Republic of the Philippines
CENTRAL BOARD OF ASSESSMENT APPEALS M a n i l a
NATIONAL TRANSMISSION CORPORATION (TRANSCO),
CBAA CASE NO. V-26 – versus –
THE LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF LEYTE,
– and –
THE PROVINCIAL ASSESSOR OF LEYTE AND THE MUNICIPAL ASSESSOR OF ISABEL, LEYTE.
Respondents-Appellees. x – – – – – – – – – – – – – – – – – – – – – – – – x
D E C I S I O N
This appeal, received by this Board on June 7, 2007, is from the
Decision dated April 12, 2007 rendered by the Local Board of Assessment
Appeals of the Province of Leyte, a copy of which was allegedly received by
Petitioner-Appellant on May 8, 2007. The dispositive portion of said Decision
reads as follows:
“PREMISES WELL CONSIDERED, as herein petitioner failed to prove that the subject “control house” is exempt from tax, same shall be taxable. Despite TRANSCO is a GOCC, still it is subject to tax, as the property in question is a control house which is a SPECIAL PROPERTY, categorically considered by the Local Government code (RA 7160) as subject to tax.”
Petitioner-Appellant based its Appeal on the following grounds, to wit:
1. PETITIONER’S CONTROL HOUSE IS EXEMPT FROM REAL PROPERTY TAX UNDER SECTION 234(c) OF R.A. 7160 BECAUSE IT IS AN EQUIPMENT ACTUALLY, DIRECTLY AND EXCLUSIVELY USED BY A GOCC IN THE TRANSMISSION OF ELECTRIC POWER.
2. SECTION 218(d) OF R.A. 7160 CLASSIFYING ALL LANDS, BUILDINGS AND OTHER IMPROVEMENTS OF A GOCC AS TAXABLE SPECIAL PROPERTY IS NOT APPLICABLE IF THE SAID PROPERTY IS EXEMPT FROM TAX UNDER SECTION 234(c) OF R.A. 7160.
3. THE RULE THAT TAX EXEMPTIONS ARE CONSTRUED STRICTISSIMI JURIS AGAINST THE TAXPAYER DOES NOT APPLY IF THE GRANTEE OF THE EXEMPTION IS A GOVERNMENT INSTRUMENTALITY LIKE THE PETITIONER.
Anent the first ground, Petitioner-Appellant argues:
“The control house is essentially an equipment within the purview of the definition of machinery under the law. Even if it may take the appearance of a facility, the control house is a mere appurtenance which by the nature of its purpose and function, is necessarily attached to the substation building structure;
“The control house is the heart of the operation as it determines the transmission of electricity to the Municipality of Isabel and other parts of the Province of Leyte. Without the control house, the substation cannot activate its transmission system. Hence, it is part and parcel of the substation design;
“Yet, there is no way to separate the control house from the other equipment and mechanical contrivances therein, for the control house is an indispensable part of the equipment and machineries’ program to operate. Without the control house, the equipment and machineries can not function to serve the purpose of transmitting electricity.
Upon the other hand, Respondent-Appellee Provincial Assessor of
Leyte, in his Answer dated August 7, 2007 and received by this Board on
August 14, 2007, does not refute or dispute the nature, purpose or function of
the control house as argued by Petitioner. Instead, Respondent Provincial
Assessor insists that the control house is a building, quoting the Local Board’s
decision in LBAA Case No. 13, a portion of which decision states:
“It is the legal stand of this Board, that the control house, subject of this appeal is considered a Special Property under the Local Government Code, (RA 7160) and therefore the case cited with definition of equipment by the petitioner is NOT APPLICABLE. Despite considering the definition of the Petitioner is well taken by this Board, still buildings are considered SPECIAL PROPERTY. The Local Government Code (RA 7160) specifically provides that Buildings used in the generation and transmission of electric powers is Special kind of Property, as the control house is not covered with the word ‘equipment’.”
Actually, the grounds relied upon by Petitioner-Appellant can be reduced
into one simple issue, thus:
WHETHER OR NOT THE SUBJECT CONTROL HOUSE IS TAXABLE UNDER SECTION 218(D) OF REP. ACT NO. 7160, OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991 (THE “COD”); OR WHETHER OR NOT IT IS EXEMPT FROM PAYMENT OF THE REAL PROPERTY TAX PURSUANT TO THE PROVISIONS OF SECTION 234(C) OF THE SAME CODE.
Sections 218 and 234, both of the Code, provide as follows:
SEC. 218. Assessment Levels. – The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang panlungsod or sangguniang bayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding the following:
“x x x
“(d) On Special Classes: The assessment levels for all lands, buildings, machineries and other improvements:
“Cultural 15% “Scientific 15% “Hospital 15% “Local Water District 10% “Government-owned or –controlled
corporations engaged in the supply and distribution of water and/or generation and transmission of
electric power 10%
“SEC. 234. Exemption from Real Property Tax. – The following are exempted from payment of the real property tax:
“x x x
“(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;”
As far as “machinery and equipment” are concerned, Section 218(d) of
the Code requires that the owner/declarant of the subject property is either a
local water district: or a government-owned or –controlled corporation engaged
in the supply and distribution of water and/or generation and transmission of
Section 234(c) of the same Code, in addition to the elements required
under Section 218(d), further requires that the subject machinery and/or
equipment must be “actually, directly and exclusively used by the concerned
local water district or GOCC engaged in the supply and distribution of water
and/or generation and transmission of electric power.”
There is no dispute that Petitioner-Appellant is a Government-owned and
–controlled corporation (GOCC) engaged in the generation and transmission of
electric power. There is also no dispute that the control house is actually,
directly and exclusively used by Petitioner-Appellant in the generation and
transmission of electric power, the only objection by the appellees being that
the control house physically appears to be a building.
The only controversy left in this case is : WHETHER THE CONTROL
HOUSE IS A “BUILDING” FALLING UNDER THE SPECIAL CLASSES OF
PROPERTY PROVIDED UNDER SECTION 218(D) OF THE CODE OR A
“MACHINERY OR EQUIPMENT” MENTIONED IN SECTION 234(C) OF THE
Section 199(o) of the Code defines the term “machinery” thus:
“SEC. 199. Definitions. – When used in this Title:
xxx xxx xxx
(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.” (emphasis ours)
In Lu Du & Ym Corporation, doing business under the trade name of
Philippine Com Products Company vs. Central Bank of the Philippines and
Commissioner of Internal Revenue vs. Philippines Corn Products, Inc. (Lu Do &
Ym Corporation), G.R. Nos. L-13033 and L-13701,1960 May 31, 1st Division,
the Supreme Court ruled:
“Equipment” has been defined as ‘materials or articles used in equipping as for an expedition; the articles comprised in an outfit, as furnishings, or apparatus; equipage; as laboratory equipment. – – – In industry, physical facilities available for production, including buildings, machineries, tools, etc. (Webster’s New International Dictionary, Second Edition).”
In Department of Environment and Natural Resources (DENR) vs.
Gregorio Daraman, et al. (G.R. No. 125797, February 15, 2002), the Supreme
“Machinery” is a collective term for machines and appliances used in the industrial arts (Federico B. Moreno, Philippine Law Dictionary, 2nd ed., p. 371, citing Kolambugan Lumber & Development Co. v. Yia, 56 Phil. 201, 203, October 15, 1931; equipment covers physical facilities available for production, including buildings, machineries and tools (Ibid, p. 211, citing Lu Do & Ym Corp. v. Central Bank of the Philippines, 108 Phil. 566, 572, May 31, 1960)”.
We believe, therefore, and so hold, that Petitioner’s control house
located at Isabel, covered by Tax Declaration No. 20-17015-00290, is an
equipment embraced by the term “machinery” as defined under Section 199(o)
of the Local Government Code of 1991 and as enunciated by the Supreme
Court in Lu Du & Ym Corporation, doing business under the trade name of
Philippine Corn Products Company vs. Central Bank of the Philippines and
Commissioner of Internal Revenue vs. Philippine Corn Products, Inc. (Lu Du &
Ym), supra, and in Department of Environment and Natural Resources (DENR)
vs. Gregorio Daraman, et al., supra.
Accordingly, same control house, being an equipment actually, directly
and exclusively used by Petitioner, a GOCC engaged in the generation and
transmission of electric power, is exempt from payment of the real property tax
pursuant to Section 234(c) of the Local Government Code of 1991.
WHEREFORE, premises considered, the Decision of the Local Board of
Assessment Appeals of the Province of Leyte dated April 12, 2007 is hereby
REVERSED and SET ASIDE; and the Provincial Assessor of the Province of
Leyte and the Municipal Assessor of Isabel, Leyte, are hereby ORDERED to
reclassify the subject control house at Isabel, Leyte, covered by Tax
Declaration No. 20-17015-00290, from taxable to exempt.
Manila, Philippines, September 18, 2007.
(Signed) CESAR S. GUTIERREZ
ANGEL P. PALOMARES Member
(Signed) RAFAEL O. CORTES