A government instrumentality exercising corporate powers is not liable for the payment of real property taxes on its properties unless it is alleged and proven that the beneficial use of its properties been extended to a taxable person.

Although the Manila International Airport Authority was granted corporate powers, it also exercised governmental powers of eminent domain, police authority, and levying of charges and fees. The proper nomenclature for it, therefore, was that of a government instrumentality exercising corporate powers, sometimes loosely referred to as "government corporate entity." As a government instrumentality, it is exempt from local taxes under Section 133(o)^[57] of the Local Government Code.
Manila International Airport Authority likewise held that airport lands and buildings are properties of public dominion owned by the Republic. These properties have been determined to be intended for public use as they are used by the public for domestic and international air travel. Even if the titles to the properties were in Manila International Airport Authority's name, it only held them in trust for the Republic since the properties cannot be conveyed without the President's signature on the deed of conveyance. Manila International Airport Authority, however, clarified that portions of the Republic's properties that are leased to taxable persons may be subjected to real property tax:

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.^[58]

Philippine Fisheries Development Authority v. Court of Appeals^[59] was confronted with the same issue when the City of Iloilo levied real property taxes on Iloilo Fishing Port Complex, which was operated by the Philippine Fisheries Development Authority.

Applying the parameters set by Manila International Airport Authority, this Court determined that the Philippine Fisheries Development Authority was a government instrumentality exercising corporate powers, not a government-owned and controlled corporation. Thus, it was exempt from the payment of real property taxes on the Iloilo Fishing Port Complex, except for those portions that were leased to private entities. Philippine Fisheries Development Authority further clarified that:

Notwithstanding said tax delinquency on the leased portions of the [Iloilo Fishing Port Complex], 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 [Iloilo Fishing Port Complex].^[60]

In Government Service Insurance System v. City Treasurer of Manila,^[61] this Court likewise applied Manila International Airport Authorityand held that the Government Service Insurance System was a government instrumentality whose properties, being owned by the Republic, cannot be assessed for real property taxes:

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of man, the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First, while created under CA 186 as a non-stock corporation, a status that has remained unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the afore quoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS' capital is not divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory members of the system who are government employees. Its management is entrusted to a Board of Trustees whose members are appointed by the President.

Second, the subject properties under GSIS's name are likewise owned by the Republic. The GSIS is but a mere trustee of the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the system. This particular property arrangement is clearly shown by the fact that the disposal or conveyance of said subject properties are either done by or through the authority of the President of the Philippines. Specifically, in the case of the Concepcion­ Arroceros property, it was transferred, conveyed, and ceded to this Court on April 27, 2005 through a presidential proclamation, Proclamation No. 835. Pertinently, the text of the proclamation announces that the Concepcion-Arroceros property was earlier ceded to the GSIS on October 13, 1954 pursuant to Proclamation No. 78 for office purposes and had since been titled to GSIS which constructed an office building thereon. Thus, the transfer on April27, 2005 of the Concepcion-Arroceros property to this Court by the President through Proclamation No. 835. This illustrates the nature of the government ownership of the subject GSIS properties, as indubitably shown in the last clause of Presidential Proclamation No. 835:

WHEREAS, by virtue of the Public Land Act (Commonwealth Act No. 141, as amended), Presidential Decree No. 1455, and the Administrative Code of 1987, the President is authorized to transfer any government property that is no longer needed by the agency to which it belongs to other branches or agencies of the government.^[62]

Manila International Airport Authority remains good law and was applied in the fairly recent Mactan-Cebu International Airport Authority v. City of Lapu-Lapu,^[63] where this Court concluded that the Mactan-Cebu International Airport Authority, being a government instrumentality, cannot be levied real property tax except on portions leased to taxable persons:

MCIAA, with its many similarities to the MIAA, should be classified as a government instrumentality, as its properties are being used for public purposes, and should be exempt from real estate taxes. This is not to derogate in any way the delegated authority of local government units to collect realty taxes, but to uphold the fundamental doctrines of uniformity in taxation and equal protection of the laws, by applying all the jurisprudence that have exempted from said taxes similar authorities, agencies, and instrumentalities, whether covered by the 2006 MIAA ruling or not.^[64]

Thus, according to the parameters set by Manila International Airport Authority, a government instrumentality is exempt from the local government unit's levy of real property tax. The government instrumentality must not have been organized as a stock or non-stock corporation, even though it exercises corporate powers, administers special funds, and enjoys operational autonomy, usually through its charter. Its properties are exempt from real property tax because they are properties of the public dominion: held in trust for the Republic, intended for public use, and cannot be the subject of levy, encumbrance, or disposition.

A government-owned and controlled corporation, on the other hand, is not exempt from real property taxes due to the passage of the Local Government Code, which now provides:

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 all government-owned or - controlled corporations are hereby withdrawn upon the effectivity of this Code.^[65] (Emphasis supplied)

Guided by these parameters, this Court now determines whether petitioner is a government instrumentality exercising corporate powers or a government-owned and controlled corporation.
x x x x
Properties of the public dominion are properties "devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased"^[74] by the government agency to private parties. Manila International Airport Authority added:

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.^[75]

Under its Charter, petitioner is given the power to "acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose"^[76] of its real property. Properties held by petitioner under the exercise of this power, therefore, cannot be considered properties of the public dominion.

Held against the parameters of Manila International Airport Authority, this Court cannot but conclude that petitioner is a government­ owned and controlled corporation. Under the Local Government Code, only its machinery and equipment actually, directly, and exclusively used in the supply and distribution of water can be exempt from the levy of real property taxes.^[77] Its powers, functions, and attributes are more akin to that of the National Power Corporation, which was previously held by this Court as a taxable entity:

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock . . ."

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government. Included in the class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis." Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are 

 declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.^[78]

Be that as it may, this Court's categorization cannot supplant that which was previously made by the Executive and Legislative Branches. After the promulgation of Manila International Airport Authority, then President Gloria Macapagal-Arroyo issued Executive Order No. 596,^[79]which recognized this Court's categorization of "government instrumentalities vested with corporate powers." Section 1 of Executive Order No. 596 states:

Section 1. The Office of the Government Corporate Counsel (OGCC) shall be the principal law office of all GOCCs, except as may otherwise be provided by their respective charter or authorized by the President, their subsidiaries, corporate offsprings, and government acquired asset corporations. The OGCC shall likewise be the principal law office of "government instrumentality vested with corporate powers" or "government corporate entity", as defined by the Supreme Court in the case of "MIAA vs. Court of Appeals, City of Parañaque, et al.", supra, notable examples of which are: Manila International Airport Authority (MIAA), Mactan International Airport Authority, the Philippine Ports Authority (PPA), Philippine Deposit Insurance Corporation (PDIC), Metropolitan Water and Sewerage Services (MWSS), Philippine Rice Research Institute (PRRI), Laguna Lake Development Authority (LLDA), Fisheries Development Authority (FDA), Bases Conversion Development Authority (BCDA), Cebu Port Authority (CPA), Cagayan de Oro Port Authority, and San Fernando Port Authority. (Emphasis supplied)

Under this provision, petitioner is categorized with other government agencies that were found to be exempt from the payment of real property taxes.

THIRD DIVISION

[ G.R. No. 194388, November 07, 2018 ]

METROPOLITAN WATERWORKS SEWERAGE SYSTEM, PETITIONER, VS. THE LOCAL GOVERNMENT OF QUEZON CITY, CITY TREASURER OF QUEZON CITY, CITY ASSESSOR OF QUEZON CITY, SANGGUNIANG PANLUNGSOD NG QUEZON CITY, AND CITY MAYOR OF QUEZON CITY, RESPONDENTS.