G.R. No. 180110 - Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas

Case Summary (G.R. No. 180110)

Ownership and Nature of Cable System Rights

Capwire holds “indefeasible rights in cable systems,” representing its co‐ownership share in submarine cable networks such as APCN, BMP‐CNS, SEA‐ME‐WE‐3 CNS, and GP‐CNS. These rights confer capacity‐use interests but not specific physical segments. Capwire asserts its interest in the “Wet Segment” of APCN lies in international waters, while landing stations in Nasugbu belong to PLDT.

Disclosure and Assessment of Real Property

For loan purposes, Capwire had its cable rights appraised and, on May 15, 2000, declared values of P203.3 million (APCN), P65.66 million (BMP‐CNS), P7.54 million (SEA‐ME‐WE‐3 CNS), and P1.789 million (GP‐CNS). The Provincial Assessor treated these rights as taxable real property, issuing Assessments of Real Property (ARPs) with reduced assessed values.

Procedural History Before the RTC

Capwire contested the ARPs by filing a Petition for Prohibition and Nullity in the Regional Trial Court (RTC) of Batangas City. The RTC dismissed the petition on May 5, 2003, for failure to:

Pay taxes under protest (Section 252, LGC); and
Exhaust administrative remedies before the Local Board of Assessment Appeals (LBAA) (Sections 206, 226, LGC).

A motion for reconsideration was denied on August 26, 2003.

Court of Appeals Ruling

The CA, on May 30, 2007, affirmed the RTC, holding that:

Capwire raised questions of fact (extent of cable within Philippine jurisdiction, nature of indefeasible rights).
Administrative remedies and payment under protest were prerequisites to judicial action.

Issues on Certiorari

Whether Capwire’s challenge required prior administrative recourse and payment under protest under the Local Government Code.
Whether submarine communications cables qualify as taxable real property.

Requirement of Administrative Remedies

The Supreme Court affirmed that disputes over real property taxation ordinarily demand exhaustion of administrative remedies and payment under protest when factual questions exist. Only assessments challenged on pure legal grounds (lack of assessor’s authority) may bypass administrative proceedings. Capwire’s dispute involved factual determinations—ownership extent, territorial location—placing it within the general rule requiring administrative resort.

Classification of Submarine Cables as Real Property

Under Article 415(5) of the Civil Code and consistent with Manila Electric Co. v. Lucena City, machinery affixed or integral to a tenement for industrial use is immovable. Submarine cables, like transmission lines, serve telecommunications business and are analogous to electric lines recently held taxable. They may be classified as “machinery” subject to real property tax within local jurisdiction where their location is determinable.

Territorial Jurisdiction over Cable Segments

Portions of the submarine cable lie within Nasugbu’s municipal waters (up to 15 km from coastline) and within the 12-nautical-mile territorial sea under UNCLOS and the 1987 Constitution. The Philippines exercises sovereignty over these waters, seabed, and subsoil; local governments have taxing authority over real property therein. Capwire’s assertion of entirely international placement lacked factual support and was not administratively established.