CTA Case No. 2426 (Decision)

-====--=='====--------. . .--------------... . -~...-IIWO.o-........ lt!PURU~ 0 TRI PIIILJPPIN\ta COURT OF TAX AP QU ZON CITY RADIO COHHUNICA'l'IONS OF THE PHILIPPINES, INC., Petitioner, - versus - C.T.A. CASE NO. 2426 THE COMHISSIONER OF INTERNAL REVENUE, Respondent. X- - - - ------X DE C I S I 0 N Petition filed in this Court by Radio Communications of the Philippines, Inc., (RCPI) for review of the decision of respondent Commissioner of Internal Revenue dated June 16, 1972, denying the protest filed by it against the correctness and validity of a deficiency assessment for income tax and franchise tax, and rei- terating his demand for payment of the taxes involved therein, ~etails of which are computed as follows: I. INCOME TAX 1970 Net operating income per return - - - - None ~dd: (a) Net operating income (including extraneous income credited to expenses Pl61,398 .04 - - - - - Pl,210,553.00 (b) Special Messengers fee (extraneous income) - - - - - 1,232,131.87 (c) Provision for doubtful accounts (unallowable deduction) - - - 312,191.00 TOTAL TAXABLE INCOME - - - P2,754,875.87 _ TAX DUE THEREON - - - - - - - 954,207.00 Less amount already paid - - - - N 0 N E De f iciency Tax - - - - - - 954,207.00 I nter est, 4-16-71 to 12-15-71- 38,168,28 TOTAL TAX DUE & COLLECTIBLE p 992 ,3 75.28 vvvvvvvvvvvvv

DECISION - CTA CASE NO. 2426 - 2- 1969 Net Income per return - - - - - - No n e Add: (a) Net Operating Income - - Pl,277,079.00 (b ) Special Messengers Fee (extraneous income ) - - - 1,013 , 803.57 (c) Provision for doubtfu l a ccounts 67,741.~0 TOTAL TAXABLE INCOME - - - P2,358,623.57 Tax Due Thereon - - - - - - - 815,518.00 Less amount already paid N0 NE Deficiency Tax --- 815,518.00 Interest, 4-16-70 to 12-15-71 81,551.80 TOTAL TAX DUE & COLLECTIBLEP 897,06 9 .80 vvvvvvvvvvvvv 1968 Net Income per return - - - - - - - - No n e Add: Net Income from opera tions (including extraneous i ncome of P62,678 . 52) half year only - P 150,585.50 g Provision for doubtful accounts - - 141,739.00 TOTAL TAXABLE INCOME - - 292,324.50 TAX DUE THEREON - - - - - 91 , 373.00 Less amoun t already paid - N0 NE Deficiency Tax - - - - --- 91,373 . 00 Interest, 4-16- 69 to 12- 15- 71 14,619 . 68 TOTAL TAX DUE & COLLECTIBLE - !_105,992.68 vvvvvvvvvvvvv 1967 Net Income per return - - - - - - - - No n e Add: (a) Other Income - - - - - - - - ~PP--~4~411~,,~111~111~ ~.. ~00~33 TOTAL TAXABLE INCOME - - - TAX DUE THEREON - - - - - - - - - 9,044.00 Less amount already paid - - - - No n e Deficiency Tax --- 9,044.00 Interest Maximum - - - - 1,671.92 TOTAL TAX DUE & COLLECTIBLE - �l 10,671.92 vvvvvvvvvvvvv 1966 Net Income per return - - - - - - - - No n e Add: (a) Other Income - - - - - - P 21,254.92 TOTAL TAXABLE INCOME ~--~2~1~,~2~5~4.~~9~2 TAX DUE THEREON - - --- 4,676 . 00 Less amount already paid No n e Deficiency Tax --- 4,676 . 00 Interest Max imum - - - - - - 841 .68 TOTAL TAX DUE & COLLECTIBLE�1 5,517. 68 vvvvvvvvvvvvv

DECISION - CTA CASE NO. 2426 - 3- II. FRANCHISE TAX: 1970 Gross revenue per investigation - - Pl8,005,108.68 Franchise Tax Due thereon (1-1/2%) 270,076 . 63 Less amount a lready pa id --- 251 ,594 .65 Deficiency Tax - - - - - - - - - 18,481.98 25% Surcharge - - - - - - - - - - 4,620.50 fRANCHISE TAX STILL DUE & COLLECTIBLE p 23,102.48 vvvvvvvvvvvvvv 1969 Pl3,987, 782.44 1 ,013,803.57 Gr oss revenue pe r books - - - - - - Add : Special Messengers fee - - - - - - Pl 5,001,586.01 Gross Revenue per i nvestigation FRANCH ISE TAX DUE THEREON (1-1/2% ) p 225,023.79 Less amount already paid - - - - - - 211,427.38 13,59 6 .41 Deficiency Tax - - - - - - - - 25% Surcha rge - - - - - - - - - 3,399.10 FRANCHISE TAX STILL DUE & COLLECTIBLE - p 16,995.51 vvvvvvvvvvvvvv The ~ertinent facts , including the issues involved in this case, as stipulated and subm itted by the parties, are the following : JQlNT PARTIAL STIPULATION OF FACTS COI1E NOW the parties through their respective counsel, respectfully submit the fo llowing partial stipulation of facts: 1. That peti tioner is a corporation duly organ i zed and existing under and by virtue of the laws of the Philippines with principal place of business at New York Street a nd Epifanio de los Santos Avenue , Cubao, Quezon City , while respondent is the duly authorized Commissioner of Internal Re ve nue with Off i ce at the Department of Finance Bu ilding, Manila: 2. That pur s uant to Republic Act No. 2036 as amended by Republic Act No. 4054, petitio n~r was granted franchise to establish radio stations for the reception and transmission of wireless mess ages on radio telegraphy and/or radio telephony , 1. 0

DECISION - CTA CASE NO . 2 4 26 - 4- i ncluding coastal and marine telecommunications throughout the Philippines1 3. That in a letter dated December 1, 1971 respendent assessed and demanded from petitioner the following amounts: A. De f iciency income taxes 1966 - p 5,517.68 10,671.92 1967 - 105 , 992 .68 1968 - 506,755.70 543,878.40 1969 - 1970 - Total - 1!11,172,816.38 B. Deficiency franchise taxes 1969 - p 16,995.51 197 0 270,076 . 63 Total - p 287,072.14 (gp. 167-172, BIR records) 4. That in a letter dated February 2, 1972, petitioner through counsel protested the assess- ment and r equested the cancellation thereof (pp. 186-191, BIR records)1 5. That in a letter dated June 16, 1972 , respond en t denie~ the protes t of the petitioner and reiter a ted the demand for the fo llowi ng amounts : A. I nc ome taxes - 1966 - p 5,517.58 1967 - 10,671.9 2 105,992.68 1968 - 897,069.80 1969 - 992,375.28 1970 - Total- 1!12,011,627.36 B. Fr~nchise tax - 1969 - p 16,995.51 1970 - 23!102.48 Total- p 40,09 7. 99 (pp. 193-203, BIR records) 11

.------ - - - - - - - - - - - - - -- - - -- - - -- - - - - - - - . . . , .......-_ . . .,.... f DECISION - CTA CASE NO. 2426 - 5- I S S UE S 6. The issues in this case are as follows: a. Whether or not the provisions of Republic Act 2036 as amended by Republic Act 4054 exempt petitioner from payment of income tax : b. Whether or not the provi sions of Republic Act 5431 (now Sec. 24Ld7 of the Nat i onal Internal Revenue Code as amended) is applicable to the franchise of the petitioner : c. Whether or not petitioner should be taxed for income arising from business activities not covered by the franchise; and d. Whether or not the "special messenger f ees" collected by petitioner should be i ncluded as part of the taxable gross receipts subject to franchise tax. 7. The parties hereby reserve their rights to introduce adjitional evidence not covered by this Partial St ipulations of Facts in support of their respective contentions . Appropria te to state here is that under its original franchise granted by Republic Act No. 2036 in 1957 (Exh. "E-1", p. 178, BIR records), petitioner was subject to franchise tax and income tax. In 1964 , Republic Act No. 2036 was amended by Republic Act No. 4054. (Exh. "E", p. 179, BIR records.) Under the amended franch~se, petitioner was, and still is, subject to a franchise 'tax equal to one and one - half ~ centum of all gross receipts from the business transacted under this fra nchise by the grantee . " By virtue, how- ever, of t he addition of the following provision t o Section 14 of Republic Act No. 2036, by Section 2 of -~ ') 1. f-.1

DECISION - CTA CASE NO. 2426 - 6- Republic Act No. 4054: "x x x. Said tax shall be in lieu of any and all taxe~ of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which taxes the grantee is hereby expressly exempted." petitioner considered itself exempted fron income tax. As a matter of fact, on the basis of the above "in lie u of any and all taxes" provision, petitioner has not paid income tax from 1964. On June 27, 1968, Republic Act No. 5431, amending several provisions of the National Internal Revenue Code, was a pprov~d. One of the provisions of the Revenue Code which it amended~s Section 24, with the addition, aside from increasing corporate income tax rates, of paragraph (d), which reads as follows: "(d) The provisions of existing special or general laws to the contrary notwithstanding, all corpo~ate taxpayers not specifically exempt under Sections 24 (c) (1) and 27 of this Code shall pay the ~es provided in this section. All corporations, agencies, or instrumentalities owned or c ontrolled by the Government, including the Gove~nment Service Insurance System and the . Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this sec tion upon associations or corporations engaged in a similar business or industry." It appears that notwithstanding the provision of Section 24{d) of the Code, as inserted by Republic Act No. 5431, the re were rulings issued by the Bureau of Internal Revenue to the effect that the tax exemption 10 .J

' DECISION - CTA CASE NO. 2426 - 7- privilege of franchise grantees is not affected or revoked. Nevertheless, in 1971 an examination of the books of accounts of petitioner for the years 1969 to 1970, inclusive, was conducted by the examiners of respondent. As a result thereof, petitioner was assessed on December 1, 1971 deficiency income tax and franchise tax liabilities. In a letter dated February 2, 1972, petitioner contested the correctness and validity of the deficiency assessment. Respondent, however, rei- terated the assessment in his decision dated June 16, 1972. Hence, the appeal to this Court. Although the parties have presented in their joint partial stipulation of facts four (4) issues to be resolved in this case, petitioner, in its memorandum posed the following issues: 1) Whether or not Section 24(d) of the Tax Code, as .added by Republic Act No. 5431, repealed the income tax exemption of herein petitioner under its franch ise, Republic Act No. 2036, . as amended by Republic Act No. 4054: 2) Whether or not the alleged revocation by respondent of previous BIR rulings, which stated that Section 24(d) did not withdraw the tax exemption of franchise grantees with the "in lieu of any and all taxes" provision, ., ' .1. .j (

I DECISION - CTA CASE NO. 2426 - 8- can be given a retroactive effect , to the prejudice of herein petitioner~ 3) Assuming, without admitting, that the Answer to Issue No. 1 is in the affirmative, whether or not respondent is correct in subjecting petitioner to income tax for the year 19681 4) Assuming, without admitting, that the answers to Issues 1 and 2 are in the affirmative, whether or not the Special Messengers Fees (SMF) are subject to income tax~ 5) Whether or not the Special Messengers Fees (SMF) are subject to franchise tax; and 6) Whether or not petitioner ' s miscellaneous income are subject to income tax notwithstanding the fact that the same were already included in the payment of franchise tax. Since the issues presented by the parties in their partial stipul ation of facts are so intimately related to, and are in fact a ssumed by, the issues posed by petitioner, the Court for clarity and thoroughness, will discuss the issues as set forth by petitioner, and in their order as presented by it . 1. Whether or not Section 24(d) of the National ~rnal Re venue Code repealed the income tax exempti on of petitioner. There seems to be no dispute between the parties that Republic Act No. 4054, amending Republic Act No. 15

DECISION - CTA CASE NO. 2426 - 9- 2036, granted income t ax exemption to petitioner. Res- pondent contends , howeve r, th a t the said income tax exemption was withdrawn with the enactment of RepublicAct No. 5431 which added paragraph (d) to Section 24 of the Revenue Code. A similar issue was recently settled by this Court in Koronadal Electric Light & Power Co., Inc. vs. Commissioner of Internal Re venue, CTA Case No. 260 0 , June l 6 , 1979, whe r ein we ruled tha t the application of Se~tion 24( d ) of the National Internal Revenue Code, as ame nded by Repub lic Act No. 54 31, providing that "The pr ovisions of existing special or general lavn;; to the contrary notwithstanding, all corporate taxpayers not s peci fic ally exempt under Sections 24(c) (1 ) and 27 of this Code shall pa y the rate s provided in this section", to grantees of franchises that are enjoying income tax exemption does not violate the non-impair- men t clause of the Con sti tution. In arriving at the conclusion that corporate franchise holders whose charters contain a provision tha t the payment of the f ranchise tax therein shall be in lieu o f any and all taxes , li ke petitioner he re in, are subject to income t ax with the passage of Republ ic Ac t No. 543 1, this Court made observa t ions , among others, as foll ows : XXX XXX XXX XXX Petitioner submits that as a grantee of a leg islative franchise, it is exempt from 1G

-:.-. ' - -~--:=--=� DECISION - CTA CASE NO. 2426 - 10 - income tax by vhtue of the prov i sion of Section 1 , Republic Act No. 466 (its original franchise ) , as amended by Republic No. 1118, subject i ng the same to the te rms and conditions of the Mode l Fr a nchise Law (Act No. 3636, as amended by Republ i c Act No . 39) which provides t hat the franchise tax imposed therein "shall be in l ieu of any and all taxes of any kind, nature or description levied, established or collected by any authori ty whatsoever x x x." Thi s "in lieu of" provision of the Model Franchise Act has been interpreted by the Supreme Court in Carca r Electric & Ice Plant Co ., Inc., supra, to mean that its incorpor ation i n the franchise of the grantee has the effect of granting such grantee exempt i on from income tax . Since the franchise of petitioner constitutes a contract between the State and petitioner, and the latter accepted the franchise solely upon t he terms and conditions thereof, petitioner argues that the removal or withd r awa l o f its income tax exemption under the f r anchise would naturally diminish the value of i ts franchise and, consequently , a clear violat i on of the constitut ional prov.Sion that no law impairing the obligation of contracts snall be passed. This argument at once loses potenc y on the face of Section 8, Article XIV of the 1935 Constitution, unde r whose-authority the franchi s e of petitioner was granted, which provides that "No franch i se or r i ght shall be granted to any i ndividual, fi r m, or corporation, except under the condition that it shall be subject to amendmen t , alteration, or repeal by Congress when the public interest so requires." Stated otherwise, the power of Congress to amend the franchise, as provided i n the Constitution, is deemed to be a part of said f r anchise . (Hoa Hin vs. David , 105 Phil . 783; Lealda Electric Co., Inc . vs . Comm i ssione r of Internal Revenue, L-16428, Apr il 30, 1963, 7 SCRA 728; Imus Electri c Co . vs . Cou rt of Ta x Appeals, L- 2242 1, Ma r c h 18, 1 96 7, 19 SCRA 612; Guagua El e c tr i c Light vs. Collector o f Inter na l Revenue , L-23611, Apri l 24 , 19 67, 19 SCRA 790 . )

---------------------------------------======================-~~- DECISION - CTA CASE NO. 2426 - 11 - XXX XXX XXX XXX Accordingly, when petitioner accepted its franchise it did so with the understanding that the constitutional and statutory re- servations of the right of Congress, or the National Assembly, to a me nd, alter, modify or repeal petitioner's franchise when public interest so requires became an unwritten condition thereof. Such constitutional and statutor y provisions constitute part of the obligation of c ontracts. As aptly obse r ved by respondent, it is clear from the above- quoted provisions that Congress reserved the right to amend, alter, modify or repeal petitioner's franchise. Since the franchise was accepted by petitioner with full knowledge of the reservation clause, there can be no impairment of the obligation of contracts within the meaning of. the Constitution, where the grantee of a franchise accepted it, subject to the right of the grantor to alter, amend, modify or repeal the same. (Balanga Power Plant Co ., Inc., vs. Commissioner of Internal Revenue, CTA Case No. 979, September 19, 1976; G.R. No. L-2 049 9, June 30, 1965, 14 SCRA 604, cited in Visayan Electric Co. vs. Commissioner of Internal Revenue, CTA Case No. 1105, May 29, 1963; Escudero Electric Service Co. vs. Benjamin Tabios, as Commis- sioner of Internal Revenue, CTA Case No. 1026, G.R. No. L-23014, June 30, 1970, 33 SCRA 547; Manil? Electric Co., Inc . vs. Commissioner of Internal Revenue, L-29987 & L-23847, October 22, 1975, 67 SCRA 351-352.) The im- position of the corporate income tax as pres- cribed by Republic Act No. 5431, amending Section 24(d} of the Na t ional Internal Revenue Code , upon petitioner is not, therefore, violat ive of the constitutional provision that no law impairing the obligation of contracts shall be passed. XXX XXX XXX XXX Not much need be said on petitioner's other point, citing the cases of Manila Railroad Company vse Rafferty, 40 Ph i l . 224, and Philippine Railway Company vs. Collector of Internal Revenue, 91 Phil. 35, that a special law or charter may not be amended, altered, or repealed, by general law, by 1 0 0

DECISION - CTA CASE NO. 2426 - 12 - implication. While it is a canon of sta- tutory construction that a later statute, general in its terms and not expressly repealing a prior special statute, will ordinarily not affect the special provisions of such earlier statute, the clean-up phrase "The provisions of existing special o~ general laws to the contrary notwithstanding" employed in Republic Act No. 5431 is so clear, express, explicit and manifest that it indubitably includes within its broad sweep the franchise or special charter of petitioner. In granting petitioner a legislative franchise to operate an electric light, heat and power system in the muni- cipality of Buayan (now General Santos City), province of South Cotabato, Congress might have considered and made provision for all the circumstances of the particular case, but the power of Congress to amend, alter or repeal when public interest so requires, as provided i n the Constitution and in the franchise of pe titioner, is also a part of petitioner's charter. It cannot, there- fore, be said that Congress, by adopting Republ ic Act No. 5431 prescribing the rates of income tax to be paid by corporations, unless specifically exempt under Sections 24(c) (1) and 27 of the Tax Code, has not included petitioner whose liability for income tax is governed by its special charter, otherwise the clear-cut proviso- "The provisions of existing special or general l aws to the contrary notwithstanding" - foun d in fue law would make little sense. We are no t to indulge, therefore, in s t atutory construction because the law is clear. Our duty is only to apply the law as i t is written. So applying, we rule tha t since petitioner accepted its franchise with the un derstanding of the right of Congress to alter, amend, modify or repeal the same, and it {petitioner) is not specifical ly exempt under Sections 24(c) (1) and 27 of the National Internal Revenue Code, t he impo sition of the income tax as prescri bed by Republic Act No. 5431 amending Section 24(d) of the Tax Code does not violate the non-impairment clause of the Constitution. With this conclusion, it

DECISION - CTA CASE NO. 2426 - 13 - follows that petitioner is liable to pay income tax in accordance with the rates prescribed under the provisions of Section Section 24(d) of the Tax Code as amended by Republic Act No. 5431. In finding no mer i t in petitioner ' s cause, the Court ~annot overlook the well- settled rule _that Jone who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute . Tax exemptions are strictly construed against the taxpayer; they being highly disfavored and may almost be said "to be odious to the law." He who claims an exemption must be able to point to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague i mplication or inference. (Asiatic Petroleum vs. Llanes, 49 Phil. 466, 471; Union Garment Co., Inc . vs . Court of Tax Appeals, L-16809, January 31, 1962, 4 SCRA 304; Philippine Acetylene Co., Inc. vs. Comm issioner of Internal Revenue, L-19707, August 17 , 1967, 20 SCRA 1056; Republic Flour Mills, Inc. vs. Commissioner of Internal Revenue, L-25602 , February 18, 1970, 31 SCRA 520; Commissioner of Customs vs. Philippine Acetylene Co. & Court of Tax Appeals, L-22443, May 29, 1971, 39 SCRA 71; Davao Light and Power Co., Inc. vs. Commissioner of Customs, L-28902 , March v 29, 1972, 44 SCRA 122.) The right of taxation will not be held to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken (Ohio Life Insu ranc e & Trust Co . vs. Debolt, 60 Howard, 416), for the state cannot strip itself of the most essential power of taxation by doubtful words; it cannot, by ambiguous langu age, be deprived of this highest attr ibute of sovereignty (Erie Railway Co. vs. Commonwealth of Pennsylvania, 21 Wallace, 492, 499). So, when exemption is claimed, i t must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim (Farrington vs. Tennessee & County of Shelby, 95 u.s. 679 , 686 ). (As i a - tic Petroleum Co. vs . Llanes, 49 Phil. 466,471; Manila Electric Company vs. Commissioner of Internal Revenue L- 29987 & L-23844 ,

) DECISION - CTA CASE NO. 2426 - 14 - October 22, 1975, 67 SCRA 35l.)~n the same manner, claims for refund are construed strictly against claimants since a claim for refund is in the nature of an exemption from taxation. (Commissioner of Internal Revenue vs. Ledesma, L-17509, January 30, 1970, 31 SCRA 95.) We find no cogent and valid reason to modify, much less depart from the conclus ion reached in Koronada l, as expressed in the above- quoted opinion of the Court there, and the same should resolve the i den t ical problem now brought before us in this appeal. Petitioner asserts, however, that respondent has issued several rulings during the years involved in this case to the effect that Section 24(d) of the Tax Code did not repeal in lieu of any and all taxes pro- visions in franchises. Thus, on June 16, 1969, a ruling was issued by the Bureau of Internal Revenue in the case of Clavecilla Radio System, which was paying a franchise t a~, that Section 24(d) "could not have contemplated the withdrawal of the tax exemption of franchise grantees for such withdrawal would impair the obligations of contracts between the government and the grantee, which is prohibited by the Constitution." (p. 87, CTA rec ord s. ) This was reiterated in BIR ruling 70-041 dated August 13, 1970 (Exh. "DD") ~ and in still another ruling dated January 28, 1972 which was issued by respondent to Globe-Mackay Cable & Radio Corpo- ration in reply to the latter's protest aga inst a

DECISION - CTA CASE NO. 2426 - 15 - deficiency income tax assessment for the years 1965 to 1970. Petitioner therefore alleges that it did not consider itself sub ject to income tax, even after the mdition of Section 24(d) by Republic Act No. 5431, not only because of its honest belief, based on the advice of its tax counsel, that its exempt ion from income tax was not withdrawn by Section 24 (d), but also because of its reliance on the rulings of res- pendent that said Section 24(d) did not withdraw the income tax exemption of franchise grantees whose franchises contain the in lieu of any and all taxes provision. And assuming arguendo that respondent ' s revocation of such rulings when he issued Revenue Memorandum Order No. 15-72 dated May 17, 1972 is correct, petitioner submits that such revocation cannot be given retroactive effect since it would be prejudicial to it, in ac9ordance with Section 338-A (now Section 327) of the National Internal Revenue Code . This brings us to the second issue posed by petitioner: 2. Whether or not the revocation by respond~nt of previous BIR rulings t hat Section 24(d) did not withdraw the income tax exemption of franchise grantees with "in lieu of any and all taxes" provision can be given retroactive effect to the prejudice of petitioner . Petitioner's position calls to mind ABS-CBN Broad- C) ') /.-...# t-.1

DECISION - CTA CASE NO. 2426 - 16 - casting Corporation vs. Commissioner of Internal Revenue, CTA Case No. 2809, November 29, 1979, one of the issues litigated and law involved of which are on all fours with the case at bar . In that case, the taxpayer therein had settled its withholding income tax liabilities for the years 1965 to 1968 on film rentals paid and remitted by it to non-resident foreign corporations not engaged in trade or business in the Philippines in accordance with General Circular No. V-334 dated April 12, 1961 of the Bureau of Internal Revenue. Later on February 8, 1971, General Circular No. V-334 relied upon by the taxpayer was revoked by Revenue Memorandum Circular No. 4-71. Deficiency withholding income tax for the same years was assessed against the taxpayer by the Commissioner of Internal Revenue. In assailing the correctness and validity of the deficiency withholding income tax assessment, the taxpayer therein contended that having relied on and settled its withholding tax liabilities on General Circular No. V-334 which was in force and in effec t at the time, any revocation of circulars or rulings promulgated by the Commissioner of Internal Revenue should not be given retroactive application if it would be prejudicial to taxpayers. This Court disposed of the same charge and contention in clear and unequivocal terms, in the

= ===-=====..... --- --------------------==="==~� ��=� ~==-=- DECIS I ON - CTA CASE NO. 2426 - 17 - following wise: Relying however on the then Section 338-A (now Section 327) National Internal Revenue Code, petitioner assails the retroactive appli- cation of Revenue Memorandum Circular No. 4-71. Section 338-A reads as follows: SEC. 338-A. Non-ret roac tivity of rulings.- Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive appli- cation if the revocation, mod i fication, or reversal will be prejudicial to the taxpayers except in the following cases: (a) where the taxpayer deliberately mis- states or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by t he Bureau of Internal Revenue are materially different from the fac ts on which the ruling is based, or (c) where the taxpayer acted in bad f aith . In dealing with the authority of the Commis- sioner of Internal Revenue to issue and promul- gate (r ulings or) c irculars, it must be stressed that he is not and could not be authorized under the provisions of the National Internal Revenue Code, under which the deficiency withholding income tax here is assessed, to alter, amend or . modify, much less lower, the amount, measure or rate of the tax. That power is vested in the legislature or the law-ma king body. The legis- lature may not delegate the powe r to select the subject person or property to be taxed, the amount or measure of the tax and the definition of the purpose for which the tax shall be levied. (61 C.J. 86.) The only authority given to the Commissioner of Internal Revenue by the Tax Code , in respect of circulars, is to issue and p romul- gat e all necessary circulars (or rulings) for carrying out the provisions of the Code. There- fore, it logically follows that any circular of the Comm issioner of Internal Revenue which would alter, amend or modify the amount, measure or

DECISION - CTA CASE NO. 2426 - 18 - rate of the tax specifically provided by the National Internal Revenue Code would be void. (Greenfield vs. Meer, 77 Phil. 394; Wise & Co. vs. Meer, 78 Phil. 655.) // It seems too clear for serious argument that an administrative officer can not change a law enacted by Congress. A regulation or circular that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Commissioner of Internal Revenue does not, therefore, preclude or estop the Government from collecting a tax which is legally due. (Hilado vs. Collector of Internal Revenue, 100 Phil. 288, citing Ben Stocker, et. al., 12 B.T.A. 1351.) No vested or acquired right can arise from acts or omissions which are aganst the law or which infringe upon the rights of others. (Article 2254, New Civil Code.) It follows that the Commissioner of Internal Revenue is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if there- after the latter become satisfied that a diffe- rent construction should be given. (See Hilado vs. Collector of Internal Revenue, supra, citing Association of Clerical Employees vs. Brotherhood of Railway & Steamship Clerks, 85 F.L2d7 152, 109 A.L.R. 345.) ~ Accordingly, if General Circular No. V-334 of the Commissioner of Internal Revenue under which petitioner computed and deducted the with- holding income tax due on the film rentals and royalty it remitted to non-resident foreign corporations and foreign film distributors not engaged in trade or business within the Philippines is not in conflict with the law, then the with- holding and payment to the Bureau of Internal Revenue of only thirty per cent (30%) of ONE- HALF of such film rentals and royalty did not result in any deficiency withholding tax lia- bility of petitioner. On the other hand, it is axioma t ic that if, under the law, petitioner as local film exhibitor should deduct and withhold thirty per cent ( 30%) of the entire amount of film rentals or royalty it remitted to foreign corporations not engaged in trade or business

DECISION - CTA CASE NO. 2426 - 19 - within the Philippines, it is self-evident that petitioner is still liable for the deficiency withholding income tax assessed against it by respondent. Any erroneous interpretation of the law by the Commissioner of Internal Revenue would not es t op the Government from asserting the tax, even though petitioner may have relied, or been misled, by such interpretation. Peti- tioner's liability was determined by the law, and not what some administrative official thought was the law. We should therefore determine the measure or basis of the income tax levied and collected upon the amount of film rentals and royalty received by foreign corporations not engaged in trade or business within the Philippines from sources within the Philippines. XXX XXX XXX XXX Nonetheless, petitioner would attempt to draw support from Section 338-A (now Section 327) of the National Internal Revenue Code, supra, by contending tha t any revocation of circulars (or rulings) promulgated by the Commissioner of Internal Revenue should not be given retroactive application if it would be prejudicial to tax- payers. Since the law during all the taxable years involved in the instant case from 1965 thru 1968 was General Circular No. V-334, petitioner argues that the same was correctly applied by it in withholding 30% of one-half of the film rentals remitted to its foreign film distributors. (p. 5, Memorandum for Petitioner, pp. 44-51, CTA records.) Petitioner misses the point. General Cir- cular No. V-334 was not the law that governed its withholding income tax liabilities during the taxable years covered by this case, but as its designation implies, a circular issued by the Commissioner of Internal Revenue for the guidance of internal revenue officers in the enforcement of the law. However, since General Circular No. V-334 is in conflict with the law it was supposed to implement, as already discussed above, it was null and void. As such it had no effect whatsoever; absolutely and entirely null; of no legal force and for that reason cannot be enforced. (Go Chioco vs. Martinez, 45 Phil. 285.) General Circular No. V-334 could not there- fore give rise to a vested or acquired right th a ~ could be invoked by petitioner for it is against 2G

- - . - ~ --~--- DECISION - CTA CASE NO. 2426 � - 20 - the law. (Article 2254, New Civil Code.) It is thus clear beyond doubt that legally there was no circular (or ruling) to revoke which revocation should be prospective in operation under the then Section 338-A of the National Internal Revenue Code. xxx xxx xxx. It is hardly necessary to add that settled is tte rulP. that the State is net estoppecl frcrn collecting taxes ty the mistakes a1td errors of its agent~.. (Bri-- tish Traders' JnsurBnce Co �. Ltd. vs. Commissioner of Internal Revenue, L-20501, April 30, 1965, 13 SCRA 719; Hilado vs. Collector of Internal Revenue, 100 Phil. 288; Koppel (Philippines), Inc. vs . Collector of Internal Revenue, L-10539, September 19, 1961, 113 Phil. 17; Compania General de Tabacos de Filipinas vs. City of Manila, L-16619, June 29, 1963; 8 SCRA 367.) And if through a misapprehension of law an officer has erro- neously executed it for a long time, the error may be corrected when the full construction is ascertained. (Philippine Long Distance Telephone Co. vs. Collector of Internal Revenue, L-3222, January 21, 1952, 90 Phil. 6 7 4.) Assuming that Section 24(d) of the National Internal Revenue Code, as added by Republic Act No. 5431, repealed the income tax exemption of petitioner under its franchise,petitioner nevertheless pleads that the income tax assessment covering July 1 to December 31, 1968 is erroneous. The next issue that presents itself is

-------------------------------------------=��~=---_.--------~ DECISION - CTA CASE NO. 2426 - 21 - therefore: 3. Whether or not respondent is correct in subjecting petitioner to income tax for the year 1968. Citing Manila Times Publishing Co., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 2263, December 17 , 1973, certiorari denied in L-38154, May 10, 1974, petitioner asserts that since i t is on the calendar year basis, it was exempt from income tax for the entire year 1968 . If Republic Act No. 5431 with- drew the income tax exemption of petitioner, as shown above, for resolution therefore is the question of when did said Republic Act take effect . Stated otherwise, when was petitioner subject to income tax after its income tax exemption was withdrawn by Republic Act No. 5431? Republic Act No. 5431, which was approved on June 27, 196 8, amended Section 24 of the National Internal Revenue Code not only by adding paragraph (d) to the said Section but also increasing corporate income tax. rat e s of 22% to 25% on the first PlOO,OOO . OO net income and 30% to 35 % on the excess thereof. Section 10 of the Act provides: SEC. 10. The provisions of this Act shall apply to income for taxable years beg i nning after June thirty, nineteen hundred sixty- eight . In Manila Times, where the question was whether or not the increased rates of corporate income tax

DECISION - CTA CASE NO. 2426 - 22 - prescribed in Republic Act No. 5431 should apply to income received beginning July 1, 1968, by corporations reporting income on a calendar year basis, this Court ruled that since the beginning of the taxable year of a calendar year corporation is January 1, it follows that a calendar year corporation can not be held subject to the increased rates of income tax provided in Republic Act No. 5431 until January 1, 1969, the beginning of its taxable year after June 30, 1968 . There is no valid reason for us not to apply this ruling to petitioner for which it is similarly situated. As stated earlier, Republic Act No. 5431 amended Section 24 of the National Internal Revenue Code not only by increasing the corporate income tax rates but also by inserting paragraph (d) thereof. Since the Act expressly and explicitly provides that it shall apply to income for taxable years beginning after June 30, 1968, it seems logical and reasonable that petitioner, which is on the calendar year basis, should also be subject to income tax starting January 1, 1969. Accordingly, the income tax assessment covering July 1 to December 31, 1968 is erroneous, petitioner being subject to income tax starting January 1, 1969. Having reached the result that Section 24(d) of the National Internal Revenue Code, as amended by Republic Act No. 5431, repealed the income tax exemption

DECISION - CTA CASE NO. 2426 - 23 - of petitioner unde r its franchise; and that the revo- cation by respondent of previous BIR rulings to the effect that Section 24(d) did not withdraw the tax exemption of franchise gran t ees with the in lieu of any . and all taxes provision can be given retroactive effect, petitioner alleges however that the "special messengers fees" (SMF) should not be included as part of its taxable gross receipts, which brings us to the issue of: 4. Whether these special messengers fees are subject to franchise tax and to income tax. The nature of these "special messengers'fees" (SMF), as explained by witness Pedro Guevarra of petitioner in his testimony before this Court, is as follot-lS: (t. s .n., pp. 10-13, Hearing on May 30, 1977.) Q. One of the items involved in this case pertains to the special messenger's fee which the respondent considered to be subject to income tax and franchise tax. Will you please explain to this honorable Court what this special messenger's fee is all about? A. Special messenger's fees are amounts that we collect from our customers which are earmarked for special messengers who are employed on a contractual basis. These special messenger's fees are for messages which are addressed outside our free delivery limit. Q. Now, wi ll you kindly relate or inform this honorable Court the procedure that is followed in a particular RCPI station when a customer files a message for transmission to another place? 30

DECISION - CTA CASE NO. 2426 - 24 - A. When a customer files a message in any of our branch stations, the counter clerk determines the amount of telegraph toll if the message is addressed within f ree delivery limit. If a message is addressed outside the delivery limit, after ascer- taining the telegraph toll, he informs the customer that a certain special messenger fee has to be paid by the same customer. Then we collect the special messenger fee aside from the telegraph toll in the station of origin which has to be disbursed. ATTY. Tejada - Let us clarify that. Supposing a telegram is for transmission to a place within your area of operation, or what you call within your free delivery limit, what is charged to this particular customer? A. Telegraph toll . Q. Now, supposing the telegram is, let us say, for transmission to a place which is outside your area of operation or what you call out- side your free delivery limit, what charge or charges are imposed on the customer? A. Aside from the telegraph toll? Q . Yes. A. After informing the customer beforehand, we charge him or collect from him or her the special messenger's fee . Q. So the customer is informed beforehand before the message is transmitted that there is an additional amount to be paid corres- ponding to this special messenger's fee? A. Exactly. Q. How does the station of origin determine the amount of special messenger's fee to be charged to a particular customer that files a certain message for transmission? A. As basis for charging the special messenger fee for a place outside the delivery limit,

DECISION - CTA CASE NO. 2426 - 25 - we have prepared, or we prepare the SMF book, or special messenger�s fee- Q. Special messenger�s fee. A. - which is distributed on all of our branch stations. Th~n the counter clerk, after ascertaining the address of the addressee, as given by the customer, looks for the address in the book and opposite the address or the place of delivery there appears the amount of SMF fee to be charged. The law involved is Section 14 of Republic Act No. 2036, as amended by Republic Act No. 4054, the pertinent portion of which reads: "x x x In consideration of the franchise, a tax equal to one and one-half per ce~ 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 appro- val of the accounts as prescribed in this Act." And the business transacted under franchise as provided by Section 1 of Republic Act No. 2036 consists of: "x x x�the right and privilege of constructing, installing, establishing and operating in the Philippines, at such places as the said corpora- tion (petitioner) may select and the Secretary of Public Works and Communications may approve, radio stations for the reception and transmissio~ of wireless messages on radiotelegraphy and/or radiotelephony, including both coastal and marine telecommunications, each station to consist of two radio apparatus comprising of a receiving and sending radio apparatus." It seems clear beyond doubt that in the conduct and transaction of its enfranchised business, all the gross receipts of which constitute the tax base of the franchise and income taxes payable by petitioner, the delivery or service by petitioner, through its

DECISION - CTA CASE NO. 2426 - 26 - messengers or employees, to the addressees of the messages received and transmitted by it is an inherent and essential part or feature of its business. What- ever the dialectics employed, the duty or obligation of petitioner of delivering messages to the addressees, whether inside or outside its free delivery limit, is intrinsic in its business of establishing radio stations for the reception and transmission of wireless messages on radio telegraphy and/or radio telephony. The relationship between petitioner and its messengers, whether regular or special, employed to deliver messages inside or outside its free delivery limit, is therefore an abiding one. Just like its regular messengers, petitioner em- ployed the services of its special messengers; it is petitioner for whom the special messengers worked and who paid their fees and wages, whether on piece-work or contractual basis. Petitioner employed the special messengers to do a certain work or execute a particular job directly and necessarily connected with the conduct and pursuit of its usual enfranchised business, all the gross receipts from which it is required to pay its franchise tax, and of course, income tax; and who directs supervision and control over them in the performance of their job or work of delivering messages addressed to its customers. And the special messengers rendered

DECISION - CTA CASE NO. 2426 - 27 - and performed service for petitioner for fees or wages paid by petitioner who has the power to employ or dis- charge them. When a customer of petitioner pays a special messenger's fee for the transmission and delivery of his message to a particular addressee, the source of the right to receive and dispose of the special messenger's fee is petitioner. We can see no significance, therefore, in the con- tention of petitioner that it acts merely as agent of the messengers in collecting fees for delivering messages ouUide its free delivery limit. Petitioner retains power and control over the receipt and disposal of the "special messengers' fees" as to make it the recipient of the fees for franchise tax and income tax purposes. That the fees have been earmarked for salaries or wages of special messengers who are employed in the service of, working for wages paid by, and in connection with the enfranchised business of, petitioner would not insulate petitioner from franchise tax and income tax liabilities since it is the source of �the right to receive and dis- pose of the "special messengers' fees". So far as the power and control over the receipt and disposal of the "special messengers' fees" are concerned, we can see no difference in principle between petitioner's power and control over the receipt and disposal of additional charges that form part of the cost of delivering messages J<"'�l1l _,

DECISION - CTA CASE NO. 2426 - 28 - within its free delivery limit, and which are included by petitioner as its gross receipts for purposes of the franchise tax payable by it. Some stress is placed by petitioner upon the form of its treatment of the "special messenge r s' fees" in its books which are reflected thereon as liability to be turned over to special messengers who wi ll deliver messages or telegrams to places outside its free deli- very limit. While gross receipts should not include any money that has been especially earmarked for some other person (Commissioner of Internal Revenue vs. Manila Jockey Club, Inc., L-13890 & L-13887, June 30, 1960, 108 Phil. 821), petitioner here, as shown above, is not a mere collection agent who receives the "special messengers' fees" to be transmitted to special messengers. By virtue of its duty and obligation of del i vering mes- sages received a nd transmitted by it from its customers, in the conduct and pursuit of its enfranchised business, petitioner retains sufficient power and control over the receipt and disposal of the "special messengers' fees" to make it the recipient of the income for tax purposes. Income is not any less taxable income of petitioner because by its command it is paid directly to special messengers under its employ in the performance of petitioner' s obligation of del i vering messages in the pursuit of its business. Whatever is the articulation, 35

DECISION - CTA CASE NO. 2426 - 29 - it seems clear beyond dispute that taxation is not so much concerned with mere formalism of bookkeeping entries as it is with the actual command over the income sought to be taxed. In the light of the above, we are therefore of the opinion, and so hold, that the ''special messengers' fees" (SMF) are subject to income tax and franchise tax. The last issue posed on this appeal is: 5. Whether or not petitioner's miscellaneous income are subject to income tax notwith- standing the fact that the same were already included in the payment of franchise tax. The miscellaneous income of petitioner during the years in question, which is referred to by respondent as income arising fr om business activities not covered by the franchise, consisted of the following: Nature 1966 1967 1968 1969 1970 Interest on Bancom 1!20,547.20 ~39,450.02 ~ 69,795.01 1!33,317.00 bills & savings account~l4,443.60 Gain on sale of fixed 500.00 1,700.00 3,738.07 20,378.00 assets Registration fee of 209.60 551.00 223.90 3,979.00 3,54 7. 71 customers cable Handling charges on 675.50 882.00 5,884.50 23,762.00 cables originating from 150.75 various RCPI stations Discount on purchase of 487.75 227.25 118.75 fixed assets Sale of scrap & charges 1.48 462.52 14,934.15 1,838.46 2,657.95 for lost equipment re- ceived from employees

DECISION - CTA CASE NO. 2426 - 30 - Collection of accounts 933.53 21,022.40 receivable previously written off 5,239.25 17,324.06 864.50 Other charges collected 8.74 891.31 Offset of accounts of RCA, Inc. 3,230.00 ----- Collection fee on SSS ~21,254.92 ~40,211.03 ~6 1, 353.60 ~107,376.00 ~83,781.41 salary and education loans Commission received from insurance under- writers To t a 1 After having arrived at the conclusion that Section 24 (d) of the National Internal Revenue Code, as amended by Republic Act No. 5431, repealed the income tax exemption of petitioner under its franchise, Republic Act No. 2036 as amended by Republic Act No. 4054, and petitioner is subject to income tax starting January 1, 1969, there seems to be no more dispute that the miscellaneous income during the years 1969 and 1970 are subject to income tax even if they were already included in the payment of franchise tax. The controversy centers on the miscella- neous income of petitioner during the years 1966, 1967 and 1968 before the withdrawal of its income tax exemption. In Philippine Power & Development Co., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 1152, Octobe r 31 , 1965, this Court ruled:

DECISION - CTA CASE NO. 2426 - 31 - "The interest income on petitioner's savings account is subject to franchise tax for the reason that it represents profit made in the course of regular transactions in connection with petitioner's franchise (Philippine Long Distance Telephone Co. vs. Collector, 90 Phil. 674). Similarly, the other contested items, consisting of earning of employees' retirement fund, profits in the sales of fixed assets, in- terest in the sale of cars, and proceeds of sales of materials and supplies, are earnings or profits incidental to and necessarily connected with the operation of its franchise, hence, includible in its taxable gross earnings." On the basis of the foregoing, the interest income on Bancom bills and savings account is not subject to income tax for the reason that it represents profit made in the course of petitioner's franchise. As tes- tified to by petitioner's witness during the hearing of this case, the funds placed by petitioner in Bancom bills and savings accounts were part of its gross receipts from its business covered by the franchise, and the same had to be invested or deposited because they constituted temporary excess in its � cash require- ments. (pp. 3-5, t.s.n., August 29, 1977.) Similarly, the other contested items consisting of gain on sale of fixed assets, registration fee of customers' cable, handling charges on cables originating from various RCPI stations, discount on purchase of fixed assets, sale of scrap and charges for lost equipment received from employees, collection of accounts receivable pre-

DECISION - CTA CASE NO. 2426 - 32 - viously written off, other charges collected, offset of accounts of RCA, Inc., collection fee on SSS salary and education loans, and commission received from insurance underwriters, the franchise tax of which had already been paid, are no longer subject to income tax pursuant to the in lieu of any and all taxes provision of petitioner's franchise. The nature and amount in- volved in each item, as can be seen from above, do not suggest that they are income from other business acti- vities conducted by petitioner but clearly indicate that they are earnings and profits necessarily in connection with and approximately resulting from the operation of its enfranchised business. It is true that in Manila Electric Company vs. Commissioner of Internal Revenue, CTA Case No. 1737, November 29, 1969, this Court ruled that any extraneous income derived from business not specified by the fr anchise is subject to (income) tax, but the miscel- laneous income of herein petitioner appear clearly t? be earnings and profits incidental to and necessarily conne~ted with the operation of its franchise. Even more, in arriving at the ruling enunciated in Manila Electric, this Court observed that the items of inc ome involved therein were clearly foreign to the taxpayer's authorized business of generating and distributing electricity for sale and no evidence was presented whic h

DECISION - CTA CASE NO. 2426 - 33 - would show that such income came from the operation of its franchise. In resolving the factual question involved therein, the Court therefore adopted the rule that it is incumbent upon the taxpayer to show clearly that the tax assessment is erroneous in order to be relieved from it and laws granting tax-exemption should be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. COMPUTNriON For all the foregoing considerations, the computation of the deficiency income tax liabilities of petitioner during the years involved in this case, and in which it is subject to income tax, is as follows: 1970 none Net Income Per Return p 1,210,553.00 Add: (a) Net income from operation 312,191.-00 (including extraneous in- p 1,522,744.00 come debited to operating p 522,960.00 expenses (~1 6 1,398.04) 522,960.00 (b) Provision for doubtful 19,611.00 accounts (unallowable deduction) 542,571.00 Total Taxable Income Tax Due Thereon Less amount already paid Deficiency tax Interest, 4/16/71 to 12/1/71 TOTAL TAX DUE & COLLECTIBLE �'l 0

DECISION - CTA CASE NO. 2426 - 34 - 1969 none Net Income Per Return El 1,277,079.00 Add: (a) Net income from operation 67,741.00 (including extraneous in- El 1,344,820.00 come debited to operating �il 460,687.00 expenses (~69,795.01) (b) Provision for doubtful ~ 460,687.00 accounts (unallowable 44,916.98 deduction) 505,603.98 Total Taxable Income Tax Due Thereon Less amount already paid Deficiency tax Interest, 4/16/70 to 12/1/71 TOTAL TAX DUE & COLLECTIBLE The interest on the deficiency income tax for the years 1970 ~1d 1969 was imposed up to December l, 1971 because the deficiency assessment of respondent is dated December 1, 1971. (Exh. "B", pp. 170-172, BIR records.). It will be noted that for the years 1969 to 1970, respondent assessed petitioner's entire gross receipts from "special messengers' fees" in the amounts of �'11,013,803.57 and Ell,232,131.87 for deficiency income tax without taking into account the deductible expenses involved. As shown on pages 3 and 6 of the working papers of respondent's examiner (pp. 106 & 112, BIR records), the "special messengers' fees" received from customers were reflected in petitioners' books of accounts for 1969 & 1970 as liability account and payments to the special 1 '�il

-..,...--- -- DECISION - CTA CASE NO. 2426 - 35 - messengers were taken up as direct deductions or debits to the account. In both years, the account showed debit balances, which indicates that more payments to special messengers were made than collections received for "special messengers' fees." This treatment of the ''special messengers' fees" account in the books of petitioner c.s found by respondent's examiner corroborates the evidence presented by petitioner, both documentary and oral, that the "special messengers' fees" did not accrue to its benefit since the same fees were turned over as payments to the special messengers contracted for that purpose. At any rate, had the re- ceipts from "special messengers' fees" been recorded as income and the corresponding disbursements to messengers taken up as expenses, the result would have been the same - that no profit would have been realized from the transactions. Inasmuch as there is no taxable income resulting from the collection of "special messengers' fees" for the years involved, respondent erred in im- posing deficiency income tax on the same. With respect to the deficiency franchise tax assessment of respondent, the Court finds the same, as discussed above, in accordance with law and therefore affirms the said assessment. However, there is no de- fi ciency franchise tax liab i lity of petitioner for 1970 inasmuch as it availed itself of the benefits of Letter '1') I � ~

�- ------�� - ........ , ...-.~ .,... DECISION - CTA CASE NO. 2426 - 36 - of Instruction s No. 308 by paying the amount of Pll , 854.24 under Of ficial Rece ipt No. 2896711 dated February 25 , 197 7 . (pp. 77i 132-133 , CTA r ecords.) Consequently, petitioner is liable for Pl6 , 995.51 as def i ciency franchise tax for 1969 as computed by respondent. Accordingly , petitioner Radio Communications of the Philippines, Inc. , is liable , and hereby ordered to pay, to respondent Commissioner of Internal Revenue the amounts of P505 , 603 . 98 for 1969 and P542,571.00 for 1970 as deficiency income tax, plus 5% surcharge and 1 2% interest pe r annum from December l , 1971, the date of demand, unt i l December 31, 1972 , and 14 % interest per annum from January l, 1973 to December 1, 1974 , pursuan t to Section Sl(e) of the Tax Code as amended by Republic Act No . 2343 and further amended by Presidentia l Decree No . 69i and the additional amount of Pl6 , 995 . 51 as deficiency franchise tax for 1969 , plus 14% i n terest per annum from January l , 1973 up to the date of ful l payment, pursuant to Section l93(a ) of the 1977 National Internal Revenue Code. WHEH.EFORE , the decision appealed from is modified as indicated in the above opinion of the Court . With costs.

DECISION - CTA CASE NO. 2426 - 37 - SO ORDERED. Quezon City, Metro Manila , January 25, 1980 . II - - }- ; � V,_tvY'i.-c:t.~~ c.j.<.,LC~t/' roi l'IMANTE LLEH Acting Presiding Judge I CONCUR: /tjl - - ..---��-~.)1'""1 ,..,4 w/~r CONS''i1AN'rE C!. ROAQUIN Associate Judge / /