MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY vs. HON. FERDINAND J. MARCOS, G.R. No. 120082.

September 11, 1996

G.R. No. 120082. September 11, 1996

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY

vs.

HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY
OF CEBU, represented by its Mayor, HON. TOMAS R. OSMENA, and EUSTAQUIO B. CESA, respondents.;

Doctrine: Taxation is a destructive power which interferes with the personal and property rights of the people and takes from
them a portion of their property for the support of the government. Tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken

Facts: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of RA No. 6958, mandated to
principally undertake the economical, efficient and effective control, management and supervision of the Mactan International
Airport in the Province of Cebu and the Lahug Airport in Cebu City. Since the time of its creation, MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government or any of its
political subdivisions, agencies and instrumentalities x x x.

On October 11, 1994, the Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of
land belonging to the petitioner. Petitioner objected to such demand for payment as baseless and unjustified, claiming in its
favor the aforecited Section 14 of RA 6958. It was also asserted that it is an instrumentality of the government performing
governmental functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers
of local government units:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government
units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a government-
controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local
Government Code that took effect on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this Code. (underscoring supplied)

Section 234. Exemptions from Real Property Taxes. x x x

(e) xxx

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.

MCIAA basically contended that the taxing powers of local government units do not extend to the levy of taxes or fees of any
kind on an instrumentality of the national government. Petitioner insisted that while it is indeed a government-owned
corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very
nature of its powers and functions. Respondent City, however, asserted that MCIAA is not an instrumentality of the government
but merely a government-owned corporation performing proprietary functions. As such, all exemptions previously granted to it
were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code when it
took effect on January 1, 1992.

Issue:

1. W/N MCIAA as taxable person

2. Whether the MCIAA is exempted from realty taxes.

Ruling:

1. Yes. MCIAA is a taxable person. the petitioner cannot claim that it was never a taxable person under its Charter. It was only
exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the petitioner was
originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already become,
even if it be conceded to be an agency or instrumentality of the Government, a taxable person for such purpose in view of the
withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier
adverted to, applies to the petitioner.

2. No. MCIAA is not exempted from realty taxes. If Section 234(a) intended to extend the exception therein to the withdrawal
of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and
instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the
latter. Yet, it did [Link], that Congress did not wish to expand the scope of the exemption in Section 234(a) to include
real property owned by other instrumentalities or agencies of the government including government-owned and controlled
corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 464, otherwise known
as The Real Property Tax Code, which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or
controlled corporation so exempt by its charter: Provided, however, That this exemption shall not apply to real property of the
above-mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-owned or controlled corporation so exempt by its
charter was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax
exemption privileges, especially in light of the general provision on withdrawal of tax exemption privileges in Section 193 and
the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234.
[ G.R. NO. 150812, August 22, 2006 ]

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. CITYTRUST BANKING CORPORATION, RESPONDENT.

DECISION

CORONA, J.

The Commissioner of Internal Revenue (CIR) assails the decision[1] of the Court of Appeals (CA) and its resolution[2] upholding the
decision of the Court of Tax Appeals (CTA) in CTA Case No. 4099 which ordered the refund of P13,314,506.14 to respondent
Citytrust Banking Corporation (Citytrust)[3] as its alleged overpaid income taxes for the years 1984 and 1985.

On May 28, 1991, the CTA ordered the CIR to grant Citytrust a refund in the amount of P13,314,506.14 representing Citytrust's
overpaid income taxes for 1984 and 1985. The CIR filed a motion for reconsideration (MR) on the ground that the Certificate of
Tax Withheld was inconclusive evidence of payment and remittance of tax to the Bureau of Internal Revenue. In its
supplemental MR, the CIR alleged an additional ground: that Citytrust had outstanding deficiency income and business tax
liabilities of P4,509,293.71[4] for 1984, thus, the claim for refund was not in order. The tax court denied both motions.

The case was elevated to the CA[5] in CA-G.R. SP No. 26839 but the appellate court affirmed the CTA's ruling. On petition for
review on certiorari to this Court, however, we ruled that there was an apparent contradiction between the claim for refund and
the deficiency assessments against Citytrust, and that the government could not be held in estoppel due to the negligence of its
officials or employees, specially in cases involving taxes. For that reason, the case was remanded to the CTA for further
reception of evidence.[6]

The tax court thereafter conducted the necessary proceedings. One of the exhibits presented and offered in the hearings was a
letter dated February 28, 1995, signed by the CIR, stating the withdrawal and cancellation of the following assessments:[7]

Kind of Tax Year Involved Amount

1. [Deficiency] Fixed 1984 P 44,132.88

2. [Deficiency] Withholding Tax on deposit substitutes ( 1984 22,363,791.31

3. [Deficiency] Withholding Tax on deposit substitutes ( 1984 11,292,140.50

4. [Deficiency] Documentary Stamp Tax on deposit 1984 17,825,342.30

In the same letter, the CIR demanded the following sums from Citytrust for 1984: (1) as deficiency income tax " P3,301,578.19;
(2) as deficiency gross receipts tax " P1,193,090.52 and (3) as fixed tax as real estate dealer – P14,625. Citytrust paid these
deficiency tax liabilities.[8]
From the exhibits presented to it, the CTA determined that: (1) the deficiency and gross receipts taxes had been fully paid and
(2) the deficiency income tax was only partially settled.[9]
Except for a pending issue in another CTA proceeding,[10] Citytrust considered all its deficiency tax liabilities for 1984 fully settled,
hence, it prayed that it be granted a refund. The CIR interposed his objection, however, alleging that Citytrust still had unpaid
deficiency income, business and withholding taxes for the year 1985.[11] Due to these deficiency assessments, the CIR insisted
that Citytrust was not entitled to any tax refund.
On October 16, 1997, the CTA set aside the CIR's objections and granted the refund.[12]
On May 21, 2001, the CA denied the CIR's petition for review[13] for lack of merit and affirmed the CTA decision.[14]
Before us in this petition for review on certiorari, the CIR contends that respondent is not entitled to the refund of
P13,314,506.14 as alleged overpaid income taxes for 1984 and 1985. The CIR claims that the CA erred in not holding that
payment by Citytrust of its deficiency income tax was an admission of its tax liability and, therefore, a bar to its entitlement to a
refund of income tax for the same taxable year.
In resolving this case, the CTA did not allow a set-off or legal compensation of the taxes involved.[15] The CTA reasoned:

Again, the BIR interposed objection to the grant of such refund. It alleged that there are still deficiency income, business and
withholding taxes proposed against petitioner for 1985. These assessments are contained in a Delinquency Verification Slip,
dated June 5, 1990, which was marked as Exh. "5" for respondent. Due to these deficiency assessments, respondent insisted
that petitioner is not entitled to any tax refund.
[The CTA] sets aside respondent's objection and grants to petitioner the refund of the amount of P13,314,506.14 on several
grounds.
First, [respondent's position] violates the order of the Supreme Court in directing [the CTA] to conduct further proceedings for
the reception of petitioner's evidence, and the disposition of the present case. Although the Supreme Court did not specifically
mention what kind of petitioner's evidence should be entertained, [the CTA] is of the opinion that the evidence should pertain
only to the 1984 assessments which were the only assessments raised as a defense on appeal to the Court of Appeals and the
Supreme Court. The assessments embodied in Exhibit "5" of respondent were never raised on appeal to the higher [c]ourts.
Hence, evidence related to said assessments should not be allowed as this will lead to endless litigation.
Second, [the CTA] has no jurisdiction to try an assessment case which was never appealed to it. With due respect to the
Supreme Court's decision, it is [the CTA's] firm stand that in hearing a refund case, the CTA cannot hear in the same case an
assessment dispute even if the parties involved are the same parties.[16] xxx xxx xxx. (Citations omitted and emphasis supplied)

We uphold the findings and conclusion of the CTA and the CA.
Records show that this Court made no previous direct ruling on Citytrust's alleged failure to substantiate its claim for refund.
Instead, the order of this Court addressed the apparent failure of the Bureau of Internal Revenue, by reason of the mistake or
negligence of its officials and employees, to present the appropriate evidence to oppose respondent's claim.[17] In the earlier
case, we directed the joint resolution of the issues of tax deficiency assessment and refund due to its particular circumstances.
[18]

The CTA complied with the Court's order to conduct further proceedings for the reception of the CIR's evidence in CTA Case No.
4099. In the course thereof, Citytrust paid the assessed deficiencies to remove all administrative impediments to its claim for
refund. But the CIR considered this payment as an admission of a tax liability which was inconsistent with Citytrust's claim for
refund.
There is indeed a contradiction between a claim for refund and the assessment of deficiency tax. The CA pointed out that the
case was remanded to the CTA for the reception of additional evidence precisely to resolve the apparent contradiction.
Because of the CTA's recognized expertise in taxation, its findings are not ordinarily subject to review specially where there is no
showing of grave error or abuse on its part.[19]

This Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function,
is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless
there has been an abuse or improvident exercise of authority.[20]

WHEREFORE, the petition is hereby DENIED. The May 21, 2001 decision of the Court of Appeals in CA-G.R. SP No. 46793
is AFFIRMED.

SO ORDERED.