CTA Case No. 979 (Decision)

PJ:PU,_ LIC OF Tl L:: PHILIPPINES <X>URT OF TAX APPE,. LS MAT TIL BALANGA POWER PL. \JT / oo. , rr,rc. , C. T . \ . C/ t:! t.JO .. 979 Petitioner , - versus - COMI.USSIOI�JcH 0 ... INTP~:YL REV~NUE , X- - - - - - - - - - X DECISION The petitioner is the gr&ntec of six identical municipal franchises obtained from the municipal coun - cils of Balanga , Orani , Orion , !bucay , Samal , and Pilar , all in the province of Bataan , by authority of Act No . 667 of the Phili ppine Commission for a uni fonn term of thirty-five years in each case . Under said fran - chises , petitioner is requ i red to ~ay 1~ � of its annual gross earnings for the fi~st twenty years and 2Jb" for the remaining fifteen years . From October 1 , 1953 to June 30 , 1957 , it did pay_ 2/S of its gross earnings . On the othe~ hand , respondent claims that petitioner is subj ect to the franchise tax of 5~' of its gross earnings pursuant to Section 259 of the National Inter- nal Revenue Code , as amended , and , consequently , assess- ed against i t a deficiency franchise tax and surcharge in the sum of P26 , 253 . 04. Petitioner contested the as - sessment , and , upon denial thereof , filed the instant appeal . The parties submitted a stipulation of facts ,

DECISION - no . 979 C. T�� C,SE -2 X X X 1. Th at the Balanga Power Plant Co�� Inc., the petit ioner herein , is a Filipino corporati on with offices at Balanga , Bataa n , organized and existing under the laws of the Philippines (See attached ce rtified true copy of the rticles of Incorporation , Annex "Au ; and the respondent is the head of the Bureau of Interna l Revenue ; 2. That the ~etitione r is the grantee of six (6 . municipal franchises to operate an e l ectric power pl ant from the Llunici pal Councils of six municipa lities in the Prov - i nce of ataan , and indicated be low wh ich include the date of the grant : Balanga --- - - -- November 5 , 1928 Orion --------- September 20 , 1929 Abucay ---- --- July 16 , 1930 Pilar -------- July 16 , 1930 Orani -------- September 29 , 1930 :::>ama l - - ------ �. pri l s , 1932 3 . Th at the munici al fr an chise s for Ba langa and Samal were granted under the authority conferred by ct No. 667 of the Philippine Commission (See att2.ched certi- fied true copi es of reconstituted munici- : a l franchis es for alanga and Samal , ~nne xes "Bu and "C" , respectively) ; 4 . That the rate of franchise t ax fix ed in the municipal franchises for Bulanga and Samal is one per cent (11 ) of the gross earn ings of the oe titioner f or the first twenty ye ars and' two pe rcent ( 2J~ ) for the re ma ining fifteen (15) ye ars and the perti - nent provisions of the fr anchise are herein - be lovv quoted : "x X X X X X X X X on con - sidera t ion del privilegio que aqui se concede abonara termestramente a la Tesoraria Provincial de Balanga , el uno !)Or ci ento (1.% ) de los px-i - meros viente afios y el dos por ciento ( ~b ) de los mismos ingresos durant e los quince afi os r es t ant es de l a viqenia de e s t e mismos orivi~ legio. 11 - ' 5. That the original demand f or the amount of Pl2 , 892.91 as deficiency fr an- chise tax for the period from Octobe r 1, 1953 to June 30, 1957 was made on Novem- ber 17 , 1958 (See BIR rec. PP � 26 & 27).

DECISION - C. T. � C/\Sf NO . 979 -3 - This original assessment was amended and increased to i26 , 253 . 04 on the basis of the audit report of the General tuditing Office dated Novem er 3 , 1960 (See BIR rec. p . 65 payment of vvhich was. demanded on January 12 , 1961 (3ee BIR rec . pp . 72-74, ; 6 . That the tax demanded by the res - pondent upon the petitioner herein in the a:nount of v26 , 253 . 04 as deficiency fran- chise tax from October l , 1953 to June 30 , 1957 , is made under the authority of the ruling laid down by the Supreme Court in the tvo related cases entitled "Hoa Hin Co ., Inc . v . Saturnine David , and Silverio Blaquera v. Hoa Hin Co ~, Inc. , G. R. No . L-9616 and L-11783 promu lg atr:d on May 25 , 1959 ; 7. That the petitioner has alread pai d the amount of Pl4 , 228.57 covering the period from October l , 1953 to June 30 , 1957 on the basis of ?4~ �ranchi se tax ; 8. That the defic ienc franchise tax , p3 ment of which is demanded by res9ondent from the petit ioner herein , covers only the difference in the rate of the franchise tax from two percent ( 25~ ) which i s provided in the municioal franchises to five oercent {5/v as provided by Section 259 of the Na - tional Int ernal Revenue Code ; 9. That the only issue involved in the present cas e is whe ther the Balanga Power Plant Co., Inc. is subject to the 2% fr an - chise tax pres c~ibed by the municipal fran- chises or the 5% franchise tax pres cribed by Section 259 of the Tax Code, as amended; 10. That the parties have agreed to present before this Honorable Court such other evidence as may be necessary or re- quired to enable the Court to render a decision on this case. (Se e pages 28-30, c. T. A. records o ) The s ole issue presented is whether petitioner , � as alleged by it, is subject to a franchise tax of 2J~ of its gross earnings, as provided in its franchise, or to the fr anch ise t ax of 5Ji~ as orovided in Section 259 1 of the Revenue Code , as amended , as contended by res- oondent.

DECI ICll! I C.!.A . c~ss NO . 979 -4 - The franchises of l)eti tioner require it to pay a tax of 15~ of its gross earnings for the first twenty ears nnd 2/~ for the remaining fifteen years. Said franchises do not contain any provision to the effect that the pa ment of the franchise tax therein prescribed shall e "in lieu of all taxes of every name anrl nature." On the contrary, said franchises provide that �tos aqui concesionarios , sus sucesores o cesionaries pagaran per sus bienes muebles los mismos imouestos que ex ig e o mas ?delante exigiere la Ley a las denas personas o"l This brings this case , to our mind , within the doctrine enunciated in Hoa Hin Co. , Inc . v~avid, G. R.. No s. L- 9616 and L-11783, May 25 , l959 ,r'herein it was held that the increase rate of franchise tax provided in oection 259 of the evenue Code is apolicable and not the tax provided in the franchise of the grantee. Any attempt to distinguish the instant case from th e case of Hoa Hin Co., Inc. would be futile in view of the similarity of the facts in both cases as evidenced by the following excl,..n. t from said decision : 11 ~'7hile the then Philippine Commis- sion fixed the yearly tax to be paid to the Government by the original grantee , his successors and assigns at the rat e of 1/2 of 1~ of the gross earnings derived from the operation of the sli pway or mar- ine ail1Na' , the grantor reserved its r ight to assess and collect other business or in- come tax on the grantee ' s business. Se c- tion 259 of the rational Internal Revenue Code , as amended , provides that ' whi chever is higher ' etween the rate imposed by the soecial charter of the grantee and the a- ti ona! Internal Re venue Code, shall apply 1conditi on No . 17, Resolution r o. 63 of the Mun. Council of Di1langa , Exh . _; Condition ~Jo . 18 , He solution No . 6? of the l~n. Council of Samal , Exh. C.

DECISION - C. T . A. CA..,2 NO . 979 -5- to Bnd be imposed upon , and paid by , the grantee of the franchise q The rate imposed by section 259 of the ~ational Internal Revenue Code , as amended , being higher than that imposed in the petitioner ' s char- ter , Act No . 1256 , the oetitioner has to pay the rate imposed by section 259 of the Na- tional Internal Revenue Code , as amended . The rule in Manila Railroad Company v. Raf- ferty , 40 Phil. 224 ; Philippine Railway Com- pa ny v. Collector of Internal Revenue , G. R. No . L- 3859 , 25 March 1952; Visa an Electric Comp any v. David , 49 Off . Ga z. 1385; and Carc ar El e ctric & Ice Plant v . Collector of Internal Revenue , 53 Off . Gaz o 1068 , cannot be invoked by the pe titioner , because in the grantee ' s iespective franchises there is a provision that ' Such annual oayments , when promptly and fully made by the grantee , shil e in lieu of all taxes of every name and nature -- muriicipal , provincial or cen- tral -- upon its caoital stock , franchise , right of ~ay , earni~gs , and al l other prop- erty owned or operated by the grantee under this concession or franchise. ' The peti- tioner ' s franchise , Act No . 1256 , does not embody such exemption clause . u It is contended on behalf of peti tl.oner that to apply to it the increased rate of --ta-x--p�r-ovided in Sec - -~-~-~� ----~ .... ���-�� ~ tion 259 of the Revenue Code woul.d re-n� der said section unconstitutional and void because it would impair the ~is obligation of contracts which is expressly prohibited by the Constitution. admitted that all the fran- chises of pet itioner are subj e ct to the reservation clause contained in Section 5 of Act No. 667 , which prov- i es: "Every franchise granted hereunder shall contain a orovision that it is granted subjec t to the power of Congress to alter, modify or reoeal the same in accordance with the Act of Congress enti - tled ' An Act temporarily to provide for the administration of the affairs of civil government in the Philippines Islands, and for other ourposes ,' approved July first, nineteen hundred and two. " There can be no impairment of the obligation of contrac~, ( within the me:Jning of the Constitution , where the grantee

DECISION - CTA C..\.:>~ . O. 979 -6 - of a franchise accepted it su �ect to the right of the grantor to alter , modify or reneal the same , as in the instant case . The contention that Section 259 of the Revenue Code is unconstitutional an void as applied to petitioner , because it violates the constitutional ,revision which for:)ids the enoctment of any law which .shall im0air the obligation of contracts , must e dis - missed as untenable . � I2REFORE , the decision appealed from is affirmed , with costs against ?etitioner. ~0 OF1D ~ 0.ED . Itanila , Septem er 19 , 1962.