Yamane v. BA Lepanto Condominium Corp.
G.R. No. 154993
Decision Date


G.R. No. 154993. October 25, 2005.




Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two novel questions: one procedural, the other substantive, yet both of obvious significance. The first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax protests made by local government treasurers, pursuant to the

While we agree with the City Treasurer's position on the first issue, there ultimately is sufficient justification for the Court to overlook what is essentially a procedural error. We uphold respondents on the second issue. Indeed, there are disturbing aspects in both procedure and substance that attend the attempts by the City of Makati to flex its taxing muscle. Considering that the tax imposition now in question has utterly no basis in law, judicial relief is imperative. There are fewer indisputable causes for the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim, and not on law.

The facts, as culled from the record, follow.

Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly organized condominium corporation constituted in accordance with the which owns and holds title to the common and limited common areas of the BA-Lepanto Condominium (the "Condominium"),situated in Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium.

On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is "liable to pay the correct city business taxes, fees and charges," computed as totaling P1,601,013.77 for the years 1995 to 1997. The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. ACDIcS

Through counsel, the Corporation responded with a written tax protest dated 12 February 1999, addressed to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the tax assessment.

With due respect, we submit that the Assessment has no basis as the Corporation is not liable for business taxes and surcharges and interest thereon, under the Makati Revenue

The Makati Revenue Code and the Local Government Code do not contain any provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati Revenue Code imposes business tax on owners or operators of any business not specified in the said

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the

The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the collection of dues from the unit owners was effected primarily "to sustain and maintain the expenses of the common areas, with the end in view sic of getting full appreciative living values sic for the individual condominium occupants and to command better marketable sic prices for those occupants" who would in the future sell their respective units. Thus, she concluded since the "chances of getting higher prices for well-managed common areas of any condominium are better and more effective that condominiums with poor sic managed common areas," the corporation activity "is a profit venture making sic".

From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati. On 1 March 2000, the Makati RTC Branch 57 rendered a Decision dismissing the appeal for lack of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:

Herein appellant, to defray the improvements and beautification of the common areas, collect sic assessments from its members. Its end view is to get appreciate living rules for the unit owners sic,to give an impression to outsides sic of the quality of service the condominium offers, so as to allow present owners to command better prices in the event of sale.

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of "business" under Section 13(b) of the

From this Decision of the RTC, the Corporation filed a Petition for Review under on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under However, the Corporation pointed out in its Motion for Reconsideration that under Persuaded by this contention, the Court of Appeals reinstated the petition.

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision now assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was not liable to pay business taxes to the City of Makati. In doing so, the Court of Appeals delved into jurisprudential definitions of profit, and concluded that the Corporation was not engaged in profit. For one, it was held that the very statutory concept of a condominium corporation showed that it was not a juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium.

The Court of Appeals likewise cited provisions from the Corporation's Amended Articles of Incorporation and Amended By-Laws that, to its estimation, established that the Corporation was not engaged in business and the assessment collected from unit owners limited to those necessary to defray the expenses in the maintenance of the common areas and management the condominium.

Upon denial of her Motion for Reconsideration, the City Treasurer elevated the present Petition for Review under

The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Decision is deemed to have become final and executory.

First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under

There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored on the language of to appeal with the court of competent jurisdiction." Apparently though, the HAIaEc

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in character. This is the first time that the position has been presented to the court for adjudication. Still, this argument does find jurisprudential mooring in our ruling in , where the Court proffered the following distinction between original jurisdiction and appellate jurisdiction: "Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review."

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall within that court's original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local government official.

The stringent concept of original jurisdiction may seemingly be neutered by ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by explicitly using the phrase "appellate jurisdiction." The power to create or characterize jurisdiction of courts belongs to the legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in the executive branches of government.

Yet significantly, the

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under

and this settled

Be that as it may, characteristic of all procedural rules is adherence to the precept that they should not be enforced blindly, especially if mechanical application would defeat the higher ends that animates our civil procedure the just, speedy and inexpensive disposition of every action and proceeding. Indeed, we have repeatedly upheld and utilized ourselves the discretion of courts to nonetheless take cognizance of petitions raised on an erroneous mode of appeal and instead treat these petitions in the manner as they should have appropriately been filed. The Court of Appeals could very well have treated the Corporation's petition for review as an ordinary appeal. cADSCT

Moreover, we recognize that the Corporation's error in elevating the RTC decision for review via On the other hand, Section 6, prima facie finding that the lower court has committed an error that would warrant the reversal or modification of the decision under review. There is no similar requirement of a prima facie determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time.

Evidently, by employing the

We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on condominium corporations.

We begin with an overview of the power of a local government unit to impose business taxes.

The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units "to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy." These guidelines and limitations as provided by Congress are in main contained in the None of the other general limitations under Section 133 find application to the case at bar. IaHCAD

The most well-known mode of local government taxation is perhaps the real property tax, which is governed by Title II, Book II of the

Section 143 of thesanggunian is also authorized to impose taxes on any other businesses not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.

The coverage of business taxation particular to the City of Makati is provided by the

(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of this

Other provisions of the Revenue ,real estate dealers, and lessors of real estate to business taxes.

Should the comprehensive listing not prove encompassing enough, there is also a catch-all provision similar to that under the

(m) On owners or operators of any business not specified above shall pay the tax at the rate of two percent (2%) for 1993, two and one-half percent (2 1/2%) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter of the gross receipts during the preceding year.

The initial inquiry is what provision of the

Our careful examination of the record reveals a highly disconcerting fact. At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the HSDaTC

Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. prima facie compliance with the requirement under Section 195. However in this case, the Revenue Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by the sanggunian, and not by the What determines tax liability is the tax ordinance, the

Moreover, a careful examination of the Revenue

We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin hallmarks of the words "et cetera." Certainly, we cannot be disposed to uphold any tax imposition that derives its authority from enigmatic and uncertain words such as "et cetera." Yet we cannot even say with definiteness whether the tax imposed on the Corporation in this case is based on "et cetera," or on Section 3A.02(m), or on any other provision of the Revenue

Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that prevents this Court from ruling that there has been a due process violation on account of the City Treasurer's failure to disclose on paper the statutory basis of the tax that the Corporation itself does not allege injury arising from such failure on the part of the City Treasurer.

We do not know why the Corporation chose not to put this issue into litigation, though we can ultimately presume that no injury was sustained because the City Treasurer failed to cite the specific statutory basis of the tax. What is essential though is that the local treasurer be required to explain to the taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved.

In this case, the Corporation seems confident enough in litigating despite the failure of the City Treasurer to admit on what exact provision of the Revenue Code the tax liability ensued. This is perhaps because the Corporation has anchored its central argument on the position that the

As stated earlier, local tax on businesses is authorized under This definition of "business" takes on importance, since Section 143 allows local government units to impose local taxes on businesses other than those specified under the provision. Moreover, even those business activities specifically named in Section 143 are themselves susceptible to broad interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature. IAcDET

It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall within the definition of business as provided in the

The creation of the condominium corporation is sanctioned by To enable the orderly administration over these common areas which are jointly owned by the various unit owners, the The necessity of a condominium corporation has not gained widespread acceptance, and even is merely permissible under the Nonetheless, the condominium corporation has been resorted to by many condominium projects, such as the Corporation in this case.

In line with the authority of the condominium corporation to manage the condominium project, it may be authorized, in the deed of restrictions, "to make reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owner's fractional interest in any common areas." It is the collection of these assessments from unit owners that form the basis of the City Treasurer's claim that the Corporation is doing business.

The Further, the same provision prohibits the articles of incorporation or by-laws of the condominium corporation from containing any provisions which are contrary to the provisions of the

We can elicit from the

The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these documents unmistakably hew to the limitations contained in the

Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the particular expenses to be defrayed by the regular assessments collected from the unit owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.

The City Treasurer nonetheless contends that the collection of these assessments and dues are "with the end view of getting full appreciative living values" for the condominium units, and as a result, profit is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.

Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be considered as being engaged in business, since the repairs or improvements on the car may be deemed oriented towards appreciating the value of the car upon resale. There is an evident distinction between persons who spend on repairs and improvements on their personal and real property for the purpose of increasing its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under the second category, and it would be highly specious to subject these persons to local business taxes. The profit motive in such cases is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit that would be derived under such circumstances would merely be incidental, if not accidental.

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of "full appreciative living values",a phrase that defies statutory explication, commonsensical meaning, the English language, or even definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the due process clause, and the taxpayer's right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting taxes. The fact that the Corporation did not fall within the enumerated classes of taxable businesses under either the

The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation "to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property." What the City Treasurer fails to add is that every corporation organized under the is so specifically empowered. Section 36(7) of the Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most meaningful legal relations.

Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the HSDIaC

Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally exempt from local business taxation under the

Still, we can note a possible exception to the Such activity would be prohibited under theultra vires, since they are engaged in beyond the legal capacity of the condominium corporation, the principle of estoppel would preclude the corporation or its officers and members from invoking the void nature of its undertakings for profit as a means of acquitting itself of tax liability.

Still, the City Treasurer has not posited the claim that the Corporation is engaged in business activities beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporation's collection of assessments from unit owners, such assessments being utilized to defray the necessary expenses for the Condominium Project and the common areas. There is no contemplation of business, no orientation towards profit in this case. Hence, the assailed tax assessment has no basis under the

WHEREFORE, the petition is DENIED. No costs.


Puno, Austria-Martinez and Callejo, Sr.,JJ., concur.

Chico-Nazario, J., is on leave.


1. The general authority for local government units to create their own sources of revenue through taxation is established under Section 5, Article X of the Constitution, as affirmed under Section 129 of


3. Broken down as follows: Tax Deficiency from 1995 to 1997 P800,855.66; 25% surcharge P200,213.91; Interest P601,944.20. See RTC Records, pp. 72-73.

4. Id.at 74.

5. Records, pp. 20-21.

6. RTC Rollo,p. 16.

7. Ibid.

8. Docketed as Civil Case No. 99-748.

9. Penned by Judge Reinato G. Quilala.

10. Rollo,p. 106.

11. Ibid.

12. In a Resolution dated 18 May 2000.

13. Id.at 64.

14. Id.at 144.

15. In a Resolution dated 25 July 2000.

16. Penned by Justice H. Aquino, concurred in by Justices E. de los Santos and R. Maambong.

17. Id.at 22.

18. Citing among others, ,38 Phil 414; and Lynch v. Turrish,264 US 221.

19. Id.at 21.

20. Ibid.

21. In a Resolution dated 28 August 2002.

22. Rollo,p. 33.

23. "This Court has invariably ruled that perfection of an appeal in the manner and within the period laid down by law is not only mandatory but also jurisdictional. The failure to perfect an appeal as required by theSee ,G.R. No. 131287, 9 December 2004, 445 SCRA 591.

24. See Section 195,

25. G.R. Nos. 88158 & 97108-09, 4 March 1992,

26. Ibid.

27. Otherwise known as the

28. See Section 9,

29. See Section 9,

30. ,G.R. No. 91259, 16 April 1991, 195 SCRA 790, 796, citing Victorias Milling Co. v. CTA,G.R. No. 66381, February 29, 1984.

31. See Section 6,

32. "Thecertiorari. A petition which should have been brought under , See also e.g.,Abcede v. Workman's Compensation Commission,G.R. No. L-42400, August 7, 1985; ,G.R. No. L-44649, April 15, 1988; ,G.R. No. 135496, July 30, 2002; ,G.R. No. 140959. December 21, 2004;

33. See Section 13,

34. See Section 6,

35. See Section 9,

36. See Section 5, Article X, Constitution.

37. See Section 133(a),

38. Article I, Book II, Title II, concerning provincial taxes, authorize the imposition of taxes on the business of printing and publication, on businesses enjoying a franchise, and on persons exercising a profession requiring government examination. While these are admittedly taxes imposed on businesses, they find no relevance to the present case.

39. See Section 3A.02(f),

40. See Section 3A.02(h),

41. See Section 3A.02(k),

42. Section 3A.02(m),

43. Supra note 4.

44. See Section 132, Local Government Code. Indeed, even as the

45. See Section 131(e),

46. See Section 2,

47. Ibid.

48. "The suggestion has been cautiously advanced that the unit owners might form a corporation to operate the condominium and in this way probably avoid unlimited personal liability." See 12, Alberto Ferrer and Karl Stecher, I Law of Condominium (1967 ed.)

49. See Section 2,

50. See Section 9(d),

51. See Section 10,

52. Ibid.

53. See RTC Records, pp. 44-46.

54. Id.at 35-36.

55. Rollo,p. 20.

56. "This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the Pepsi-Cola Bottling Company v. Municipality of Tanauan,161 Phil. 591.

57. Ibid.

58. Rollo,p. 33.


60. See Section 36(7),

61. Indeed, at least one commentator on American

Under certain conditions it is possible for the owners of a condominium project to engage in a business, the income of which would be subject to the Federal income tax. . . . To meet these conditions, however, the owners of the condominium, acting through their association of owners, must generally fall into one of two general classifications insofar as the Internal Revenue

The Federal income tax regulations define a partnership as including a syndicate, group, pool, joint venture or other unincorporated organization through or by means of which any business, financial operation or venture is carried on and which is not a corporation, trust or estate within the meaning of the Internal Revenue

A corporation includes association, which are taxable as corporation, and joint-stock companies. ...The individual apartment owners are generally tenants in common of the common areas and joint owners of the personal property of the organization. Almost invariably they are not partners and the mere fact that they agree to share expenses does not make the arrangement a partnership. The Federal regulations specifically prescribe that a joint undertaking merely to share expenses is not a partnership.

Mere co-ownership or property which is maintained, kept in repair, and rented or leased does not constitute a partnership. ...Tenants in common may, however, be partners if they actively carry on a trade, business, financial operation or venture and divide the profits thereof.

Consequently a partnership may be created if the co-owners of an apartment building lease space and provide services to the occupants. The principal question is whether the owners are engaged in a business for profit. ...Accordingly where portions of a condominium project are leased or rented as barber shops, drug stores, beauty shops, or other corner enterprises, the income therefrom will be subject to taxation.

If the condominium owners are conducting a business for profit, it must also be determined whether the business is a partnership or a corporation. If it meets the tests prescribed for a corporate entity by the Revenue Service its income will be subject to taxation as a corporation, otherwise it will be considered as some other form of taxable entity.

See Ferrer and Stecher, supra note 48, at 454. Under Philippine law though, a condominium corporation may not adopt purposes other than those provided under theInfra.

62. "The term ultra vires refers to an act outside or beyond corporate powers, including those that may ostensibly be within such powers but are, by general or special laws, prohibited or declared illegal." ,446 Phil. 280 (2003).