a government entity, it is exempt from payment of real property taxes pursuant to Section 234(a) of the 1991 Local Government Code or R.A. No. 7160.[18] The said provision also provides that when the beneficial use of the real property owned by the Republic or any of its political subdivision, is vested to a taxable person, the real property is subject to tax.

The PMO (Privatization and Management Office), the Province of Leyte and the PTA are the owners of the Leyte Park Hotel, Inc. (LPHI), a real property with improvement situated within the territorial and taxing jurisdiction of private respondent City Government of Tacloban (respondent City).^[4]

The facilities of LPHI were leased out to Unimaster Conglomeration, Inc. (UCI) for a monthly rental of P300,000.00 for a period of 12 years.^[5] Meanwhile, respondent City sent several demand letters to UCI for it to pay the real property taxes of LPHI in the amount of P23,377,353.08.^[6]

However, despite repeated demands by respondent City, the real property taxes remained unpaid. Hence, on December 15, 2004, respondent City filed a complaint for Collection of Sum of Money before the CTA Special First Division, against the LPHI and UCI. Thereafter, respondent City amended its complaint and impleaded additional defendants, namely: The Province of Leyte, the PTA and the petitioner. Petitioner filed its Answer and argued, among others, that the liability to pay real property taxes devolves on UCI pursuant to Section 234 of the Local Government Code.

Issue: Whether the UCI is liable for real property tax? Whether said property could be levied upon for not paying the tax?

Ruling:

The petitioner recognized the fact - which was affirmed in the CTA En Banc Decision dated August 22, 2014, that as a government entity, it is exempt from payment of real property taxes pursuant to Section 234(a) of the 1991 Local Government Code or R.A. No. 7160.^[18] The said provision also provides that when the beneficial use of the real property owned by the Republic or any of its political subdivision, is vested to a taxable person, the real property is subject to tax. Petitioner, together with the PTA and the Province of Leyte, had already admitted that they are co-owners of the subject property and they were leasing the same to UCI, a private entity pursuant to a Contract of Lease dated September 15, 1994. Thus, pursuant to the aforementioned Local Government Code provision and also in the case of National Power Corporation v. Province of Quezon,^[19] where this Court ruled:

The liability for taxes generally rests on the owner of the real property at the time the tax accrues. This is a necessary consequence that proceeds from the fact of ownership. However, personal liability for realty taxes may also expressly rest on the entity with the beneficial use of the real property, such as the tax on property owned by the government but leased to private persons or entities, or when the tax assessment is made on the basis of the actual use of the property. In either case, the unpaid realty tax attaches to the property but is directly chargeable against the taxable person who has actual and beneficial use and possession of the property regardless of whether or not that person is the owner. (Emphasis and italics in the original)

But, without, however, prejudging the appealed case on the merits, UCI, the actual and beneficial user of subject property can be said to be directly liable for the real property taxes on the property owned by the government.

On the basis of the foregoing law and jurisprudence, while it is correct for the respondent City to assess UCI of the unpaid real property taxes, it is, however, a clear contravention of the law to proceed with the issuance of the warrant of levy against the subject property in order to place it for public auction. This method of collection of the deficiency of real property taxes prejudiced not UCI, the private entity who is directly charged with the payment of the tax, but the petitioner, the PTA and the Province of Leyte, the government entities who owned the land.

It is a settled rule that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale, levy, encumbrance or disposition through public or private sale.^[20] Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy.^[21]

Under Article 420 of the Civil Code, the subject property (the LPHI) is a property of the public dominion owned by the State, through its agents and instrumentalities. Thus, Article 420 of the Civil Code, provides:

Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (Emphases supplied)

Thus, being a property of public dominion, the subject property cannot be subject of public auction sale, notwithstanding its realty tax delinquency. This means that the respondent City has to satisfy its realty tax claims by serving the accrued realty tax assessment upon UCI, as the taxable beneficial user of the subject property and in case of UCFs non-payment, through any means other than the sale at public auction of the leased property. The case of Philippine Fisheries Development Authority v. Court of Appeals^[22] instructs, thus:

In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are leased to private entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or any part thereof, being a property of public domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax delinquency through means other than the sale at public auction of the IFPC.

Verily, since the method employed by the respondent City in collecting the realty taxes due - through the warrant of levy and the eventual public auction of a property of public dominion - is not sanctioned by law, then it is no longer necessary for the petitioner to file a surety bond as a condition precedent to suspend the tax collection.

To repeat, the purpose of the surety bond is to ensure that the tax due will be paid if and when the case is finally decided against the taxpayer. Indeed, the Republic of the Philippines need not give this security as it is presumed to be always solvent and able to meet its obligations.^[23] Thus, the petitioner, being an agent of the national government,^[24] is not required to put up a bond because to do so would be to indirectly require the state to submit such bond. Since the petitioner had already filed the required surety bond with the CTA, it is just proper to order the CTA to release the same for reasons as discussed in this decision.

SECOND DIVISION

[ G.R. No. 211839, March 18, 2019 ]

PRIVATIZATION AND MANAGEMENT OFFICE, PETITIONER, V. COURT OF TAX APPEALS AND CITY GOVERNMENT OF TACLOBAN, RESPONDENTS.