THE Supreme Court (SC) has declared null and void the sale at public auction of the 11 real properties of the Philippine Heart Center (PHC) by the Quezon City government after the local government unit charged PHC with failure to settle tax obligations amounting to P36.5 million in 2014.
In a 25-page decision, the SC’s First Division held that the PHC is exempt from payment of real property taxes; being one of government instrumentalities as mandated under Section 133 of Republic Act 7160 or the Local Government Code of the Philippines.
“Indeed, real properties owned by the Republic, whether titled in the name of the Republic itself or in the name of agencies or instrumentalities of the national government, are exempt from real property tax,” the SC said in a decision penned by Associate Justice Amy Lazaro-Javier.
The SC said the PHC passes the two criteria to be classified as a government instrumentality: it performs governmental functions and enjoys operational autonomy.
It noted that the PHC is under the supervision of the Department of Health (DOH) and carries out government policies in pursuit of its objectives.
“Certainly, the PHC’s functions are less commercial than governmental, and more for public use and public welfare than for profit-oriented services,” the SC pointed out.
The Court also explained that the properties of the PHC are considered public dominion devoted to public use and welfare; thus, exempt from real property taxes and levy.
In fact, the SC said in the pursuit of its mandate, the PHC reported it had served 60,000 cardiology patients, performed around 94,000 radiology procedures and provided free heart surgery for 82 mission beneficiaries, among others.
Despite reporting revenues of P3.03 billion in 2018, the SC said the PHC still operated at a loss of P504.5 million.
Thus, the government annually allocates funding to the PHC and, in 2018 alone, providing P888.7 million in financial assistance to the hospital.
“The hospital fees which the PHC charges are simply too meager to cover operating expenses. To divest the PHC of other sources of income may, therefore, impede, if not paralyze its operations altogether,” the SC said.
“And to allow the Quezon City government to confiscate the PHC’s properties would be nothing short of ironic, if not self-destructive, as it would kill the very patient the government so desperately seeks to revive,” the SC ruled.
The SC, however, agreed to the position of the Quezon City government that the 11 properties of the PHC in the city are subject to real property tax since the PHC granted the beneficial use of these properties to commercial establishments such as Globe Telecom Inc., Jollibee Corporation and several others. But “this does not automatically validate the acts of assessing, levying and selling the 11 properties of the PHC,” the Court said.
It emphasized that the “taxable person” with beneficial use of the properties being leased should be held responsible for payment of real property taxes due on government properties.
“Otherwise stated, government units are precluded from availing of the remedy of levy against properties owned by government instrumentalities, whether or not vested with corporate powers, such as the PHC,” the SC said.
“Indeed, it would be the height of absurdity to levy the PHC’s properties to answer for taxes the PHC does not owe. This leaves the Quezon City Government with only one recourse–judicial action for collection or real property taxes against private individuals with beneficial use of the PHC’s properties,” it added.
The SC’s decision reversed and set aside the Court of Appeals ruling issued March 15, 2016, which denied PHC’s petition on the ground of technicality.
Image credits: Nonie Reyes