Manila Electric Company vs. Central Board of Assessment Appeals

Oil storage tanks not embedded in or attached to land may nevertheless be classified as taxable real property as "improvements" when installed with a degree of permanence and when they enhance the utility of the land, pursuant to the Real Property Tax Code's broad definition of improvements, and the tax concept of real property may include things generally regarded as personal property.

Manila Electric Company (Meralco) leased a lot in San Pascual, Batangas from Caltex (Philippines), Inc. in 1968 and installed two oil storage tanks on the property in 1969, within the Caltex refinery compound. The tanks, with a total capacity of 566,000 barrels, store fuel oil for Meralco's power plants. The dispute arose under the framework of the Assessment Law (Commonwealth Act No. 470) and the Real Property Tax Code (Presidential Decree No. 464), which took effect on June 1, 1974, both of which subject "improvements" affixed or attached to real property to the annual ad valorem tax.

Manila Electric Company leased a lot in San Pascual, Batangas from Caltex (Philippines), Inc. in 1968. The lot is located within the Caltex refinery compound. In 1969, Meralco installed two oil storage tanks on the leased property, with a total capacity of 566,000 barrels, used for storing fuel oil for Meralco's power plants.

According to Meralco, the storage tanks are made of steel plates welded and assembled on the spot. Their bottoms rest on a foundation consisting of compacted earth as the outermost layer, a sand pad as the intermediate layer, and a two-inch thick bituminous asphalt stratum as the top layer. The steel sides of each tank are directly supported underneath by a circular concrete wall, eighteen inches thick, to prevent the tank from sliding. Meralco maintained that the tank is not attached to its foundation — it is not anchored or welded to the concrete circular wall, and its bottom plate is not attached to any part of the foundation by bolts, screws, or similar devices. The tank merely sits on its foundation. Each empty tank can be floated by flooding its dike-enclosed location with water four feet deep.

The hearing commissioners of the Central Board of Assessment Appeals, however, found that the area where the two tanks are located is enclosed with earthen dikes with electric steel poles on top and is divided into two parts as the site of each tank. The foundation of the tanks is elevated from the remaining area. On both sides of the earthen dikes are two separate concrete steps leading to the foundation of each tank. Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick. Pipelines were installed on the sides of each tank and are connected to the pipelines of the Manila Enterprises Industrial Corporation, whose buildings and pumping station are near Tank No. 2. The Board concluded that while the tanks rest or sit on their foundation, the foundation itself and the walls, dikes, and steps — which are integral parts of the tanks — are affixed to the land, while the pipelines are attached to the tanks.

In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an assessment made by the provincial assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period from 1970 to 1974, the tax and penalties amounted to P431,703.96. The Central Board of Assessment Appeals, in its decision dated November 5, 1976, ruled that the tanks together with the foundation, walls, dikes, steps, pipelines, and other appurtenances constitute taxable improvements. Meralco's motion for reconsideration was denied by the Board in its resolution of November 25, 1977.

• Jurisdiction and Grave Error of Law: Meralco contended that the Central Board of Assessment Appeals acted without jurisdiction and committed a grave error of law in holding that the storage tanks are taxable real property.
• Classification Under Article 415: Meralco argued that the oil storage tanks do not fall within any of the kinds of real property enumerated in Article 415 of the Civil Code and therefore cannot be categorized as realty by nature, by incorporation, by destination, nor by analogy.
• Non-Attachment and Leased Land: Stress was laid on the fact that the tanks are not attached to the land and that they were placed on leased land, not on land owned by Meralco.

• Taxability of Oil Storage Tanks: Whether Meralco's oil storage tanks, which are not embedded in or attached to the land and are installed on leased property, constitute taxable real property as "improvements" under the Real Property Tax Code.

• Taxability of Oil Storage Tanks: Yes. The two storage tanks, though not embedded in the land, are considered improvements on the land under Section 3(k) of Presidential Decree No. 464, having been installed with a degree of permanence and enhancing the land's utility for the oil industry.

• Taxability of Oil Storage Tanks: The Court resolved the issue under both the Assessment Law (Commonwealth Act No. 470) and the Real Property Tax Code (Presidential Decree No. 464). Section 2 of the Assessment Law provides that the realty tax is due on "real property, including land, buildings, machinery, and other improvements" not specifically exempted. Section 38 of the Real Property Tax Code similarly levies an annual ad valorem tax on real property "such as land, buildings, machinery and other improvements affixed or attached to real property." Section 3(k) of the Code defines "improvements" as "a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes." The Court held that while the two storage tanks are not embedded in the land, they may nevertheless be considered as improvements on the land, enhancing its utility and rendering it useful to the oil industry, and that the tanks were installed with some degree of permanence as receptacles for considerable quantities of oil needed by Meralco's operations. The Court further noted that for purposes of taxation, the term "real property" may include things which should generally be regarded as personal property, citing American authority and Philippine jurisprudence. The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, where Meralco's steel towers were held not subject to realty tax, was distinguished on the ground that the towers were regarded as poles exempt under Meralco's franchise and were not attached to any land or building, being removable from their metal frames. Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, was likewise distinguished, as the tools and equipment in that case were held to be personal property.

• Tax Concept of Real Property — For purposes of taxation, the term "real property" may include things which should generally be regarded as personal property. The tax classification of property need not strictly conform to the civil law categories of realty under Article 415 of the Civil Code; the controlling statutory framework is the applicable tax law's definition of taxable real property and improvements. The Court applied this principle by holding that Meralco's oil storage tanks, though not embedded in or attached to the land in the traditional civil law sense, fall within the Real Property Tax Code's definition of "improvements" as valuable additions enhancing the property's utility.

• Improvements Under the Real Property Tax Code — Under Section 3(k) of Presidential Decree No. 464, "improvements" are defined as "a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes." The Court found that the two storage tanks satisfy this definition because they were installed with a degree of permanence and enhanced the utility of the land for the oil industry.

• "We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered as improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable that the two tanks have been installed with some degree of permanence as receptacles for the considerable quantities of oil needed by Meralco for its operations." — This passage states the ratio decidendi: the tanks are taxable as improvements despite the absence of physical attachment, because permanence of installation and enhancement of utility suffice under the Real Property Tax Code.

• "For purposes of taxation, the term 'real property' may include things which should generally be regarded as personal property." — This formulation articulates the broader principle that tax classification of property is not constrained by civil law categories, a doctrine frequently cited in subsequent property tax jurisprudence.

• Standard Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd 271 — Cited as authority for the proposition that oil storage tanks are taxable realty, directly supporting the Court's holding.
• Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633 — Cited for the principle that for taxation purposes, things classed as real property may on general principle be considered personal property, supporting the broader tax concept of real property.
• Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328 — Distinguished. In that case, Meralco's steel towers were held not subject to realty tax because they were regarded as poles exempt under Meralco's franchise and were not attached to any land or building, being removable from their metal frames.
• Mindanao Bus Co. vs. City Assessor, 116 Phil. 501 — Distinguished. Tools and equipment in a transportation company's repair, carpentry, and blacksmith shops were held not subject to realty tax because they were personal property, a situation with no parallel to the present case.

• Section 2, Commonwealth Act No. 470 (Assessment Law) — Provides that the realty tax is due "on real property, including land, buildings, machinery, and other improvements" not specifically exempted in Section 3 thereof. Applied as the statutory basis for taxing the tanks as improvements.
• Section 38, Presidential Decree No. 464 (Real Property Tax Code) — Provides for the levy, assessment, and collection of an annual ad valorem tax on real property "such as land, buildings, machinery and other improvements affixed or attached to real property." Applied as the governing provision under which the tanks were assessed.
• Section 3(k), Presidential Decree No. 464 (Real Property Tax Code) — Defines "improvements" as "a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes." Applied as the definitional basis for classifying the tanks as taxable improvements.
• Article 415, Civil Code — Enumerates the kinds of real property. Meralco invoked it to argue the tanks cannot be classified as realty by nature, incorporation, destination, or analogy; the Court did not apply it as the controlling framework, relying instead on the tax law definitions.

Barredo (Chairman), Guerrero, De Castro, and Escolin, JJ., concurred. Concepcion, Jr., J., was on leave. Justice Abad Santos, J., took no part.