Provincial Assessor v. Filipinas

 Doctrine: The exemption from real property taxes given to cooperatives applies regardless of whether or not the land owned is leased. This exemption benefits the cooperative's lessee. The characterization of machinery as real property is governed by the LGC and not the Civil Code.

Facts: Filipinas Palm Oil Plantation Inc. (Filipinas) is a private organization engaged in palm oil plantation with a total land area of more than 7,000 hectares of National Development Company (NDC) lands in Agusan del Sur. After the CARL was passed, NDC lands were transferred to CARL beneficiaries who formed themselves as the merged NDC-Guthrie Plantations, Inc. - NDC-Guthrie Estates, Inc. (NGPI-NGEI) Cooperatives. FILIPINAS entered into a lease contract agreement with NGPI-NGEI.

The Provincial-Assessor of Agusan del Sur assessed Filipinas  of real property taxes over the leased land, the roads constructed therein, as well as the company’s road equipment and mini haulers, which the Provincial Assessor considered as machineries subject to real property tax. 

The LBAA adopted Filipinas' claim that the basis for assessment should only be 98 trees. Although 1 hectare of land can accommodate 124 oil palm trees, the mountainous terrain of the plantation should be considered. Because of the terrain, not every meter of land can be fully planted with trees. The LBAA found that roads of any kind, as well as all their improvements, should not be taxed since these roads were intermittently used by the public. It resolved that the market valuation should be based on the laws of the DAR since the area is owned by the NDC, a quasi-governmental body of the Philippines. The LBAA exempted the low-cost housing units from taxation except those with a market value of more than P150,000.00 under the LGC. Finally, the LBAA considered the road equipment and mini haulers as movables that are vital to Filipinas' business.

Filipinas appealed before the CBAA. The Board decided to set aside the LBAA decision. CBAA denied the MR filed by the Provincial Assessor. 

The Provincial Assessor filed a Petition for Review before the CA which sustained the CBAA’s decision. The CA held that the land owned by NGPI-NGEI, which Filipinas has been leasing, cannot be subjected to real property tax since these are owned by cooperatives that are tax-exempt under the LGC. 

Issues: whether the exemption privilege of NGPI-NGEI from payment of real property tax extends to respondent Filipinas Palm Oil Plantation Inc. as lessee of the parcel of land owned by cooperatives; and whether respondent's road equipment and mini haulers are movable properties and have not been immobilized by destination for real property taxation.

Held: 

First issue: NGPI-NGEI, as the owner of the land being leased by respondent, falls within the purview of the law. Section 234 of the LGC exempts all real property owned by cooperatives without distinction. Nothing in the law suggests that the real property tax exemption only applies when the property is used by the cooperative itself. Similarly, the instance that the real property is leased to either an individual or corporation is not a ground for withdrawal of tax exemption.

The roads that respondent constructed became permanent improvements on the land owned by the NGPI-NGEI by right of accession. Despite the land being leased by respondent when the roads were constructed, the ownership of the improvement still belongs to NGPI-NGEI. As provided under Article 440 and 445 of the Civil Code, the land is owned by the cooperatives at the time respondent built the roads. Hence, whatever is incorporated in the land, either naturally or artificially, belongs to the NGPI-NGEI as the landowner.

Although the roads were primarily built for respondent's benefit, the roads were also being used by the members of NGPI and the public. Furthermore, the roads inured to the benefit of NGPI-NGEI as owners of the land not only by right of accession but through the express provision in the lease agreement.

Second issue: The road equipment and mini haulers shall be considered as real property, subject to real property tax.

Section 199(o) of the Local Government Code defines "machinery" as real property subject to real property tax. Article 415(5) of the New Civil Code defines "machinery" as that which constitutes an immovable property.

Section 199(o) of the Local Government prevails over Article 415(5) of the Civil Code. In Manila Electric Company:

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. 

Respondent is engaged in palm oil plantation. Thus, it harvests fruits from palm trees for oil conversion through its milling plant. By the nature of respondent's business, transportation is indispensable for its operations.

Petitioner is correct in claiming that the phrase pertaining to physical facilities for production is comprehensive enough to include the road equipment and mini haulers as actually, directly, and exclusively used by respondent to meet the needs of its operations in palm oil production. Moreover, "mini-haulers are farm tractors pulling attached trailers used in the hauling of seedlings during planting season and in transferring fresh palm fruits from the farm [or] field to the processing plant within the plantation area." The indispensability of the road equipment and mini haulers in transportation makes it actually, directly, and exclusively used in the operation of respondent's business.

Dispositive Portion: WHEREFORE, the Petition is PARTLY GRANTED. The Decision of the Court of Appeals dated September 26, 2007 and the Resolution dated May 26, 2008 in CA-G.R. SP No. 74060 are AFFIRMED with MODIFICATION, in that the road equipment and the mini haulers should be assessed with real property taxes.