Case Digest: Meralco v. City Assessor of Lucena, G.R. No. 166102, August 05, 2015

Property | Immovable Property, Steel Tower

Art. 415. The following are immovable property:
  1. Land, buildings, roads and constructions of all kinds adhered to the soil;
  2. Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable;
  3. Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object;
  4. Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements;
  5. Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;
  6. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included;
  7. Fertilizer actually used on a piece of land;
  8. Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant;
  9. Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast;
  10.  Contracts for public works, and servitudes and other real rights over immovable property. 
Facts: 
  • In 1989, MERALCO received from the City Assessor of Lucena a notice that electric facilities, classified as capital investment of the company: (a) transformer and electric post; (b) transmission line; (c) insulator; and (d) electric meter, were subjected to real property tax as of 1985. 
  • MERALCO appealed the Tax Declaration before the LBAA of Lucena City claiming that its capital investment consisted only of its substation facilities and that MERALCO was exempted from payment of real property tax on said substation facilities.
    • LBAA: Held that:
      1. the steel towers fell within the term “poles” expressly exempted from taxes under the franchise of MERALCO; and
      2. the steel towers were personal properties under the provisions of the Civil Code and, hence, not subject to real property tax.  
  • In 1997, MERALCO received a letter from the City Treasurer of Lucena assessing the company for real property delinquency on its machineries beginning 1990.
  • MERALCO argues that its transformers, electric posts, transmission lines, insulators, and electric meters are not subject to real property tax, given that the definition of “machinery” under Section 199(o) of the Local Government Code, on which real property tax is imposed, must still be within the contemplation of real or immovable property under Article 415 of the Civil Code because it is axiomatic that a statute should be construed to harmonize with other laws on the same subject matter as to form a complete, coherent, and intelligible system.
Issue: 
  • Whether the transformers, electric posts, transmission lines, insulators, and electric meters are not subject to real property tax being movable or personal properties. NO

Held:

The Court finds that the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO are no longer exempted from real property tax and may qualify as "machinery" subject to real property tax under the Local Government Code. Nevertheless, the Court declares null and void the appraisal and assessment of said properties of MERALCO by the City Assessor in 1997 for failure to comply with the requirements of the Local Government Code and, thus, violating the right of MERALCO to due process.

The Court highlights that under Section 199(o) of the Local Government Code, machinery, to be deemed real property subject to real property tax, need no longer be annexed to the land or building as these "may or may not be attached, permanently or temporarily to the real property," and in fact, such machinery may even be "mobile."

The same provision though requires that to be machinery subject to real property tax, the physical facilities for production, installations, and appurtenant service facilities, those which are mobile, self-powered or self-propelled, or not permanently attached to the real property
  1. must be actually, directly, and exclusively used to meet the needs of the particular industry, business, or activity; and
  2. by their very nature and purpose, are designed for, or necessary for manufacturing, mining, logging, commercial, industrial, or agricultural purposes. 
Thus, Article 290(o) of the Rules and Regulations Implementing the Local Government Code of 1991 recognizes the following exemption:

Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons), microcomputers, facsimile machines, telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be considered within the definition of machinery under this Rule.


The 1964 MERALCO case was decided when The Assessment Law was still in effect and Section 3(f) of said law still required that the machinery be attached to the real property. Moreover, as the Court pointed out earlier, the ruling in the 1964 MERALCO case - that the electric poles (including the steel towers) of MERALCO are not subject to real property tax - was primarily based on the express exemption granted to MERALCO under its previous franchise. The reference in said case to the Civil Code definition of real property was only an alternative argument:

Granting for the purpose of argument that the steel supports or towers in question are not embraced within the term poles, the logical question posited is whether they constitute real properties, so that they can be subject to a real property tax. The tax law does not provide for a definition of real property; but Article 415 of the Civil Code does, by stating the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

x x x x

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object;

x x x x

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried in a building or on a piece of land, and which tends directly to meet the needs of the said industry or works;

x x x x

The steel towers or supports in question, do not come within the objects mentioned in paragraph 1, because they do not constitute buildings or constructions adhered to the soil. They are not constructions analogous to buildings nor adhering to the soil. As per description, given by the lower court, they are removable and merely attached to a square metal frame by means of bolts, which when unscrewed could easily be dismantled and moved from place to place. They can not be included under paragraph 3, as they are not attached to an immovable in a fixed manner, and they can be separated without breaking the material or causing deterioration upon the object to which they are attached. Each of these steel towers or supports consists of steel bars or metal strips, joined together by means of bolts, which can be disassembled by unscrewing the bolts and reassembled by screwing the same. These steel towers or supports do not also fall under paragraph 5, for they are not machineries or receptacles, instruments or implements, and even if they were, they are not intended for industry or works on the land. Petitioner is not engaged in an industry or works on the land in which the steel supports or towers are constructed.

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold true anymore under the Local Government Code. Therefore, for determining whether machinery is real property subject to real property tax, the definition and requirements under the Local Government Code are controlling.


Nevertheless, the appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO as machinery under Tax Declaration were not in accordance with the Local Government Code and in violation of the right to due process of MERALCO and, therefore, null and void.

Comments

Post a Comment

Popular posts from this blog

Equality and Human Rights: The United Nations and Human Rights System (September 16, 2023)

Sovereign Equality of States/Principle of sovereign equality UN Charter of 1945 All states are equal before international law no matter the size of their territory, population, economy or military. All states have equal rights and duties under international law, and that no state has the right to interfere in the internal affairs of another state. Positive Consequences: All states have a voice in international affairs .   All states have the opportunity to participate in international organizations and to negotiate and conclude treaties. This helps to ensure that the interests of all states are represented in the development of international law and policy. No state has the right to interfere in the internal affairs of another state.  This helps to protect the sovereignty of all states and to prevent the use of force or coercion to achieve political objectives. States have the right to develop their own political, economic, and social systems without interference from othe...
Read more

Commercial Laws 1: R.A. No. 11057 — Personal Property Security Act

  Commercial Law TITLE XVI Personal Property Security Act Micro, Small and Medium Enterprises are sources of growth and innovation. They contribute to and benefit from future growth. Their increased participation in global trade "can have significant impact in reducing poverty through employment creation, productivity improvements and economies of scale." Congress passed the Personal Property Security Act in order to provide Micro, Small and Medium Enterprises (MSMEs) more access to "credit at the least cost through the establishment of a unified and modern legal framework for securing obligations with personal property ." It was explained:  According to the 2015 Philippine Statistics Authority data, there are 896,839 micro-small and medium enterprises (MSMEs) that established in the Philippines.  These MSMEs generated a total of 4,784,870 jobs in 2015 versus 2,181,819 for the large enterprises.  This indicates that the MSMEs contributed almost 61 % o...
Read more

Land Title and Deeds: Chapter 1 — What Lands are Capable of Being Registered

Chapter I What Lands are Capable of Being Registered All lands in the Philippines are presumed to be lands of the public domain, and therefore, owned by the State. This rule finds support in Section 2, Article XII of the 1987 Constitution:  Section 2 . All lands of the public domain , waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State . With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be fo...
Read more