Case Summary (G.R. No. L-50466)
Procedural History
The CBAA, by majority, ruled on June 3, 1977 that the equipment constituted “improvements” and “machinery” subject to real property tax under PD 464. A motion for reconsideration was denied on January 12, 1978. Caltex received notice on April 2, 1979, and filed a petition for certiorari before the Supreme Court on May 2, 1979, challenging the CBAA’s classification.
Issue
Whether the gas station machinery and equipment owned and permanently affixed by Caltex are subject to annual real property tax under the Real Property Tax Code.
Ruling
The Supreme Court affirmed the CBAA’s decision, holding the equipment to be taxable as real property. The petition for certiorari was dismissed for lack of merit; no costs were awarded.
Rationale
- Incidence of Tax: Section 38 of PD 464 imposes an annual ad valorem tax on “land, buildings, machinery and other improvements affixed or attached to real property.”
- Definitions:
- Improvements (Sec. 3[k]) are valuable additions intended to enhance utility or value.
- Machinery (Sec. 3[m]) includes instruments and apparatus attached to real estate and essential to operations.
- Permanent Affixture and Necessity: The equipment is embedded in pavement or connected by piping and wiring under a shelter. They are essential appurtenances for gas station operations and without them the station would be nonfunctional.
- Distinctions from Civil Code Destination Doctrine: Unlike Davao Saw Mill Co. v. Castillo—where machinery placed by a lessee without owner’s agency remained movable—Caltex, as owner, permanently affixed the machinery.
- Precedents on Tax Classification: Improvements may
Case Syllabus (G.R. No. L-50466)
Facts
- Caltex (Philippines) Inc. installed various machinery and equipment in its leased gas-station lots, including underground tanks, elevated water tanks, gasoline pumps, computing pumps, water pumps, car washers, car hoists, truck hoists, air compressors, and tire inflators.
- The city assessor of Pasay City described the service station as a composite of land improvements and noted that underground tanks were deeply buried and connected by steel pipes to pumps mounted on cement pads under a shed.
- All machines and equipment remained owned by Caltex during the lease term; station operators held only a temporary, revocable right to use them and were obliged to return them in good condition.
- The city assessor characterized these items as taxable realty, imposing an annual realty tax of ₱4,541.10.
Procedural History
- The City Board of Tax Appeals held the machinery and equipment to be personalty and exempt from realty tax.
- The assessor appealed to the Central Board of Assessment Appeals.
- By decision dated June 3, 1977 (affirmed January 12, 1978), the Central Board ruled that the equipment and machinery were “real property” under sections 3(k) & (m) and 38 of the Real Property Tax Code (Presidential Decree No. 464), and not governed by Civil Code definitions.
- Caltex filed a petition for certiorari in the Supreme Court on May 2, 1979, seeking to set aside the Central Board’s decision and to have the equipment declared personalty not subject to realty tax.
Jurisdictional Question
- The Solicitor General contended that the Court of Tax Appeals had exclusive appellate jurisdiction.
- The Su