G.R. No. 214195. March 23, 2022.
UNIMASTERS CONGLOMERATION INCORPORATED, PETITIONER, VS. TACLOBAN CITY GOVERNMENT, PRIVATIZATION AND MANAGEMENT OFFICE, PHILIPPINE TOURISM AUTHORITY, AND THE PROVINCE OF LEYTE, RESPONDENT.

FACTS

Leyte Park Hotel Inc. (LPHI) is a property co-owned by the Privatization and Management Office (PMO, formerly APT), the Philippine Tourism Authority (PTA), and the Province of Leyte. On September 15, 1994, the Assets Privatization Trust (APT), representing the owners, entered into a 12-year Contract of Lease with Unimasters Conglomeration Incorporated (UCI). Section 11.04 of the contract stipulated that real property taxes shall be for the account of the LESSOR, and any payment by the LESSEE shall be credited against any amount due from the LESSEE to the LESSOR. UCI initially paid rentals and real property taxes, with the tax payments credited against its rentals. However, starting December 16, 2000, UCI stopped paying its obligations. After the lease expired, UCI retained possession without paying rentals and taxes. The City Treasurer of Tacloban sent demand letters to collect unpaid real property taxes for LPHI for the years 1989 to 2012. A collection case was filed before the Court of Tax Appeals (CTA). The CTA Special First Division found UCI liable to pay P22,826,902.20 but recognized the contractual clause allowing crediting of UCI’s tax payments against its rentals. UCI’s motion for reconsideration was denied. The CTA En Banc affirmed UCI’s liability for realty taxes for 1995-2004, applying the beneficial use principle under Section 234(a) of the Local Government Code. The CTA En Banc deferred resolution on the enforceability of the contractual obligation regarding the crediting of taxes due to a pending case on the lease agreement’s validity. UCI elevated the case to the Supreme Court.

ISSUE

Whether the Court of Tax Appeals En Banc erred in holding UCI liable to pay the real property tax over LPHI and in refusing to enforce the contractual provision wherein the lessors (PMO, PTA, and the Province of Leyte) assumed liability for the taxes.

RULING

The Supreme Court DENIED the petition and AFFIRMED the CTA En Banc Decision. The Court held that the CTA En Banc correctly applied the beneficial use principle under Section 234(a) of the Local Government Code. This provision exempts real property owned by the Republic or its political subdivisions from real property tax, except when the beneficial use has been granted to a taxable person. LPHI is owned by the Province of Leyte (a political subdivision), PMO, and PTA (both government instrumentalities). The execution of the lease contract with UCI, a private taxable entity, did not divest the co-owners of their exemption, but the property lost its tax exemption, and the burden to pay taxes passed to UCI as the beneficial user. The liability for real property taxes rests on the person who derives benefit from its utilization. The unpaid realty tax attaches to the property but is directly chargeable against the taxable person with actual and beneficial use and possession, regardless of ownership. The Court distinguished the cited case of City of Pasig v. Republic, noting it involved a scenario where the beneficial user failed to pay, and the local government unit sought to collect from the Republic, which was not the situation here. The Court further ruled that the contractual stipulation (Section 11.04) assuming tax liability by the lessors is not binding on the City Government of Tacloban, as it was not a party to the lease contract and there was no showing it consented to be bound. The issue of the stipulation’s validity and enforceability should be resolved in the appropriate forum where a related case is pending.