G.R. No. L-25386, October 20, 1926
ASIATIC PETROLEUM CO. (P.I.), LTD., plaintiff-appellee, vs. A. LLANES, provincial treasurer of Cebu, defendant-appellant.

FACTS

The Asiatic Petroleum Co. (plaintiff) leased from the Government a parcel of land under water near Cebu, known as “Shell Island,” for 50 years under Act No. 1654. The plaintiff reclaimed the land and constructed private improvements (oil tanks, wharf, buildings, etc.) for its petroleum business. The lease contract, executed on August 22, 1919, contained no stipulation requiring the lessee to pay taxes. Subsequently, the Provincial Treasurer of Cebu (defendant) assessed and collected real property taxes from the plaintiff for the years 1923-1925, covering both the land and the improvements. The plaintiff paid the taxes under protest and filed this action to recover the amount.

ISSUES:
1. Whether the plaintiff-lessee is liable for real property taxes on the land leased from the Government.
2. Whether the plaintiff-lessee is liable for real property taxes on the improvements it constructed on the leased land.

RULING

1. On the Taxability of the Land: NO, the plaintiff is not liable.
The land is owned by the Government of the Philippine Islands. Under Section 344 of the Administrative Code, property owned by the Government is exempt from local taxation. The mere fact that the Government leased the land does not make the lessee liable for the tax on the land itself, in the absence of a contractual stipulation to that effect. This Court, in *Fairchild vs. Sarmiento*, held that land owned by the Government and leased for a fixed rental is exempt from taxation even in the hands of the lessee. The subsequent enactment of Act No. 2874 (which contained a general provision subjecting lands granted by the Government to tax) could not be applied retroactively to impair the obligation of the existing lease contract, as such impairment is prohibited by the Organic Law.

2. On the Taxability of the Improvements: YES, the plaintiff is liable.
The improvements (oil tanks, buildings, etc.) are of a private nature, owned by the plaintiff-lessee, and constructed for its business. Under Section 343 of the Administrative Code, the tax on improvements is assessable against the owner of such improvements, regardless of whether that owner is also the owner of the land. The fact that the improvements will eventually vest in the Government at the termination of the lease (as provided in the lease contract and Act No. 1654) does not alter the plaintiff’s ownership and tax liability during the lease term. The law distinguishes between the tax treatment of land and improvements, allowing them to be assessed to different owners.

DISPOSITION:
The judgment of the trial court is AFFIRMED in part and REVERSED in part. The plaintiff is entitled to recover the taxes paid on the land. However, the plaintiff is not entitled to recover the taxes paid on the improvements, as these were legally assessed against it as the owner.