Yamane vs Lepanto

Facts: Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly

organized condominium corporation constituted in accordance with the Condominium
Act, which owns and holds title to the common and limited common areas of the BA-Lepanto
Condominium (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 1997.3 The Notice of Assessment was silent as to the
statutory basis of the business taxes assessed.
Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati
Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the
Local Government Code, "business" is defined as "trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit." It was submitted that the
Corporation, as a condominium corporation, was organized not for profit, but to hold title over
the common areas of the Condominium, to manage the Condominium for the unit owners, and to
hold title to the parcels of land on which the Condominium was located. Neither was the
Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making
activities. The assessments it did collect from the unit owners were for capital expenditures and
operating expenses.
From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court
(RTC) of Makati which dismiss the appeal and concluded that the activities of the Corporation
fell squarely under the definition of "business" under Section 13(b) of the Local Government
Code, and thus subject to local business taxation.
The Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with
the Court of Appeals. Initially, the petition was dismissed outright 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 Rule 42. However, the Corporation pointed out in
its Motion for Reconsideration that under Section 195 of the Local Government Code, the
remedy of the taxpayer on the denial of the protest filed with the local treasurer is to appeal the
denial with the court of competent jurisdiction. Persuaded by this contention, the Court of
Appeals reinstated the petition.
The appellate court reversed the RTC and declared that the Corporation was not liable to pay
business taxes to the City of Makati.
Upon denial of her Motion for Reconsideration, the City Treasurer elevated the present Petition
for Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues

collected from the different unit owners is utilized towards the beautification and maintenance of
the Condominium, resulting in "full appreciative living values" for the condominium units which
would command better market prices should they be sold in the future. The City Treasurer
likewise avers that the rationale for business taxes is not on the income received or profit earned
by the business, but the privilege to engage in business.
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 Rule 42. It is reasoned
that the decision of the Makati RTC was rendered in the exercise of original jurisdiction, it being
the first court which took cognizance of the case. Accordingly, with the Corporation having
pursued an erroneous mode of appeal, the RTC Decision is deemed to have become final and
executory.
Issues and Ruling:
Procedural:
1) Procedural: Whether the RTC, in deciding an appeal taken from a denial of a protest
by a local treasurer under Section 195 of the Local Government Code, exercises
"original jurisdiction" or "appellate jurisdiction? Original
There are 2 conflicting views on this issue:
a) Position of CA: RTC, in reviewing denials of protests by local treasurers,
exercises appellate jurisdiction. This is anchored on the language of Sec. 195
of the LGC which states that the remedy of the taxpayer whose protest is
denied by the local treasurer is to appeal with the court of competent
jurisdiction. The LGC however does not elaborate on how such appeal
should be undertaken.
b) Position of City Treasurer: jurisdiction exercised is original in character.
Court affirmed the position of the City Treasurer. The LGC does not expressly confer appellate
jurisdiction on the part of RTCs from the denial of a tax protest by a local treasurer. On the other
hand, Section 22 of BP 129 expressly delineates the appellate jurisdiction of the RTCs, confining
appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial
Courts. BP 129 does not confer appellate jurisdiction on RTCs over rulings made by non-judicial
entities.
HOWEVER, this pronouncement is subject to two qualifications.
- First, in this case there are significant reasons for the Court to overlook the procedural
error and ultimately uphold the adjudication of the jurisdiction exercised by the CA.
- Second, the doctrinal weight of the pronouncement is confined to cases and controversies
that emerged prior to the enactment of RA 9282 (effective April 2004), the law which
expanded the jurisdiction of the Court of Tax Appeals (CTA). Under RA 9282, the CTA,
not CA, exercises exclusive appellate jurisdiction to review on appeal decisions, orders or
resolutions of the RTCs in local tax cases whether originally decided or resolved by them
in the exercise of their original or appellate jurisdiction. RA 9282 thus would not apply
here because the case arose prior to the affectivity of the law.

2) Substantive: Whether the City of Makati may collect business taxes on condominium
corporations? No
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."
Section 143 of the Code specifically enumerates several types of business on which
municipalities and cities may impose taxes. These include manufacturers, wholesalers,
distributors, dealers of any article of commerce of whatever nature; those engaged in the export
or commerce of essential commodities; contractors and other independent contractors; banks and
financial institutions; and peddlers engaged in the sale of any merchandise or article of
commerce. Moreover, the local sanggunian 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.
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 Makati Revenue Code for the levying of the business tax on petitioner. Nowhere
therein is there any citation made by the City Treasurer of any provision of the Revenue Code
which would serve as the legal authority for the collection of business taxes from condominiums
in Makati.
The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer relies
on to make the Corporation liable for business taxes. 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. Section 195 of the
Local Government Code does not go as far as to expressly require that the notice of assessment
specifically cite the provision of the ordinance involved but it does require that it state the nature
of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. 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 Local
Government Code alone. What determines tax liability is the tax ordinance, the Local
Government Code being the enabling law for the local legislative body.
The creation of the condominium corporation is sanctioned by Republic Act No. 4726. Under the
law, to enable the orderly administration over these common areas which are jointly owned by
the various unit owners, the Condominium Act permits the creation of a condominium
corporation, which is specially formed for the purpose of holding title to the common area, in
which the holders of separate interests shall automatically be members or shareholders, to the
exclusion of others, in proportion to the appurtenant interest of their respective units.
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.
In rejecting the contention of the City Treasurer 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, it held that: 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. 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 Condominium Act. A condominium corporation, while enjoying such
powers of ownership, is prohibited by law from transacting its properties for the purpose of
gainful profit.
The Court holds that condominium corporations are generally exempt from local business
taxation under the Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise. 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 Corporations 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 Local Government
Code or the Makati Revenue Code, and the insistence of the city in its collection of the void tax
constitutes an attempt at deprivation of property without due process of law.