Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS Manila

MANILA ELECTRIC COMPANY, Petitioner-Appellant,

– versus –

CBAA Case No. L-20-96 BOARD OF ASSESSMENT APPEALS
OF LUCENA CITY,

Appellee,

– and –

CITY ASSESSOR and TREASURER OF LUCENA CITY,
Respondents-Appellees, x – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

On October 29, 1997, the Manila Electric Company, Petitioner-Appellant,

received a Notice of Assessment, dated October 20, 1997, from the City

Assessor of Lucena City. On that same date also, it received a letter from the

City Treasurer of Lucena City, dated October 16, 1997, implementing said

assessment, with a realty tax of P17,925,117.34 including penalties thereof, on

Petitioner-Appellant’s transformer and electric post, transmission line, insulator

and electric meter, classified as machinery and capital investment. On

December 10, 1997, Meralco posted a surety bond to guarantee the payment of

the Realty Tax and then appealed the same before the Local Board of

Assessment Appeals (LBAA) of Lucena City on December 23, 1997.

The Decision of Appellee Local Board of Assessment Appeals of Lucena

City (Local Board, for brevity) which revolved on the main issue of whether or

not MERALCO is exempted from the payment of the realty tax on subject

properties ordered that:

“1) MERALCO’s appeal be dismissed for lack of merit;

“2) MERALCO be required to pay the realty tax on the questioned properties, because they are not exempt by law, same to be based on the 1991 level of assessment, less depreciation cost allowed by law.”

The position of MERALCO is stated in that same decision, as follows:

Reference: Book VIII, pp. 258-268

“MERALCO claims that the collection letter and notice of assessment are erroneous, arbitrary, unjust and excessive and in violation of the due process of law.

“MERALCO reasoned out that the subject properties as machinery and capital investment consisting of transformer and electric posts, transmission lines, insulators and electric meters are personal or movable properties which are not subject to real property tax, as earlier decided by the Local Board of Assessment Appeals on July 5, 1989 in LBAA Case No. 89-2 and affirmed by the Central Board of Assessment Appeals on April 10, 1991in LBAA Case No. 248.

“They find support on the Supreme Court ruling that 1) the steel towers come within the term ‘poles’ which are considered exempt from taxes from respondent franchise; 2) the steel towers are personal properties not subject to real property tax. (Board of Assessment Appeals, City Assessor and the City Treasurer of Quezon City vs. Manila Electric Company, L-155334, Jan. 31, 1964).

“And, the aforesaid decisions have become final and constitute res judicata in any litigation between the same parties, over the same subject matter whether the questioned properties are subject to real property taxes.

“Further, neither the City Assessor nor the City Treasurer has informed MERALCO of the basis on which the alleged market value of the subject properties was computed and which gives rise to the alleged tax liability.

“Finally, despite the fact that the collection letter, notice of assessment, Property Records Form and Tax Declaration No. 019-6500 were served only on Oct. 29, 1997, MERALCO is being made to pay the basic realty tax, with penalty retroactive from 1990 to 1997.”

On the part of the Respondents-Appellees, City Assessor and City

Treasurer of Lucena City, it was their contention “that subject questioned

properties are not exempted from real property taxation in accordance with

Sections 234 & 523 (f) of R.A. 7160”.

Appellee, Local Board found for Respondents-Appellees as follows:

“With the enactment of Sec. 234, 534 (f) of the Local Government Code of 1991 (R.A. 7160) said law repealed the provisions of the MERALCO’s Franchise & P.D. 551 pertaining to the exemption of MERALCO from payment of real tax on machineries, poles, wires, insulators, transformer and meters, being inconsistent and repugnant with one another. R.A. 7160 was enacted on (sic) 1991 while MERALCO’s Franchise and P.D. 551 were of later (sic) date, so that R.A. 7160 is recognized to be the newest expression of legislative intent and should prevail over the later (sic) law on the subject.

“Also, it is basic, that when the law enumerates those not included in the enumeration are deemed excluded from the coverage of the law. So that, when in Sec. 234 R.A. 7160, it listed the different properties exempted from real property taxation. All other properties not enumerated are deemed not included from coverage of exemption.

“Sec. 234 is explicit. All properties not enumerated as exempted shall pay the real tax, because their exemption is considered withdrawn upon the effectivity of the act, thus:

“’Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all persons, whether natural or juridical, including all government owned or controlled corporations are hereby withdrawn upon the effectivity of this act’, which needs no further interpretation.

Reference: Book VIII, pp. 258-268

“On the other hand, in order to constitute res-judicata, the following are required: 1) former judgment must be final; 2) it must have been by a court having jurisdiction over the subject matter and the parties; 3) it must be judgment or order on the merits; and 4) there must be between the first and second action identity of subject matter and identity of causes of action (Allied Banking Corp. vs. Court of Appeals 229 SCRA 252).

“The Decision rendered by LBAA Lucena, on July 5, 1989 and duly affirmed by the CBAA on April 10, 1991 cannot constitute res-judicata on the instant case because decision of July 5, 1989 concern collection of taxes from 1985 to 1989, a different subject matter from that of the instant case, which concern on collection of taxes from 1989 up to the present; that LBAA is only an administrative body and not a court, or quasi-judicial body; LBAA conducts summary hearings and not trial on the merits; and the law applicable on decision of July 5, 1989 is already repealed by R.A. 7160, applicable law in the case at bar.

“To completely resolve the case, computation of the real tax of questioned properties should be based on the 1991 schedule of Market Value, prevailing at present, which is of public and judicial notice, less depreciation cost, allowed by law.”

The case is now before this Board on Appeal. Petitioner-Appellant,

MERALCO, assigns the following errors:

“I

IN NOT HOLDING THAT POLES, WIRES, INSULATORS, TRANSFORMERS AND ELECTRIC METERS ARE PERSONAL PROPERTIES, HENCE, NOT SUBJECT TO REAL PROPERTY TAX, AS EARLIER DECIDED BY THE LOCAL BOARD OF ASSESSMENT APPEALS OF LUCENA CITY IN LBAA CASE NO. 89-2 AND AFFIRMED BY THE CENTRAL BOARD OF ASSESSMENT APPEALS IN CBAA CASE NO. 248.

“II

IN RULING THAT MERALCO’S EXEMPTION FROM REAL PROPERTY TAX ON ITS POLES, WIRES, INSULATORS, TRANSFORMERS, AND ELECTRIC METERS UNDER ITS FRANCHISE AND P.D. 551 HAS BEEN REPEALED BY SEC. 234(F) OF THE LOCAL GOVERNMENT CODE OF 1991.

“III.

IN NOT RULING THAT THE CONTESTED ASSESSMENT SERVED ON OCTOBER 29, 1997 CANNOT BE GIVEN RETROACTIVE EFFECT FROM 1990 TO 1997, WITH PENALTY.”

On the first assignment of error, we disagree with the Petitioner-

Appellant. Indeed, the Central Board of Assessment Appeals has had the

opportunity of ruling in its favour in connection with this very same issue. The

matter was settled on April 10, 1991 where this Authority ruled that “wires,

insulators, transformers and electric meters which are mounted on poles and

can be separated from the poles and moved from place to place without

breaking the material or causing deterioration of the object, are deemed

movable or personal property”. The same position of MERALCO would have

Reference: Book VIII, pp. 258-268

been tenable and that decision may have stood firm prior to the enactment of

R.A. 7160 but not anymore in this jurisdiction. The Code provides and now sets

a more stringent yet broadened concept of machinery, thus:

“Section 199(O) – Machinery embraces, machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes.” (Italics supplied)

The pivotal point where the difference lie between the former and the

current case is that by the very wordings of aforecited provision, the ground

being anchored upon by MERALCO concerning the properties in question

being personal in nature does not hold anymore for the sole reason that these

come now within the purview and new concept of Machineries. The new law

has treated these in an unequivocal manner as machineries in the sense that

they are instruments, mechanical contrivances or apparatus though not

attached permanently to the real properties of the petitioner-appellant are

actually, directly and exclusively used to meet their business of distributing

electricity.

On the second assignment of error, the contention of MERALCO is

untenable and bereft of merit. Citing Section 234 of the Local Government Case

(sic) as herein given:

Section 234. Exemptions from Real Property Tax. – The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly and exclusively used for religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

Reference: Book VIII, pp. 258-268

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.

Clearly, the above section lists down the instances of exemption in real

property taxation and very apparent is the fact that the enumeration is exclusive

in character in view of the wordings in the last paragraph. Applying the maxim

“Expressio Unius est Exclusio Alterius”, we can say that “Where the statute

enumerates those who can avail of the exemption, it is construed as excluding

all others not mentioned therein”. Therefore the above-named company have

lost its previous exemptions under its franchise because of non-inclusion in the

enumeration in Section 234. Furthermore, all tax exemptions being enjoyed by

all persons, whether natural or juridical, including all government-owned or

controlled corporations are expressly withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of

Lucena passed Resolution No. 108 on July 1, 1957 extending the franchise of

MERALCO to operate in Lucena city an electric light system for thirty-five years,

which should have expired on November 9, 1992 and under Resolution No.

2679 passed on July 13, 1972 by the City Council of Lucena City awarding the

herein appellant a franchise to operate for twenty years an electric light, heat

and power system in Lucena City, also to expire in the year 1992. Under those

franchises, they were only bound to pay franchise taxes and nothing more.

Now, granting arguendo that there is no express revocation of the

exemption under the franchise of the appellant since, unquestionably herein

appellant is a recipient of another franchise granted this time by the National

Electrification Commission as evidenced by a certificate issued on October 28,

1993, such conferment does not automatically include and/or award exemption

from taxes, nor does it impliedly give the franchisee the right to continue the

privileges like exemption granted under its previous franchise. It is just a plain

Reference: Book VIII, pp. 258-268

and simple franchise. In countless times, the Supreme Court has ruled that

exemption must be clear in the language of the law granting such exemption for

it is strictly construed and favored against the person invoking it. In addition, a

franchise though in the form of a contract is also a privilege that must yield to

the sublime yet inherent powers of the state, one of these is the power of

taxation.

Looking into the law creating the National Electrification Administration

(Commission), P.D. 269 as amended by P.D. 1645, nowhere in those laws can

we find such authority to bestow upon the grantee any tax exemption of

whatever nature except those of cooperatives. This we believe is basically in

consonance with the provisions of the Local Government Code more

particularly Section 234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to

Section 234 thereof states that “All general and special laws, acts, city charters,

decrees, executive orders, proclamations and administrative regulations or part

or parts thereof which are inconsistent with any of the provisions of this Code

are hereby repealed or modified accordingly.” Anent this unambiguous

mandate, P.D. 551 is mandatorily repealed due to its contradictory and

irreconcilable provisions with R.A. 7160.

On the third assignment of error posed by Meralco that the contested

assessment served on October 29, 1997 cannot be given retroactive effect from

1990 to 1997 with penalty, we believe that petitioner-appellant is party correct.

In the years 1990 and 1991, the exemption granted to MERALCO under its

franchise which incidentally expired upon the effectivity of the Local

Government Code of 1991 was very much in effect and the decision rendered

by Central Board of Assessment Appeals (CBAA) classifying its poles, wires,

insulators, transformers and electric meters as personal property was still

controlling as the law of the case. So, from 1990 to 1991, it would be

Reference: Book VIII, pp. 258-268

inappropriate and illegal to make the necessary assessment on those

properties, much more to impose any penalty for non-payment of such.

But, assessments made beginning 1992 until 1997 by the City

Government of Lucena is legal, both procedurally and substantially. When R.A.

7160, which incorporated amended provisions of the Real Property Tax Code,

took effect on January 1, 1992, as already discussed, the nature of the

aforecited questioned properties considered formerly as personal

metamorphosed to machineries and the exemption being invoked by the

appellant was automatically withdrawn pursuant to the letter and spirit of the

law. That is why, Section 222 of the Local Government Code which says:

“Real property declared for the first time shall be assessed for taxes for the period during which it would have been liable but in no case for more than ten (10) years prior to the date of initial assessment: Provided, however, That such taxes shall be computed on the basis of the applicable schedule of values in force during the corresponding period.

If such taxes are paid on or before the end of the quarter following the date the notice of assessment was received by the owner or his representative, no interest for delinquency shall be imposed thereon: otherwise such taxes shall be subject to an interest at the rate of two percent (2%) per month or a fraction thereof from the date of the receipt of the assessment until such taxes are fully paid.”

surely finds relevance with the issue now before us. We are convinced that the

action of the Government of Lucena City in including the penalties in the tax

liabilities of MERALCO is in consonance with the just cited provision of law. In

the same token, when Petitioner-Appellant posted a surety bond, it impliedly

assured the appellees that it will pay whatever accountabilities, principal and

penalties, that may be imposed upon it as a result of its appeal and non-

payment of realty tax, such is the ramification of its action.

There is a minor issue that is included in the decision of the LBAA of

Lucena City that has to be clarified in passing and this is the contention of

MERALCO that the decision rendered by the LBAA of Lucena on July 5, 1989

which was affirmed by the CBAA on April 10, 1991 constitute res-judicata on

the case at bar. We believe they erred on this matter. The requirements, same

is cited in the decision of the LBAA subject of the appeal, are the following:

Reference: Book VIII, pp. 258-268

1) former judgment must be final;
2) it must have been by a court having jurisdiction over the subject matter; 3) it must be judgment or order on the merits; and
4) there must be between the first and second action identity of subject matter and identity of cause of action.

Quite observable is the fact that the first three (3) requirements are

present. Unfortunately, the last requirement is wanting considering that there is

no identity of subject matter. As correctly deduced by the LBAA of Lucena City,

res adjudicate does not come into the picture because the “decision of July 5,

1989 concerns collection of taxes from 1985 to 1989, a different subject matter

from that of the instant case, which concerns the collection of taxes from 1989

up to the present”. The term should have been Law of the Case.

We believe this is the best opportune time to clear out the nature of the

office of the Local Board as well as the Central Board of assessment Appeals

since this matter has been brought out also in that decision of the LBAA of

Lucena City. It is its assertion that LBAA is only an Administrative Body and not

a court or quasi-judicial body.

Certainly, LBAA is not a court but neither is it only an administrative body:

Firstly, the Central Board of Assessment Appeals has been categorized as a

Quasi-judicial agency under Supreme Court Memorandum Circular No. 1-91

and later No. 1-95 and by analogy, since both offices of the Central and the

Local Board are appellate collegial bodies, the latter partakes of the nature of

the former.

Secondly, its nature as a quasi-judicial body can be ascertained in the

expressed powers embodied in Sections 1 & 2 of Rule VII of the Rules of

Procedure before the Local Board as promulgated by the Central Board of

Assessment Appeals in accordance with its Rule Making power and the

provisions embodied in the Local Government Code, as follows:

Section 1. Powers. In the exercise of its appellate jurisdiction, the local Board shall have the power to summon witnesses, administer oaths, take depositions, and issue subpoena and subpoena duces tecum and conduct ocular inspections of the real properties in question.

X X X

Reference: Book VIII, pp. 258-268

Section 2. Duties. – The local Board shall conduct hearings on all appealed cases and render decisions thereon within the periods prescribed by law. X X X

Obviously, it can be deciphered from the wordings of both sections that

the appellate Board decides on the merits of the case and after due hearing.

Moreover, the powers distinctly mentioned thereon most often refer to quasi-

judicial bodies and not to ordinary administrative bodies where they functions

are purely ministerial.

Lastly, both the LBAA and the CBAA are fact finding bodies. As a rule,

they do not deal on matters that directly concern itself on pure questions of law,

such are entirely within the gamut of the powers of the court. However, when a

question of law is necessary for the determination of the case before them, then

these offices are bound to resolve the question of law only for the purpose of

determining the issue. By this, the nature of the aforenamed offices being

quasi-judicial is hereby affirmed by their very role in the adjudication of case.

WHEREFORE, in view of the foregoing, the Decision appealed from is

hereby modified. The City Assessor of Lucena City is hereby directed to make a

new assessment on the subject properties to retroact from the year 1992 and

the City Treasurer to collect the tax liabilities in accordance with the provisions

of the cited Section 222 of the Local Government Code.

SO ORDERED.

Manila, Philippines, May 3, 2001.

(Signed) CESAR S. GUTIERREZ
Chairman

(Signed)
ANGEL P. PALOMARES Member

(Signed) BENJAMIN M. KASALA
Member

Reference: Book VIII, pp. 258-268