Republic of the Philippines
CENTRAL BOARD OF ASSESSNMENT APPEALS
M a n i l a

CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II),
Petitioner-Appellant,
CBAA CASE NO. L – 77
-versus- Province of Camarines Sur
THE LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF CAMARINES SUR,
Appellee,

-and-

THE MUNICIPAL ASSESSOR AND MUNICIPAL TREASURER OF CANAMAN, CAMARINES SUR,
Respondents-Appellees.
X – – – – – – – – – – – – – – — – – – – – – – – – – – – – – X

D E C I S I O N

This is an Appeal from the Decision rendered by the Local Board of Assessment Appeals of the Province of Camarines Sur (“LBAA”) on January 29, 2007 in a case involving the herein Appellant’s “Protest on Assessment of Real Property Tax” against the herein Respondents-Appellees, the dispositive portion of which Decision reads:

“WHEREFORE, premises considered, petitioner CASURECO II is liable to pay real property tax on its electric poles and transformers pursuant to Section 222 of RA 7160, the Local Government Code of 1991.

SO ORDERED.”

As stated by Petitioner-Appellant, CASURECO II is a domestic corporation duly organized and existing pursuant to PD 269, as amended. It is a holder of a franchise issued by the National Electric Administration (NEA) and is engaged in the business of electric power distribution to various end-users and consumers within the franchise area consisting of the City of Naga and the municipalities of Canaman, Magarao, Bombon, Calabanga, Tinambac, Siruma, Pili, Milaor and Minalabac, all within the Province of Camarines Sur.

ANTECEDENTS

1. On September 19, 2006, the appellant herein received from the Respondent Municipal Assessor Notices of Assessments (Annexes “B” to “B-18”, Verified Petition), advising Petitioner-Appellant that the latter’s electric poles and transformers located within the Municipality of Canaman, Camarines Sur, were assessed pursuant to Sections 219 and 223 of R.A. 7160, otherwise known as the Local Government Code of 1991 (“LGC”).

2. Attached to said Notices of Assessment were thirty-eight (38) Tax Declarations (Annexes “C” to “C-37”, Verified Petition).

3. Also on September 19, 2006, appellant received from the Municipal Treasurer Tax Bills (Annexes “D” to “D-21”, Verified Petition) for alleged real property taxes on said electric poles and transformers for the period covering the year 2005 and up to August 6, 2006.

4. On November 10, 2006, Petitioner-Appellant filed its Verified Petition with the LBAA questioning the assessments.

5. A copy of the LBAA Decision dated January 29, 2007 was received by Petitioner-Appellant on February 5, 2007.

6. The instant Appeal was sent by registered mail through the Naga City Post Office on March 6, 2007 and actually received by this Board on March 13, 2007.

7. Respondents-Appellees filed their joint Answer by registered mail on May 8, 2007 and reached this Board on May 16, 2007. On February 17, 2012, this Board received Petitioner-Appellant’s Position Paper dated February 12, 2012.

8. In its Appeal Memorandum dated March 5, 2007, Petitioner-Appellant says that the LBAA committed the single error, consisting of the following: “THE LOCAL BOARD OF ASSESSMENT AND (sic) APPEALS ERRED IN FINDING THAT ELECTRIC POLES AND TRANSFORMERS, DESPITE BEING PERSONAL PROPERTIES, ARE SUBECT TO REAL PROPERTY TAX PURSUANT TO SECTION 199(o) OF RA 7160 ALSO KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991.”

9. In its Position Paper dated February 12, 2012, Appellant added a second issue, which is: THE PETITIONER, AS AN ELECTRIC COOPERATIVE, IS EXEMPT FROM LOCAL TAXES BY EXPRESS PROVISION OF SECTION 62 (3) IN CONJUNCTION WITH SECTION 122 OF REPUBLIC ACT NO. 6938 KNOWN AS THE COOPERATIVE CODE OF THE PHILIPPINES, IN RELATION TO PRESIDENTIAL DECREE NO. 269, AS AMENDED KNOWN AS THE NEA CHARTER AND REPUBLIC ACT NO. 7160 KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991.

As simplified, the two issues raised by Petitioner-Appellant are the following:
1. WHETHER OR NOT THE SUBJECT ELECTRIC POLES AND TRANSFORMERS ARE “MACHINERY” SUBECT TO REAL PROPERTY TAX PURSUANT TO SECTION 199(O) OF RA 7160; AND

2. WHETHER OR NOT THE PETITIONER, AS AN ELECTRIC COOPERATIVE, IS EXEMPT FROM PAYMENT OF THE REAL PROPERTY TAX.

DISCUSSION

First Issue:
WHETHER OR NOT THE SUBJECT ELECTRIC POLES AND TRANSFORMERS ARE “MACHINERY” SUBECT TO REAL PROPERTY TAX PURSUANT TO SECTION 199(o) OF R.A. 7160.

Appellant’s Arguments:

1. The cases of Caltex Philippines, Inc. vs. Central Board of Assessment Appeals (114 SCRA 296) and Mindanao Bus Co. vs. City Assessor and Treasurer (6 SCRA 197), cited by the LBAA, have no application in the instant case: The items in question in said Caltex and Mindanao Bus cases were machinery and equipment specified in Section 199(o) of the LGC, while the electric poles and transformers were not specifically mentioned in said Section 199(o).

2. The electric poles and transformers are not “machinery” as defined under Section 199(o) of the LGC because such electric poles and transformers are:

(a) not machines, equipments, mechanical contrivances, instruments, appliances or apparatuses which may or may not be attached, permanently or temporarily, to the real property;

(b) are not physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled; and

(c) are not those 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.

3. This Honorable Board in the case of PROVINCIAL ASSESSOR OF MARINDUQUE vs. COURT OF APPEALS (G.R. No. 170532, April 30, 2009) held that to be considered a “machinery,” the subject property must either be a physical facility for production; or a service facility; or one that is actually, directly and exclusively used to meet the needs of the particular industry, business, or activity; and which by its very nature and purpose is designed for, or necessary to a manufacturing, mining, logging, commercial, industrial or agricultural purpose. CASURECO II is not engaged in “manufacturing, mining, logging” much less, “commercial, industrial or agricultural” activity, as it is not engaged in “business” but a “non-stock, non-profit electric cooperative” organized to implement the rural electrification program of the Government as mandated under P.D. 269, as amended by P.D. No. 1645.

4. In “Board of Assessment Appeals vs. MERALCO, En Banc (G.R. No. L-15334, January 31, 1964), the Supreme Court declared that the steel towers of the Meralco comes within the term “poles” and declared that said steel towers/poles were personal properties and is (sic) therefore not subject to tax.”

5. In City of Iriga vs. Camarines Sur III Electric Cooperative, Inc. (CASURECO III) (CA-G.R. CV No. 85340, Feb. 11, 2010, the Court of Appeals held:

“Section 137 of R.A. 7160, otherwise known as the Local Government Code, the pertinent statute on the matter, reads as follows:

‘SEC. 137. Franchise Tax. – Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year on the incoming receipt, or realized, within its territorial jurisdiction. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.’

“Based on the wording of the foregoing section, it is clear that only businesses enjoying a franchise may be subject to local franchise tax. Parenthetically, said Section 137 falls under Chapter 2 of Title One (Local Government Taxation) of Book II of R.A. 7160. Also included in Book II of R.A. 7160 is Section 131 which contains the definitions of the terms used in Title One of Book II. Under Section 131, “business” is defined as a “trade or commercial activity regularly engaged in (sic) a means of livelihood or with a view to profit”.

“To reiterate, CASURECO III, by virtue of its being an electric cooperative duly registered with the National Electrification Administration, is a non-profit entity pursuant to P.D. 269. Its “non-profit” nature is diametrically opposed to the concept of a “business” as defined under Section 131 of R.A. 7160. Clearly, therefore, CASURECO III does not fall within the purview of “business enjoying a franchise” which may be held liable for franchise taxes pursuant to Sec. 137 of R.A. 7160. Indubitably, CASURECO III is not liable for the local franchise taxes assessed and sought to be collected by the City of Iriga in the instant case.”

This Board’s Ruling:

Appellant does not question the fact that “machinery”, as defined under Section 199(o) of the LGC, is subject to real property tax. What Appellant does question is the classification of its electric poles and transformers as “machineries”. Appellant believes that, since “electric poles and transformers” are not specifically mentioned in Section 199(o), they are not considered “machinery”.

The term “machinery” is defined under Section 199(o) of the LGC, thus:

“(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.” (Underscoring supplied)

Appellant may not be in “business” as the term is defined under Section 131(d) of the LGC. The term “machinery” as defined under Section 199(o) of the LGC, however, is not limited in application to manufacturing, mining, logging, commercial, industrial or agricultural business. It (the term “machinery” applies to all activities, whether for profit or not. Appellant’s particular activity is that of electric power distribution. The subject electric poles and transformers are essential and principal elements of the activity which Appellant is in. Without these equipment, no distribution of electric power could be done.

In CASURECO I vs. LBAA of Camarines Sur , we had the occasion to rule on the impact of the passage of R.A. 7160 on the case of Board of Assessment Appeals vs. MERALCO , thus:

“Petitioner-Appellant’s appeal relied solely on the Supreme Court’s ruling in Board of Assessment Appeals, City Assessor and City Treasurer of Quezon City, vs. Manila Electric Company, L-15334, Jan. 31, 1964, that under Section (sic) 415 of the Civil Code poles are not real property (sic); they are personal property (sic), hence not subject to tax. Said decision however, was promulgated on Jan. 31, 1964 yet and is no longer obtaining with the passage of Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC of 1991), which took effect on January 1, 1992.”

As emphasized by the Court of Appeals, the matter involved in City of Iriga vs. Camarines Sur III Electric Cooperative, Inc. (CASURECO III) , was the local franchise tax governed by Title One (Local Government Taxation), particularly, Sections 131 and 137, of Book II of the LGC. This has no application to the instant appeal which involves “Real Property Taxation” under Title Two, Book II of the LGC. Sections 131 and 137 have no application or relevance to the instant appeal which involves “Real Property Taxation” under Title Two, Book II of the LGC.

Second Issue:
WHETHER OR NOT THE PETITIONER, AS AN ELECTRIC COOPERATIVE, IS EXEMPT FROM PAYMENT OF THE REAL PROPERTY TAX.

Petitioner-Appellant’s Arguments:

1. Granting for the sake of argument, that electric poles and transformers are machinery within the ambit of the definition in Section 199 (o) of RA 7160, still, petitioner is not liable for real property tax as it is EXEMPT from local taxes by express provision of Section 62 (3) in relation to Section 122 of R.A. No. 6938 known as the Cooperative Code of the Philippines.

2. On March 19, 1993, petitioner was issued by the Cooperative Development Authority a “Certificate of Provisional Registration” (Reg. No. T-078-93) entitling the petitioner “to such rights and privileges granted by Republic Act No. 6938, otherwise known as the Cooperative Code of the Philippines, and other special laws” for two (2) years from the date of issuance.

Ruling by this Board:

Real properties of Petitioner-Appellant are not exempt from payment of the real property tax.

Section 234(d) of the LGC provides that “All real property owned by duly registered cooperatives as provided for under R.A. 6938” are exempted from payment of the real property tax. By its own admission, Petitioner is not a registered cooperative under the provisions of R.A. 6938. Appellant’s “Certificate of Provisional Registration” expired on March 19, 1995.

WHEREFORE, premises considered, the instant Appeal is hereby DISMISSED for lack of merit.

SO ORDERED.

Manila, Philippines, August 28, 2012.

SIGNED
OFELIA A. MARQUEZ
Chairman

SIGNED SIGNED
ROBERTO D. GEOTINA CAMILO L. MONTENEGRO
Member Member