CTA Case No. 2367 (Decision)

Rr.�pl� 1H.TC 07 TH, ~lJTLIVPL E8 � :~t�r~T f)f TAX APV&r�._IJS (;i Ul�l.u l\ CiTY PHILIPPINE AMERICAN C. T.A. CASE NO . 2367 DRUG CO., Petitioner , versus THE CITY ASSESSOR OF THE CITY OF NANIIA and THE BOARD OF ASSESS~mNT APPEALS OF THE CITY OF wuriiA , Respondents . X- - - - - - - - - - X GRAPHIC PUBLISHING a. T�� CASE NO. 2368 COMPANY , Petitioner , versus THE CITY ASSESSOR OF THE CITY OF MANILa and THE B~~D OF ASSESSME NT APPE LS OF THE CITY OF MA.NIIA, Respondents . X- - - - - - - - - - X DE C I S I 0 N The above-captioned cases were consolidated by the Court in its Order dated January 15, 1973, con- sidering the nature of the issues involved therein. In both cases , petitioners appealed to this Court from the decisions of respondent Board of Assessment ppeals of the City of Manila declaring itself with- out jurisdiction to decide the issue since the appeal involves a question of law , and that its jurisdic- tion is only to determine whether the assessment

DECISION - CTA CASE NOS . 2367 & 2368 2 fixed by the City Assessor is fair and reasonable or excessive and exhorbitant . In C. T.A. Case No . 2367 , petitioner Philippine American Drug Company received a f orm letter dated October 5, 1970 from respondent City Assessor of the City of Manila , informing it that its machineries and equipment installed in its building located at Escolta Street , District of Binondo , Manila , have been assessed for taxation purposes effective 1970 at ~ 240 , 900 . 00 . In its letter dated December 17 , 1970 to the City ssessor petitioner protested the assessment , on the ground that the said assessment has no legal basis as the said ma chineries and equipment could not be con- sidered as used for industrial or manufacturing pur- poses ; in the same breath , it notified respondent of its intention to appeal to the Board of Assessment Appeals . On the same date, December 17, 1970 , peti- tioner addressed a letter to the Board of Assessment pneals of the City of V~nila appealing the assess- ment of the City Assessor of the City of ~funila on the same grounO. that the machineries and equipment were not used for industrial and manufacturing pur- poses and requested an early hearing . Again , in a letter dated December 29 , 1970 , petitioner reiterated

DECISION - CTA CASE NOS . 2367 & 2368 3 its appeal to the Board of Assessment Appeals on the same ground . The properties that are the subject of the assessment in C. T.A. Case No . 2367 are the follow- ing: (1) Centralized Air Condition- ~ 147,400 ing , 215 h . p. ( 2) 1 passenger elevator , 2 000 lbs . 42 , 320 (3) 1 Preight elevator , 4, ooo lbs . capa city 28 , 300 (4) 2 Water tanks , 2500 gal . ea . 2, 880 To t a 1 In C. T.A. Case No . 2368 , petitioner Graphi c Publishing Company , also received a form letter dated October 16, 1970, from the City Assessor, Of- fice of the City of Manila , informing petitioner that its printing and publishing machines and equipment located at 14th Stree t corner Atlanta Street , Port rea , Hanila, have been assessed for taxation pur - poses effective 1970 at �31 , 100. 00 . The machines and equipment assessed by respondent are the follow- ing: (1) 1 Address- 0- Granh F 18,108 (2) 1 Enlarger Equipment 3 , 216 (3) 2 Remitting Furnace 2, 397 (4) 1 Photo Camera 3 , 740 ( 5) 1 Elliot Posting ~1achine 3,618 To t a 1 31,079 In its letter dated December 17 , 1970, petitioner protested the assessment of respondent on the ground

DECISION - CTA CASE NOS . 2367 & 2368 4 that the said assessment has no legal basis , as the said machineries and equipment could not be con- sidered ~s used for industrial or manufacturing pur- poses , and at the same time notified respondent of its intention to appeal to the Board of Assessment Appeals . On the same date , December 17 , 1970, said p9titioner appealed the decision of respondent City Assessor of the City of Manila to the Board of Assessment Appeals on the ground that the assessment in question has no legal basis , since the said machineries and equipment were not used for industrial or manufacturing pur- poses . However, on December 15, 1971 , respondent Board of Assessment Appeals rendered a resolution against each petitioner in the above entitled cases to the effect that it has no jurisdiction to resolve a question of law, as the said body only determines whether the assessment fixed by the City Assessor is fair and reasonable or excessive and exhorbitant . Hence , petitioners in both cases appealed to this Court . The pertinent provision of t .t::.e law relied upon by the parties reads as follows: SEC . 53 . Powers and duties of the CitY Assessor . - There shall be a city assessor who shall have charge of the department of assessment . The City Assessor and his authorized deputies , who are empowered to administer any oath authorized to be administered in con- nection with the valuation of real es- tate f or the assessment or collection of taxes, shall ap~raise and value all the real estate not expresslY exempt , includ- ing machines , mechanical contrivances , I

DECISION - CTA CASE NOS . 2367 & 2368 5 instruments , tools , im;plement s , a.p- plianqes , apparatus , and paraphernalia used for industrial, agricultural or manufacturing purposes subject to exemption for the first five years of their original purchase or acquisition. He shall prepare and file with the City Treasurer before April firstof every year a list of the real estate so valued which is exempt from taxa- tion and a separate list of the taxa- ble real estate . (Republic Act No . 409 as amended by Rep . Act No . 6053; underlining supplied . ) In C. T.A. Case No . 2367 petitioner contends that the ma chineries and equipment in question were not used for industrial purposes because renting a building is not an industry . With respect to the elevators, the issue raised in this case is no longer one of first impression to this Court . In Lourdes R. de Ortega v . City Board of Assessments Appeals of ~~nila , C. T.A. Case No . 2199 , Januar y 31 , 1972 , this Court held the following: The business of petitioner of rent- ing her building is not merely a commercial but also an industrial undertaking or activity; in short, the construction of her building was for an industrial purpose . This Court has interpreted a substantially similar provision (Section 3Lf/ ) of the Assessment Law to the effect that the term 11 industry 11 means any department or branch of ar�t , occupation or business conducted as a means of livelihood or for profit , especially one which employs much labor and capital and is a distinct branch of trade , or a produc- tive enterprise which employs relatively large amounts of capital and or labor . r, .I

DECISION - CTA CASE NOS . 2367 & 2368 6 (Philippine Bulk Corporation v . Prov . Boa rd of Assessment Appeals of Negros Occidental, C~ 1730 , Dec . 26 , 1967 , citing Philippine Acetylene Company v . Comm . of Customs, CTA No . 1147 , Dec . 26, 1963 . ) This Court ex- pressed the view in the latter case that a productive enterprise, among others , is one devoted to the production or net return of wealth; and that 11a person engaged in com- merce or trade employing much labor and capital is engaged in industry because the enterprise is productive of results, profits or benefits . 11 On the basis of this inter- pretation as to the meaning of 11 industry,'~ petitioner, by constructing her apartment building and by renting it , is engaged in an industry . This is so because the en- terprise of renting property entails much capital and labor which produces results, profits and benefits . The elevator of said building , therefore , which is a machinery or mechanical contrivance used to carry the tenants and the general public to the various floors of the building , is a device gsed for the efficient operation of the buildin � hence it is machiner or in- strument used in an industry . � � under- lining supplied . ) With respect to the centralized air conditioning unit , and the two water tanks, attached to the build- ing owned by petitioner, being machineries or equip- ment used for the efficient operation of the build- ing, they necessarily are in the same category as the elevators . In C. T.A. No . 2368, petitioner also urges that it was not engaged in an industry . In the light of what has been said in C. T.A. No . 2367 , it seems need- less to say that petitioner , publisher of "Graphictt, a weekly magazine sold to the general public , is in

DECISION - CTA CASE NOS . 2367 & 2368 7 the business for profit and , perforce engaged in an industry. Petitioner however contends that the properties in question were not real properties because they could be carried from pla ce to place or change loca- tion without causing injury to the immovable to which they were attached and are therefore not subject to assessment under Section 53 of Republic ct No . 409 as amended . Respondent , on the other hand thinks otherwi se . Section 53 of Republic Act 409 as amended is a common provision in laws that impose a tax on r �eal � property including land , buildings , machineries and other improvements . Although they may not be worded in exactly the same words the same intent un- derlie them . There is good authority that real proper- ty and machi nery as the terms are used in these laws unless the contrary clearly appears , should be in- terpreted in the light of Article 415 , paragraph (5) of the Civil Code of the Philippines which provides: ART . 415 . The following are immovable property: X X X X X (5) Nachinery, receptacles , instruments or implements intended by the owner of the tenement for an industry or works which may b carried on in a building or on a pi oe of land , and wh ch tend dir ectl y to meet the needs of the said industry or works ;

DECISION - CTA CASE NOS . 2367 & 2368 8 In the case of B. H. Berkenkotter v . CuUnjieng , 61 Phil . 663 , the Supreme Court said that Article 415, paragraph (5) aforequoted gives the character of real property to machinery , liquid containers , in- struments or implements for use in connection with an industry or trade when they are expressly adopted to meet the requirements of such trade or industry. For machinery , instruments or implements to be im- mobilized and converted to real properties they must be essential and principal elements of an industry, that is, without them the work involved in the in- dustry cannot be done . The case of Mindanao Bus Co . v . City Assessor and Treasurer , 6 SeRA 197 , elucidates this point in this apt language: � � � So that movable equipments to be immobilized in contemplation of the law must first be 11 essential and principal �elements" of an industry or \vorks without which such industry or works would be nun- able to function or carry on the industrial purpose for which it was established . " We may here distinguish , therefore , those movables whi ch become irr~obiliz~d by des - tination because they are essential and principal elements in the industry from those which may not be so considered im- mobilized because they are merely inciden- tal , 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 im- mobilized by destination , for these busiEess- e .~ can continue or carry on their func - tions without these equipments . Airline companies use forklifts , jeep- wagons ,

DECISION - CTA CASE NOS . 2367 & 2368 9 pressure pumps , IBM 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 indus- tries; 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 t heir nature , not essential and principal elements of petitioner ' s business of trans- porting passengers and cargoes by motor trucks . They are merely incidentals -- acquired as movables and used only for ex- pediency to facilitate and/or improve its service . Even without such tools and equip- ments , its business may be carried on , as petitioner has carried on , without such equipments , before the war . The trans- portation business could be carried on without the repair or service shop if its rolling equipment is repaired or serviced in another shop belonging t o another . From the foregoing authorities the two furnaces which are used in the composi~g sec tion for melting lead , which is fed to the 90mposing machine of the press is an immovable property subject to assessment because they are expressly adopted to meet the re- quirements of the industry; without them the printing press could not operate . They are subject to assess- -ment . The Adress- 0- Graph, a machine used to facilitate the addressing of the magazine slated for subscribers; the nhoto camera; the ~nlarger equipment which is _} ():.j I

DECISION - CTA CASE NOS . 2367 & 2368 10 used for enlarging pictures; the Elliot Posting machine which is an accounting machine , are not immovable properties by destination because they are not essen- tials but are merely incidentals and retain their movable natures , hence are not subject to assessment . In fine, the assessment in C. T.A. Case No . 2368 sho uld be reduced to ~2 , 397 . lNHEREFORE, the assessment in C. T.A. Case No . 2367fu hereby affirmed , and the assessment in C. T.A. Case No . 2368 is hereby reduced to �2 , 397 . 'w<li thout pronouncement as to costs . SO ORDERED. Quezon City, December 23, 1974. L -J lv---- ( RAMON L. AVANCE~] Associate Judge WE COI\CUR: .... ~~ ROl1A.N M. UMA.LI Presiding Judge' ' �~~&:y STA.NISIAO R. ~~V~Z - ssociate Judge (/a /