CTA Case No. 2613 (Decision)

. ac ODLIO or Tll'l f'R!l.JPPMS rou, T OF TAX lu~PEAL! CHRONICLE BROADCASTING NETWORK, Petitioner, - versus - C.T.A. CAS E NO. 2613 COMMISSIONER OF INTERNAL REVENUE, Respondent. X - � - � - .- - - - -- -X DEC I S I 0 N Petitioner Chronicle Broadcasting, Network i nte rposed this appeal from the decision of t es- p enden t Commi ss ioner oi Internal Revenue dat:ed February 12, 19 74 demandi ng payment of the a mount of Pl65,219.50 as defic iency i ncome tax f o r the year 1 969 . The facts are no t d isputed, the parties having submitted th i s case for dec is ion on the basis of the pleadings and the r ecords of the Bureau of I nternal Revenue pe rtaini ng to this procee'ding.� Petitioner is a corpora tion duly organized and exist.ing under th'e laws of t:.he Philippines with principal off ice at. ABS -CBN Building, Boho l Avenue, Quezon City. In a letter dated May 15, 1973, '1 ') ',1-.lL./.._

DECISION - CTA CASE NO. 2611 - '2 - respondent informed petitiorier that upon investi- gation, there has been found due from it deficiency income tax. for ti:.he year 1969 in the amount of lil65,219.50, details of which are as follows: Net income per investigation - - - - - - - - P349, 959.12 Tax due thereon - - - - - ~ ~ ~ Pll2,486 .00 Add: 25% surcharge - - - - - - - - 28,121.50 ~%mo. int. fr. 4-16-70 to 12-31-72-- 18,278.98 1.167% mo . int. fr. 1-1-73 to 5-�15--�73 - 5,883.02 Compromise for. late filing of return - 300. 00 Compromise for +ate payment - - - - - 150 .00 TOTAL AMOUNT DUE & COLLECTIBLE - ~ - ~ ~ ~ - Pl65,219.50 Petitioner was therefore requested to present. the enclosed assessment notices to the collection agent in the office of the regional director concerned for payment in order that the: case may be cons i dered closed. It. appears that. the deficiency income tax. was arrived at by subjecting 25% of the dividend income of petitioner in that year to the ordinary corporate rate. In requesting reconsiderati6n of the deficiency income tax assessment and eventual cancellation thereof, petitioner, in its letter of July 23, 1973, pointed out to respondent. that. its franchise g,rant provides that the franchise tax payable by it 11 shall .� be in lieu of any and all taxes of any kind, nat.ur.e or description levied, established or collected by any authority whatsoever, municipal, provincial or .~ 44 3

DECISION - CTA CASE NO. 2613 - 3- national, from which taxes the grantee is expressly exempted. " Peti tioner should not therefore be subjected to any other tax except. the franchi se tax. In a letter dated February 12, 1974 1 respondent, however, denied petitioner's request for reconsider- ation and demanded payment o f the deficiency i ncome tax, together with the delinquency penalties incident to late payment. Hence this petition f or review. As special and affirmative defenses in his answer to the petition f or review, respondent avers, among others, that: a. For the year 1969, petitioner received a total dividend income in the amoun~ of ~1,399,836.47; b. Pursuant to the provisions of Section 29(c) of the t hen i n forced National Internal Revenue Code, as amended by Section 10, Republic Act No. 6110, petitioner's dividend i ncome is returnable at twen ty-five percent ( 25 %) .for purposes of the inc ome tax i mposed by Secti on 24 of the same Code; c. Petitioner is liable to the 25% surcharge on its def i cie ncy income tax for 1969 in the amount of i128,121.50, in accordance with the provisions� of Section 72 of the Tai Code; d . In addi tion to the 1969 deficiency income tax liability and the 25% surcharge due thereon, 44:

DECISION - CTA CASE NO. 2613 - .4 - petitioner is also liable to pay the amount:.. of ~18,278.98 as 1% monthly interest on the said defi- ciency from April 16, 1970 to December 3!, 1972 in accordance with the provisions of Section 51 (d)'� as amended by Repub lic Act No. 2343, and ~5,883.02 represen~ing 1.167% monthly interest fr om January 1, 1973 to May 15, 1973 , pursuant to Presidenti a l Dec ree No. 69 . The records show that under Repu blic Act No. 1343, approved June 16 , 1955, as amended by Republic Act No . 5731, approved June 21, 1969, peti~ioner is the grantee o f a legisl ative fran- chise to construct, maintain and operate radio broadcasting stations and stations for television in the Philippines. Said franchise contains an "ipso facto" provision which reads: "In the event of any competing individual, partnership or corporation receiving from the Congress a similar temporary permit in which there shall be any term or terms morP fa vorable th an those here1n granted or tending, to place the herein grantee at any disadvantag.e, then such term or terms shall, ipso facto, become a part of the terms hereof and shall operate equally in favor of the g.rant.ee as in the case of said com- peting individual, partnership or corpo- ration." � Subsequent to the enactmen t of the aforementioned Acts, Congress passed Republic Act No . 2036 , granting 44 5

� DECISION - CTA CASE NO. 2613 - 5- the Radio Communications of the Philippines, Inc., a f ranchise to operate radio stations for the reception and transmission of wireless messages, which was later amended by Republ1c Act. No. 4054 . Section 1 of Republic Act No. 2036, as amended by Republic Act No . 2963, provides: "Sec. 1 . Subject to the provisions of the Constitution, and to the provisions, not 1nconsistent herewith, of Act Numbered Three Thousand Eight Hundred and Forty-six, entitled 1 An Act providing for the reg,ulation of radio stations and rad1o communications in the Philippine Islands, and tor 6ther purposes; 1 Commonwealth Act Numbered One Hundred Forty-six, known as the Pu_blic Ser - vice Act, and their amendments, and other applicable laws, there is hereby g,r.ant.ed t.o the Radio Communications of the Philippines, Inc., its successors or assigns the right and privilege of constructing, installing, establishing and operating in the Philippines, at. such places as the said corporation may select and the Secretary of Public Works and Communications may approve , rad i o stations for the reception and transmission of wire- le ss messages or radiotelegraphy -and/or rad io telephony, including both coastal and marine telecommunicat ions, each station to consist of. two radio apparatus compris1ng of the receiving and sending radio apparatus, stations for international telecommunications and stations for broadcasting, including television." And Section 14 of the same Act, as amended by Republic Act No . 4054, reads: "Sec. 14. In consideration of the franchise and rights hereby granted to and any provision of law to the contrary notwithstanding, the grantee shall pay 44 G

DECISION - CTA CASE NO. 261J - 6- the same taxes as are now or may here- after be required by law from other ind1vidua1s, co-partnersh1p, privat.e, public, or quasi-public as soc ia t i-ons, corporations or joint~ stock companies, real estate, buildings and other personal property except radio equipment., machinery and spare parts needed in connection with the business of the grantee, which shall be exe mpt fr om customs duties, tariffs and other taxes, as well as those pro- perties declared exempt in this section. In consideration of the franchise, a tax equal to one and one-half per centum of all gross receipts from the business transacted under this franchise by the grantee shall be paid to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act. Said tax shall be in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provin- cial or national, from which taxes the grantee is hereby expressly exempted." As posed by respondent, the issue is whether petitioner, a franchise holder granted in 19~5, liable to tax of 1~% of gross earnings in lieu of all other taxes, is subject to income tax pursuant to Republic Act No. 5431, amending the income tax on corporations, enacted in 1968. Four-square with the instant case on this po1nt, by reason of the identical fa ctual setti~gs, the exact or close s~milarity between tne franchises and the laws involved and the issue litigated, is ABS-CBN Broadcasting Corporation vs. Commissioner 44 7

DECISION - CTA CASE NO. 2613 - 7- of Internal Revenue, CTA Case No. 2727, Febru ary 25, 1981. In that case, respondent Commissioner of Int-ernal Revenue assessed ABS-CBN Broadcasting Corporation def i ciency income tax for the year 1969 on its gain from the sale of investments. Against said assessment, ABS-CBN pointed to the terms of its franc hise - Republic Acts Nos. 511 and 512 in connection w1th Republic Acts Nos. 2997 and 4054 - that the franchise tax it pays is in lieu of "any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provinc ial , or national". Hence, ABS-CBN can not be subjected to income tax, or to any other tax, except the franchise t .ax. The Court disposed of the same charge and contention in clear and unequivocal terms in the following wise: "This position of petitioner however at once l oses its base and support on the face of Section 24(d) of the then in force National Internal Revenue Code , as amended by Republic Act No. 5431, effective June 27 ,� 1968, which provides that "the provisions of existing specfal or general laws to the contrary notwithstanding, all corpo- r ate taxpayers not specifically exempted under Sections 24(c) (1) and 27 of the Code shall pay the rates of income tax provided 4 4 <J

DECISION - CTA CASE NO. 2613 - 8- in this section . " (now Sections 24(g) of the 1977 National Inter na l Revenue Code.) Otherwise stated , as expressed by this Court in Koronadal Elec tric Light - and Power Co., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 2600, June 26, 1979, and reiterated in Rura l Bank of Calinog, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 2658, January 30, 1981~ "x x x x Section 24 (d) .was evidently meant to be appl i cable even to corporations enjoying i ncome tax exemption before the enactment of R.A. ~431 . Other- wise, there would have been no need for said exclusion. The resulting conclusion is that outside o f those referred to in Sections 24(c) (1) and 27 of the Tax Code, all coq)or a tions whose li ability for income t ax was before governed by general laws or special statutes applicable to designated classes or groups of corporate entities, are now subject to the rates prescribed in R.A. 5431." (Excerpts from the Opinion of the Secretary (now Minister ) of Justice con- tained in a 3rd indorsement to the Secretary (now Minister of Finance dated March 28, 1969) ". This Court further ruled in ABS-CBN Broadcasting Corporation , citing Koronadal Electric Light and Power Co. Inc. vs . Commi ssioner of I nternal Reven ue, CTA Case No . 2600, June 26, 1979 , that the i mpos ~tion of the corporate incoJlle tax as prescribed by Republic Act No . 5431 amending Section 24(d) _of the National Internal Revenue Code on grantees of franchise that 4 4 ._,

DECISION - CTA CASE NO . 2613 - 9- are enjoying tax exemption is not violative of the constitutional command that no law i mpairing the obligation of contracts shall be passed, in view of the constitutional provision that no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration or repeal when public interest so requires. (Sec. 5, Art . XIV, 1935 Constitution, under which the fran- chise of peti tioner was granted. ) And on petitioner's argument that the franchise tax imposed under its franchise is a "commutative tax " , compounding or commuting for a just: equivalent all other t axes payable by it, paymen t o f which would give rise to exemption fr om other taxes, this same contention has likewise been disposed o f in ABS-CBN Broadcasti ng Corporation , quoting Koronadal, in the following words: "Petitioner claims, however, that Republic Act No. 5431 d id not r epeal or revoke its exemption fr om income tax because the franchise tax provided in its franchise i s a commu t at i v e tax, com- pounding or commuting for a just equivalent all o ther t axes , including the i ncome tax, payable by i t, in vi ew of t he "in lieu of a ny and all t axes " prov i sion of i ts special ch arter . Hence~ paymen t of the franchise t ax includes payment of its income tax. XXX XXX XXX XXX � Assum i ng that th e li ab ili ty of peti- t i oner for i nc ome tax is gover ned by its

DECISION - CTA CASE NO. 2613 - 10 - franchi s e or special charter because the franchise tax payable by it includes the paymen t of its income tax, it is quite apparent and explicit under the terms of the amendatory law that all corporate tax- payers whose liability or non -l.iabili t.y f o r income tax is governed by general or special laws 1 unless specifically exempt under Sections 24(c) (1) and 27 of the National Internal Reven~e ~ode, are now required to pay the rates of income tax specified in Section 24 of the Code as amended by Republic Act No. 5431 . The amendatory law employs the words 11 all corporate taxpayers not specifically exempt under Sections 24(c) (1) and 27 of this Code 11 - without more. Nothing. there said speaks of the exemption of corpo- rations paying, a commutative t.ax or not paying any income tax prior to the enactment of Republic Act No. 5431. No justification can be found, therefore, for reading into the law an exemption which is not there. We cannot ignore the principle that express men- tion in a statute of an exemption preclud.es reading others into it. (Manila Electric Company vs. Misael Vera, L-2 99 87, and Manila Electric Company vs. Benjamin Tabios, L-23847, October 22, 1975, 67 SCRA 351, citing Hoard vs. Sears, Roebuck & Co., 122 Conn . 185, 193, 188, A.269) On this point, respondent correctly argues, quoting the opinion of the Secretary (now Minister) of Justice, contained in his 3rd Indorsement to the Secretary (now Minister) of Finance, dated March 28, 1969, that : 11 The contention that Republic Act No. 5431 merely intended to change the existing rates of corpo- rate tax applicable to corporations already subject to income tax and not to lift the tax exemptions granted by special law, is without merit, just as the argument that the� term ' corporate taxpayer ' should be construed as referr i ng only to those corporations already subject to tax at the time of the amendment . For

DECISION - CTA CASE NO. 2613 - 11 - in provid1ng f or the general appli- cation of the new tax rates and e x- pressly excluding ther efrom ' al l corporate t axpayer s ' not spec.if ically exempt under Section � � � � 27 of this Code ' which signific antly ref er to entities wholly e xempt fr om inc ome t ax, Sect i on 24(d) was e v idently meant to be appl ic able even to corporation s enj oy i ng income tax exemp tion before t he enactment of R.A. 5431. Otherwise, there would have been no need for said e xclusion . The resulting conclusion i s tha t outside of those r efer red t:o in Sections 24(c ) (1) and 27 of the Tax Code , al l c orpora tions whose liabili t y f or income tax was before governed by gene r al laws or special statutes appli- cable to designated classes or groups of corporate entities, are now subject. to the rate s prescribed in R.A. 5 431 ." Accordi ng ly , we fi nd no valid and cogent reason to modify, much less depart , f rom the conclusion reached in Koronadal and Rural Bank of Calinog, as reiterated in ABS-CBN Broadc a st ing, and the same should resolve the ident ical problem now brought be fore us in t h is proceeding. Consequently, the dividend income in the a mou nt of Pl,399, 83 6.47 received by petitioner i n 1969 is subject to i ncome tax . We, ther efore , find no merit in the instant. petition for review and the decision of respondent Commission er of Internal Revenue finding petitioner Chronicle Broadcasting Network liable for the amount of Pl65,219.50 representing deficiency income tax

DECISION - CTA CASE NO. 2613 - 12 - fo r the year 1969 must be sustained. The comp~omise penalty (~30 0 .00 f or late filing of return and ~150.00 f or l a te payment) in the amoun~ of ~450.00 suggested by res ponden t in his deficiency assessment should not. however be impo sed or collected without the agreement and c o n:E.ormi ty of peti t .ioner . And it. does not appear that petitione r accepted the i mpo - sition o f the compromise amount . (Wonder. Mech a nical Engineering Corporation vs. Court of Tax Appeals, L-22805 & 27 8 58 , June 30, 1975, 64 SCRA 555; see also Collector of Internal Revenue vs. University of Santo Tomas, L-11274 & L-11280, November 28, 1958, Fa ir , Inc. vs. Collector of Internal Revenue, L-12928 & L-12932 , March 31, 1962, 4 SCRA 774.) . Accordingly, petitioner is ordered to pay respondent the sum of ~164 ,7 69.50 as deficiency income tax for the year 1969, plus the s urcharge and interest which have accrued thereon incident to delinquency, pursuant to Section 51 (e ) _o f the Nat.ional I nternal Revenue Code, as amended. WHEREFORE, t h e decision appealed from is hereby modif ied in the sense 'that. the compromise penalty should not be imposed and is affirmed in all other respects . With costs against petitioner .

DECISION - CTA CASE NO. 2613 - 13 - SO ORDERED. Quezon City, Metro Manila, October 28, 1982. ~E/ Presiding Judge WE CONCUR: copAN~'E !SSOCla �e