Case Digest: Light Rail Transit Authority v. City of Pasay, represented by the City Treasurer and the City Assessor G.R. No. 211299, June 21, 2022 Supreme Court, En Banc Ponente: Justice Ricardo R. Rosario

 

FACTS

The City of Pasay assessed the Light Rail Transit Authority (LRTA) for unpaid real property taxes (RPT) covering its lands, buildings, machineries, carriageways, and passenger terminal stations from 1985 to 2001. Although LRTA initially acknowledged the assessments and even sought to pay them by installment while requesting the condonation of penalties, it eventually failed to settle its tax liabilities. As a result, the City issued notices of delinquency, warrants of levy, and eventually proceeded with the auction of some of LRTA's properties.

Instead of pursuing the ordinary administrative remedies under the Local Government Code, LRTA filed a Petition for Certiorari, Prohibition, and Mandamus before the Regional Trial Court (RTC). It argued that it is a government instrumentality whose railways, stations, and related facilities are properties of public dominion devoted to public use and are therefore exempt from real property taxation. The RTC dismissed the petition on the ground that LRTA failed to exhaust administrative remedies, and the Court of Appeals affirmed the dismissal.

LRTA elevated the case to the Supreme Court through a Petition for Review on Certiorari under Rule 45, maintaining that the issue was purely legal and that its properties are exempt from real property tax under the Constitution, the Local Government Code, and prevailing jurisprudence, particularly the rulings involving the Manila International Airport Authority (MIAA) and LRTA itself.

ISSUE

Whether or not the petition filed by LRTA was dismissible for failure to exhaust administrative remedies before questioning the real property tax assessments.

Whether or not the Light Rail Transit Authority is a government instrumentality whose properties devoted to public use are exempt from real property tax under the Local Government Code and the Constitution.

Whether or not the City of Pasay validly assessed, levied upon, and auctioned LRTA's properties, including those actually, directly, and exclusively devoted to public use.

HELD

The Supreme Court GRANTED the petition and REVERSED the decisions of the RTC and the Court of Appeals. The Court first ruled that although the doctrine of exhaustion of administrative remedies generally applies in tax cases, it is not absolute. One recognized exception is when the issues raised are purely legal, such as whether the taxing authority has the legal power to impose the tax. Since LRTA questioned the authority of the City of Pasay to tax its properties, judicial intervention was proper without requiring exhaustion of administrative remedies.

On the merits, the Court held that LRTA is a government instrumentality exercising corporate powers, not a government-owned or controlled corporation for purposes of local taxation. Applying Article 420 of the Civil Code, Section 133(o) and Section 234(a) of the Local Government Code, together with the doctrines in Manila International Airport Authority v. Court of Appeals and Light Rail Transit Authority v. Quezon City, the Court ruled that LRTA's railroads, terminals, stations, and the lots on which they stand are properties of public dominion actually, solely, and exclusively devoted to public use. As such, they are exempt from real property tax.

The Court clarified, however, that the exemption does not extend to portions of LRTA's properties leased to private entities. These leased portions are no longer used exclusively for public purposes and are therefore subject to real property tax under the Local Government Code. Consequently, only the leased portions may be assessed and taxed by the City of Pasay, while the remainder of LRTA's public-use properties remain exempt.

Accordingly, the Supreme Court declared void the real property tax assessments, warrants of levy, auction sales, and certificates of sale covering LRTA's tax-exempt properties, and permanently prohibited the City of Pasay from imposing similar real property taxes on properties actually, solely, and exclusively devoted to public use. The assessments covering the portions leased to private parties, however, were upheld as valid because those portions remain taxable under the law.