DAVAO ORIENTAL ELECTRIC COOPERATIVE vs. PROVINCE OF DAVAO ORIENTAL

(Puno, January 20, 2009)

FACTS:

Petitioner Davao Oriental Electric Cooperative, Inc. (DOEC) was organized under Presidential Decree (PD) No. 269 which granted a number of tax and duty exemption privileges to electric cooperatives.  In 1984, PD No. 1955 was enacted by then President Ferdinand E. Marcos.  It withdrew all exemptions from or any preferential treatment in the payment of duties, taxes, fees, imposts, and other charges granted to private business enterprises and/or persons engaged in any economic activity.

Due to the failure of petitioner to declare the value of its properties, the Office of the Provincial Assessor assessed its properties.  On October 8, 1985, the Provincial Assessor sent the Notice of Assessment to petitioner which duly received it.

During the same year of 1985, the Fiscal Incentive Review Board (FIRB) issued FIRB Resolution No. 13-85, the Ministry of Finance issued Local Tax Regulation No. 3-85, and the Office of the Local Government Finance, Region XI, Davao City issued Regional Office Memorandum Circular No. 42-85, all of which reiterated the withdrawal of tax exemptions previously granted to business entities including electric cooperatives.

In May 1990, respondent filed a complaint for collection of delinquent real property taxes against petitioner for the years 1984 until 1989, amounting to P1,825,928.12.

Petitioner contends that it was exempt from the payment of real estate taxes from 1984 to 1989 because the restoration of tax exemptions under FIRB Resolution No. 24-87 retroacts to the date of withdrawal of said exemptions.  Further, petitioner questions the classification made by respondent of some of its properties as real properties when it believes them to be personal properties, hence, not subject to realty tax.  It claims that the tax declarations covering its properties were issued without prior consultation, and without its knowledge and consent.  In addition, it argues that respondent classified its poles, towers and fixtures, overhead conductors and devices, station equipment, line transformers, etc. as real properties when by their nature, use, purpose, and destination and by substantive law and jurisprudence, they are personal properties.

On March 15, 2000, the RTC rendered its decision in favor of petitioner. Respondent appealed to the CA which set aside the ruling of the RTC.

ISSUES:

1. Whether or not the restoration of the tax exemption under FIRB Resolution 24-87 was not retroactive to the date of effectivity of PD 1955; - YES. Not retroactive.

2. Whether or not petitioner could be made to pay taxes based on a wide-sweeping and erroneous assessment of its real properties. – Yes.

RULING:

HELD: Retroactivity of FIRB Resolution No. 24-87.

CA ruling affirmed.  A cursory reading of the resolution bares no indicia of retroactivity of its application.  FIRB Resolution No. 24-87 is crystal clear in stating that “the tax and duty exemption privileges of electric cooperatives granted under the terms and conditions of PD 269 are restored effective July 1, 1987.”  There is no other way to construe it.  The language of the law is plain and unambiguous.  When the language of the law is clear and unequivocal, the law must be taken to mean exactly what it says.

Further, because taxes are the lifeblood of the nation, the court has always applied the doctrine of strict interpretation in construing tax exemptions. A claim for exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception.

HELD: Assessment of petitioner’s real properties.

Section 30 of PD No. 464 (Real Property Tax Code) provides that “any owner who is not satisfied with the action of the provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of the appeal.”

Having failed to appeal the assessment of its properties to the Board of Assessment Appeals, petitioner cannot now assail the validity of the tax assessment against it before the courts.  Petitioner failed to exhaust its administrative remedies, and the consequence for such failure is clear – the tax assessment, as computed and issued by the Office of the Provincial Assessor, became final.  Petitioner is deemed to have admitted the correctness of the assessment of its properties.  In addition, Section 64 of PD No. 464 requires that the taxpayer must first pay under protest the tax assessed against him before he could seek recourse from the courts to assail its validity.