GR 225226; (July, 2020) (Digest)
G.R. No. 225226 , July 07, 2020
THE CITY OF MAKATI, PETITIONER, VS. THE MUNICIPALITY OF BAKUN AND LUZON HYDRO CORPORATION, RESPONDENTS.
FACTS
Luzon Hydro Corporation (LHC) operates a hydroelectric power plant utilizing the Bakun River, with major components located in Alilem, Ilocos Sur, and other structures in Bakun, Benguet. LHC also maintained an office in Makati City. After a tax holiday, LHC began paying local business taxes in 2004. Under Section 150 of the Local Government Code ( R.A. No. 7160 ), 30% of the tax was allocated to Alilem (as the principal office location per LHC’s Articles of Incorporation), and the remaining 70% was initially shared equally among Alilem, Bakun, and Makati (with Makati considered a “project office” site). The Municipality of Bakun contested this sharing scheme, claiming the entire 70% portion. The Bureau of Local Government Finance (BLGF) opined that only Bakun and Alilem should share the 70%, as LHC’s Makati office was merely an “administrative office” not enumerated in Section 150. Consequently, Bakun assessed LHC for deficiency taxes, while Makati insisted on its right to collect. LHC filed an interpleader suit before the Regional Trial Court (RTC) of Makati to resolve the conflicting claims.
The RTC ruled that LHC’s Makati office was a “project office,” entitling Makati to a share in the 70% allocation, but reduced Makati’s share to 20%, with Alilem and Bakun each receiving 25%. Bakun appealed to the Court of Tax Appeals (CTA). The CTA Special First Division reversed the RTC, declaring that only Bakun and Alilem were entitled to share the 70% equally, as LHC’s Makati office was an administrative office where no sales or transactions occurred. The CTA En Banc affirmed this decision. Makati filed a Petition for Review before the Supreme Court, arguing that the CTA erred in ignoring the RTC’s factual findings, misapplying a local finance circular, giving binding effect to the BLGF opinion, ruling in favor of Alilem (which did not appeal), and exercising jurisdiction over an interpleader case.
ISSUE
1. Whether the CTA had jurisdiction over the appeal from the RTC decision in an interpleader case involving local business tax.
2. Whether LHC’s Makati office is a “project office” entitled to a share in the 70% local business tax allocation under Section 150 of the Local Government Code.
3. Whether the BLGF opinion is binding.
4. Whether the CTA erred in ruling in favor of Alilem, which did not appeal the RTC decision.
RULING
1. Yes, the CTA had jurisdiction. Under Section 7(a)(3) of R.A. No. 1125 , as amended by R.A. No. 9282 , the CTA has exclusive appellate jurisdiction over decisions of the RTC in local tax cases. The interpleader suit involved the application of situs rules for local business taxes, making it a local tax case within the CTA’s specialized competence.
2. No, LHC’s Makati office is not a “project office” entitled to a share in the 70% allocation. The Supreme Court upheld the CTA’s finding that LHC’s Makati office was merely an administrative office. Citing Department of Finance-Local Finance Circular No. 3-95, a “project office” is equivalent to a factory or plant where sales or transactions are undertaken. The CTA independently determined that LHC’s sales, transactions, and operations did not occur at the Makati office, which performed only administrative functions. Thus, Makati is not entitled to a share under Section 150(b)(2) of the Local Government Code, which allocates the 70% to locations where factories, project offices, plants, or plantations are situated.
3. The BLGF opinion is not binding. The BLGF is a consultative and technical assistance body, not an administrative agency whose factual findings are accorded deference by courts. The CTA did not rely on the BLGF opinion but made its own independent assessment of the nature of LHC’s Makati office.
4. The CTA did not err in ruling in favor of Alilem. The interpleader action required the determination of the rights of all conflicting claimants. The CTA’s decision to allocate the 70% solely to Bakun and Alilem was based on the correct application of tax laws, not on Alilem’s failure to appeal. The Supreme Court emphasized that the CTA’s ruling was consistent with the legal criteria for tax situs.
DISPOSITIVE PORTION:
The Supreme Court DENIED the petition and AFFIRMED the CTA En Banc Decision, declaring that only the Municipalities of Bakun and Alilem are entitled to share equally in the 70% allocation of LHC’s local business tax. No costs.