MERALCO v. City Assessor

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY TREASURER OF LUCENA CITY, Respondents.

G.R. No. 166102, August 05, 2015

FACTS:
On February 20, 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 and claimed 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.

The LBAA rendered a Decision finding that MERALCO was required to pay the City Government of Lucena a 5% tax of its gross earnings, whereas the poles, wires, insulators, transformers, and electric meters of MERALCO, these were real properties and 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.

The City Assessor of Lucena filed an appeal with the CBAA, which the CBAA affirmed the LBAA judgment and which became final and executory.

MERALCO again received a letter from the City Treasurer of Lucena six years later, which they were being assessed 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 MERALCO is liable for real property tax on its transformers, electric posts (or poles), transmission lines, insulators, and electric meters, beginning 1992.

HELD:
No. MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts, transmission lines, insulators, and electric meters constitute the physical facilities through which MERALCO delivers electricity to its consumers. Each may be considered as one or more of the following: a “machine,” “equipment,” “contrivance,” “instrument,” “appliance,” “apparatus,” or “installation.”

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. (Emphasis supplied.)

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. (Emphases supplied.)

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.

MERALCO maintaining that electric posts are not machinery subject to real property tax because these are not exclusively used by MERALCO but likewise by other cable and telephone companies, is however a factual issue with the Court cannot take cognizance as it is nota trier of facts. The issue is best left to the determination of the City Assessor or his deputy who has been granted authority to take evidence under Article 304 of the Rules and Regulations Implementing the Local Government Code of 1991.

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.

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.

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