MANILA ELECTRIC COMPANY v.

CITY ASSESSOR

FACTS:
● MERALCO is a private corporation organized and existing under Philippine laws to
operate as a public utility engaged in electric distribution. MERALCO has been granted
franchises to operate in Lucena City.
● MERALCO received from the City Assessor of Lucena a copy of Tax Declaration No.
019-650013 covering the following electric facilities, classified as capital investment, of
the company: (a) transformer and electric post; (b) transmission line; (c) insulator; and
(d) electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under
Tax Declaration No. 019-6500, these electric facilities had a market value of
P81,811,000.00 and an assessed value of P65,448,800.00, and were subjected to real
property tax as of 1985.
● MERALCO appealed the tax declaration before LBAA of Lucena City, claiming that
its capital investment consisted only of its substation facilities, the true and
correct value of which was only P9,454,400.00; and that MERALCO was
exempted from payment of real property tax on said substation facilities.
● The LBAA rendered a Decision... the Board overrules the claim of the City Assessor of
Lucenal and sustains the claim of MERALCO, The LBAA lastly ordered that Tax
Declaration No. 019-6500 would remain and the poles, wires, insulators,
transformers, and electric meters of MERALCO would be continuously assessed,
but the City Assessor would stamp on the said Tax Declaration the word
"exempt."
● Six years later, on October 29, 1997, MERALCO received a letter19 dated October 16,
1997 from the City Treasurer of Lucena, which stated that the company was being
assessed real property tax delinquency on its machineries beginning 1990.
● MERALCO appealed the Tax Declaration before the LBAA of Lucena City and posted a
surety bond to guarantee payment of its real property tax delinquency.
● MERALCO asked the LBAA to cancel and nullify the Notice of Assessment dated
October 20, 1997 and declare the properties covered by Tax Declaration Nos. 019-6500
and 019-7394 exempt from real property tax.
● LBAA dismissed MERALCO’S appeal.
● MERALCO went before the CBAA on appeal. The CBAA, in its decision agreed with the
decision of LBAA that MERALCO could no longer claim exemption from real property tax
on its machineries with the enactment of RA 7160 the LGC.
● Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition
for Review.
● The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments
proffered by MERALCO. The court found no deficiency in the Notice of Assessment
issued by the City Assessor of Lucena.
● MERALCO similarly failed to persuade the Court of Appeals that the transformers,
transmission lines, insulators, and electric meters mounted on the electric posts
of MERALCO were not real properties. The appellate court invoked the definition
of "machinery" under Section 199(o) of the Local Government Code
 ● Court of Appeals denied the Motion for Reconsideration of MERALCO
MERALCO is presently before the Court via the instant Petition for Review on Certiorari.

ISSUES:
WON the machineries of MERALCO is a real property and is subject to real property tax?

RULING:
● Yes, The Court highlights that under Section 199(o) of the Local Government
Code, machinery, to be deemed real property subject to real property tax, need
no longer be annexed to the land or building as these "may or may not be
attached, permanently or temporarily to the real property," and in fact, such
machinery may even be "mobile."

● The Court also finds that the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO are no longer exempted from real
property tax and may qualify as "machinery" subject to real property tax under
the Local Government Code. Nevertheless, the Court declares null and void the
appraisal and assessment of said properties of MERALCO by the City Assessor in
1997 for failure to comply with the requirements of the Local Government Code
and, thus, violating the right of MERALCO to due process.
● Through the years, the relevant laws have consistently considered "machinery" as real
property subject to real property tax.
● Granting for the purpose of argument that the steel supports or towers in question are
not embraced within the term poles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law...
does not provide for a definition of real property; but Article 415 of the Civil Code does,
by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;.. xx
xx
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object,... x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried in a building or on a
piece of land, and which tends directly to meet the needs of the said industry or
works;.. x x xx
● The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the
soil.
● They cannot be included under paragraph 3, as they are not attached to an immovable
in a fixed... manner, and they can be separated without breaking the material or causing
deterioration upon the object to which they are attached.

.
● While the Local Government Code still does not provide for a specific definition of "real
property," Sections 199(0) and 232 of the said Code, respectively, gives an extensive
definition of what constitutes "machinery" and unequivocally subjects such machinery to
real property tax
● As between the Civil Code, a general law governing property and property relations, and
the Local Government Code, a special law granting local government units the power to
impose real property tax, then the latter shall prevail.
● WHEREFORE, the Court PARTLY GRANTS the Petition and AFFIRMS with
MODIFICATION. The Court DECLARES that the transformers, electric posts,
transmission lines, insulators, and electric meters of Manila Electric Company are
NOT EXEMPTED from real property tax under the Local Government Code.
However, the Court also DECLARES the appraisal and assessment of the said
properties as NULL and VOID for not complying with the requirements of the
Local Government Code and violating the right to due process of Manila Electric
Company, and ORDERS the CANCELLATION of the collection letter dated
October 16, 1997 of the City Treasurer of Lucena and the Notice of Assessment
dated October 20, 1997 of the City Assessor of Lucena, but WITHOUT
PREJUDICE to the conduct of a new appraisal and assessment of the same
properties by the City Assessor of Lucena in accord with the provisions of the
Local Government Code and guidelines issued by the Bureau of Local
Government Financing.