G.R. No. 152904; June 8, 2007
CITY ASSESSOR OF CEBU CITY, petitioner, vs. ASSOCIATION OF BENEVOLA DE CEBU, INC., respondent.

FACTS

Respondent Association of Benevola de Cebu, Inc., a non-stock, non-profit organization and owner of Chong Hua Hospital (CHH), constructed the CHH Medical Arts Center (CHHMAC). The City Assessor of Cebu City classified the CHHMAC building as “commercial” and imposed a 35% assessment level for real property tax, as opposed to the 10% special assessment level applied to the main hospital building and its other separate departmental buildings (Dietary and Records). The Assessor argued that CHHMAC was a separate building, located about 100 meters away, used for renting out clinic spaces to physicians who charge consultation fees, thus constituting commercial activity.
Respondent appealed to the Local Board of Assessment Appeals (LBAA), contending that the CHHMAC was actually, directly, and exclusively part of CHH’s operations. It argued that housing accredited doctors was incidental and reasonably necessary for a tertiary hospital’s functions, similar to its separately housed Dietary and Records Departments which enjoyed the 10% special assessment. The LBAA ruled in favor of the hospital, a decision affirmed by the Central Board of Assessment Appeals (CBAA) and the Court of Appeals.

ISSUE

Whether the CHH Medical Arts Center building is classified as “commercial” property subject to a 35% assessment level, or as “special” property under Section 216 of the Local Government Code subject to a 10% assessment level.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ rulings, holding that the CHHMAC is classified as “special” property entitled to a 10% assessment level. The legal logic hinges on the application of Section 216 of the Local Government Code, which mandates that properties “actually, directly and exclusively used for hospitals” be classified as special. The Court emphasized that the test is the actual and direct use of the property, not its ownership or the generation of income.
The Court found that the CHHMAC was constructed to house the hospital’s accredited physicians, a setup that is integral to the operation of a modern hospital. The fact that doctors pay rent and charge fees does not detract from the building’s exclusive hospital use, as these are incidental to the delivery of healthcare services. The physical separation of the building from the main hospital is not determinative; what matters is its functional relation to the hospital’s purpose. Since the use is exclusively for hospital-related purposes, the building qualifies for “special” classification under the law, consistent with the treatment of the hospital’s other ancillary buildings. The Assessor’s reliance on the building permit classification (“Commercial [Clinic]”) is not controlling over the actual use as defined by statute.