CASE #2

MINDANAO BUS CITY COMPANY vs CITY ASSESSOR AND TREASURER

PROMULGATED: September 6, 1962
PONENTE: J. LABRADOR
This is a petition for the review of the decision of the Court of Tax Appeals holding
petitioner, Mindanao Bus Company, liable to the payment of realty tax on its maintenance and
repair equipment.
Petitioner, Mindanao Bus Company, Inc., is a public utility solely engaged in transporting
passengers and cargoes by motor trucks, over its authorized lines in the island of Mindanao. The
equipment subjected to tax are the following: (a) Hobart Electric Welder machine; (b) Storm
Boring Machine; (c) Lathe machine with motor; (d) Black and Decker grinder; (e) PEMCO
Hydraulic Press; (f) battery charger; and (g) D-Engine Waukesha-M-Fuel. These machineries are
sitting on cement or wooden platforms. Petitioner is the owner of the land where it maintains
and operates its garage. Respondent, City Assessor of Cagayan De Oro City, assessed petitioners
equipment at P 4,400. Petitioner appealed the assessment to the Board of Tax Appeals on the
ground that the equipment is not realty. The Board and the Court of Tax Appeals sustained the
assessment made by respondent.
Petitioner contends that the tools, equipment or machineries are not immovable taxable
real properties. On the other hand, respondents contend that said equipment, though movable,
are immobilized by destination, in accordance with Article 415 (5), NCC.
WHETHER THE EQUIPMENT MENTIONED ARE CONSIDERED IMMOVABLE
PROPERTIES UNDER ARTICLE 415 (5) OF THE NCC, AND ARE THEREFORE TAXABLE?
No. In B.H. Berkenkotter vs Cu Unjieng, the Supreme Court stated that the movable
equipment to be immobilized in contemplation of law must first be essential and principal
elements of an industry or works without which such industry or work would be unable to
function or carry on the industrial purpose for which it was established. It is important to
distinguish that: Movables that become immobilized by destination, are essential and principal
elements in the industry, while those which may not be so considered immobilized are because
they are merely incidental, and are therefore not essential and principal.
In the case at bar, the tools and equipment in question are by their nature, not essential
and principal elements of petitioners business of transporting passengers and cargoes by motor
trucks. They are merely incidentals and acquired as movables and used only for expediency to
facilitate and/or improve its service.
Aside from the element of essentiality the above-quoted provision also requires that the
industry or works be carried on in a building or on a piece of land. The equipment in question
are destined only to repair or service the transportation business, which is not carried on in a
building or permanently on a piece of land, as demanded by law.
The decision is set aside and the equipment in question is declared not subject to
assessment of real estate for the purposes of the real estate tax.