Title: PHILIPPINE HEART CENTER (PHC), PETITIONER V.
THE LOCAL
GOVERNMENT OF QUEZON CITY, CITY MAYOR OF QUEZON CITY, CITY
TREASURER OF QUEZON CITY, AND CITY ASSESSOR OF QUEZON CITY
RESPONDENTS. [G.R. No. 225409, March, 2020]
Facts: In 1975, the PHC was established under Presidential Decree (PD) No. 673 as a
speciality hospital mandated to provide expert comprehensive cardiovascular care to the
general public, especially the poor and less fortunate in life. PD No. 673 authorized the PHC
to acquire properties; enter into contracts; and mortgage, encumber, lease, sell, convey, or
dispose of its properties. Moreover, it exempt the PHC from “the payment of all taxes,
charges, fees imposed by the Government or any political subdivision or instrumentality
thereof” for a period of ten (10) years. In 1985, then President Ferdinand E. Marcos issued a
Letter of Instruction (LOI) 1455 extending the tax exemption “without interruption”
Among the properties owned by the PHC were land and buildings in Quezon City (QC). In
2004, respondent QC Government issued final Notices of Delinquency for unpaid RPT
pertaining to the afore-cited properties of the PHC. The notices were unheeded, thus the
respondent QC Treasurer levied on the PHC’s properties. Aggrieved, the PHC wrote to the
President Gloria M. Macapagal-Arroyo for condonation or reduction of the taxes assessed on
its properties, but said the letter was not acted upon. Since its letter was not acted upon, the
PHC entered into a Memorandum of Agreement (MOA) with the QC Government as a means
to settle its tax liabilities.
Meanwhile, the Office the Government Corporate Counsel (OGCC) informed the PHC that
government entities are exempt from taxes, fees, or charges of any kind that may be imposed
by any local government unit (LGU). The QC Government, nonetheless, stood firm on its
position that the PHC was and still remained liable for RPT since a major portion of its
properties were being leased to private individuals. Thus, the respondent QC Treasurer issued
a Warrant of Levy for the PHC’s failure to pay RPT despite due notice, and after due
publication, all the properties were sold to the QC Government, the lone bidder during pubic
auction.
Issue: Whether PHC’s properties leased out to private individuals loses their tax-exempt
status consequently subject to levy for collection of unpaid taxes?
Ruling: No, The Republic and its instrumentalities, including the PHC, retain their exempt
status despite leasing out their properties to private individuals. The fact that PHC was short
of alienating its properties to private parties in relation to the establishment, operation,
maintenance, and viability of a fully functional specialized hospital does not divest them of
their exemption from levy; the properties only lost the exemption from being taxed, but they
did not lose their exemption from the means to collect such taxes.
Although LGUs have the power to collect RPT, such power can only be exercised when the
subject property’s beneficial use has been granted to a “taxable person”. It is the “taxable
person” with beneficial use who shall be responsible for payment of RPT due on government
properties. Any remedy for the collection of taxes should then be directed against “taxable
person.” The same being an action in personam.
Otherwise stated, LGUs are precluded from availing of the remedy of levy against properties
owned by government instrumentalities, whether or not vested with corporate power such as
the PHC. This leaves the QC Government with only one recourse – judicial action for the
collection of RPT against private individuals with beneficial use of the PHC’s properties.
Section 234(a) Republic Act (RA) No. 7160 exempts real property owned by the Republic
from real property taxes except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. Thus, the Court has invariably held that a
government instrumentality, though vested with corporate power, is exempt from real
property tax, but the exemption shall not extend to taxable private entities to whom the
beneficial use of the government instrumentality’s properties has been vested.
