Thursday, February 7, 2019

[CASE DIGEST] PROVINCIAL ASSESSOR OF AGUSAN DEL SUR vs. FILIPINAS PALM OIL PLANTATION, INC. (G.R. No. 183416)

October 5, 2016


Ponente: Leonen, J.


FACTS:

Filipinas Palm Oil Plantation Inc. (Filipinas) is a private organization engaged in palm oil plantation. Prior to the passage of the Comprehensive Agrarian Reform Law (CARL) in 1988, Filipinas’ plantation was in a 7,000-hectare property in Agusan del Sur owned by the National Development Company (NDC). (A/N: No mention of the type of contractual relationship between the parties.) Harvested fruits from oil palm trees were converted into oil through Filipinas’ milling plant in the middle of the plantation area. Within the plantation, there were also three (3) plantation roads and a number of residential homes constructed by Filipinas for its employees.

When the CARL was enacted in 1998, all lands belonging to NDC were transferred to CARL beneficiaries who formed themselves as the merged NDC-Guthrie Plantations, Inc. - NDC-Guthrie Estates, Inc. (NGPI-NGEI) Cooperatives.

On account of the change in ownership of the land where its plantation was located, Filipinas entered into a lease contract agreement with NGPI-NGEI. Subsequently, the Provincial Assessor of Agusan del Sur assessed Filipinas’ properties found within the plantation area and held the company liable for real property taxes for the land itself, the low-cost housing units, the three roads, and the company’s road equipment and mini haulers, which the Provincial Assessor considered as immovables.

Filipinas assailed the assessment before the Local Board of Assessment Appeals (LBAA), which later ruled that Filipinas was indeed liable for realty tax albeit for a lesser amount, except for the low-cost housing units, road equipment, and mini haulers, which the LBAA considered as movables vital to Filipinas’ business.

Not satisfied with the LBAA’s ruling, Filipinas filed an appeal before the Central Board of Assessment Appeals (CBAA).

CBAA: Filipinas should not be held liable to the Government for real property taxes on the lands owned by NGPI-NGEI, a multi-purpose cooperative, nor should it be held liable for the real property taxes due on the roads. Finally, the CBAA held that road equipment and haulers are not real properties and, accordingly, Filipinas should not be held liable for real property tax thereon.

CA: Affirmed the CBAA’s ruling. The CA held that:

(a) Filipinas’ plantation, located in a land owned by NGPI-NGEI, a cooperative, cannot be subjected to real property tax pursuant to Section 133(n) of the LGC.
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

. . . .

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the Cooperative Code of the Philippines.
The CA also held that pursuant to Section 234(d) of the LGC, duly registered cooperatives, like NGPI-NGEI, are exempt from payment of real property taxes.
SECTION 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax:
. . . .
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938.
The CA also held that the pertinent provisions “neither distinguishes nor specifies” that the exemption only applies to real properties used by the cooperatives. It ruled that “[t]he clear absence of any restriction or limitation in the provision could only mean that the exemption applies to wherever the properties are situated and to whoever uses them”  Therefore, the exemption privilege extends to Filipinas as the cooperatives’ lessee.

(b) The roads within the plantation’s premises are also tax-exempt.

Although it is undisputed that the roads were built primarily for Filipinas’ benefit, the roads should be tax-exempt since these roads were also being used by the cooperatives and the public.

Bislig Bay Lumber Company, Inc. v. Provincial Government of Surigao: “...it cannot be disputed that the ownership of the road that was constructed by appellee belongs to the government by right accession not only because it is inherently incorporated or attached to the timber land leased to appellee but also because upon the expiration of the concession, said road would ultimately pass to the national government. 

In the second place, while the road was constructed by appellee primarily for its use and benefit, the privilege is not exclusive, for, under the lease contract entered into by the appellee and the government and by public in by the general... Since, as above shown, the road in question cannot be considered as an improvement which belongs to appellee, although in part is for its benefit, it is clear that the same cannot be the subject of assessment.”

Furthermore, the CA agreed with the CBAA that the roads constructed by Filipinas had become permanent improvements on the land owned by NGPI-NGEI. Articles 440 and 445 of the Civil Code provide that these improvements redound to the benefit of the land owner under the right of accession:
Article 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially.
Article 445. Whatever is built, planted or sown on the land of another and the improvements or repairs made thereon, belong to the owner of the land, subject to the provisions of the following articles.
(c) The road equipment and mini haulers are only movables and are therefore not subject to real property tax.

The CA held that Section 199(o) of the LGC provides a definition of machinery subject to real property taxation:
SECTION 199. Definition of Terms. — When used in this Title, the term:

. . . .

(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.
The CA held that Section 199(o) of the LGC should be construed to include machineries covered by the meaning of real properties provided for under Article 415(5) of the Civil Code:
Article 415. The following are immovable property:

. . . .

(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[.]
Davao Sawmill Company v. Castillo: “Machinery that is movable by nature becomes immobilized only when placed by the owner of the tenement, but not so when placed by a tenant or any other person having a temporary right unless this person acts as an agent of the owner. Thus, the mini haulers and other road equipment retain their nature as movables.”

In light of the CA’s ruling, the Provincial Assessor filed the instant Petition for Review.

RULING

Petition partly granted. CA ruling affirmed with modification that the road equipment and the mini haulers should be treated as immovables subject to real property taxes.

Whether the exemption privilege of NGPI-NGEI from payment of real property tax extends to Filipinas as lessee of the parcel of land owned by cooperatives. – YES.

[Provincial Assessor]

Cooperatives cannot extend their exemption from real property tax to taxable persons (Mactan Cebu International Airport Authority v. Ferdinand J. Marcos).

Sections 198, 199, 205, and 217 of the Local Government Code provide that real property taxes are assessed based on actual use.

SECTION 198. Fundamental Principles. — The appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental principles:

. . . .

(b) Real property shall be classified for assessment purposes on the basis of its actual use[.]

. . . .

SECTION 199. Definition of Terms. — When used in this Title, the term:

. . . .

(b) “Actual Use” refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof[.]

. . . .

SECTION 205. Listing of Real Property in the Assessment Rolls. —

. . . .

(d) Real property owned by the Republic of the Philippines, its instrumentalities and political subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of the public entity if such property has been acquired or held for resale or lease.

. . . .

SECTION 217. Actual Use of Real Property as Basis for Assessment. — Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.
Moreover, the exemption of cooperatives applies only when it is the cooperative that actually, directly, and exclusively uses and possesses the properties.

[Filipinas]

The exemption of cooperatives from real property taxes extends to it as the lessee.
Under its lease agreement with NGPI-NGEI, Filipinas pays an Annual Fixed Rental, which includes the payment of taxes. It claims that in case NGPI-NGEI is liable to the local government for real property tax on the land, the tax should be taken from the Annual Fixed Rental. To make Filipinas pay real property taxes on the leased land would be equivalent to assessing it twice for the same property.

[Supreme Court]

(a) CA ruling on exemption of cooperatives from real property tax affirmed. (See CA ratio above.)
Under Section 133(n) of the LGC, the taxing power of local government units shall not extend to the levy of taxes, fees, or charges on duly registered cooperatives under the Cooperative Code.

NGPI-NGEI, as the owner of the land being leased by Filipinas, falls within the purview of the law. Section 234 of the Local Government Code exempts all real property owned by cooperatives without distinction. Nothing in the law suggests that the real property tax exemption only applies when the property is used by the cooperative itself. Similarly, the instance that the real property is leased to either an individual or corporation is not a ground for withdrawal of tax exemption.

SC’s ruling in Mactan is inapplicable; said ruling does not refer to the tax exemption extended to cooperatives.

(b) The roads that Filipinas constructed within the leased area should not be assessed with real property taxes.

SC’s ruling in Bislig Bay applicable in the instant case. (See Bislig Bay ruling in CA ratio above.)
Board of Assessment Appeals of Zamboanga del Sur v. Samar Mining Company: Reaffirmed Bislig Bay doctrine: “The improvement is exempt from taxation because it is an integral part of the public land on which it is constructed and the improvement is the property of the government by right of accession. Under Section 3(a) of the Assessment Law, all properties owned by the government, without any distinction, are exempt from taxation.”

The roads that Filipinas constructed became permanent improvements on the land owned by the NGPI-NGEI by right of accession under the Civil Code.

Despite the land being leased by Filipinas when the roads were constructed, the ownership of the improvement still belongs to NGPI-NGEI. As provided under Article 440 and 445 of the Civil Code, the land is owned by the cooperatives at the time Filipinas built the roads. Hence, whatever is incorporated in the land, either naturally or artificially, belongs to the NGPI-NGEI as the landowner.

Although the roads were primarily built for Filipinas’ benefit, the roads were also being used by the members of NGPI and the public. Furthermore, the roads inured to the benefit of NGPI-NGEI as owners of the land not only by right of accession but through the express provision in the lease agreement.
Filipinas’ claims that under its lease agreement with NGPI-NGEI, it pays an Annual Fixed Rental, which includes the payment of taxes. As such, if NGPI-NGEI were liable to the local government for real property tax on the land, the tax should be taken from the Annual Fixed Rental. But this proviso in the lease agreement finds no use in light of the fact that by express provision of the Local Government Code, NGPI-NGEI is exempted from payment of real property tax.

Whether Filipinas’ road equipment and mini haulers are movable properties and have not been immobilized by destination for real property taxation. – NO.

[Provincial Assessor]

Section 199(o) of the LGC specifically covers Filipinas’ road equipment and mini haulers since these are directly and exclusively used to meet the needs of Filipinas’ industry, business, or activity.
Article 415(5) of the Civil Code, which defines real property, should not be made to control the LGC, a subsequent legislation that specifically defines “machinery” for taxation purposes.

[Filipinas]

The road equipment and mini haulers are movables by nature. Although there may be a difference between the meaning of “machinery” under the Local Government Code arid that of immovable property under Article 415(5) of the Civil Code, the controlling interpretation of Section 199(o) of [the Local Government Code] is the interpretation of Article 415(5) of the Civil Code.

 [Supreme Court]

Section 199(o) of the Local Government, which provides for a definition of machineries that are subject to real property tax, prevails over Article 415(5) of the Civil Code. As between the Civil Code, a general law governing property and property relations, and the Local Government Code, a special law granting local government units the power to impose real property tax, then the latter shall prevail.
SECTION 199. Definition of Terms. — When used in this Title, the terra:

. . . .

(o) “Machinery” . . . 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 [.]
Filipinas is engaged in palm oil plantation. Thus, it harvests fruits from palm trees for oil conversion through its milling plant. By the nature of Filipinas’ business, transportation is indispensable for its operations.

The Provincial Assessor is correct in claiming that the phrase “pertaining to physical facilities for production” is comprehensive enough to include the road equipment and mini haulers as actually, directly, and exclusively used by Filipinas to meet the needs of its operations in palm oil production.

Moreover, “mini-haulers are farm tractors pulling attached trailers used in the hauling of seedlings during planting season and in transferring fresh palm fruits from the farm [or] field to the processing plant within the plantation area.” The indispensability of the road equipment and mini haulers in transportation makes it actually, directly, and exclusively used in the operation of Filipinas' business.

Under the definition provided in Section 199(o) of the Local Government Code, the road equipment and the mini haulers are classified as machinery and are therefore subject to real property tax.