*

G.R. No. 215955. January 13, 2021.

METROPOLITAN WATERWORKS AND SEWERAGE

SYSTEM, petitioner, vs. CENTRAL BOARD OF
ASSESSMENT APPEALS, THE PASAY CITY LOCAL
BOARD OF ASSESSMENT APPEALS, PASAY CITY, THE
PASAY CITY TREASURER AND CITY ASSESSOR,
respondents.

Taxation; Tax Assessment; Real Property Taxes; When the

very authority and power of the assessor to impose the assessment,
and of the treasurer to collect real property taxes are in question,
the proper recourse is a judicial action.—In the oft-cited case of Ty
v. Hon. Trampe, 250 SCRA 500 (1995), the Court held that the
rule on exhaustion of administrative remedies does not apply
when the controversy does not involve questions of fact but only of
law. The protest contemplated under Section 252 of the LGC is
required when there is question as to the reasonableness or
correctness of the amount assessed, while an appeal to the LBAA
under Section 226 is fruitful only where questions of fact are
involved. Accordingly, when the very authority and power of the
assessor to impose the assessment, and of the treasurer to collect
real property taxes are in question, the proper recourse is a
judicial action. Thus, despite the alleged non-exhaustion of
administrative remedies, we give due course to the instant
Petition on the ground that the controversy only involves a
question of law.
Administrative Agencies; Metropolitan Waterworks Sewerage
System; Government Instrumentalities; Real Property Taxes;
Metropolitan Waterworks Sewerage System (MWSS) is a
government instrumentality vested with corporate powers, and as
such, exempt from payment of real property taxes.—The case of
Metropolitan Waterworks Sewerage System v. The Local
Government of Quezon City (2018 MWSS Case), 884 SCRA 493
(2018), which reviewed the CA’s Decision in C.A.-G.R. S.P. No.
100733, has already settled with finality that MWSS is a
government instrumentality vested with corporate powers, and as
such, exempt from payment of real property taxes. The Court
explained that with the issuance of Executive Order No. 596, as
well as the passage of RA No.
_______________

* SECOND DIVISION.

578

10149, the Executive and the Legislative Branches have

explicitly classified MWSS as a government instrumentality with
corporate powers.
Taxation; Local Government Units; While the 1987
Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power
“subject to such guidelines and limitations as the Congress may
provide.”—In brief, MIAA explained that this limitation to the
local government’s taxing power recognizes the basic principle
that local governments cannot tax the national government,
which merely delegated to local governments the power to tax.
While the 1987 Constitution now includes taxation as one of the
powers of local governments, local governments may only exercise
such power “subject to such guidelines and limitations as the
Congress may provide.” Thus, when local governments invoke
their power to tax on government instrumentalities, such power is
construed strictly against local governments.
Same; Tax Exemptions; The tax exemption under Section
234(a), however, ceases when the beneficial use of the real
properties is alleged and proved to have been granted, for a
consideration or otherwise, to a taxable person.—The tax
exemption under Section 234(a), however, ceases when the
beneficial use of the real properties is alleged and proved to have
been granted, for a consideration or otherwise, to a taxable
person. Beneficial use means actual use or possession of the
property. Actual use refers to the purpose for which the property
is principally or predominantly utilized by the person in
possession thereof. In this case, there was an allegation that the
beneficial use of MWSS’s properties in Pasay were given to
Maynilad by virtue of a concession agreement. This factual
allegation, however, was not proved and merely based on a
sweeping conclusion that when MWSS entered into a concession
agreement, all its properties were effectively turned over to the
concessionaires for their operations. At this point, the Court
cannot make a judicious determination of such factual matter due
to the insufficiency of evidence on records. At any rate, the tax-
exempt status of a government instrumentality is not lost when it
grants the beneficial use of its real property to a taxable person;
only the exemption of the real property ceases in such case. The
LGC also leaves no room for interpretation on the corresponding
liability of the taxable beneficial user for the payment of real
property taxes on a government instrumentality property.

579

Same; Tax Liability; The Supreme Court (SC) has consistently

ruled that while the liability for taxes generally rests on the owner
of the real property, personal liability for real property taxes may
also expressly rest on the entity with the beneficial use of the real
property at the time the tax accrues.—Indeed, it is a fundamental
principle in real property taxation that the assessment of real
property shall be based on its actual use. The Court has
consistently ruled that while the liability for taxes generally rests
on the owner of the real property, personal liability for real
property taxes may also expressly rest on the entity with the
beneficial use of the real property at the time the tax accrues. In
as early as 1980 in the case of City of Baguio v. Busuego, 100
SCRA 116 (1980), we ruled that the taxable person who
purchased in installment the property belonging to a tax-exempt
person was held liable to pay the real property taxes from the
time the possession of the property was transferred to him despite
such tax-exempt person’s retention of ownership and title over the
property pending full payment of the purchase price.
Same; Real Property Taxes; Tax Exemptions; Metropolitan
Waterworks Sewerage System (MWSS) is not liable to the local
government of Pasay City for real property taxes. The tax
exemption of its properties, however, ceases when the beneficial or
actual use is alleged and proven to have been extended to a taxable
person.—In sum, we hold that MWSS is not liable to the local
government of Pasay City for real property taxes. The tax
exemption of its properties, however, ceases when the beneficial
or actual use is alleged and proven to have been extended to a
taxable person. All the assessments issued in the name of MWSS
should thus, be declared void. To be clear, Pasay City is not
precluded from availing of the appropriate remedies under the
law to assess and collect real property taxes from the private
entities to whom MWSS may have granted the beneficial use of
its properties.
Administrative Agencies; Metropolitan Waterworks Sewerage
System; Tax Refund; Real Property Taxes; Metropolitan
Waterworks Sewerage System’s (MWSS’) claim for tax refund
should, therefore, be filed with the city treasurer within two years
from the finality of this Decision, as it is only then that the
invalidity of the Pasay City assessment is finally settled.—As the
real property tax assessments issued in the name of MWSS are
declared void, MWSS’ claim for refund of the real property taxes
erroneously paid based on void assessments cannot be ignored.
This entitlement to a tax refund, however, is not auto-

580

matic. The amount is a factual matter that must be threshed

out with certainty in the normal course and in accordance with
the administrative procedure provided under the LGC. Section
253 of the LGC provides for the procedure in claiming for real
property tax refund: SEC. 253. Repayment of Excessive
Collections.—When an assessment of basic real property tax, or
any other tax levied under this Title, is found to be illegal or
erroneous and the tax is accordingly reduced or adjusted, the
taxpayer may file a written claim for refund or credit for taxes
and interests with the provincial or city treasurer within two (2)
years from the date the taxpayer is entitled to such reduction or
adjustment. The provincial or city treasurer shall decide the claim
for tax refund or credit within sixty (60) days from receipt thereof.
In case the claim for tax refund or credit is denied, the taxpayer
may avail of the remedies as provided in Chapter 3, Title II, Book
II of this Code. MWSS’ claim for tax refund should, therefore, be
filed with the city treasurer within two years from the finality of
this Decision, as it is only then that the invalidity of the Pasay
City assessment is finally settled.

PETITION for review on certiorari of the resolutions of the

Court of Appeals.
The facts are stated in the resolution of the Court.

RESOLUTION

LOPEZ, J.:
1
Central in this Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, assailing the
2 3
Resolutions dated June 3, 2014 and December 11, 2014 of
the Court of Appeals (CA) in C.A.-G.R. S.P. No. 129182, is
the

_______________

1 Rollo, pp. 10-32.

 2 Id., at pp. 39-44; penned by Associate Justice Normandie B. Pizarro,
with the concurrence of Presiding Justice Andres B. Reyes, Jr. (now a
retired member of this Court) and Associate Justice Manuel M. Barrios.
3 Id., at pp. 46-47.

581

exemption from real property tax of petitioner Metropolitan

Waterworks and Sewerage System (MWSS).

Facts
4
On June 19, 1971, Republic Act (RA) No. 6234 created
MWSS “to insure an uninterrupted and adequate supply
and distribution of potable water for domestic and other
purposes and the proper operation and maintenance of
5
sewerage systems.” It was vested with the power to
exercise supervision and control over all waterworks and
sewerage systems within Metro Manila, Rizal, and a
6
portion of Cavite.
7
In 1997, pursuant to RA No. 8041 or the “National
Water Crisis Act of 1995,” MWSS entered into a
concessionaire agreement with Maynilad Water Services,
Inc. (Maynilad) to service the West Zone of the
Metropolitan Area that includes Pasay City.
On February 21, 2008, MWSS received Real Property
8
Tax Computations from the Pasay City Treasurer for
taxable year 2008, demanding payment of real property
taxes in the total amount of P166,629.36. 9
Allegedly on the
same day, MWSS filed a Protest Letter dated February 3,
2008, addressed to then Pasay City Mayor Wenceslao
Peewee Trinidad. MWSS argued that it is a public utility
and a government instrumentality, and its properties and
facilities are exempt from real property tax, consistent with
its position in the Petition for Certiorari and Prohibition

_______________

4 An Act Creating the Metropolitan Waterworks and Sewerage System

and Dissolving the National Waterworks and Sewerage Authority; and

for Other Purposes; approved on June 19, 1971.

5 Id., Sec. 1.
6 Id., Sec. 2(c).
7 An Act to Address the National Water Crisis and for Other
Purposes; approved on June 7, 1995.
 8 Rollo, pp. 90-99; erroneously referred to as “Notices of Assessment” by
MWSS and in the CA’s Resolution dated June 3, 2014. Id., at pp. 39-44.
9 Id., at p. 100.

582

with the CA that it filed against the local government of

10
Quezon City, docketed as C.A.-G.R. S.P. No. 100733. This
claim was anchored upon the case of Manila International
11
Airport Authority v. CA, (MIAA) that declared MIAA a
12
government instrumentality exercising corporate powers,
and thus, exempt from real property taxes under Section
14 15
133(o)13 and Section 234(a) of RA No. 7160 or the “Local
16
Government Code of 1991” (LGC).
Due to inaction on the part of the Pasay City Treasurer,
MWSS filed an appeal to the Local Board of Assessment
17
Appeals (LBAA).

LBAA’s Ruling

The LBAA 18
observed MWSS’s noncompliance with
Section 252 of the LGC for failure to file protest with the
city treasurer

_______________

10 Id.
11 528 Phil. 181; 495 SCRA 591 (2006).
12 Id., at pp. 212-213; p. 618.
13 SECTION 133. Common Limitations on the Taxing Powers of Local
Government Units.—Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local government
units.
14 SEC. 234. Exemptions from Real Property Tax.—The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person[.]
15 An Act Providing for a Local Government Code of 1991; approved on
October 10, 1991.
16 Manila International Airport Authority v. Court of Appeals, supra at
p. 224; pp. 618-619.
 17 Rollo, p. 14.
18 SEC. 252. Payment under Protest.—(a) No protest shall be
entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words “paid under protest[.”] The protest
in

583

that made the assessment final and not appealable.

Nonetheless, the LBAA resolved the substantive issue on
whether MWSS is liable to pay real property taxes. It ruled
that the MWSS is a government-owned or -controlled
corporation (GOCC), not a government instrumentality.
Hence, the doctrine of tax exemption enunciated in MIAA
is not applicable. It also pointed out that when the MWSS
entered into a concessionaire agreement with Maynilad,
the actual use of its real properties was turned over to a
taxable person. Therefore, the assessment of real property
19
taxes against the MWSS was “reasonable and collectible.”
Aggrieved, the MWSS filed an appeal to the Central
Board of Assessment Appeals (CBAA).

CBAA’s Ruling
20
In its Decision dated August 30, 2012, the CBAA
affirmed the assessment’s finality, not for failure to comply
with Section 252 of the LGC, but for failure to question the
legality of the assessment before the city assessor in
21 22
accordance with Section 226 of the LGC. For this reason,
the CBAA did not discuss the merits of the case for being
moot and academic.

_______________

writing must be filed within thirty (30) days from payment of the tax to
the provincial, city treasurer or municipal treasurer, in the case of a
municipality within Metropolitan Manila Area, who shall decide the
protest within sixty (60) days from receipt.
19 Rollo, p. 178.
20 Id., at pp. 50-60.
21 SEC. 226. Local Board of Assessment Appeals.—Any owner or
person having legal interest in the property who is not satisfied with the
action of the provincial, city or municipal assessor in the assessment of his
property may, within sixty (60) from the date of receipt of the written
notice of assessment, appeal to the Board of Assessment Appeals of the
province or city by filing a petition under oath in the form prescribed for
the purpose, together with copies of the tax declarations and such
affidavits or documents submitted in support of the appeal.
22 Rollo, pp. 58-59.

584

MWSS filed a motion for reconsideration (MR), but it

23
was denied in an Order dated February 27, 2013. In
denying the MR, the CBAA acknowledged that MWSS is a
government instrumentality, recognized under RA No.
24
10149, or the “GOCC Governance Act of 2011.” As such, it
cannot be subjected to local taxes, fees and charges as
25
provided under Section 133(o) of the LGC. However, this
is not relevant since the collections involved are real
26
property taxes. Instead, Section 40(a) of Presidential
27 28
Decree (PD) No. 464, as embodied under Section 234(a)
of the LGC should apply. In other words, the CBAA ruled
that the common limitation on the taxing power of the local
government under Section 133(o) should not affect the
imposition of real property

_______________

23 Id., at pp. 62-79.

24 An Act to Promote Financial Viability and Fiscal Discipline in

Government-Owned or -Controlled Corporations and to Strengthen the

Role of the State in its Governance and Management to Make Them More
Responsive to the Needs of Public Interest and for Other Purposes;
approved on June 6, 2011.
25 SECTION 133. Common Limitations on the Taxing Powers of Local
Government Units.—Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local government
units.
26 SEC. 40. Exemptions from Real Property Tax.—The exemption
shall be as follows:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions and any government-owned corporation so
exempt by its charter: Provided, however, That this exemption shall not
apply to real property of the above named entities the beneficial use of
which has been granted, for consideration or otherwise, to a taxable
person.
27 Enacting A Real Property Tax Code; effective on June 1, 1974.
 28 SEC. 234. Exemptions from Real Property Tax.—The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person[.]

585

29
taxes. Besides, MWSS’ tax exemption under Section 18 of
30
its Charter (RA No. 6234) had already been withdrawn by
Section 234 of the LGC, which states:

SEC. 234. x x x
xxxx
Except as provided herein, any exemption from payment
of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical,
including all government-owned or -controlled corporations
are hereby withdrawn upon the effectivity of this Code.

MWSS appealed the CBAA’s ruling to the CA.

CA’s Ruling
31
In a Resolution dated June 3, 2014, the CA dismissed
MWSS’s appeal for failure to exhaust administrative
32 33
remedies as provided under Sections 206 and 252 of the
LGC, requiring proof of exemption and payment under
protest, thus:

_______________

29 SEC. 18. Tax Exemption.—All articles imported by the

Metropolitan Waterworks and Sewerage System or the local governments
for the exclusive use of their waterworks and sewerage systems
particularly machineries, equipment, pipes, fire hydrants, and those
related to, or connected with, the construction, maintenance, and
operation of dams, reservoirs, conduits, aqueducts, tunnels, purification
plants, water mains, pumping stations; or of artesian wells and springs
within their territorial jurisdictions, shall be exempt from the imposition
of import duties and other taxes.
30 An Act Creating the Metropolitan Waterworks and Sewerage System
and Dissolving the National Waterworks and Sewerage Authority; and

for Other Purposes; approved on June 19, 1971.

31 Rollo, pp. 39-44.
 32 SEC. 206. Proof of Exemption of Real Property from Taxation.—
Every person by or for whom real property is declared, who shall claim tax
exemption for such property under this Title shall file with the provincial,
city or municipal assessor within thirty (30) days

586

WHEREFORE, the petition is DISMISSED. The

assailed dispositions dated August 30, 2012 and February
27, 2013 STAND.
34
SO ORDERED.

35
MWSS’ MR was denied in a Resolution dated December
11, 2014, hence, this petition.

Issues

(1) Did the CA err in dismissing MWSS’ appeal for

failure to exhaust administrative remedies?
(2) Is Pasay City authorized to assess and collect real
property taxes from MWSS?

Ruling

Administrative remedies
are inapplicable when the
issue presented is a pure
question of law.

_______________

from the date of the declaration of real property sufficient documentary

evidence in support of such claim including corporate charters, title of
ownership, articles of incorporation, bylaws, contracts, affidavits,
certifications and mortgage deeds, and similar documents.
xxxx
33 SEC. 252. Payment under Protest.—(a) No protest shall be
entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words “paid under protest[.”] The protest
in writing must be filed within thirty (30) days from payment of the tax to
the provincial, city treasurer or municipal treasurer, in the case of a
municipality within Metropolitan Manila Area, who shall decide the
protest within sixty (60) days from receipt.
34 Rollo, p. 44.
35 Id., at pp. 46-47.
 587

The CA palpably erred in dismissing MWSS’ appeal

solely on the ground of the alleged non-exhaustion of
administrative remedies under the LGC. A careful reading
of MWSS’s arguments and allegations reveals that it is
neither challenging the reasonableness or correctness of
the City Assessor’s assessment nor asserting error on the
part of the City Treasurer’s computation of the assessed
tax. Plainly, MWSS is assailing the authority of the city
assessor and treasurer to assess and collect real property
taxes against it. The issue of whether a local government is
authorized to assess and collect real property taxes36
from a
government entity is a pure question of law, which is
beyond the LBAA and CBAA’s jurisdiction. 37
In the oft-cited case of Ty v. Hon. Trampe, the Court
held that the rule on exhaustion of administrative remedies
does not apply when the controversy does not involve
questions of fact but only of law.38 The protest
contemplated under Section 252 of the LGC is required
when there is question as to the reasonableness or
correctness of the amount assessed, while an appeal to the
LBAA under Section 39
226 is fruitful only where questions of
fact are involved. Accordingly, when the very authority
and power of the assessor to impose the assessment, and of
the treasurer to collect real property taxes
40
are in question,
the proper recourse is a judicial action.
Thus, despite the alleged non-exhaustion of
administrative remedies, we give due course to the instant
Petition on the

_______________

36 Metropolitan Waterworks Sewerage System v. Local Government of

Quezon City, G.R. No. 194388, November 7, 2018, 884 SCRA 493, 497.
37 321 Phil. 81; 250 SCRA 500 (1995).
38 Id., at p. 101; p. 518.
39 See National Power Corporation v. Province of Quezon and
Municipality of Pagbilao, 624 Phil. 738, 759; 611 SCRA 71, 93 (2010); Ty
v. Trampe, id.
40 See National Power Corporation v. Municipal Government of
Navotas, 747 Phil. 744, 755; 741 SCRA 505, 517 (2014); Ty v. Trampe, id.,
at pp. 101-102; pp. 518-519.
 588

ground that the controversy only involves a question of

41
law.

MWSS is a government in-

strumentality with corpo-
rate powers, not liable to the
local government of Pasay
City for real property taxes.
The tax exemption that its
properties carries, however,
ceases when their beneficial
use has been extended to a
taxable person. The liability
to pay real property taxes on
government-owned properties,
the beneficial or actual use
of which was granted to a
taxable entity, devolves on
the taxable beneficial user.

The case of Metropolitan Waterworks Sewerage System

42
v. The Local Government of Quezon City (2018 MWSS
Case), which reviewed the CA’s Decision in C.A.-G.R. S.P.
No. 100733, has already settled with finality that MWSS is
a government instrumentality vested with corporate
powers, and as such, exempt from payment of real property
taxes. The Court explained that with the issuance of
43
Executive Order No. 596, as

_______________

41 Id., at p. 756; pp. 518-519.

42 Supra note 36.
43 Defining and Including “Government Instrumentality Vested with

Corporate Powers” or “Government Corporate Entities” Under the

Jurisdiction of the Office of the Government Corporate Counsel (OGCC)

as Principal Law Office of Government-Owned or -Controlled
Corporations (GOCCS) and for Other Purposes; signed on December 29,
2006.

589

44
 44
well as the passage of RA No. 10149, the Executive and
the Legislative Branches have explicitly classified MWSS
as a government instrumentality with corporate powers,
thus:

Be that as it may, this Court’s categorization cannot

supplant that which was previously made by the Executive
and Legislative Branches. After the promulgation of Manila
International Airport Authority, then-President Gloria
Macapagal-Arroyo issued Executive Order No. 596, which
recognized this Court’s categorization of “government
instrumentalities vested with corporate powers.” Section 1
of Executive Order No. 596 states:

Section 1. The Office of the Government Corporate

Counsel (OGCC) shall be the principal law office of all
GOCCs, except as may otherwise be provided by their
respective charter or authorized by the President,
their subsidiaries, corporate offsprings, and
government acquired asset corporations. The OGCC
shall likewise be the principal law office of
“government instrumentality vested with corporate
powers” or “government corporate entity[,”] as defined
by the Supreme Court in the case of “MIAA v. Court of
Appeals, City of Parañaque, et al.[,”] [supra], notable
examples of which are: Manila International Airport
Authority (MIAA), Mactan International Airport
Authority, the Philippine Ports Authority (PPA),
Philippine Deposit Insurance Corporation (PDIC),
Metropolitan Water and Sewerage Services (MWSS),
Philippine Rice Research Institute (PRRI), Laguna
Lake Development Authority (LLDA), Fisheries
Development Authority (FDA), Bases Conver-

_______________

44 An Act to Promote Financial Viability and Fiscal Discipline in

Government-Owned or -Controlled Corporations and to Strengthen the

Role of the State in its Governance and Management to Make Them More
Responsive to the Needs of Public Interest and for Other Purposes;
approved on June 6, 2011.

590

sion Development Authority (BCDA), Cebu Port

Authority (CPA), Cagayan de Oro Port Authority, and
 San Fernando Port Authority.

Under this provision, petitioner is categorized with other

government agencies that were found to be exempt from the
payment of real property taxes.
In 2011, Congress passed Republic Act No. 10149 or the
GOCC Governance Act of 2011, which adopted the same
categorization and explicitly lists petitioner together with
the other government agencies that were previously held by
this Court to be exempt from the payment of real property
taxes:

(n) Government Instrumentalities with Corporate

Powers (GICP)/Government Corporate Entities (GCE)
refer to instrumentalities or agencies of the
government, which are neither corporations nor
agencies integrated within the departmental
framework, but vested by law with special functions
or jurisdiction, endowed with some if not all corporate
powers, administering special funds, and enjoying
operational autonomy usually through a charter
including, but not limited to, the following: the Manila
International Airport Authority (MIAA), the
Philippine Ports Authority (PPA), the Philippine
Deposit Insurance Corporation (PDIC), the
Metropolitan Waterworks and Sewerage System
(MWSS), the Laguna Lake Development Authority
(LLDA), the Philippine Fisheries Development
Authority (PFDA), the Bases Conversion and
Development Authority (BCDA), the Cebu Port
Authority (CPA), the Cagayan de Oro Port Authority,
the San Fernando Port Authority, the Local Water
Utilities Administration (LWUA) and the Asian
Productivity Organization (APO).

The Executive and Legislative Branches, therefore, have

already categorized petitioner not as a government-owned
and -controlled corporation but as a Government
Instrumentality with Corporate Powers/Government Cor-

591

porate Entity like the Manila International Airport

Authority and the Philippine Fisheries Development
Authority. Privileges enjoyed by these Government
Instrumentalities with Corporate Powers/Government
 Corporate Entities should necessarily also extend to
petitioner. Hence, petitioner’s real property tax exemption
under Republic Act No. 6234 is still valid as the proviso of
Section 234 of the Local Government Code is only applicable
to government-owned and -controlled corporations.
Thus, petitioner is not liable to respondent Local
Government of Quezon City for real property taxes, except if
the beneficial use of its properties has been extended to a
taxable person.
Respondents have not alleged that the beneficial use of
any of petitioner’s properties was extended to a taxable
person. In the absence of any allegation to the contrary,
petitioner’s properties in Quezon
45
City are not subject to the
levy of real property taxes. (Citations omitted)

Consistent with our ruling in the 2018 MWSS Case, in

relation to MIAA, the tax exemptions under Sections 133(o)
and 234(a) of the LGC apply to MWSS, viz.:

SEC. 133. Common Limitations on the Taxing Powers

of Local Government Units.—Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy
of the following:
xxxx
(o) Taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
SEC. 234. Exemptions from Real Property Tax.—The
following are exempted from payment of the real property
tax:

_______________

45 Supra note 36 at pp. 520-522.

592

(a) Real property owned by the Republic of the

Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person[.]

These provisions are clear as to a government

instrumentality’s tax exemption. In brief, MIAA explained
that this limitation to the local government’s taxing power
recognizes the basic principle that local governments
cannot tax the national government, which merely
delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the
powers of local governments, local governments may only
exercise such power “subject to such guidelines and
46
limitations as the Congress may provide.” Thus, when
local governments invoke their power to tax on government
instrumentalities, such power is construed strictly against
47
local governments.
The tax exemption under Section 234(a), however,
ceases when the beneficial use of the real properties is
alleged and proved to have been granted, for a
48
consideration or otherwise, to a taxable person. Beneficial
use means actual use or possession of the property. Actual
use refers to the purpose for which the property is
principally or predominantly utilized by the person in
49
possession thereof.
In this case, there was an allegation that the beneficial
use of MWSS’ properties in Pasay were given to Maynilad
by virtue of a concession agreement. This factual
allegation, however, was

_______________

46 Constitution, Art. X, Sec. 5.

47 Manila International Airport Authority v. Court of Appeals, supra
note 11 at p. 214; p. 619; Republic v. City of Parañaque, 691 Phil. 476, 492;
677 SCRA 246, 265 (2012).
48 Supra note 36 at pp. 506-507; p. 506, citing Manila International
Airport Authority v. Court of Appeals, id.
49 Herarc Realty Corporation v. Provincial Treasurer of Batangas, G.R.
No. 210736, September 5, 2018, 879 SCRA 317; and RA No. 7160, Section
199(b).

593

not proved and merely based on a sweeping conclusion that

when MWSS entered into a concession agreement, all its
properties were effectively turned over to the
concessionaires for their operations. At this point, the
Court cannot make a judicious determination of such
factual matter due to the insufficiency of evidence on
records. At any rate, the tax-exempt status of a government
instrumentality is not lost when it grants the beneficial use
of its real property to a taxable person; only the exemption
of the real property ceases in such case. The LGC also
leaves no room for interpretation on the corresponding
liability of the taxable beneficial user for the payment of
real property taxes on a government instrumentality
50
property. Section 205(d) of the LGC provides:

SEC. 205. Listing of Real Property in the Assessment

Rolls.—x x x
xxxx
(d) Real property owned by the Republic of the
Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been
granted, for consideration or otherwise, to a taxable
person, shall be listed, valued and assessed in the
name of the possessor, grantee, or of the public entity if
51
such property has been acquired or held for resale or lease.
(Emphasis supplied)

_______________

50 Id.
51 PD No. 464 or the “Real Property Tax Code of 1974,” Section 8,
paragraph 4, is similarly worded as follows:
Real property owned by the Republic of the Philippines, its political
subdivisions and any government­-owned corporation so exempt by its
charter, the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person, shall be listed for purpose of taxation
in the name of the grantee, or of the public entity if such property has
been acquired for resale or lease. (Emphasis supplied)

594

Indeed, it is a fundamental principle in real property

taxation that the assessment of real property shall be
52
based on its actual use. The Court has consistently ruled
that while the liability for taxes generally rests on the
owner of the real property, personal liability for real
property taxes may also expressly rest on the entity with
the beneficial use of the real property at the time the tax
53
accrues. In as early as 1980 in the case of City of Baguio v.
54
Busuego, we ruled that the taxable person who purchased
in installment the property belonging to a tax-exempt
person was held liable to pay the real property taxes from
the time the possession of the property was transferred to
him despite such tax-exempt person’s retention of
ownership and title

_______________

52 RA No. 7160, SEC. 198. Fundamental Principles.—The appraisal,

assessment, levy and collection of real property tax shall be guided by the
following fundamental principles:

xxxx

(b) Real property shall be classified for assessment purposes on the

basis of its actual use[.]
SEC. 217. Actual Use of Real Property as Basis for Assessment.—
Real Property shall be classified, valued and assessed on the basis of its
actual use regardless of where located, whoever owns it, and whoever uses
it.
PD No. 464, SEC. 2. Fundamental Principles.—The appraisal and
assessment of real property for taxation purposes shall be guided by the
following fundamental principles:

xxxx

3) Real property shall be classified for assessment purposes on the

basis of its actual use[.]
SEC. 19. Actual Use of Real Property as Basis for Assessment.—
Real property shall be assessed on the basis of its actual use regardless of
where located and whoever uses it.
53 Supra note 49; National Power Corporation v. Province of Quezon,
610 Phil. 456, 467; 593 SCRA 47, 58 (2009); Testate Estate of Concordia T.
Lim v. City of Manila, 261 Phil. 602, 611; 182 SCRA 482, 486 (1990); and
City of Baguio v. Busuego, 188 Phil. 218, 224-225; 100 SCRA 116, 123
(1980).
54 City of Baguio v. Busuego, id.

595

over the property pending full payment of the purchase

55
price. This ruling was made more explicit in the case of
56
National Power Corp. v. Province of Quezon:

The liability for taxes generally rests on the owner of the

real property owner at the time the tax accrues. This is a
necessary consequence that proceeds from the fact of
ownership. However, personal liability for realty taxes may
also expressly rest on the entity with the beneficial use of
 the real property, such as the tax on property owned by the
government but leased to private persons or entities, or
when the tax assessment is made on the basis of the actual
use of the property. In either case, the unpaid realty tax
attaches to the property but is directly chargeable
against the taxable person who has actual and
beneficial use and possession of the property
regardless
57
of whether or not that person is the
owner. (Emphasis in the original; citations omitted)

In sum, we hold that MWSS is not liable to the local

government of Pasay City for real property taxes. The tax
exemption of its properties, however, ceases when the
beneficial or actual use is alleged and proven to have been
extended to a taxable person. All the assessments issued in
the name of MWSS should thus, be declared void. To be
clear, Pasay City is not precluded from availing of the
appropriate remedies under the law to assess and collect
real property taxes from the private entities to whom
MWSS may have granted the beneficial use of its
properties.

MWSS’ claim for refund of

real property taxes errone-
ously paid will not auto-
matically issue.

_______________

55 Id., at pp. 223-224; p. 118.

56 National Power Corporation v. Province of Quezon, supra note 53.
57 Id., at pp. 467-468; pp. 58-59.

596

As the real property tax assessments issued in the

name of MWSS are declared void, MWSS’ claim for refund
of the real property taxes erroneously paid based on void
assessments cannot be ignored. This entitlement to a tax
refund, however, is not automatic. The amount is a factual
matter that must be threshed out with certainty in the
normal course and in accordance with the administrative
58
procedure provided under the LGC.
Section 253 of the LGC provides for the procedure in
claiming for real property tax refund:
 SEC. 253. Repayment of Excessive Collections.—When
an assessment of basic real property tax, or any other tax
levied under this Title, is found to be illegal or erroneous
and the tax is accordingly reduced or adjusted, the taxpayer
may file a written claim for refund or credit for taxes and
interests with the provincial or city treasurer within two (2)
years from the date the taxpayer is entitled to such
reduction or adjustment.
The provincial or city treasurer shall decide the claim for
tax refund or credit within sixty (60) days from receipt
thereof. In case the claim for tax refund or credit is denied,
the taxpayer may avail of the remedies as provided in
Chapter 3, Title II, Book II of this Code.

MWSS’ claim for tax refund should, therefore, be filed

with the city treasurer within two years from the finality of
this Decision, as it is only then that the invalidity of the
Pasay City assessment is finally settled.
FOR THESE REASONS, the petition is PARTLY
GRANTED. The Resolutions dated June 3, 2014 and
December 11, 2014 in C.A.-G.R. S.P. No. 129182 are
REVERSED and SET ASIDE. The real properties of the
Metropolitan Waterworks and Sewerage System located in
Pasay City are DECLARED EXEMPT from real property
tax, EXCEPT

_______________

58 Allied Banking Corporation v. Quezon City Government, 533 Phil.

409, 414; 502 SCRA 113, 117-118 (2006).

597

when their beneficial use is alleged and proved to have

been granted to taxable entities. All the real property tax
assessments and computations issued in the name of
Metropolitan Waterworks and Sewerage System are
DECLARED VOID.
The Metropolitan Waterworks and Sewerage System’s
claim for refund may be pursued in accordance with
Section 253 of the Local Government Code of 1991 within
two years from the finality of this Decision.
SO ORDERED.
 Perlas-Bernabe (Chairperson, Senior Associate Justice),
Gesmundo, Lazaro-Javier and Rosario, JJ., concur.

Petition partly granted, resolutions reversed and set

aside. Real properties of Metropolitan Waterworks and
Sewerage System located in Pasay City declared exempt
from real property tax, except when their beneficial use is
alleged and proved to have been granted to taxable entities.
All real property tax assessments and computations issued
in the name of Metropolitan Waterworks and Sewerage
System are declared void.

Notes.—Section 4 of the National Internal Revenue

Code (NIRC) states that the Commissioner has the power
to decide on tax refunds, but his or her decision is subject
to the exclusive appellate jurisdiction of the Court of Tax
Appeals (CTA). (Philippine Airlines, Inc. [PAL] vs.
Commissioner of Internal Revenue, 851 SCRA 518 [2018])
Section 234 of the Local Government Code (LGC) has
withdrawn the previous real property tax exemptions
granted to natural or juridical persons, including
government-owned or -controlled corporations (GOCCs),
except as otherwise provided therein. (Light Rail Transit
Authority vs. Quezon City, 922 SCRA 588 [2019])

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