28-Tax-Capitol Wireless Inc vs. Provincial Treas. of Batangas

CAPITOL WIRELESS INC. VS.
PROVINCIAL TREASURER OF BATANGAS

G.R. No. 180110. May 30, 2016
The general rule is to require the taxpayer to first avail of administrative remedies and pay the tax under
protest before allowing any resort to a judicial action, except when the assessment itself is alleged to be
illegal or is made without legal authority.
Facts
Petitioner Capitol Wireless, Inc. (Capwire) is Philippine corporation in the business of providing
international telecommunications services. Capwire claims that it is co-owner of the so-called "Wet
Segment" of the Asia Pacific Cable Network System (APCN). Moreover, it alleged that the Wet Segment
is laid in international, and not Philippine, waters; thus exempt from real property tax. The particular
machinery contemplated here were submarine cable systems.
However, the Provincial Assessor still issued the assessments on said machineries. This was contested
by Capwire reasoning yet again that cable system lies outside of Philippine territory, i.e., on international
waters.
Capwire received a Warrant of Levy and a Notice of Auction Sale, from respondent Prov’l Treasurer.
Thus, Capwire filed Declaration of Nullity of Warrant of Levy, Notice of Auction Sale and/or Auction Sale
with the RTC.
RTC: Dismissed the petition for failure of the petitioner Capwire to follow the requisite of payment under
protest as well as failure to appeal to the Local Board of Assessment Appeals (LBAA), as provided for in
Sections 206 and 226 of Republic Act (R.A.) No. 7160.
CA: Affirmed RTC decision.
Before the SC, Capwire asserts that recourse to the LBAA, or payment of the tax under protest, is
inapplicable to the case at bar since there is no question of fact involved. Rather, it contends that there is
only a pure question of law since the issue is whether its submarine cable system, which it claims lies in
international waters, is taxable. Capwire holds the position that the cable system is not subject to tax.
SC: In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest before allowing any resort to a judicial action,
except when the assessment itself is alleged to be illegal or is made without legal authority. Stated
differently, the general rule of a prerequisite recourse to administrative remedies applies when questions
of fact are raised, but the exception of direct court action is allowed when purely questions of law are
involved.
The Court sustains the CA's finding that petitioner's case is one replete with questions of fact instead of
pure questions of law, which renders its filing in a judicial forum improper because it is instead cognizable
by local administrative bodies like the Board of Assessment Appeals, which are the proper venues for
trying these factual issues.
Verily, what is alleged by Capwire in its petition as "the crux of the controversy," that is, "whether or not an
indefeasible right over a submarine cable system that lies in international waters can be subject to real
property tax in the Philippines," is not the genuine issue that the case presents — as it is already obvious
and fundamental that real property that lies outside of Philippine territorial jurisdiction cannot be subjected
to its domestic and sovereign power of real property taxation — but, rather, such factual issues as the
extent and status of Capwire's ownership of the system, the actual length of the cable/s that lie in
Philippine territory, and the corresponding assessment and taxes due on the same, because the public
respondents imposed and collected the assailed real property tax on the finding that at least a portion or
some portions of the submarine cable system that Capwire owns or co-owns lies inside Philippine
territory. Capwire's disagreement with such findings of the administrative bodies presents little to no legal
question that only the courts may directly resolve.
Nonetheless, We proceed to decide on whether submarine wires or cables used for communications may
be taxed like other real estate.
Issue: W/N its submarine cable system, which petitioner claims lies in international waters, is
taxable.
Ruling: Yes.
Submarine or undersea communications cables are akin to electric transmission lines. The Court sees no
reason to distinguish between submarine cables used for communications and aerial or underground
wires or lines used for electric transmission, so that both pieces of property do not merit a different
treatment in the aspect of real property taxation. Both electric lines and communications cables, in the
strictest sense, are not directly adhered to the soil but pass through posts, relays or landing stations, but
both may be classified under the term "machinery" as real property under Article 415 (5) of the Civil Code
for the simple reason that such pieces of equipment serve the owner's business or tend to meet the
needs of his industry or works that are on real estate.
Thus, absent any showing from Capwire of any express grant of an exemption for its lines and cables
from real property taxation, then this interpretation applies and Capwire's submarine cable may be held
subject to real property tax.
Having determined that Capwire is liable, and public respondents have the right to impose a real property
tax on its submarine cable, the issue that is unresolved is how much of such cable is taxable based on
the extent of Capwire's ownership or co-ownership of it and the length that is laid within respondents'
taxing jurisdiction. The matter, however, requires a factual determination that is best performed by the
Local and Central Boards of Assessment Appeals, a remedy which the petitioner did not avail of.
Petition is denied.

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CAPITOL WIRELESS INC. VS.

PROVINCIAL TREASURER OF BATANGAS

CA: Affirmed RTC decision.

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