Mindanao Bus Co. v. City Assessor

Mindanao Bus Company was a public utility engaged solely in transporting passengers and cargo by motor trucks over its lines in Mindanao. On land it owned in Cagayan de Oro City, it kept a garage, a repair shop, and blacksmith and carpentry shops. The City Assessor assessed seven pieces of equipment there as realty at P4,400: an electric welder, a boring machine, a lathe with motor, a grinder, a hydraulic press, a battery charger and an engine. The stipulated facts showed that the machines sat on cement or wooden platforms. The company used them to build truck bodies and to repair its trucks so they could serve its transportation business. They were never used to produce finished products for sale or to repair machinery for the general public. The city Board of Tax Appeals sustained the assessment. The Court of Tax Appeals also upheld it, holding that the equipment, though movable, had been immobilized by destination under Art. 415(5) of the Civil Code. The company filed a petition for review with the Supreme Court.

1. 1Whether the company's repair-shop machinery is immovable property under Art. 415(5) of the Civil Code and subject to realty tax.

No. Art. 415(5) treats as immovable "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." First, following Berkenkotter v. Cu Unjieng, movable equipment is immobilized only if it is among the "essential and principal elements" of the industry, without which the industry would be unable to function or carry on its purpose. Equipment that is merely incidental keeps its movable character. The Court gave examples. Cash registers and typewriters in hotels and restaurants, and forklifts and similar equipment of airlines, are incidental. Brewery machinery is immobilized, but a brewery's delivery trucks and adding machines are not. The tools in question were merely incidental, "acquired as movables and used only for expediency to facilitate and/or improve [the company's] service." The business had operated without them before the war and could have its vehicles repaired in another's shop. The Court also noted that the machines sat on platforms and could be moved around the shop. Second, the provision requires that the industry or works be carried on in a building or on a piece of land, as with the sugar central in Berkenkotter or a sawmill. A transportation business is not carried on in a building or permanently on a piece of land. The equipment was therefore not real estate. The CTA decision was set aside, and the equipment was declared not subject to assessment as real estate for the realty tax.