MINDANAO BUS COMPANY, PETITIONER, VS. THE CITY ASSESSOR & TREASURER AND THE BOARD OF TAX APPEALS OF CAGAYAN DE ORO CITY, RESPONDENTS.

This is a petition for the review of the decision of the Court of Tax Appeals
in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is
liable to the payment of the realty tax on its maintenance and repair equipment
hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner’s above-mentioned equipment. Petitioner appealed the assessment to
the respondent Board of Tax Appeals on the ground that the same are not realty.
The Board of Tax Appeals of the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for the review of the
assessment.

In the Court of Tax Appeals the parties submitted the following stipulation
of facts:

“Petitioner and respondents, thru their respective counsels agreed to the
following stipulation of facts:

“1. That petitioner is a public utility solely engaged in transporting
passengers and cargoes by motor trucks, over its authorized lines in the Island
of Mindanao, collecting rates approved by the Public Service Commission;

“2. That petitioner has its main office and shop at Cagayan de Oro City. It
maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;

“3. That the machineries sought to be assessed by the respondent as real
properties are the following:

“(a) Hobart Electric Welder Machine, appearing in the attached
photograph, marked Annex ‘A’;

“(b) Storm Boring machine, appearing in the attached photograph,
marked Annex ‘B’;

“(c) Lathe machine with motor, appearing in the attached photograph,
marked Annex ‘C’;

“(d) Black and Decker Grinder, appearing in the attached photograph,
marked Annex ‘D’;

“(e) PEMCO Hydraulic Press, appearing in the attached photograph,
marked Annex ‘E’;

“(f) Battery charger (Tungar charge machine) appearing in the
attached photograph, marked Annex ‘F’; and

“(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph,
marked Annex ‘G’.

“4. That these machineries are sitting on cement or wooden platforms as may
be seen in the attached photographs which form part of this agreed stipulation
of facts;

“5. That petitioner is the owner of the land where it maintains and operates
a garage for its TPU motor trucks; a repair shop; blacksmith and carpentry
shops, and with these machineries which are placed therein, its TPU trucks are
made; body constructed; and same are repaired in a condition to be serviceable
in the TPU land transportation business it operates;

“6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries,
parts and the like offered to the general public indiscriminately for business
or commercial purposes for which petitioner has never engaged in, to date.”

The Court of Tax Appeals having sustained the respondent city assessor’s
ruling, and having denied a motion for reconsideration, petitioner brought the
case to this Court assigning the following errors:

“1. The Honorable Court of Tax Appeals erred in upholding respondents’
contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.

“2. The
Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New
Civil Code, and holding that pursuant thereto, the movable equipments are
taxable realties, by reason of their being intended or destined for use in an
industry.

“3. The Court of Tax Appeals erred in denying petitioner’s
contention that the respondent City Assessor’s power to assess and levy real
estate taxes on machineries is further restricted by section 31, paragraph (c)
of Republic Act No. 521; and

“4. The Tax Court erred in denying
petitioner’s motion for reconsideration.”

Respondents contend that said equipments, the movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil Code
which provides:

“ART. 415.—The following are immovable properties:

* * * * * * *

“(5) Machinery, receptacles, instruments or implements intended by the owner
of the tenement for an industry or works which maybe 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.” (Italics ours.)

* * * * * * *

Note that the stipulation expressly states that the equipment are pllaced on
wooden or cement platforms. They can be moved around and about in petitioner’s
repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the
Supreme Court said:

“Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to ‘machinery, liquid containers, instruments or
implements intended by the owner of any building or land for use in connection
with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.‘

“If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar industry, converted them into real property by
reason of their purpose, it cannot be said that their incorporation therewith
was not permanent in character because, as essential and principal elements
of a sugar central, without them the sugar central would be unable to function
or carry on the industrial purpose for which it was established. Inasmuch
as the central is permanent in character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it has been established
must necessarily be permanent.” (Italics ours.)

So that movable equipments to be immobilized in contemplation of the law must
first be “essential and principal elements” of an industry or works without
which such industry or works would be “unable to function or carry on the
industrial purpose for which it was established.” We may here distinguish,
therefore, those movables which become immobilized by destination because they
are essential and principal elements in the industry from those which
may not be so considered immobilized because they are merely
incidental, not essential and principal. Thus, cash registers, typewriters,
etc., usually found and used in hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered immobilized by destination,
for these businesses can continue or carry on their functions without these
equipments. Airline companies use forklifts, jeep-wagons, pressure pumps, IMB
machines, etc. which are incidentals, not essentials, and thus retain their
movable nature. On the other hand, machineries of breweries used in the
manufacture of liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks and
adding machines which they usually own and use and are found within their
industrial compounds are merely incidentals and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by
their nature, not essential and principal elements of petitioner’s business of
transporting passengers and cargoes by motor trucks. They are merely
incidentals—acquired as movables and used only for expediency to facilitate
and/or improve its service. Even without such tools and equipments, its business
may be carried on, as petitioner has carried on, without such equipments, before
the war. The transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another shop
belonging to another.

The law that governs the determination of the
question at issue is as follows:

” * * * * * * *

ART. 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;”
(Civil Code of the Phil.)

Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a
piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng,
supra, the “machinery, liquid containers, and instruments or
implements” are found in a building constructed on the land. A saw-mill would
also be installed in a buillding on land more or less permanently, and the
sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only to repair
or service the transportation business, which is not carried on in a
building or permanently on a piece of land, as demanded by the law. Said
equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in
question are not absolutely essential to the petitioner’s transportation
business, and petitioner’s business is not carried on in a building, tenement or
on a specified land, so said equipment may not be considered real estate within
the meaning of Article 415 (c) of the Civil Code.

Wherefore, the decision subject of the petition for review is hereby set
aside and the equipment in question declared not subject to assessment as real
estate for the purposes of the real estate tax. Without costs. So ordered.

Bengzon, C. J., Padilla, Bautista Angelo, Reyes, J. B. L., Paredes,
Dizon, and Makalintal, JJ., concur.