CASE DIGEST : Philippine Heart Center v. Local Government of Quezon City G.R. No. 225409 March 11, 2020

 

FACTS

The Philippine Heart Center (PHC) filed a Petition for Review on Certiorari challenging the decisions of the Court of Appeals, which dismissed its petition for certiorari questioning the assessment, levy, and auction sale of its properties for unpaid real property taxes (RPT) imposed by the Local Government of Quezon City. The PHC was created under Presidential Decree No. 673, which established it as a specialty government hospital mandated to provide comprehensive cardiovascular care, conduct research, and train medical professionals. Its charter initially granted it tax exemptions, although these were later deemed withdrawn after the enactment of the Local Government Code of 1991 (Republic Act No. 7160).

The Quezon City Assessor assessed eleven PHC properties for RPT, and upon PHC's failure to pay, the City Treasurer issued warrants of levy and eventually auctioned the properties. Instead of appealing the assessment before the Local Board of Assessment Appeals (LBAA) under the Local Government Code, PHC directly filed a petition for certiorari, asserting that the City acted without jurisdiction because the PHC is a government instrumentality vested with corporate powers, not a government-owned or controlled corporation (GOCC), and that its properties are owned by the Republic and are therefore exempt from RPT under Sections 133(o) and 234(a) of the Local Government Code. Section 133(o) prohibits local governments from imposing taxes on the National Government, its agencies, and instrumentalities, while Section 234(a) exempts real property owned by the Republic unless its beneficial use is granted to a taxable person.

The Court of Appeals dismissed the petition, holding that certiorari was an improper remedy and that PHC should have exhausted the administrative remedies under the Local Government Code. It likewise sustained the tax assessment. PHC elevated the case to the Supreme Court, arguing that the issue involved was purely one of law—whether it was legally exempt from real property taxation—and therefore fell within the recognized exceptions to the doctrine of exhaustion of administrative remedies.

ISSUE

Whether a petition for certiorari under Rule 65 was the proper remedy to question the real property tax assessment, levy, and auction sale, despite the administrative remedies provided under the Local Government Code, considering that the controversy involved a pure question of law regarding the authority of Quezon City to impose the tax.

Whether the Philippine Heart Center is a government instrumentality vested with corporate powers or a taxable government-owned or controlled corporation, and consequently whether its properties are exempt from real property tax under Sections 133(o) and 234(a) of the Local Government Code, in relation to Executive Order No. 292 (Administrative Code of 1987) and Presidential Decree No. 673.

Whether the real property assessments, levy, and auction sale conducted by Quezon City were valid in light of the constitutional and statutory limitations on the taxing powers of local government units over national government instrumentalities.

HELD

The Supreme Court granted the petition and reversed the Court of Appeals. It held that certiorari was the proper remedy because the case involved a pure question of law—whether Quezon City had legal authority to assess and collect real property taxes against PHC. Since the issue did not concern the correctness of the assessment but the jurisdiction of the taxing authority, PHC was not required to exhaust administrative remedies before the LBAA or CBAA. The Court reiterated that exhaustion of administrative remedies does not apply where only legal questions are involved or where the taxing authority allegedly acted without jurisdiction.

On the merits, the Court ruled that the Philippine Heart Center is a government instrumentality vested with corporate powers, not a GOCC. Applying the doctrines in MIAA v. City of Parañaque and related cases, the Court explained that an entity does not become a GOCC merely because it possesses corporate powers. Under Executive Order No. 292, a GOCC must be organized as a stock or non-stock corporation. PHC has neither capital stock nor members and performs primarily governmental functions—providing specialized public health services, conducting research, and training medical professionals pursuant to Presidential Decree No. 673. Thus, it remains an instrumentality of the National Government.

The Court further held that PHC's real properties are owned by the Republic of the Philippines and devoted to public service. Accordingly, they are exempt from real property taxation under Section 133(o) of the Local Government Code, which prohibits local governments from taxing the National Government and its instrumentalities, and Section 234(a), which exempts real property owned by the Republic unless its beneficial use has been granted to a taxable private entity. Since no beneficial use had been transferred to a taxable person, the tax assessments, warrants of levy, and auction sale were declared void.

Finally, the Court emphasized that local governments possess only delegated taxing powers under the Constitution and the Local Government Code, and these powers must always be exercised within the limitations imposed by Congress. Because PHC is a national government instrumentality performing essential public health functions, its properties cannot be subjected to local real property taxation absent a clear legislative withdrawal of the exemption. The decision reaffirmed the distinction between government instrumentalities vested with corporate powers and GOCCs, and strengthened the rule that properties of the Republic devoted to public use remain beyond the reach of local real property taxes