Haystack: Mindanao Bus v. City Assessor (GR L-17870, 29 September 1962)

Mindanao Bus v. City Assessor
[G.R. No. L-17870. September 29, 1962.]
En Banc, Labrador (J): 7 concur, 3 took no part.

Facts: Mindanao Bus Company is a public utility engaged in transporting passengers and cargoes by motor trucks in Mindanao; having its main offices in Cagayan de Oro. The company is also owner to the land where it maintains and operates a garafe, a repair shop, blacksmith and carpentry shops; the machineries are place therein on wooden and cement platforms. The City Assessor of Cagayan de Oro City assessed at P4,400 said maintenance and repair equipment. The company appealed the assessment to the 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 the company filed with the Court of Tax Appeals a petition for the review of the assessment. The Court of Tax Appeal (CTA Case 710) held that the Company was liable to the payment of the realty tax on its maintenance and repair equipment. Hence, the company filed a petition for review with the Supreme Court.

The Supreme Court set aside the decision subject of the petition for review and the equipment in question declared not subject to assessment as real estate for the purposes of the real estate tax. Without costs.

1. Machinery made immovable must be essential and principal elements of an industry or works
Paragraph 5 of Article 415 of the New Civil Code (previously Article 344, paragraph 5, of the old Civil Code) which provides 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 are immovable properties. 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."

2. Machinery essential to industry in Berkenkotter v. Cu Unjieng; Machinery incidental in present case
It cannot be said that the incorporation of the machinery and equipment in the central of the Mabalacat Sugar Company 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. In contrast, 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.

3. Machinery incidental to industry are not immobilized; examples
Movables which become immobilized by destination because they are essential and principal elements in the industry are distinguished 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.

4. Transportation business not carried on in a building, tenement or specified land; equipment thus are not real estate
Aside from the element of essentiality, Article 415 (5) also requires that the industry or works be carried on in a building or on a piece of land. In the case of Berkenkotter vs. Cu Unjieng, the "machinery, liquid containers, and instruments or implements" are found in a building constructed on the land. A sawmill would also be installed in a building on land more or less permanently, and the sawing is conducted in the land or building. In contrast, Mindanao Bus Company’s transportation 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.

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