LocGov Digest by M.

Dizon
Fundamental Principles, Authority and Limitations
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Provincial Assessor of Agusan del Sur v. Filipinas Palm Oil Plantation, Inc.
G.R. No. 183416 | October 5, 2016 | Leonen, J.

Parties:

PETITIONER RESPONDENT

Provincial Assessor of Agusan del Sur (Provincial Filipinas Palm Oil Plantation, Inc. (Filipinas)
Assessor)

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 Local Government Code and not the Civil Code.
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
CASE SUMMARY
Trigger word/s: exemption privilege of cooperatives extends to lessees, machinery def’n governed by LGC

FACTS: Filipinas, a private organization engaged in palm oil plantation with NDC lands in Agusan del Sur,
argued against the Provincial Assessor’s act of imposing real property taxes against it for its properties within
the plantation. Prior to the Provincial Assessor’s assessment, the NDC lands where Filipinas’ plantation
is located were transferred to CAR Law beneficiaries, who formed themselves as the NGPI-NGEI
Cooperatives (the cooperatives).

The Provincial Assessor argued that the exemption privilege granted to registered cooperatives do not extend
to lessees like Filipinas, and the road equipment and mini haulers used by Filipinas are classified as
machinery under the LGC, which prevails over the Civil Code description of machinery.

ISSUE: W/N the exemption privilege of NGPI-NGEI from payment of real property tax extends to
Filipinas as lessee of the land owned by cooperatives—YES.

W/N Filipinas’ road equipment and mini haulers are movable properties—NO.

HELD: [Issue 1] The LGC exempts all real property owned by cooperatives without distinction. That the real
property is leased to an individual or corporation is not a ground for withdrawal of tax exemption.
Furthermore, the roads constructed by Filipinas within the leased area should not be assessed with real
property taxes, as the roads constructed became permanent improvements on the land owned by the
cooperative by right of accession under the Civil Code. Despite the land being leased by respondent when
the roads were constructed, the ownership of the improvement still belongs to NGPI-NGEI. Hence, whatever
is incorporated in the land, either naturally or artificially, belongs to the NGPI-NGEI as the landowner.

[Issue 2] The LGC prevails over the Civil Code. Between the Civil Code, a general law governing property
and property relations, and the LGC, a special law granting LGUs the power to impose real property tax, the
latter shall prevail. Therefore, for determining whether machinery is real property subject to real property tax,
the definition and requirements under the LGC are controlling. Thus, the road equipment and mini haulers
should be assessed for real property taxes.
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
FACTS
• Filipinas is engaged in palm oil plantation with National Development Company (NDC) lands in
Agusan del Sur. The area contained a milling plant, 3 plantation roads, and a number of residential
homes for Filipinas’ employees.
o After the Comprehensive Agrarian Reform (CAR) Law was passed, NDC lands were
transferred to CAR Law beneficiaries who formed themselves as the NGPI-NGEI
Cooperatives. Filipinas entered into a lease contract agreement with NGPI-NGEI.
• The Provincial Assessor, a government agency charged with the assessment of lands under the
public domain, assessed Filipinas’ properties within the plantation area, which Filipinas assailed
before the Local Board of Assessment Appeals (LBAA).
1
LocGov Digest by M. Dizon
Fundamental Principles, Authority and Limitations
o Filipinas argued that the Provincial Assessor erred when it 1) imposed real property taxes
against Filipinas as the roads, bridges, culverts, pipes and canals belonged to the
cooperatives, and 2) included haulers and other equipment, which are unmovable, as taxable
real properties.

CASE TRAIL
• 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. Also considered the road equipment and mini
haulers as movables that are vital to Filipinas' business.
• CBAA – ruled that Filipinas should not be made to pay for the real property taxes due on the roads
starting from January 1, 1991; that it is not liable to the Government for real property taxes on the
lands owned by the cooperative; and that the road equipment and haulers are not real properties, and
Filipinas is not liable for real property tax for them.
• CA – sustained CBAA decision, ruling that under Sec. 133 (n), LGC, the exercise of taxing powers of
provinces, cities, municipalities and barangays shall not extend to the levy of taxes on cooperatives
registered under the Cooperative Code. Sec. 234 (d), LGC exempts real property owned by duly
registered cooperatives from payment of real property tax.
▪ Neither provision specifies that the exemption only applies to real properties used by
the cooperatives. The exemption privilege thus extends to Filipinas as the
cooperatives’ lessee.
o On the roads constructed by Filipinas, held that although it is undisputed that the roads were
built primarily for Filipinas' benefit, the roads should be tax-exempt since these roads were
also being used by the cooperatives and the public.
o Agreed with the CBAA that the roads Filipinas constructed had become permanent
improvements on the land owned by the cooperatives, and these roads redound to the benefit
of the cooperatives under the right of accession.
o On the road equipment and mini haulers, CA agreed with the CBAA that these are only
movables.
▪ Relied on Sec. 199 (o), LGC, which defines machinery subject to real property taxation,
and held that the provision should be construed to include machineries covered by the
meaning of real properties provided for under Art. 415 (5), CC.
▪ Machinery that is movable by nature becomes immobilized only when placed by the
owner of the tenement, but not so when placed by a tenant or any other person having
a temporary right unless this person acts as an agent of the owner. (Davao Sawmill
Company v. Castillo) Thus, the mini haulers and other road equipment retain their
nature as movables.
• The Provincial Assessor filed a Petition for Review with the SC, arguing that cooperatives cannot
extend its exemption from real property tax to taxable persons; that the LGC provides that real
property taxes are assessed based on actual use; and the exemption of cooperatives applies only
when it is the cooperative that actually, directly, and exclusively uses and possesses the properties.
o Also claimed that Sec. 199 (o), LGC specifically covers the road equipment and mini haulers
since they are directly and actively used to meet the needs of Filipinas’ business.
o Art. 415, CC, should not be made to control the LGC, which is a subsequent legislation that
specifically defines “machinery” for taxation purposes.
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
ISSUES & HELD

1. W/N the exemption privilege of NGPI-NGEI from payment of real property tax extends to Filipinas
as lessee of the land owned by cooperatives—YES.
● Nothing in the law suggests that the real property tax exemption only applies when the property
is used by the cooperative itself. The LGC exempts all real property owned by cooperatives
without distinction.
o That the real property is leased to an individual or corporation is not a ground for
withdrawal of tax exemption.
● The roads constructed by Filipinas within the leased area should not be assessed with real
property taxes.

2
LocGov Digest by M. Dizon
Fundamental Principles, Authority and Limitations
o The roads constructed became permanent improvements on the land owned by the
cooperative by right of accession under the CC. 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 CC, 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.
o Although the roads were primarily built for respondent's benefit, the roads were also being
used by the members of NGPI and the public. Further, 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.

2. W/N Filipinas’ road equipment and mini haulers are movable properties and have not been
immobilized by destination for real property taxation—NO.
● Sec. 199 (o), LGC prevails over Art. 415 (5), CC.
o Harmonizing the two provisions would necessarily mean imposing additional requirements
for classifying machinery as real property for real property tax purposes not provided for,
or even in conflict with, the provisions of the LGC. Under the CC, the requisites for
immovables by destination (which include machineries) become immobilized are:
(a) they are placed in the tenement by the owner of such tenement;
(b) they are destined for use in the industry or work in the tenement; and
(c) they tend to directly meet the needs of said industry or works.

Requisites (a) and (b) are not found anywhere in the LGC.
o Between the CC, a general law governing property and property relations, and the LGC,
a special law granting LGUs the power to impose real property tax, the latter shall prevail
(lex specialis derogant generali). Therefore, for determining whether machinery is real
property subject to real property tax, the definition and requirements under the LGC are
controlling.
● Under the LGC, the road equipment and mini haulers are classified as machinery.
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
RULING:
Petition PARTLY GRANTED. CA decision affirmed with modification, in that the road equipment and mini
haulers should be assessed with real property taxes.
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––