Case Digest: Caltex (Philippines), Inc. vs. Central Board of Assessment Appeals and City Assessor of Pasay

G.R. No. L-50466               May 31, 1982

FACTS:

Various machines and equipments are loaned by Caltex to gas station operators under an appropriate lease agreement or receipt.  These are underground tanks, gasoline pumps, water pumps, car washer and air compressors, among others. It is stipulated in the lease contract that the operators, upon demand, shall return to Caltex the machines and equipment in good condition as when received. The lessor of the land, where the gas station is located, does not become the owner of the machines and equipment installed therein. Caltex retains the ownership thereof during the term of the lease.  The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable realty.  However, the city board of tax appeals ruled that they are personalty.

The City Board of Tax Appeals decided that the definitions of realty and personalty under the Civil Code do not apply in this case.  Instead, the definition under the Real Property Tax Code should be followed.  Thus, the property in controversy are real in nature and subject to realty tax.

ISSUE:

Whether the pieces of gas station equipment and machinery already enumerated are subject to realty tax.

HELD:

The Court held that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code.  Under the Real Property Tax Code, “improvements” are defined as “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.”  On the other hand, “machinery” is embraces “machines, mechanical contrivances, instruments, appliances and apparatus attached to the real estate.”  Improvements on land are commonly taxed as realty even though for some purposes they might be considered personalty.