CITY OF MANILA v. COLUMBIA PICTURES INDUSTRIES INC.

REPUBLIC OF TilE PHILIPPTNF.S COlJHT Oli' TAX APPEALS QUEZON CJTY First Division CJTY OF NIANILA, ET AL., CTAACNo. 29 Petitioner, (Civil Case No. 02-102663) -versus- Mcmhers: Acosta, Chairman, Bautista, and Casanova, JJ COLUMBIA PICTURES Promulgated: INDUSTRIES, INC., AUG 3 0 2007 : 2 : ?r'& P/Yl Respondent. X------------------------------~--- X DECISION ACOSTA, Pl.: This is a Petition for Review brought before this Court pursuant to Republic Act 9282 on April 12, 2007, seeking the reversal of the Deci sion anJ Order dated November 8, 1006 and March 7, 2007, respectivel y, rendered by Judge Amor A . Reyes of Branch 2 1 of the Regional Trial Court of Manila in Civil Case No. 02-102663 . The assailed Decision restrained the City of Manila (Manila) from co llecting taxes under S...:ction 21 of the Manila R0venue Code and ordered the refund of P4,722,672.68, representing additional business taxes which Columbia Pictures Industries, Inc. (Columbia) paid, under this section for the years 1999, ~' .l ...0 '

Decision CTA AC No. 29 Page 2 of16 2UUO and 2UO J. The 4u~sliuncd UrdL:r 011 Lilc olil~r l1<..111d d~nicd Manila ' s i\lluliun for Reconsideration. TilE FACTS Petitioner City of Manila, is a local government unit empowered to, among others, implement the City's Revenue Cud~, this power includes the collection and assessment of business taxes, revenue fees, anJ permit fees within the City, with office address at the Ground Floor, Manila City Hall, Tatt Avenue, Manila. Respondent Columbia Pictures Industries, Inc., is a local branch of a foreign corporation duly organized and existing uuJer the laws of Delaware, USA, engaged in the business of distributing cinematographic and television films, with oilice address at i 11 Floor, Times Plaza Building, UN Avenue, corner Tail A venue, Manila. Columbia has been paying business taxes as a contractor under Section 18 of the Revenue Code of the City of Manila, enacted through Ordinance 7794, as amended by Ordinance No. 7807 (Manila Revenue Code). However, starling 1999, Manila also assessed Columbia additional business taxes imposed under Section 21 of the Manila Revenue Code. lt paid P7,636,657.30 for usual business taxes under Section 18 and P4, 722,672.68 as additional business taxes under Section 21, both of the Manila Revenue Code for the years 1999 to 2001. On January 2, 2002, believing that it had erroneously paid the additional business taxes imposed under Section 21, Columbia wrote Manila asking for a refund thereof. However, on January 12, 2002, Manila, through City Treasurer Liberty M. Toledo, denied Columbia's request for refund. This denial prompted the filing of a case on Januaty 18, 2002, asking for a tax refund or issuance of a

Decision CTA AC No. 29 Page 3 of16 lax l,;l'cdit ct:rlilicate in th!..! aHJuunt of P4,722 ,6 72.68, plus legal inlerc~t, representing business taxes, allegedly illegally collected by the City of Manila for the years 1999, 2000 and 2001 with the Regional Trial Court (RTC) of Manila. This case was docketed as Civil Case 02 - l02663 and rafned to Branch 21. On November 8, 2006, the RTC rendered a decision, the dispositve portion of which states: "WHEREfORE, premises considered, the Court hereby orders the DISMISSAL of this petition. The respondent is hereby directed to refund or credit the amount of P4, 722,672.68 representing the business tax paid under Sec. 21 of the Revenue Code for the period 1999, 2000 and 200 l. Without pronouncement as to costs. SO ORDERED." Then on March 7, 2007, the RTC issued an Order denying the Motion for RecoJJsid~ration of the City of Manila and amend~d the dispositive portion of the decision to read: "WIIEREFORE, premises considered, the petition is hereby GRANTED. Defcmlants are rt:straineJ 1i�um collecting taxes under Section 21 of the City's Revenue Cude. The defendants are directed to refund or credit the amount of P4,722,672.68 representing business taxes for the years 1999, 2000 and 2001 under Section 21 of the City's Revenue Code. Without pronouncl..!ment as to costs. Hence, this Petition for Review filed on April 12, 2007, assigning the following errors allegedly committed by the trial court: ''14.1. Whether or not the .Honorai.Jk Regional Trial Court erred in holding that there is direct duplicate taxation in the imposition of Section 21 of the Manila Revenue Code.

Decision CTAAC No. 29 Page 4 of16 14.2 Whether or not the Honorable Regional Trial Court gravely erred in holding that respondent Columbia pictures is entitled to tax refund and or credit lor the taxes it paid under Section 21 of the Manila Revenue Code. 14.3. The Honorable Trial Comt erred in holding that the herein cause of action has not yet expired; 14.4. The Honorable Trial Court gravely erred when it ignored petitioner's plea the tailure of respondent's complaint to prove it's capacity to sue; 14.5 Whether or not the Trial Court erred in granting the motion to amend decision by the herein respondent without explaining the reason for the amendment." Columbia in its Comment filed on June 12, 2007, argues that it can no longer be taxed under Section 21 of the Manila Revenue Code (MRC) since it is already paying business taxes as a contractor under St.:ction 18 of the same code. According to Columbia, under Section 143 (h) or the Local Government Code (LGC), (the basis of Section 21 of the MRC), a municipality or city may tax any bu~iuess that is not covered by the enumeration mentioned in subsections (a) to (g) thereof, in view of the qualifying proviso thal reads: "On any business not otherwise specified in the preceding paragraphs, which the sanggLmian may deem proper to tax". Columbia maintains that the LGC prohibits a municipality or city fi:om imposing business taxes twice, as this constitutes direct duplicate taxation. On the second issue, Columbia contends that its cause of action m claiming the refund of taxes it paid have not yet expired because what the law requires is the filing of a written claim for refund or credit with the local treasurer and tile filing of such claim in court within 2 years reckoned from the date of payment of the tax. n 2 r>

Decision CTA ACNo. 29 Page 5 of16 On tile third issue, it avers that the City of Manila waived its riglll to obj t:d to the Columbia's supposed lack of capacity to sut:, since tlte issue was raised for the first time in their Memorandum dated Jul y 14, 2006 in the trial court. Moreover, this issue was not included in the enumera tion of issues to be resolved by the trial court. Columbia a lso claims that the amendmelll by the trial court of its decision is in order. A careful reading of the body of the trial co urt's decision would show that it granted claim for refund or tax credit. Thus, tht:re is no need to explain the reason for the amendment. With the filing of this Comment, the case was deemed submitted for decis ion . The Court's Ruling There is nothing novel with the issues presented in thi s case. And in the case ''The Treasurer of the City of Mwzila vs. All:an Packaging Starpat..:k Corporation (form erly Stwpack Philippines Corporation)", CTA EB No. 26 1, 1 the CTA En Bane already ruled that double taxa tion in its prohibited form exists in cases of these nature. fiRST ISSUE whether the City of Manila can validly impose business taxes under Section 2 1 on businesses already paying taxes under Section 18 of the Manila Revenue Code 1 July 30, 2007

Decision CTA AC No. 29 Page 6 of16 Th~..: City of Manila aJmits that the local government ' s power to tax is a t.kkgateJ power and that its authority to impose local taxes is found in Section 143 of the Local Government Code (LGC). It also confesses that Section 18 of the Manila Revenue CoJe (MRC) is based on Section 143 (c), while Section 21 of the MRC is from Section 1-U(h). The City only argues that the only limitation proviJeJ under Section 143 (h) of the LGC is that , if the tax is on businesses subject to excise, value-adJect or percentage taxes unJer the National Internal Revenue Code (NlRC), the local government cannot impose taxes in excess of 2% of gross sales or receipts. According to the City of Manila, Section 18 of the MRC is directed to the business of Columbia as a contractor, while Section 21 is imposed on it for being an enterprise subject to excise, value-added or percentage taxes under the NJRC. Thus, a reading of the applicable Local Government Code provisions is imperative. ''SEC. 151. SCOPE OF TAXJNG POWERS. - Except as otherwise provided in this Code, the City may levy the taxes, fees, and charges which the province or municipality may impose: xxx" "SEC. 143. TAX ON BUSINESS. The municipality may impose taxes on the following business: (a) On manufacturers, assemblers, rcpackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind and nature, XXX (b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature xxx (c) On exporters, anJ on mauufacturcrs, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities xxx

Decision CTA AC No. 29 Page 7 of16 (d) On rdall~..:rs, xxx (e) On contractors and other imkpendent contractors, xxx (.I) On banks and other financial iustitutions, xxx (g) On peddlers engaged in the sale of any merchandise or article of commerce, xxx (h) On any business, not othcnvise spcci1icd in the preceding paragraphs, which the sanggunian concen1cd may deem proper to tax: Provided, That on any busiuess subject to excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. The sanggw1ian concerned may prescribe a schedule of graduated tax rates but in no case shall exceed the rates prescribed herein." (Emphasis Supplied) Based on the above provisions of the LGC, the City of Manila enacted the Manila Revenue Code, and the following provisions lind application: "Section 18. -Tax on Contractors. - A percentage tax is hereby imposed on contractors and other iHdependent contractors in accordance with the following schedule: xxx" "Section 21. Tax on Business Subject to Excise, Value- Added or Percentage Taxes Under the Nll<..C - On any of the following businesses and articles of commerce subject to excise, value-added or percentage taxes under the Nationallnternal Revenue Code hereinafter referred to as N lRC, as amended, a tax of fiLly (50%) of one (1 %) percent per annum on the gross sales or receipts of the preceding cakndar year is hereby imposed: A) On persons who se ll goods and services in the course of trade or business; and those who import goods whether for business or otherwise, as provided 1ur in Seclions 100 to 103 of the NIRC as administered and detenuincd by the Bureau of

Decision CTA AC No. 29 Page 8 of16 Internal Rewnue pursua11l lo the pt.:l tin~nl j.JfOV is ions of the said code." Indubitably, Section 18 of the Manila Rewnue Code (MlZC) is based on Section 143(e) of the Local Government Code (LGC), while Scction 21 in turn is a variation of Section 143(h), also of the LGC. Under Section 143(11) of lhi..: LGC, th(! busiuess tax that may be imposed on "any business", comes with the proviso "not otherwise specified in the pret:eding paragraphs". This could only mean that the nJUnicipality, or city, shall only impose the tax in either one of the paragraphs but not both. When the City of Mani la imposed both taxes through Sections 18 and 21 of the Manila Revenue Code, the same definitely contradicts the express mandate of Section 143(h) of the Local Government Code. Section 21 of the MRC reads "on any of the following businesses and articles of commerce subject to excise, value-addcJ or percentage taxes under the National Internal Revenue Code hercinaftcr referred to as NIRC, as amended, a tax of ... is hereby imposed: On persons who sell goods and services in the course of trade or business; anJ those who import goods whether for business or otherwise ... ". It is evident that Sectioi1 21 does not impose indirect taxes on businesses, but added a qualification regarding the lax rate to be imposed on businesses and articles of comlllerce which is subject to excise, VAT or perccnlage lax under the National Internal Revenue Code. In other words, the plu�ase "on any business subject to excise, value-added or pen.:entage tax under the National lntc:rnal Revenue Code" in Section 143(h) of the Local Government Code merely qualifies or limits the rate of tax to be imposed on businesses already subject to excise, value-added or percentage lax

Decision CTAACNo. 29 Page 9of16 under thl! National lutemal Rev~..:nue Code aud dues nut autltorizc Lo(;al Governments to impose such taxes. Thus, under subparagraph (h) of Section 143, a municipality or city may tax any business that is not covered by the enumerations mentioned in subsections (a) to (g), based in the qualifying provision that reads: "On business, not otherwise specified in the prect.:ding paragraphs (meaning [a] to [g]), which the sanggunian concerned may deem proper to tax" with further qualification on tlte rates of taxes to be imposed on businesses already sul.Jjcct to excise, value-added or percentage tax under the National Internal Revenue Code . Applying the above to the City's Revenue Code, Section 21 cmmot be imposed over businesses already subject to business tax under Section 18, as this clearly constitutes direct double taxation. Sections 1~ and 21 are both local taxes, imposed on the same business activity by only one public authority, the City of Manila, enforced withiu the same taxing jurisdiction, for the purpose of raising revenues for the city government and to regulate the conduct of business, which accrue and become due on the same laxing period. Thus, Columbia correctly argued that when a taxpayer is being taxed under any uf subsections (a) to (g) of Section 143, said taxpayer can no longer be taxed under Section 143 (h), because of this qualifying provision. SECOND ISSUE whether the RTC erred in holding that Columbia may question the assessment against it According to Mauila in asserting that Section 21 of the Manila Revenue Code (MRC) constitutes direct duplicale taxation, Columbia is seeking to annul

Decision CTAACNo. 29 Page 10 of16 the Revc:uu~.: CoJe anJ cu lla k;rall y attacking its va lidity under the g uise of askiu g for a refw1d and the nullitication of the assessment; which it can no longer do, lor its failure to observe Section 187 of the LGC. That constitutional questions will not be entertained by the courts w1less they are specificall y raised, iusisteJ upon, a nd ad~q ua tdy arg ued, is a settled doc trine.2 However, it must be pointed o ut that Co lumbi a is not attacking the constitutionality of Section 21 o f the MRC but lllerely claims that the imposition of taxes there under constitutes do uble taxation beca use it is already payi ng taxes under Section 18 of the same code. Nevertheless, Tax Ordinance 7988 anJ 8011 , which introduced the amendments to the Manila Reven ue Code, has been declared void by the S upreme Court in Cuca-cula Bolllers Philippines vs. City of.Munila, Liberty M Toledo - City Treasurer and Joseph Suntiago - Chief Lh:ensing Division on the ground of failure to comply with publica tion req uirements. 3 Double taxation or Jirect duplica te taxation in its "obnoxious" form means, the taxing twice of the same tax ing author ity, wi thin the same taxing jurisdiction or district, for the same purpose anJ the same period, of the same property in the same territory.4 All these elements exist in this case. As admitted by the City, Juring the years 1993 to 1998, Columb ia has been paying business taxes as imposed unJer Section 18 o r the Manila Revenue Code, and during the years 1999 to 2001 additional business taxes were imposed following Section 21 of the same Reven ue Code, in lhe amount of P4, 722,672 .68. There being payment of taxes w1Jer Section 18 and Section 21 of the MRC, 2 City of lJur,uiu vs. Man�us, 27 SCI&l 3-12 (1 969) 3 493 SCUA 279 (2006) 4 Commissioner uf lmema! Revenue vs. Sulidbunk CUJpO!Wiun, 41 6 SC..:RA 436 (2003)

Decision CTA AC No. 29 Page 11 of16 !d'U11d o r Lh~ add ition al tax~;s imposed und er S~..:diun 2 1 1s correc t 1ur be ing constituti ve or double laxa tion THIRD ISSUE whether Columbia paid under protest, as required under Section 195 of the Local G ov~;rnm cnt Code and coro llary to the first three issues is whether the refund granted by the RTC is proper Manila argues that Co lumbi a did not pay unJ cr pro test and fai led to question the assessments within sixty (60) days fro m rece ipt thereof: and such failure renJcrs the assessment fin al, executory aud una ppealable as prov ided in Section 195. Thi s prov ision reads: " SEC. 195. PROTEST OF THE ASSESSMENT.- When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not beeu paid, he shall issue a not ice of assessment stating the nature of tl1e tax, fee o r charge, the amount of deficiency, the surcha rges, interests and pena lti~Js. Within sixty (60) days fi-om receipt of the notice of assessment, the taxpayer may li te a written protest with the loca l treas urer contesting the assessment; otherwise, the assess ment shall beco me iinal and executory. The local treas urer shall decide the protest with in sixty (60) days !l�om the time of its filin g. If the local treas urer 1inds the protes t to be w holly or partly meritorious, he shall issue a notice canceling wholly or partially the assessment. H owever, if the local treas urer 1inds the assessment to be who lly or partl y correct, he shall deny the pro test wholly or partl y with no tice to the taxpayer. The taxpayer shall have thirty days fro m receipt of Lhe den ial of th~J protes t o r li-om the lapse of the six ty-day period prescribed herein wi thin which Lo appeal w ith the court of competent jurisdiction otherw ise the assess ment becomes conclusive and unappealable." By the very title of Sec tion I 95 alone, ("Protes t of Assessment"), it pertains to protest of the assessment/s issued by the local treusurcr aga inst a taxpayer who has been found no t to have paid correc t taxes, fees, or charges . In this case,

Decision CTA ACNo. 29 Page 12 of16 assumiug lur the sake of arg ument Lhat Co lumbia did uo t obst;rvl: Sl:ction 195, the same should not have a n~ga ti ve repen; ussion on its claim for refund because this provision does not apply. It is Section 196 of the Loca l Government Code which applies in this case, it slates: "SEC. 196. CLAlM FOR REFUND OF TAX CREDIT. - No case or proceeding shall be maintained in any co urt for the recovery of any tax, fee, or charge erroneo usly or ill ega lly collected until a w ri tten claim for refund bas been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date of payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit. " (Emphasis 5'upplied) Co lumbia fi led a written request lor refund of the taxes it paid under Section 2 1 of the Manila Revenue Cotle fur the years 1999 to 2001 on Ja nuary 2, 2002, broken down as fo llows: 5 YEAR QUARTER DATE AMOUNT PAID 1999 1ST 0 1121/99 P457 ,312.35 2ND 04/ 14/99 457,312 .35 2000 3RD 07/14/99 4Tll 10/ 19/99 457,3 12.3.5 1sr Ol/20/00 457,312 .35 2ND 04/ 17/00 3 6 1 , 6 7 7 .91 07/2 0/00 361 ,677.91 3'w 10/ 20/ 00 0 1/22/0 1 361 ,677.9.1 4TH 04/24/01 361 '6T I-~.r 07/03 /0 1 2001 } ST 10/ 02 / 01 361 , 67 7 . ~ . 2ND 361 ,677.9] 3RD 36 1'677.9..t 4 Til 36 1 677 .i1_ P-t~72 2~672.68 TOTAL The denial of the c laim f01 refunJ on the other hand, was appealed to the Regional Trial Court o n January 18, 2002. Co unting two years from da te of 5 Records, page 27

Deci~ion CTA AC No. 29 Page 13 of16 vaym~lll until the comm~ JH.:enH..;lllvi' Lhe claim fu1 n..: li.md in Lllc lZ'l C, the ret'und fur payments made in the 1999 in the amount of P 1,829,249.40 have already prescribed following th~.; ubove-quoted Section 196. Thus, the grant of the refund shou ld be reduced to P2,893,423.28 (P4,722,672.68 - 1,829,249.40 [P457,312.35 x 4 quarters]). FOURTH ISSUE whethtr Columbia Pictures had capa~.:ity to sue Manila avers that the Regional Trial Court should have dismissed the case outright for Columbia's failure to prove capacity to sue since Mr. Gcner Salamera, the person who verified and made the certilication on non-forum shopping does not appear to be authorized by any board resolution duly executed prior to the filing of the complaint. However, aside from this bare assertion, Manila failed to show that indeed the complaint before the Regional Trial Court is fatally i1awed. Moreover, applicable Is Section I, Rule 9 of the Rules of Court which provides: "SECTlON 1. Defenses and uhjeuions nut pleaded. - Defenses and objections not pleaded either in a motion to dismiss or iu the answer arc deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matler, that there is another action pending between the same partil:s for the same cause, or that the action is barred by prior judgment or by stututc of limitations, the court shall dismiss the claim." (~'mphusis Supplie{,O Clearly, the rule is thal all grounds to dismiss lhc case should be pleaded, otherwise they are deemed waived. The only exceptions thereto are: Jack of

Decision CTA AC No. 29 Page 14 of16 jurisJidion and lal.:k of caus~ of ucliun whiclt can be wised even for the 1irst tiuw on appeal, all other grounds to dismiss tall under th..: above-mentioned general rule. 6 The City of Manila has not shown that it had questioned the alleged lack of capacity to sue of Columbia in a Motion to Dis111iss. In addition, this issue was also not raised in the Answer filed with the RTC. Thus, the City of Manila is estopped from raising this issue in this Court. The Coutt agrees with Columbia that Manila waived the right to raise the issue of lack of capacity to sue, having mad~ the same ior the first time in their Memorandum in the trial court. FlFTH ISSUE whether the correction made by the RTC on the dispositive portion of its decision was correct Manila contends that the RTC committed grave abuse of discretion when it granted Columbia's Motion to Amend Decision wi thout explaining the reason therefor. Sedivn 5 ofRule 135 ofthe Rules vfCvurt enumerates the inl1erent powers of courts, one of which is to amend and control its processes and orders as to make them conformable to law and justice. Here, the dispositi ve portion of the original decision of the RTC issued on November 8, 2006, states: 6 Pe vs. intermediate Appellate Courl, 195 SCRA IJ7 (JYYJ)

Decision CTA AC No. 29 Page 15 of16 "WHEREF01lli, premi ses considered, the Co urt herL:by orders the DISMISS AL of this petition. The respomlen t is herc: by directed to refund or cred it the amount o f P4, 722,672. 68 representing the business tax paid under Sec. 2 1 of the Revenue Code for the period 1999, 2000 and 200 l. Without pronouncement as to costs. SO ORDERED." And ruling on the Motion fur Reconsiderati on o r LlH~ C ity of Manil a, the RTC amended the dispositi ve portion of the said decision on March 7, 2007 to read: " WHEREFORE, premises cons idered, the pet ition is hereby GRANTED. Defendants are restrained from collecting taxes under Section 21 of the C ity's Re venue Code. The dtfendants are directed to refund or credit the amo unt of P4, 722,672 .68 representing business taxes for the years 1999, 2000 and 2001 under Section 2 1 of rhe City's Revenue Code. Withou t prono uncement as to costs." An examination of the entire decision wo ulJ reveal that the Regio nal Tri al Court (RTC) merely amended its own decision fur it to confo rm to its findin gs that Columbia is indeed entitled to the refund it cl aimed, and co nsequently restrained the City of Manila from collec ting busiue~s taxes under Secti on 2 1 of the City's Revenue Code. Further, as explained in its Resolution, the RTC merely ruled on and found merit 111 the Motion for Clarification and/or Amendment of Decis ion fil ed by Columbia. Accordingly, the instant Petition Jor Review ts PARTIALLY GRANTED. The Regional Trial Court decis io n grant ing the refund and restraining the City of M anila Jl�om furth er collecting taxes fro m Co lumbia under Seclion 21 of the M anila Revenue Code is hereby AFFIRMED WITH MO DI FI CATION.

Decision CTA AC No. 29 Page 16 of16 'j l1e City of Manilu is UlW~H..ED lo rdunJ Colum bia the reduced amou11L of TWO MILLION EiGHT HUNDRED NINETY THREE THOUSAND FOUR HUNDRED TWENTY THREE PESOS & 28/100 (P2,893,423.28), representing the amount of additional business taxes it had paid under Section 21 of the Manila Reveuue Code for the years 2000 to 2001. The rest of the arnouut claimed is DENIED for having been barred by prescription. SO ORDERED. ~~-c~ ERNESTO D. ACOSTA Pres iding Justice CAESAR A. CASANOVA Associate Justice CERTU' ICATION Pursuant to Section 13, Article Vlll of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court ' s Division. COUrt OfTaX Appea1~~RN~ES~T-O D.cACO~STA Library Presiding Justice