Tag: Special Law vs. General Law

PAGCOR’s Tax Obligations: Clarifying Income and Franchise Tax Liabilities

In a significant ruling, the Supreme Court clarified the tax obligations of the Philippine Amusement and Gaming Corporation (PAGCOR). The Court distinguished between PAGCOR’s income from gaming operations and its income from other related services, specifying that the former is subject only to a 5% franchise tax, while the latter is subject to corporate income tax. This decision prevents the Bureau of Internal Revenue (BIR) from imposing both corporate income tax and franchise tax on PAGCOR’s gaming income, ensuring that PAGCOR’s tax liabilities align with its legislative charter and preventing undue financial burden.

Double Jeopardy in Taxation: Can PAGCOR Be Taxed Twice?

The case of Philippine Amusement and Gaming Corporation (PAGCOR) v. The Bureau of Internal Revenue, G.R. No. 215427, decided on December 10, 2014, arose from a dispute over the proper tax treatment of PAGCOR’s income. The central question was whether PAGCOR’s income from its gaming operations should be subject to both the 5% franchise tax, as stipulated in its charter (Presidential Decree No. 1869, as amended), and corporate income tax, following changes introduced by Republic Act (R.A.) No. 9337. This issue came to a head after the BIR issued Revenue Memorandum Circular (RMC) No. 33-2013, which clarified the income tax and franchise tax obligations of PAGCOR, its contractees, and licensees, leading PAGCOR to seek clarification from the Supreme Court.

The legal battle stemmed from R.A. No. 9337, which amended Section 27(C) of the National Internal Revenue Code (NIRC) by excluding PAGCOR from the list of government-owned or controlled corporations (GOCCs) exempt from corporate income tax. PAGCOR argued that its charter, P.D. 1869, as amended, already provided for a 5% franchise tax in lieu of all other taxes on its gaming income. The BIR, however, sought to impose corporate income tax on PAGCOR’s income from gaming operations and other related services, asserting that the amendment by R.A. No. 9337 removed PAGCOR’s tax exemption.

The Supreme Court began its analysis by differentiating between PAGCOR’s income streams. Under P.D. 1869, as amended, PAGCOR’s income is classified into two main categories: income from its gaming operations under Section 13(2)(b) and income from other related services under Section 14(5). This distinction is crucial because the Court held that the 5% franchise tax applies only to the income from gaming operations, while the corporate income tax applies only to income from other related services.

The Court emphasized that PAGCOR’s charter explicitly states that the 5% franchise tax is “in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority.” This provision, according to the Court, clearly exempts PAGCOR’s gaming income from all other taxes, including corporate income tax. As the court stated:

SECTION 13. Exemptions. –

x x x x

(2) Income and other taxes. — (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority.

Building on this principle, the Supreme Court reasoned that the grant or withdrawal of tax exemption assumes that the entity is already subject to tax. PAGCOR’s income from gaming operations was already exempt from all taxes, save for the 5% franchise tax. Therefore, there was no need for Congress to grant a separate tax exemption for gaming income. In essence, PAGCOR could not have been exempted from paying taxes it was not liable to pay in the first place.

The Court further clarified the interplay between P.D. 1869, as amended, and R.A. No. 9337, emphasizing that every effort must be made to reconcile statutes. The court clarified:

As we see it, there is no conflict between P.D. 1869, as amended, and R.A. No. 9337. The former lays down the taxes imposable upon petitioner, as follows: (1) a five percent (5%) franchise tax of the gross revenues or earnings derived from its operations conducted under the Franchise, which shall be due and payable in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority; (2) income tax for income realized from other necessary and related services, shows and entertainment of petitioner. With the enactment of R.A. No. 9337, which withdrew the income tax exemption under R.A. No. 8424, petitioner’s tax liability on income from other related services was merely reinstated.

The Court explained that R.A. No. 9337, which withdrew the income tax exemption, merely reinstated PAGCOR’s tax liability on income from other related services. Since the nature of taxes imposable is well-defined for each activity, there is no inconsistency between the statutes. They complement each other.

Even if an inconsistency existed, the Court noted, P.D. 1869, as amended, being a special law, prevails over R.A. No. 9337, which is a general law. Special laws take precedence over general laws, regardless of their dates of passage. The Court cited the following rationale:

Why a special law prevails over a general law has been put by the Court as follows:

x x x x

x x x The Legislature consider and make provision for all the circumstances of the particular case. The Legislature having specially considered all of the facts and circumstances in the particular case in granting a special charter, it will not be considered that the Legislature, by adopting a general law containing provisions repugnant to the provisions of the charter, and without making any mention of its intention to amend or modify the charter, intended to amend, repeal, or modify the special act. (Lewis vs. Cook County, 74 I11. App., 151; Philippine Railway Co. vs. Nolting 34 Phil., 401.)

The Court highlighted that if lawmakers intended to withdraw PAGCOR’s tax exemption on its gaming income, Section 13(2)(a) of P.D. 1869 should have been expressly amended in R.A. No. 9487 or mentioned in the repealing clause of R.A. No. 9337. However, neither occurred. When PAGCOR’s franchise was extended in 2007 without revoking its tax exemption, it effectively reinstated all rights and privileges granted under its charter.

The Supreme Court emphasized that where a statute is susceptible to multiple interpretations, courts should adopt the construction that renders the provision operative and effective, harmonizing it with other laws. Because PAGCOR’s charter was not repealed or amended by R.A. No. 9337, its income from gaming operations remains subject only to the 5% franchise tax. The income from other related services is subject to income tax only, as dictated by Section 14(5) of P.D. 1869, as amended:

Section 14. Other Conditions.

x x x x

(5) Operation of related services. — The Corporation is authorized to operate such necessary and related services, shows and entertainment. Any income that may be realized from these related services shall not be included as part of the income of the Corporation for the purpose of applying the franchise tax, but the same shall be considered as a separate income of the Corporation and shall be subject to income tax.

The Court underscored that RMC No. 33-2013, in subjecting both income from gaming operations and other related services to corporate income tax and the 5% franchise tax, constituted grave abuse of discretion. This act unduly expanded the Court’s earlier decision and created an additional burden on PAGCOR without due process.

FAQs

What was the key issue in this case?	The key issue was whether PAGCOR’s income from gaming operations should be subject to both the 5% franchise tax and corporate income tax following amendments to the National Internal Revenue Code.
What did the Supreme Court decide?	The Supreme Court ruled that PAGCOR’s income from gaming operations is subject only to the 5% franchise tax, while its income from other related services is subject to corporate income tax.
What is a franchise tax?	A franchise tax is a tax imposed on a company for the privilege of operating under a government-granted franchise. In PAGCOR’s case, it is 5% of the gross revenue from its gaming operations.
What constitutes PAGCOR’s ‘gaming operations’?	PAGCOR’s gaming operations include income from its casino operations, dollar pit operations, regular bingo operations, and mobile bingo operations.
What are ‘other related services’ of PAGCOR?	Other related services include income from licensed private casinos, traditional bingo, electronic bingo, internet casino gaming, internet sports betting, private mobile gaming operations, private poker operations, junket operations, and other related services.
What is the basis for PAGCOR’s 5% franchise tax?	PAGCOR’s 5% franchise tax is based on Section 13(2) of Presidential Decree No. 1869, as amended, which stipulates that this tax is in lieu of all other taxes.
Why did the BIR issue RMC No. 33-2013?	The BIR issued RMC No. 33-2013 to clarify the income tax and franchise tax liabilities of PAGCOR, its contractees, and licensees following amendments introduced by Republic Act No. 9337.
What was the effect of R.A. No. 9337 on PAGCOR’s tax status?	R.A. No. 9337 removed PAGCOR from the list of government-owned or controlled corporations (GOCCs) exempt from corporate income tax under the National Internal Revenue Code.

In conclusion, the Supreme Court’s decision in PAGCOR v. BIR provides clarity on the tax obligations of PAGCOR, ensuring that it is not subjected to double taxation on its gaming income. The ruling affirms the primacy of PAGCOR’s charter in determining its tax liabilities and reinforces the principle that special laws prevail over general laws. This decision ensures that PAGCOR’s tax obligations align with its legislative charter, preventing undue financial burdens that could hamper its operations and contributions to national development.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PAGCOR vs. BIR, G.R. No. 215427, December 10, 2014

December 10, 2014

Tax Exemption and Franchise Rights: Philippine Airlines’ Victory on Excise Taxes

The Supreme Court affirmed that Philippine Airlines (PAL) is exempt from excise taxes on its importations of commissary and catering supplies, upholding the “in lieu of all taxes” provision in its franchise under Presidential Decree No. 1590 (PD 1590). The court held that Republic Act No. 9334 (RA 9334), which amended the National Internal Revenue Code (NIRC) and subjected certain imported goods to excise taxes, did not expressly repeal PAL’s tax exemption. This ruling reaffirms the principle that a special law, like PAL’s franchise, prevails over a general law, such as the NIRC, unless there is an explicit repeal. This means PAL can continue to import necessary supplies without incurring additional excise tax burdens, securing its financial stability.

Flying High Above Taxes: How PAL’s Franchise Protects Its Imports

This case revolves around whether Philippine Airlines (PAL) should be exempt from paying excise taxes on its imported goods, specifically alcohol and tobacco products used for its commissary supplies. The Commissioner of Internal Revenue (CIR) and the Commissioner of Customs (COC) argued that Republic Act No. 9334 (RA 9334) effectively removed PAL’s tax exemption. PAL, on the other hand, maintained that its franchise, granted under Presidential Decree No. 1590 (PD 1590), provides a clear exemption through the “in lieu of all taxes” clause. This clause, PAL contended, had not been explicitly repealed by RA 9334, thus entitling them to a refund of the excise taxes paid. The Court of Tax Appeals (CTA) sided with PAL, leading to this appeal by the CIR and COC to the Supreme Court.

The crux of the dispute lies in interpreting the interaction between PAL’s franchise and subsequent tax legislation. Section 13 of PD 1590 states that PAL’s payment of either the basic corporate income tax or a franchise tax would be “in lieu of all other taxes.” This provision has historically been interpreted as exempting PAL from a wide range of taxes, including those on imported goods. RA 9334, which amended Section 131 of the National Internal Revenue Code (NIRC), imposed excise taxes on certain imported articles, stating that “the provision of any special or general law to the contrary notwithstanding, the importation of x x x cigarettes, distilled spirits, fermented liquors and wines x x x, even if destined for tax and duty-free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon.” The question before the court was whether this general provision in RA 9334 effectively repealed the specific tax exemption granted to PAL under its franchise.

The Supreme Court emphasized a fundamental principle of statutory construction: a later general law does not repeal an earlier special law unless there is an express repeal or an irreconcilable conflict. In this case, the court found that RA 9334, a general law amending the NIRC, did not expressly repeal Section 13 of PD 1590, PAL’s franchise. The court referenced Section 24 of PD 1590, which explicitly requires that any modification, amendment, or repeal of the franchise must be done “expressly by a special law or decree that shall specifically modify, amend or repeal this franchise or any section of provisions.” This provision underscores the intent to protect PAL’s franchise from being inadvertently altered by general tax laws.

Furthermore, the Supreme Court cited its previous ruling in Commissioner of Internal Revenue v. Philippine Air Lines, Inc., where it affirmed that the Legislature’s decision not to amend or repeal PD 1590, even after PAL’s privatization, indicated an intent to allow PAL to continue enjoying the rights and privileges under its charter. The court also highlighted that PD 1590 is a special law governing PAL’s franchise, and in cases of conflict between a special law and a general law, the special law prevails. This principle ensures that specific rights and privileges granted to entities like PAL are not easily overridden by broad legislative changes.

The Supreme Court also addressed the petitioners’ argument that PAL had not complied with the conditions set by Section 13 of PD 1590 for the imported supplies to be exempt from excise tax. These conditions required that the supplies be: (1) imported for use in PAL’s transport/non-transport operations and other incidental activities; and (2) not locally available in reasonable quantity, quality, and price. The Court deferred to the CTA’s expertise in tax matters, stating that the determination of these factual issues is best left to the specialized tax court. Absent a showing that the CTA’s findings were unsupported by substantial evidence, the Supreme Court found no reason to overturn the CTA’s decision. This deference to the CTA’s expertise underscores the importance of specialized courts in resolving complex tax disputes.

The ruling underscores the importance of clearly defined tax exemptions and the legal protections afforded to entities operating under specific franchises. The Supreme Court’s decision reinforces the principle that tax exemptions granted under a special law remain valid unless expressly repealed by another special law. This provides businesses with a degree of certainty and encourages investment, as they can rely on the terms of their franchises. Building on this principle, the ruling highlights the importance of legislative clarity when altering or repealing existing tax laws. General provisions in tax codes should not be interpreted as implicitly repealing specific tax exemptions granted under special laws.

This case serves as a reminder that tax laws must be interpreted in a manner that promotes fairness and consistency. If the state expects taxpayers to be honest in paying their taxes, it must also be fair in refunding erroneous collections. The Supreme Court’s decision protects PAL’s legitimate tax exemption and prevents the government from unjustly collecting excise taxes that PAL was not legally obligated to pay. This ruling not only benefits PAL but also reinforces the integrity of the tax system by ensuring that tax laws are applied consistently and fairly to all taxpayers. The Court’s decision ensures that companies like PAL can continue to provide essential services without facing undue financial burdens.

FAQs

What was the key issue in this case?	The key issue was whether PAL’s tax exemption under PD 1590 was repealed by RA 9334, which subjected certain imported goods to excise taxes. The court had to determine if the general provisions of RA 9334 superseded the specific tax exemption granted to PAL.
What is the “in lieu of all taxes” clause?	The “in lieu of all taxes” clause in PAL’s franchise means that the tax paid by PAL, either the basic corporate income tax or franchise tax, covers all other taxes, duties, and fees. This provision aims to provide PAL with a comprehensive tax exemption in exchange for its contribution to the Philippine economy.
What is the significance of PD 1590?	PD 1590 is the presidential decree that granted PAL its franchise, outlining its rights, privileges, and obligations, including its tax exemptions. This special law is crucial because it governs PAL’s operations and protects it from being easily affected by general tax laws.
What is the main argument of the CIR and COC?	The CIR and COC argued that RA 9334, which amended the NIRC, subjected the importation of certain goods to excise taxes, regardless of any special or general law to the contrary. They contended that this provision effectively repealed PAL’s tax exemption on imported commissary supplies.
How did the Supreme Court rule on the issue of tax exemption?	The Supreme Court ruled in favor of PAL, affirming that its tax exemption under PD 1590 was not repealed by RA 9334. The Court emphasized that a special law prevails over a general law unless there is an express repeal, which was not present in this case.
What is the rule on general vs. special laws?	The rule is that a special law, which applies to a specific subject or entity, prevails over a general law, which applies broadly. Unless the general law explicitly repeals the special law, the special law remains in effect.
What conditions must PAL meet to qualify for the exemption?	PAL must ensure that the imported supplies are used for its transport or non-transport operations and that they are not locally available in reasonable quantity, quality, or price. These conditions are essential for PAL to maintain its tax-exempt status on imported goods.
What was the impact of Section 24 of PD 1590?	Section 24 of PD 1590 required any modification, amendment, or repeal of PAL’s franchise to be done expressly by a special law or decree. This provision provided a safeguard for PAL’s franchise, ensuring that its tax exemptions could not be inadvertently altered by general tax laws.

In conclusion, the Supreme Court’s decision in favor of Philippine Airlines reinforces the importance of respecting tax exemptions granted under specific franchises and the legal principle that special laws prevail over general laws unless explicitly repealed. This ruling provides clarity and stability for businesses operating under franchise agreements and ensures fairness in the application of tax laws.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

August 27, 2014

Local Government Representation: Legal Officer’s Exclusive Authority

The Supreme Court held that the legal officer of a local government unit (LGU) has the exclusive authority to represent the LGU in legal proceedings. This decision clarifies that the Office of the Solicitor General (OSG) cannot represent LGUs unless specifically authorized by law. The ruling ensures that LGUs are represented by counsel familiar with local issues, reinforcing the principle of local autonomy and efficient legal representation within the framework of the Local Government Code.

Who Defends the City? OSG Authority vs. Local Autonomy

This case arose from a petition for mandamus filed against the Municipality of Saguiran, Lanao del Sur, seeking payment of unpaid terminal leave benefits to former members of the Sangguniang Bayan. The Regional Trial Court (RTC) dismissed the petition but directed the municipality to include the claims in its budget. Dissatisfied, the Municipality of Saguiran partially appealed to the Court of Appeals (CA). The CA then directed the OSG to file a memorandum on behalf of the municipality. The OSG, however, argued that it lacked the legal authority to represent the Municipality of Saguiran, asserting that representation should be handled by the LGU’s legal officer as mandated by the Local Government Code (LGC). The CA denied the OSG’s motion, leading to the present petition for certiorari before the Supreme Court.

The central issue before the Supreme Court was whether the OSG has the authority, or can be compelled, to represent a local government unit in legal proceedings, considering the provisions of the Local Government Code which mandates that the legal officer of the LGU shall represent it in all civil actions and special proceedings. The OSG’s powers and functions are generally defined in Section 35, Book IV, Title III, Chapter 12 of the Administrative Code of 1987. This provision states that the OSG represents the Government of the Philippines, its agencies and instrumentalities, and its officials and agents in any legal matter requiring a lawyer. However, the Supreme Court recognized that this broad mandate must be interpreted in conjunction with other statutes that specifically address legal representation, particularly those pertaining to local government units.

The Local Government Code, specifically Section 481, Article XI, Title V, Book III, outlines the qualifications, term, powers, and duties of a local government unit’s legal officer. Crucially, it states:

Sec. 481. Qualifications, Term, Powers and Duties.
(b) The legal officer, the chief legal counsel of the local government unit, shall take charge of the office of legal services and shall:
(3) In addition to the foregoing duties and functions, the legal officer shall:
(i) Represent the local government unit in all civil actions and special proceedings wherein the local government unit or any official thereof, in his official capacity, is a party: Provided, That, in actions or proceedings where a component city or municipality is a party adverse to the provincial government or to another component city or municipality, a special legal officer may be deployed to represent the adverse party;

This provision explicitly designates the legal officer as the representative of the LGU in legal matters. The Supreme Court emphasized that the LGC, as a special law concerning representation in court applicable specifically to local government units, takes precedence over the general provisions of the Administrative Code. This principle aligns with the statutory construction maxim that a special law prevails over a general law on the same subject matter, as articulated in Social Justice Society (SJS), et al. v. Hon. Atienza, Jr., where the Court stated:

The special act and the general law must stand together, one as the law of the particular subject and the other as the law of general application. The special law must be taken as intended to constitute an exception to, or a qualification of, the general act or provision.

Furthermore, the Court in Vinzons-Chato v. Fortune Tobacco Corporation, elaborated on the distinction between general and special statutes:

A general statute is one which embraces a class of subjects or places and does not omit any subject or place naturally belonging to such class. A special statute, as the term is generally understood, is one which relates to particular persons or things of a class or to a particular portion or section of the state only.

In light of these principles, the Supreme Court concluded that the Court of Appeals committed grave abuse of discretion in compelling the OSG to represent the Municipality of Saguiran. The exclusive authority to represent LGUs lies with their respective legal officers. The Court pointed out that even the employment of a special legal officer is strictly conditioned on circumstances where the component city or municipality’s interests are adverse to the provincial government or another component city or municipality.

The ruling underscores the importance of adhering to the specific provisions of the Local Government Code regarding legal representation. It reinforces the principle of local autonomy by ensuring that LGUs are represented by legal professionals who are directly accountable to them and familiar with their specific needs and circumstances. This contrasts with a scenario where the OSG, while competent, might lack the localized understanding necessary for effective representation. In practice, this means that local governments must ensure they have qualified and competent legal officers to handle their legal affairs. If an LGU does not have its own legal officer, the Provincial Attorney of the province has the duty to represent the local government unit.

It is essential to note that while the Administrative Code grants broad powers to the OSG, these powers are not without limitations. The Supreme Court has previously established boundaries to the OSG’s authority, such as in Urbano v. Chavez, where it ruled that the OSG could not represent a public official accused in a criminal case to avoid potential conflicts of interest. Similarly, in this case, the Court recognized that the LGC provides a specific framework for legal representation of LGUs, which must be respected to maintain consistency and coherence in the legal system.

FAQs

What was the key issue in this case?	The central issue was whether the Office of the Solicitor General (OSG) could be compelled to represent a local government unit (LGU) in legal proceedings, given the Local Government Code’s mandate that LGUs be represented by their own legal officers.
What did the Supreme Court decide?	The Supreme Court ruled that the legal officer of the LGU has the exclusive authority to represent it in legal proceedings, and the OSG cannot be compelled to act as its counsel unless specifically authorized by law.
Why does the LGC prevail over the Administrative Code in this case?	The LGC is considered a special law specifically addressing legal representation for local government units, while the Administrative Code is a general law. Special laws take precedence over general laws on the same subject matter.
What happens if an LGU does not have its own legal officer?	If a local government unit does not have its own legal officer, the Provincial Attorney of the province has the duty to represent the local government unit.
What is the significance of local autonomy in this ruling?	The ruling reinforces the principle of local autonomy by ensuring that LGUs are represented by legal professionals who are directly accountable to them and familiar with their specific needs and circumstances.
Can the OSG ever represent an LGU?	The OSG can only represent an LGU if specifically authorized by law, particularly in situations where a component city or municipality’s interests are adverse to the provincial government or another component city or municipality, allowing for a special legal officer.
What was the basis for the Court of Appeals’ original decision?	The Court of Appeals initially believed that the OSG’s mandate was broad enough to include representation of a local government unit, viewing the LGU as part of the Government of the Philippines.
What prior Supreme Court rulings influenced this decision?	The Supreme Court cited Social Justice Society (SJS), et al. v. Hon. Atienza, Jr. and Vinzons-Chato v. Fortune Tobacco Corporation to support the principle that a special law prevails over a general law on the same subject matter.

In conclusion, the Supreme Court’s decision clarifies the boundaries of legal representation for local government units, emphasizing the exclusive authority of LGU legal officers and reinforcing the principles of local autonomy and efficient legal administration. This ruling ensures that local governments are represented by counsel familiar with their specific needs and accountable to their constituents.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

June 9, 2014

Redemption Rights: Annotating Tax Sales and Protecting Property Owners in Quezon City

The Supreme Court clarified that the one-year period to redeem a property sold due to tax delinquency in Quezon City begins from the date the sale is officially recorded in the Registry of Deeds, not merely from the sale date. This ruling protects property owners by ensuring they have adequate notice and time to exercise their right to reclaim their property.

Taxing Times: When Does the Clock Start Ticking on Property Redemption?

This case revolves around a dispute between Rizal Commercial Banking Corporation (RCBC) and the City of Quezon City, concerning the redemption period for properties sold due to tax delinquency. RCBC, as a mortgagee, sought to redeem properties previously owned by spouses Roberto and Monette Naval, which had been sold at a tax auction to Alvin Emerson S. Yu. The central legal question was: From what date should the one-year redemption period be counted—the date of the tax sale itself, as stated in the general law (Republic Act No. 7160, or the Local Government Code), or the date the sale was annotated in the registry, as stipulated in the Quezon City Revenue Code?

The factual backdrop is crucial. The Naval spouses secured a loan from RCBC using their properties as collateral. After they defaulted, RCBC foreclosed the mortgage and became the highest bidder at the public auction in 1998. However, the Certificates of Sale were registered only on February 10, 2004. Meanwhile, the City Treasurer of Quezon City auctioned off the same properties on May 30, 2003, due to tax delinquencies. Alvin Emerson S. Yu emerged as the highest bidder and received a Certificate of Sale of Delinquent Property, which he registered on February 10, 2004.

RCBC attempted to pay the delinquent taxes, interest, and costs on June 10, 2004, but the City Treasurer refused to accept the payment. This prompted RCBC to file a Petition for Mandamus with Prayer for Issuance of a Temporary Restraining Order and a Writ of Preliminary Injunction before the Regional Trial Court (RTC). The RTC initially denied RCBC’s petition, arguing that the reckoning period should be based on the Local Government Code, which repealed Presidential Decree (P.D.) No. 464, also known as the Real Property Tax Code. However, upon reconsideration, the RTC reversed its decision, leading the City officials to appeal to the Supreme Court.

The petitioners argued that the RTC erred in ruling that P.D. No. 464 was not repealed by R.A. No. 7160 and in interpreting the phrase “from the date of sale” in Section 261 of R.A. No. 7160 to mean the date of registration of the certificate of sale. The respondent, RCBC, countered that the RTC correctly ruled that it had timely exercised its right to redeem the subject properties and that the reference to Section 78 of P.D. No. 464 was merely a reference point and did not alter the RTC’s ruling.

The Supreme Court had to reconcile two laws: the general law (R.A. No. 7160) and the special law (Quezon City Revenue Code). Section 261 of R.A. No. 7160 states:

Section 261. Redemption of Property Sold. – Within one (1) year from the date of sale, the owner of the delinquent real property or person having legal interest therein, or his representative, shall have the right to redeem the property upon payment to the local treasurer of the amount of delinquent tax, including the interest due thereon, and the expenses of sale from the date of delinquency to the date of sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of sale to the date of redemption. Such payment shall invalidate the certificate of sale issued to the purchaser and the owner of the delinquent real property or person having legal interest therein shall be entitled to a certificate of redemption which shall be issued by the local treasurer or his deputy.

However, the Quezon City Revenue Code provided a different reckoning point:

7) Within one (1) year from the date of the annotation of the sale of the property at the proper registry, the owner of the delinquent real property or person having legal interest therein, or his representative, shall have the right to redeem the property by paying to the City Treasurer the amount of the delinquent tax, including interest due thereon, and the expenses of sale plus interest of two percent (2) per month on the purchase price from the date of sale to the date of redemption. Such payment shall invalidate the certificate of sale issued to the purchaser and the owner of the delinquent real property or person having legal interest therein shall be entitled to a certificate of redemption which shall be issued by the City Treasurer.

The Court acknowledged the apparent conflict between the two provisions. R.A. No. 7160, as a general law, applies to all local government units, while the Quezon City Revenue Code, as a special law, applies specifically to Quezon City. The Court then invoked the principle that a special law prevails over a general law on the same subject matter. This is because the special law evinces the legislative intent more clearly than the general statute and is taken as intended to constitute an exception to the rule.

Building on this principle, the Supreme Court emphasized that in cases involving redemption, the law protects the original owner. Redemption is favored, and redemption laws are construed liberally. The Court harmonized the provisions of the two laws, stating that Section 14 (a), Paragraph 7 of the Quezon City Revenue Code should be construed as defining the phrase “one (1) year from the date of sale” in Section 261 of R.A. No. 7160 to mean “one (1) year from the date of the annotation of the sale of the property at the proper registry.”

Therefore, the counting of the one-year redemption period begins from the date the certificate of sale is annotated in the Register of Deeds. Applying this to the case, RCBC had until February 10, 2005, to redeem the properties, as the Certificate of Sale of Delinquent Property was registered on February 10, 2004. Consequently, RCBC’s tender of payment on June 10, 2004, was within the redemption period, and the petitioners erred in refusing it.

Finally, the Court addressed the petitioners’ argument that RCBC could not invoke Section 14 (a), Paragraph 7 of the Quezon City Revenue Code because it was not initially cited in the petition for mandamus. The Court noted that RCBC had brought this provision to the attention of the petitioners as early as in its Memorandum to Serve as Draft Resolution and reiterated it in its motion for reconsideration. The petitioners had ample opportunity to counter RCBC’s allegations. Moreover, the Court stated that the petitioners could not feign ignorance of a law they had promulgated in the exercise of their local autonomy.

FAQs

What was the key issue in this case?	The central issue was determining the correct starting point for calculating the one-year redemption period for tax-delinquent properties in Quezon City: the date of sale or the date of annotation of the sale.
Which law governs the redemption period for tax-delinquent properties?	The Quezon City Revenue Code governs the redemption period for tax-delinquent properties within Quezon City, as it is a special law that takes precedence over the general law (Local Government Code).
From what date is the one-year redemption period counted?	The one-year redemption period is counted from the date of annotation of the sale of the property at the proper registry, according to the Quezon City Revenue Code.
What is the significance of annotating the sale in the registry?	Annotation provides constructive notice to all interested parties, including the property owner and those with legal interest, about the sale of the property due to tax delinquency.
Why does the Quezon City Revenue Code take precedence over the Local Government Code in this case?	The Quezon City Revenue Code is a special law applicable specifically to Quezon City, while the Local Government Code is a general law. Special laws prevail over general laws on the same subject matter.
What is the policy of the law regarding redemption?	The law favors redemption and protects the rights of the original owner. Redemption laws are construed liberally to aid rather than defeat the owner’s right to redeem their property.
Can a party raise a new legal argument during judicial proceedings?	Yes, a party can raise a new legal argument if the opposing party has been given an opportunity to respond and present evidence. The core claim must stay the same though.
What was the Supreme Court’s ruling in this case?	The Supreme Court affirmed the RTC’s decision, ruling that the one-year redemption period should be counted from the date of annotation of the sale.

This Supreme Court decision clarifies the timeline for property redemption in Quezon City, offering protection to property owners facing tax delinquency. By specifying that the redemption period begins upon annotation of the sale, the ruling ensures fair notice and a meaningful opportunity to reclaim property. The Court’s emphasis on the special nature of the Quezon City ordinance reinforces local autonomy in taxation matters.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

August 3, 2010