The Supreme Court ruled that Davao Oriental Electric Cooperative, Inc. (DORECO) was liable for delinquent real property taxes from January 1, 1985, to December 31, 1989, including penalties and surcharges. The Court clarified that the restoration of tax exemptions for electric cooperatives under FIRB Resolution No. 24-87 was effective only from July 1, 1987, and was not retroactive. Moreover, DORECO’s failure to protest the assessment of its properties before the Board of Assessment Appeals meant it could not challenge the tax assessment in court, highlighting the importance of adhering to administrative procedures in tax disputes.

DORECO’s Dilemma: Retroactivity of Tax Exemptions and Property Assessment Disputes

The case revolves around a dispute between Davao Oriental Electric Cooperative, Inc. (DORECO) and the Province of Davao Oriental concerning the payment of real property taxes. DORECO, an electric cooperative organized under Presidential Decree (PD) No. 269, initially enjoyed tax exemptions. However, PD No. 1955 withdrew these exemptions in 1984. The central legal question is whether the subsequent restoration of tax exemptions through FIRB Resolution No. 24-87, effective July 1, 1987, should be applied retroactively to cover the period when the exemptions were withdrawn, and whether DORECO properly contested the assessment of its properties.

The pivotal issue in this case is the retroactivity of tax exemptions. DORECO argued that FIRB Resolution No. 24-87 should retroact to the date of withdrawal of exemptions, thus exempting it from real estate taxes from 1984 to 1989. However, the Supreme Court disagreed, emphasizing the explicit language of the resolution. The Court stated:

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 Presidential Decree No. 269 . . . are restored effective July 1, 1987.”

The Court found no basis to interpret the resolution retroactively, as its language was plain and unambiguous. This highlights a fundamental principle in statutory construction: when the law’s language is clear, it must be applied as written. Moreover, the Supreme Court reiterated the principle that tax exemptions are strictly construed against the claimant. As the Court noted, “taxation is the rule, exemption therefrom is the exception.” This means that any claim for tax exemption must be explicitly provided by law and cannot be implied or inferred.

Building on this principle, the Court addressed the issue of DORECO’s assessment of real properties. DORECO contested the assessment, arguing that some of its properties were incorrectly classified as real properties and that the tax declarations were issued without its consultation or consent. However, the Court pointed out that DORECO received the Notices of Assessment in 1985 but failed to file a protest before the Board of Assessment Appeals, as required by Section 30 of PD No. 464, also known as the “The Real Property Tax Code.”
The section provides:

Sec. 30. Local Board of Assessment Appeals. — 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.

The failure to exhaust administrative remedies proved fatal to DORECO’s case. The Supreme Court emphasized that failure to appeal the assessment to the Board of Assessment Appeals rendered the tax assessment final. Furthermore, the Court cited Section 64 of PD No. 464, which stipulates that a taxpayer must first pay the assessed tax under protest before seeking judicial recourse to challenge its validity. The provision states:

SEC. 64. Restriction upon power of court to impeach tax. — No court shall entertain any suit assailing the validity of tax assessed under this Code until the taxpayer shall have paid, under protest, the tax assessed against him nor shall any court declare any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes, or of failure to perform their duties within this time herein specified for their performance unless such irregularities, informalities or failure shall have impaired the substantial rights of the taxpayer; nor shall any court declare any portion of the tax assessed under the provisions of Code invalid except upon condition that the taxpayer shall pay the just amount of the tax, as determined by the court in the pending proceeding.

DORECO’s failure to comply with these procedural requirements barred it from assailing the tax assessment in court. This aspect of the decision underscores the importance of adhering to administrative procedures and exhausting all available remedies before seeking judicial intervention in tax matters.

This case highlights the legal principles governing tax exemptions and real property assessments. Tax exemptions must be explicitly granted by law and are strictly construed. Taxpayers must comply with administrative procedures and exhaust administrative remedies before seeking judicial relief. The table below summarizes the key differences in the parties’ arguments:

Issue	DORECO’s Argument	Province of Davao Oriental’s Argument	Court’s Ruling
Retroactivity of Tax Exemption	FIRB Resolution No. 24-87 should be applied retroactively.	FIRB Resolution No. 24-87 is effective only from July 1, 1987.	Agreed with the Province; no retroactivity.
Validity of Property Assessment	Assessment was invalid due to improper classification and lack of consultation.	Assessment was valid; DORECO failed to file a timely protest.	Agreed with the Province; DORECO failed to exhaust administrative remedies.

The Supreme Court’s decision has several practical implications. Electric cooperatives and other entities enjoying tax exemptions must understand the specific terms and effective dates of those exemptions. Any ambiguity should be clarified with the relevant authorities. Furthermore, taxpayers must diligently monitor the assessment of their real properties and follow the prescribed administrative procedures to challenge any assessment they deem incorrect. Failure to do so may result in the assessment becoming final and binding.

FAQs

What was the key issue in this case?	The key issue was whether the restoration of tax exemptions for electric cooperatives was retroactive and whether DORECO properly contested the assessment of its properties.
When did FIRB Resolution No. 24-87 become effective?	FIRB Resolution No. 24-87 became effective on July 1, 1987, as explicitly stated in the resolution.
What is the significance of exhausting administrative remedies?	Exhausting administrative remedies means utilizing all available administrative channels before resorting to court action. Failure to do so can bar a party from seeking judicial relief.
What is the role of the Board of Assessment Appeals?	The Board of Assessment Appeals is the administrative body where property owners can contest the assessment of their properties.
What happens if a taxpayer fails to protest an assessment?	If a taxpayer fails to protest an assessment within the prescribed period, the assessment becomes final and binding.
What is the doctrine of strict interpretation in tax exemption cases?	The doctrine of strict interpretation means that tax exemptions are narrowly construed against the claimant, and any ambiguity is resolved in favor of taxation.
What law was PD No. 464 known as?	PD No. 464, is otherwise known as the “The Real Property Tax Code”.
What are the tax obligations of electric cooperatives?	Electric cooperatives need to comply with regulations and laws related to paying taxes and duties, which includes the submission of financial statements for operations.

In conclusion, the Supreme Court’s decision in Davao Oriental Electric Cooperative, Inc. vs. The Province of Davao Oriental underscores the importance of clear statutory language, strict compliance with administrative procedures, and the principle of strict interpretation in tax exemption cases. Electric cooperatives and other entities must be vigilant in understanding their tax obligations and following the correct procedures to protect their rights.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Davao Oriental Electric Cooperative, Inc. vs. The Province of Davao Oriental, G.R. No. 170901, January 20, 2009