SECOND DIVISION

LUZ R. YAMANE, in her G.R. No. 154993

capacity as the CITY
TREASURER OF MAKATI Present:
CITY,
Petitioner, PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
- versus - TINGA, and
CHICO-NAZARIO, JJ.
BA LEPANTO CONDOMINUM Promulgated:
CORPORATION,
Respondent. October 25, 2005

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DECISION

TINGA, J.:

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 Local Government Code. The second is whether a
local government unit can, under the Local Government Code,
impel a condominium corporation to pay business taxes. [1]
 While we agree with the City Treasurers 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 Condominium Act, [2] 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. [3] The Notice of
Assessment was silent as to the statutory basis of the business
taxes assessed.

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] Code or even
under the [Local Government] Code.

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 code. We submit, however, that this is not
applicable to the Corporation as the Corporation is not an owner or
operator of any business in the contemplation of the Makati
[Revenue] Code and even the [Local Government] Code.[4]

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. [5]

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.
[6]
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]. [7]

From the denial of the protest, the Corporation filed an Appeal with
the Regional Trial Court (RTC) of Makati. [8] On 1 March 2000, the
Makati RTC Branch 57 rendered a Decision[9] 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.[10]
With this, the RTC 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.[11]

From this Decision of the RTC, 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 [12] 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. [13] However, the Corporation
pointed out in its Motion for Reconsiderationthat 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. [14] Persuaded by this
contention, the Court of Appeals reinstated the petition. [15]

On 7 June 2002, the Court of Appeals Special Sixteenth

Division rendered the Decision[16] 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. [17] In doing
so, the Court of Appeals delved into jurisprudential definitions of
profit,[18] 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.[19]
 The Court of Appeals likewise cited provisions from the
Corporations 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.[20]

Upon denial of her Motion for Reconsideration,[21] 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 fact that the
Corporation is empowered to acquire, own, hold, enjoy, lease,
operate and maintain, and to convey sell, transfer or otherwise
dispose of real or personal property allegedly qualifies as incident to
the fact of [the Corporations] act of engaging in business. [22]

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 RTCDecision 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 Section 195 of the
Local Government Code, exercises original jurisdiction or appellate
jurisdiction. The question assumes a measure of importance to this
petition, for the adoption of the position of the City Treasurer that
the mode of review of the decision taken by the RTC is governed by
Rule 41 of the Rules of Civil Procedure means that the decision of
the RTC would have long become final and executory by reason of
the failure of the Corporation to file a notice of appeal. [23]

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 Section
195 of the Local Government Code 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. [24] Apparently
though, the Local Government Code does not elaborate on how such
appeal should be undertaken.

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 inGarcia v. De Jesus,[25] 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.[26]

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 courts 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 Rule 43 of the 1997 Rules of Civil Procedure, Section 1
of which lists a slew of administrative agencies and quasi-judicial
tribunals or their officers whose decisions may be reviewed by the
Court of Appeals in the exercise of its appellate jurisdiction.
However, the basic law of jurisdiction, Batas Pambansa Blg. 129
(B.P. 129),[27] 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.[28] 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 Local Government Code, or any other

statute for that matter, does not expressly confer appellate
jurisdiction on the part of regional trial courts from the denial of a
tax protest by a local treasurer. On the other hand, Section 22 of
B.P. 129 expressly delineates the appellate jurisdiction of the
Regional Trial Courts, confining as it does said appellate jurisdiction
to cases decided by Metropolitan, Municipal, and Municipal Circuit
Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129
does not confer appellate jurisdiction on Regional Trial Courts over
rulings made by non-judicial entities.

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 Rule 41 to the Court of Appeals. However, we make this
pronouncement subject to two important qualifications. First, in
this particular case there are nonetheless significant reasons for the
Court to overlook the procedural error and ultimately uphold the
adjudication of the jurisdiction exercised by the Court of Appeals in
this case. Second, the doctrinal weight of the pronouncement is
confined to cases and controversies that emerged prior to the
enactment of Republic Act No. 9282, the law which expanded the
jurisdiction of the Court of Tax Appeals (CTA).
 Republic Act No. 9282 definitively proves in its Section 7(a)(3)
that the CTA exercises exclusive appellate jurisdiction to review on
appeal decisions, orders or resolutions of the Regional Trial Courts
in local tax cases original decided or resolved by them in the
exercise of their originally or appellate jurisdiction. Moreover, the
provision also states that the review is triggered by filing a petition
for review under a procedure analogous to that provided for under
Rule 42 of the 1997 Rules of Civil Procedure. [29]

Republic Act No. 9282, however, would not apply to this case
simply because it arose prior to the effectivity of that law. To declare
otherwise would be to institute a jurisdictional rule derived not from
express statutory grant, but from implication. The jurisdiction of a
court to take cognizance of a case should be clearly conferred and
should not be deemed to exist on mere implications, [30] and this
settled rule would be needlessly emasculated should we declare that
the Corporations position is correct in law.

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 procedurethe just, speedy and inexpensive
disposition of every action and proceeding. [31] Indeed, we have
repeatedly upheldand utilized ourselvesthe 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. [32] The Court of Appeals
could very well have treated the Corporations petition for review as
an ordinary appeal.
 Moreover, we recognize that the Corporations error in elevating
the RTC decision for review via Rule 42 actually worked to the
benefit of the City Treasurer. There is wider latitude on the part of
the Court of Appeals to refuse cognizance over a petition for review
under Rule 42 than it would have over an ordinary appeal under
Rule 41. Under Section 13, Rule 41, the stated grounds for the
dismissal of an ordinary appeal prior to the transmission of the case
records are when the appeal was taken out of time or when the
docket fees were not paid.[33] On the other hand, Section 6, Rule 42
provides that in order that the Court of Appeals may allow due
course to the petition for review, it must first make a prima
faciefinding that the lower court has committed an error that would
warrant the reversal or modification of the decision under review.
[34]
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. [35]

Evidently, by employing the Rule 42 mode of review, the

Corporation faced a greater risk of having its petition rejected by the
Court of Appeals as compared to having filed an ordinary appeal
under Rule 41. This was not an error that worked to the prejudice of
the City Treasurer.

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. [36] These guidelines and
limitations as provided by Congress are in main contained in the
Local Government Code of 1991 (the Code), which provides for
comprehensive instances when and how local government units may
impose taxes. The significant limitations are enumerated primarily
in Section 133 of the Code, which include among others, a
prohibition on the imposition of income taxes except when levied on
banks and other financial institutions.[37] None of the other general
limitations under Section 133 find application to the case at bar.

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
Code, and which bears no application in this case. A different set of
provisions, found under Title I of Book II, governs other taxes
imposable by local government units, including business taxes.
Under Section 151 of the Code, cities such as Makati are authorized
to levy the same taxes fees and charges as provinces and
municipalities. It is in Article II, Title II, Book II of the Code,
governing municipal taxes, where the provisions on business
taxation relevant to this petition may be found.[38]

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.

The coverage of business taxation particular to the City of

Makati is provided by the Makati Revenue Code (Revenue Code),
enacted through Municipal Ordinance No. 92-072. The Revenue
Code remains in effect as of this
writing. Article A, Chapter III of the Revenue Code governs business
taxes in Makati, and it is quite specific as to the particular
businesses which are covered by business taxes. To give a sample of
the specified businesses under the Revenue Code which are not
enumerated under the Local Government Code, we cite Section
3A.02(f) of the Code, which levies a gross receipt tax :

(f) On contractors and other independent contractors defined in

Sec. 3A.01(q) of Chapter III of this Code, and on owners or
operators of business establishments rendering or offering
services such as: advertising agencies; animal hospitals; assaying
laboratories; belt and buckle shops; blacksmith shops;
bookbinders; booking officers for film exchange; booking offices
for transportation on commission basis; breeding of game cocks
and other sporting animals belonging to others; business
management services; collecting agencies; escort services;
feasibility studies; consultancy services; garages; garbage
disposal contractors; gold and silversmith shops; inspection
services for incoming and outgoing cargoes; interior decorating
services; janitorial services; job placement or recruitment
 agencies; landscaping contractors; lathe machine shops;
management consultants not subject to professional tax; medical
and dental laboratories; mercantile agencies; messsengerial
services; operators of shoe shine stands; painting shops; perma
press establishments; rent-a-plant services; polo players; school
for and/or horse-back riding academy; real estate appraisers;
real estate brokerages; photostatic, white/blue printing, Xerox,
typing, and mimeographing services; rental of bicycles and/or
tricycles, furniture, shoes, watches, household appliances, boats,
typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies;
shipyard for repairing ships for others; shops for shearing
animals; silkscreen or T-shirt printing shops; stables; travel
agencies; vaciador shops; veterinary clinics; video rentals and/or
coverage services; dancing schools/speed reading/EDP; nursery,
vocational and other schools not regulated by the Department of
Education, Culture and Sports, (DECS), day care centers; etc.[39]

Other provisions of the Revenue Code likewise subject hotel

and restaurant owners and operators[40], real estate dealers, and
lessors of real estate[41] to business taxes.

Should the comprehensive listing not prove encompassing

enough, there is also a catch-all provision similar to that under the
Local Government Code. This is found in Section 3A.02(m) of the
Revenue Code, which provides:

(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 %) for 1994 and 1995, and three percent (3%) for
1996 and the years thereafter of the gross receipts during the
preceding year.[42]

The initial inquiry is what provision of the Makati Revenue

Code does the City Treasurer rely on to make the Corporation liable
for business taxes. Even at this point, there already stands a
problem with the City Treasurers cause of action.

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 Makati Revenue Code for the levying of the business
tax on petitioner. We have examined all of the pleadings submitted
by the City Treasurer in all the antecedent judicial proceedings, as
well as in this present petition, and also the communications by the
City Treasurer to the Corporation which form part of the record.
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.

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. 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. In this
case, the notice of assessment sent to the Corporation did state that
the assessment was for business taxes, as well as the amount of the
assessment. There may have been prima faciecompliance with the
requirement under Section 195. However in this case, the Revenue
Code provides multiple provisions on business taxes, and at varying
rates. Hence, we could appreciate the Corporations confusion, as
expressed in its protest, as to the exact legal basis for the tax.
[43]
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.[44] What determines tax liability is the
tax ordinance, the Local Government Code being the enabling law
for the local legislative body.

Moreover, a careful examination of the Revenue Code shows

that while Section 3A.02(m) seems designed as a catch-all provision,
Section 3A.02(f), which provides for a different tax rate from that of
the former provision, may be construed to be of similar import.
While Section 3A.02(f) is quite exhaustive in enumerating the class
of businesses taxed under the provision, the listing, while it does
not include condominium-related enterprises, ends with the
abbreviation etc., or et cetera.

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 Code. Assuming that the assessment made on the
Corporation is on a provision other than Section 3A.02(m), the main
legal issue takes on a different complexion. For example, if it is
based on et cetera under Section 3A.02(f), we would have to examine
whether the Corporation faces analogous comparison with the other
businesses listed under that provision.

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
Treasurers failure to disclose on paper the statutory basis of the
taxthat 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 Local Government Code itself does not
sanction the imposition of business taxes against it. This position
was sustained by the Court of Appeals, and now merits our
analysis.

As stated earlier, local tax on businesses is authorized under

Section 143 of the Local Government Code. The word business itself
is defined under Section 131(d) of the Code as trade or commercial
activity regularly engaged in as a means of livelihood or with a view
to profit.[45] 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.

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 Local Government Code.
And to hold that they do is to ignore the very statutory nature of a
condominium corporation.

The creation of the condominium corporation is sanctioned by

Republic Act No. 4726, otherwise known as the Condominium Act.
Under the law, a condominium is an interest in real property
consisting of a separate interest in a unit in a residential, industrial
or commercial building and an undivided interest in common,
directly or indirectly, in the land on which it is located and in other
common areas of the building.[46] 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.[47] The necessity of a condominium corporation has not gained
widespread acceptance[48], and even is merely permissible under the
Condominium Act.[49] 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 owners fractional interest in any common areas. [50] It is the
collection of these assessments from unit owners that form the
basis of the City Treasurers claim that the Corporation is doing
business.

The Condominium Act imposes several limitations on the

condominium corporation that prove crucial to the disposition of
this case. Under Section 10 of the law, the
corporate purposes of a condominium corporation are limited to the
holding of the common areas, either in ownership or any other
interest in real property recognized by law; to the management of
the project; and to such other purposes as may be necessary,
incidental or convenient to the accomplishment of such purpose.
[51]
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 Condominium Act, the enabling or master deed, or the
declaration of restrictions of the condominium project. [52]
 We can elicit from the Condominium Act that a condominium
corporation is precluded by statute from engaging in corporate
activities other than the holding of the common areas, the
administration of the condominium project, and other acts
necessary, incidental or convenient to the accomplishment of such
purposes. Neither the maintenance of livelihood, nor the
procurement of profit, fall within the scope of permissible corporate
purposes of a condominium corporation under the Condominium
Act.

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
Condominium Act. Per the Articles of Incorporation, the
Corporations corporate purposes are limited to: (a) owning and
holding title to the common and limited common areas in the
Condominium Project; (b) adopting such necessary measures for the
protection and safeguard of the unit owners and their property,
including the power to contract for security services and for
insurance coverage on the entire project; (c) making and adopting
needful rules and regulations concerning the use, enjoyment and
occupancy of the units and common areas, including the power to
fix penalties and assessments for violation of such rules; (d) to
provide for the maintenance, repair, sanitation, and cleanliness of
the common and limited common areas; (e) to provide and contract
for public utilities and other services to the common areas; (f) to
contract for the services of persons or firms to assist in the
management and operation of the Condominium Project; (g) to
discharge any lien or encumbrances upon the Condominium
Project; (h) to enforce the terms contained in the Master Deed with
Declaration of Restrictions of the Project; (i) to levy and
collect those assessments as provided in the Master Deed, in order
to defray the costs, expenses and losses of the condominium; (j) to
acquire, own, hold, enjoy, lease operate and maintain, and to
convey, sell transfer, mortgage or otherwise dispose of real or
personal property in connection with the purposes and activities of
the corporation; and (k) to exercise and perform such other powers
reasonably necessary, incidental or convenient to accomplish the
foregoing purposes.[53]

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. [54]

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.[55]

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,[56] and the taxpayers right to due process is
violated when arbitrary or oppressive methods are used in assessing
and collecting taxes.[57] The fact that the Corporation did not fall
within the enumerated classes of taxable businesses under either
the Local Government Code or the Makati Revenue Code already
forewarns that a clear demonstration is essential on the part of the
City Treasurer on why the Corporation should be taxed anyway. Full
appreciative living values is nothing but blather in search of
meaning, and to impose a tax hinged on that standard is both
arbitrary and oppressive.

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.[58] What the City Treasurer fails to add is that
every corporation

organized under the Corporation Code[59] is so specifically

empowered. Section 36(7) of the Corporation Code states that every
corporation incorporated under the Code has the power and
capacity to purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property . . . as the transaction of the lawful business of the
corporation may reasonably and necessarily require . . . . [60] 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 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.

Accordingly, and with a significant degree of comfort, we hold

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, we can note a possible exception to the rule. It is not

unthinkable that the unit owners of a condominium would band
together to engage in activities for profit under the shelter of the
condominium corporation.[61] Such activity would be prohibited
under the Condominium Act, but if the fact is established, we see no
reason why the condominium corporation may be made liable by the
local government unit for business taxes. Even though such
activities would be considered as ultra vires, since they are engaged
in beyond the legal capacity of the condominium corporation [62], 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 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.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

DANTE O. TINGA Associate

Justice