incorporation and By-Laws limit its corporate purposes to holding common areas, managing the project, and making assessments to defray maintenance and operational expenses. It is not authorized to engage in profit-making activities.
• The Assessment: On 15 December 1998, the Corporation received a Notice of Assessment from the City Treasurer demanding ₱1,601,013.77 in business taxes, surcharges, and interest for the years 1995 to 1997. The notice did not specify the statutory provision of the Makati Revenue Code under which the tax was being imposed.
• The Protest and Denial: The Corporation filed a written protest arguing it was not liable for business taxes as it was not engaged in business. The City Treasurer denied the protest, asserting that the collection of dues to sustain and maintain common areas was a "profit venture" because it resulted in "full appreciative living values" and better marketable prices for the unit owners.

• Improper Mode of Appeal: Petitioner argued that the RTC exercises original jurisdiction over tax protest appeals, making an ordinary appeal under Rule 41 the proper mode of elevation to the CA; thus, the Rule 42 petition filed by the Corporation was erroneous and the RTC decision should have become final.
• Engaged in Business: Petitioner maintained that the Corporation is engaged in business because the dues collected for beautification and maintenance result in "full appreciative living values" and higher market prices for the units.
• Privilege to Engage in Business: Petitioner contended that the rationale for business taxes is the privilege to engage in business, not the income received or profit earned.
• Corporate Powers: Petitioner asserted that the Corporation's power under its Articles of Incorporation to acquire, hold, lease, and dispose of property qualifies as engaging in business.

• Not Engaged in Business: Respondent countered that as a condominium corporation, it was organized not for profit but to hold title to common areas and manage the project, and the assessments collected were strictly for capital and operating expenses.
• Statutory Definition of Business: Respondent argued that its activities do not fall under the Local Government Code definition of "business," which requires a trade or commercial activity engaged in as a means of livelihood or with a view to profit.
• Statutory Limitations: Respondent maintained that the Condominium Act limits its corporate purposes, precluding it from engaging in profit-making activities.

• Jurisdiction and Mode of Appeal: Whether the RTC exercises original or appellate jurisdiction over appeals from the denial of a tax protest by a local treasurer, and whether the filing of a Rule 42 petition with the CA was proper.
• Taxability of Condominium Corporations: Whether a condominium corporation is subject to local business tax under the Local Government Code based on its collection of assessments from unit owners.

• Jurisdiction and Mode of Appeal: The RTC exercises original jurisdiction over appeals from local treasurer tax protest denials because it constitutes the initial judicial cognizance of the matter; the denial is by an executive officer, not a lower court. Consequently, the proper mode of appeal to the CA is an ordinary appeal under Rule 41. However, the procedural error was overlooked because strict application of procedural rules would defeat substantial justice, and the error did not prejudice the petitioner, as a Rule 42 petition faces a higher threshold for dismissal than a Rule 41 appeal.
• Taxability of Condominium Corporations: Condominium corporations are generally exempt from local business taxation. The collection of assessments for maintenance does not fall under the LGC definition of "business," which requires a view to profit. The Condominium Act statutorily precludes condominium corporations from engaging in activities beyond holding common areas and managing the project. Any increase in unit market value accrues to the unit owner, not the corporation, and is already subject to capital gains tax. Imposing a tax based on the standard of "full appreciative living values" is arbitrary and oppressive, violating due process. An exception exists if the corporation engages in ultra vires profit-making activities, in which case estoppel prevents it from claiming exemption, but no such activities were alleged here.

• Definition of Business for Local Taxation — Under Section 131 of the Local Government Code, "business" is defined as a trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. The collection of assessments by a condominium corporation solely to defray maintenance and operational expenses does not meet this definition.
• Nature of Condominium Corporations — A condominium corporation is statutorily precluded by the Condominium Act from engaging in corporate activities other than holding common areas, administering the project, and acts necessary or incidental to these purposes. It cannot maintain livelihood or procure profit.
• Original Jurisdiction of RTC in Local Tax Protests — The RTC exercises original jurisdiction when reviewing denials of protests by local treasurers because it is the initial judicial cognizance of the matter, and the denial is by a local government official, not a lower court.

• "There are fewer indisputable causes for the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim, and not on law."
• "Condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise."

• Garcia v. De Jesus, G.R. Nos. 88158 & 97108-09, 4 March 1992, 206 SCRA 779 — Followed for the distinction between original and appellate jurisdiction, establishing that original jurisdiction is the power to take judicial cognizance of a case for the first time.
• Pepsi-Cola Bottling Company v. Municipality of Tanauan, 161 Phil. 591 — Cited for the principle that taxation constitutes a deprivation of property under the due process clause, which is violated when arbitrary or oppressive methods are used.
• Twin Towers Condominium Corp. v. Court of Appeals, 446 Phil. 280 (2003) — Cited for the definition of ultra vires acts as those outside or beyond corporate powers or prohibited by law.

• Section 195, Republic Act No. 7160 (Local Government Code) — Provides the remedy of a taxpayer to appeal the denial of a tax protest to the court of competent jurisdiction. Applied to determine the nature of the RTC's jurisdiction.
• Section 131(d), Republic Act No. 7160 (Local Government Code) — Defines "business" as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. Applied to determine that the corporation's activities do not constitute a business.
• Section 143, Republic Act No. 7160 (Local Government Code) — Enumerates the businesses municipalities and cities may tax. Noted as the statutory basis for local business taxation.
• Section 10, Republic Act No. 4726 (Condominium Act) — Limits the corporate purposes of a condominium corporation to holding common areas, managing the project, and incidental purposes, and prohibits provisions contrary to the Act. Applied to establish the statutory preclusion of profit-making by the corporation.
• Section 36(7), Batas Pambansa Blg. 68 (Corporation Code) — Grants every corporation the power to purchase, receive, hold, convey, sell, lease, and mortgage property necessary for its lawful business. Applied to counter the petitioner's argument that the corporation's power to deal with property proved it was engaged in business.
• Section 7(a)(3), Republic Act No. 9282 — Grants the Court of Tax Appeals exclusive appellate jurisdiction over RTC decisions in local tax cases. Noted as not applying retroactively to the present case.

Reynato S. Puno, Ma. Alicia Austria-Martinez, Romeo J. Callejo, Sr. (On Leave), Minita V. Chico-Nazario.