CTA Case No. 1300 (Decision)

REPUBLI~ QF THE PHILI PP INES COURT OF TAX APPEALS QUEZON CITY SAN FERNANDO ELECTRIC LIGHT AND POWER CO., INC., Petitioner� ~ ���� ve r�� s us -�� C.T.A. CASE NO. 1 300 THE COMMISSIONER OF INTERNAL REVENUE , �-�� - }�~���~ F\E-~sponclen t . -~ -- - - -- �-- ��- }�{ D E C' I S I 0 N As th e question a nd point of law i n volved in t h .i �o; caS(?. .~ r.. e t hP f..; a me as those r�� e~;o l v <?cl b y t. h .is Court in Linqayen Gulf Electric Power Co.~ Inc. vs. t1 e 1 (�::>c: .i.o H . J tn minqo ~ .::�.!:; Commissioner n �f In te,~ n,~ l Revenue, CTA Ca sE's Nos. 5B1 c:Hltl 1 302 ~ S r.:~pt.ember-� 15 ~ 1964~ whi ch decision was appeal<?d by r <?spon dent. Commissioner of Intern al Revenue to the Supreme Court, the he a ring of this case~ upon motion of the parties, was deferred by t h is Court. in its order of Oc tober 19, 1964 to await the deci s ion of the Supr�� emt:~ Cour��t:. in said appeal. Nevertheless, on

DECIE>ICJN CTA CASE NCJ. 1 300 .r:~:. the a bove- entit l ed case was set for he ar� inq for- the p a r t i es to ma nife s t as to ~'Jh et her or- n ot they a1'� e r:; t.ill i nterest e d i n pn::> s ecuting this appea l or in a d ecision thereof as s upe r vening events might ha ve transpired which may r e nder the c.:~se moot a nd aca clt~ mic: o r- o t h e r.. wi se s; ub sta ntial ly a f �f ec: t t: h e sa me . Dur i ng the h earing~ h o w eve r~ the par� t.i.E~ s sub mitted this cast-~ �for.. clt=.>c:i sio n on the b asis of the pleading s a nd the r eco rd s of the case a �ft e J'" petitioner� ha s prE'SE�nt.f.?d .:~nd thf:? Court ha s ad mitte d its ex hibits. As a ll eged in the petition for review a nd adrni t ted in the ans1'\ler ~ the an tee eden t facts of t h i 5 c: a 5 <~~ a r� e : .1... Th<'\t peti t i n n er� i s a d o mes ti c cor- poration DJ"' qanizec:l <:'\ nd e:-:ist:ing unch�?r and by yir�tue o �f the l aw~::; of t.hP Philippines, doing bu s ine s s and with pr-inci p a l office s � l nc a tf.~ d in San Fernando~ Pampc-~. nqa. That pe titioner is the grantee of a municip a l f ran c hi se for a n e lectric light~ heat and .pow er sys tem in the muni c i. p.:~ 1 i ty of San Fernando~ pl'"OVi nce of Pampanga ~ gran t e d b y the Cnunc i l of sai d municipality s ometime in 1927~ in pur s uance to

DECISIDI'-.1 CTA CASE NO. 1300 the provisions of Act No. 667 as amended by Act No. 1022~ and subject to Act No. 2307 as amended by Act No. 2694 and Act No. 31013; Sec. 10 of which municipal franchise provides for the payment by the gr�anb~e ~ peti t.ioner � h�e,-�e.in ~ of a pr.ivi lege ta:-: of l'l. of its gn:lss recf.:?ipts~ payable quarterly, for� the f i r s t 20 years~ and ~21. for the next 15 years~ \!'Ji th no o t. her� pr�� ovision therein pr�ov icHnq for further increase of said franchise ta:-: beyond 2/.. .��~ -� That shor�tly e-dtr.:?r the e�ffectivity of F:ep. Act No. 418 sometime in .1949~ .increasing the upon demand from r� esponden t, petitioner paid an additional franchise tax of , 5/. up to and until .1952. 4. Th e~ t the ne:-: t yee-:\r pE:~ti tioner- demanded from the re s pondent~ the return of the overpayment in e :�:c:f.?.!::;s of the 2/. franchise ta :�: ~ .::\mounting to p:::::6~526.T3, ~:md the said r-�espcmdent after~ finding that petitioner under its franchise is only liable for� 2/. franchise ta:-:, made a refund som~~time .in 1954~ of the a mount claimed by petitioner. tioner con t..inued to pay � em time, its of which �~

DECISION -- CTA CASE NO. 1 300 -- 4 - p~yments were all accepted without question by the respondent until 1961~ when respondent changed his opinion w.i th regards to the rate of fr-anchise ta:-: payable by petitioner~ not only from then~ but even retroactively from 1950~ and accordingly~ issued against petitioner an assessment alleged de�f iciency fr-�c:mchise ta:-: which with the surcharge for late payment. of 25% , amounted to a total of P131,987.56, for the 10- year period. 6. That said alleged deficiency assessment was r�ece?ived by petitioner on t1arch 1.1, 1961, and on t1an: h 25, .1.961. ,� petitioner wrote the r�espondent requesting t hat, for the reasons stated in sai d letter, ~~ aid assessment be r-�econsi dered and withdrawn. 7. That after over a year and a hal �f later~ the respondent by a letter dated Dct. 10, 1962, and whi ch letter was received by petitioner on Nov. 8, 1962, admitted peti ticmer' s allegation of prescription under Sec. 331 of the then applicable Ta:-: Code, but r-e-asserted . his c 1 aim for supposed deficiency franchise tax for the years 1956 to .196.1., instead of from 1950 to 1.960, which alleged 4~3

DEC IS I CJf\1 ��- CTA CASE f\10. 1300 �- 5 - d ef i.e iency to qet h e l~ with the s ur-e har-ge of 25% for- l ate payment , amounte d to a total of P82,755.14. Henc(2 this petition for- n?.v.iew filed on 1.962 pr-aying t hat the d eficiency ta}: assespment as contain e d in respondent's letter to p e tition er dated Octobe r- 10, 1962 be cancelled a nd wit hdrawn . Ba s ica ll y, t h E�) lon e qu estion tender-ed r� esolutio n is ~o.Jhether� p etition e r- is s ub ject to a franchi s e tax of 2% as pre s cr-ibed in its municipal flr�a n ch.ise, instead the 5 /. fr�anch.ise ta:-: pr es;c:r:i. b ed by Section 259 of the then applicable Na tion a l Int er-nal Revenue Code. Respondent conte nd s t hat petitioner has become li ab l e f o r the 5/. fr-anchise ta x s ince October- 1, 1 9 4 6, the date o �f effectivity of Re publi c Ac t . No. 39 , a mending Sectio n 259 of the then applicable Nationa l Inter� n a l Revenue Code, �few said fr�anchise is s ubj f.�?Ct to amendment, alter-ation o r- r-epeal by the Conor�ess of the Phi 1 ippines, and p etit ioner� � s mun icipal fr�a n c h ise- "' d oes not prec lude the imposition of a higher- r- ate of fran c h ise tax. The r ecor- ds of the case show t.ha t. after- the petition for- review was f i l e d: 42

DECISION -- CTA CASE NO. 1300 - 6- 1. ThE> last 1 eg isla t i �v'e fl~anchise petitioner is Republic Act No. 3660 dated June 196~5, to vJit: [REPUBLIC ACT NO. 3660] AN ACT TO AMEND REPUBLIC ACT NUMBERED THIRTY-TWO HUNDRED SEVEN~ ENTITLED II AN ACT GI::::ANT INC.~ THE ~3f-1N FEr.;:NANDO ELECTRIC LIGHT AND POWER CO.~ INC.~ A FRANCHISE FOR AN ELECTRIC LIGHT, HEAT AND POWER SYSTEt-1 IN THE MUNICIPAL. I TY OF SAN FERNANDO, PFmV I NCE OF PAMPANGA." Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled: SECTION 1. Republic Act Numbered Thirty-two hundred seven is hereby amended by inserting between sections two and three thereof the following new section: "E-lEC. 2--A. In consideration of thE.' �fra.nchise and ri<.::Jhts hereby granted~ the grantee shall pay into the Treasury of the Philippines a fr��.:mchise ta:-: equ,'::\1 to tvm per centum of the gross earnings for electric current sold under this franchise. Provision of laws to the contrary notwithstanding, the franchise t:.a:-: equal to tvJo per CE.'ntum of the <;Jn.!ss earnings of the grantee shall be r-�espE~c: ted. Ef fee ti ve upon the da tt:' t!Je or iq ina l franchise vJas gr-an t�'_Q__,___!:l9_. other ta.:-: upon i t;;__~.t_ta l stoc ~,~_.s..__f ran..�..hi.�_~ ciq_bJ ...._Qf. vJay. ear-nings _an_<;L__,__ aJ_.l__gther pn::lp~rty ovmed or opera ted Q.Y_.._..:l;,b_g___gran te~ \-In de r t h .i. s c OJl c !=?SS i Or:L......Q.C..........f.r.P-.Qf;_b .i. sg__ sba 1]_ !;:le 1ev ied or ___...�ssess~g_ __QD__.. the herein g_r ~fl.t,gg___�:' :-: <;...�Q.t....__:tt}e ........f.r::..�.D_<;..!I .i. s ~-- t a :�: o f t w9 t P.gr.__.f_~IJ.. .t.J..IJL.Q...f..._t.b.E? ....9. r 9 s ,2__�.�!rDi..!l9..?_._!I!,f.:'?n t ,tg_o.g-_9. l:..!J...... __,_____t.l!.~. . ._._ S!=l.i.f!___ o r...i.qj.._fj_�j______:f ran ~t!.L~g. 11 (Emphasis supplied.) 4,"_ ..

DEC IS I 01',1 CTA CASE NO. 1300 - 7 �- SEC. '..".::'. " This Act s hall tak e ef feet upon its approval. Approved~ cJune 1963 . p~titioner wrote 2. On August 4, respon dent Commissioner of Internal Revenue a lett er r-�e.i. tera ting its request for-� the wi. thdr-�awa 1 and cancellation of hi s assessment demand for def ici~:o>ncy franchise t<:l.:�: becau se pl:'?t.i tioner' s new franchi se, Republic Ac..t No . 3660~ supra, which its gr-�oss receipts, imposes 2 /. fr-anchi se ta :�: on took E��fff.�?c:t. upon the d atE? the or-�iginal fr.. .::1nchise was gr-anted. :3, l �o whict-1 let.-ter- r-espondent wr-ote back to peti tione1�- on January 2, .1964 coun ter-rnand ing and ca nc e lling the additional assess ment of P4 2~257 .45, all e ged defi c ien c y franchise tax of petitioner for thE> per�ioc:l �f I'""CHTl January .1 ~ 1961 to December 1962, due to the �f act that Ltndf=r- petitioner 's franchise Republic: Act No. 3660~ p e titioner is s ubject only to 2% franchise tax. To quote: ( E:�:h. c' p. 40' CTA r�ec:or-d. ) "Referring to your� 1 et ter- dated August 4 ~ .1.963, conc,erning the def .i.e .iency franchise tax liability of the San Fernando Electric Light & Power Co .� Inc., tha t municipality, for the period from 4~6

DEC IS I 01\1 CTA CASE NO. 1 3 00 - 8- ~J <:m u i:\1'- y .1. , J,:._<rf:?_l . to Dec em be 1~ :31 , ..1:-?_g_~~- i n the aggreg a te amount of P42 ,257 . 45, please be informed that upon further study of the relevant facts _o �f.. t he . ca s e and the law involved, as well a s the arguments you have presented~ this Office agree s with you1~ opinion th<at th<~ electric company is subject to the 2% franchise tax rate only~ pursuant to Section 2- A of its franchise, Repub lie {k t No . 3 660, tAJhich amended Republi c Act No. T:~07. This i s also in line wit h our previous rul i ng on the fr a n c h i se tax case of the Ma rikina Electric Light, Inc., holding tha t the s ame is subject to the rate of tax prov ided for in its franchi s e. Ac cord i ngly, our letter to the Company c all inq fo1r the paymen:t of the amount of P42 ,457.45 is hereby c6unte rmanded and the as sessment. issued therefor wi their awn and cancelled. LJ . By l e tter elated Clctober 7, 1964, received De tober-� 8, 1.964 by r-espondent's off ice~ pet.i tioner ag a in wrote res pondent Commi ss ioner of Internal c:a ll.i.n<.J attention to the f a ct that re s pond e nt:. .in his letter�� of ,January 1.96ll- had alre ady c onceded that petitioner is subject to the 2% �f r��.:-tnc hi S (?. i. :-: on 1 y ptu�� suan t. to SE~c: t. ion 2 - A a f Republic: Ac: t No. 3 660 and accordingly withdrew and cancelled hi s a s sessment for the amount of P42 ,457.45 representing deficiency fran c hi s e tax for the per i od from January 1~ 1.961 to December 3 1, 1.962. In v i e w thereof, respondent should also I

DEC I ~3 I Of\.1 CTA CASE NO. 1 3 00 - 9 --� wi thd r�aw and cance 1 his def .i.e .i.ency franchise ta:-: asses s ment in the amount of P82~ 7 55.14 for the period from .January .t ~ .1.956 to December 31, 1960, which is the s ubject matter of the present petition 5. C~J:' .1. .nc.- .e the abov t-~ c.; aid 1 e t t e r dated Clc tober 7, .1964~ nothing ha s been heard by petitioner from respondent, although res pondent has been collecting from pe t i t i oner a franchi s e tax of 2 % without any que~s t.ion. - �:. Petiti o n e r con t ends that in vi e w of Section 2 - A, quute d abov e, .it is s ubject to the . ' � '? " I fr�an c hise .:~ ta:-: . f.3 E-~c: t. ion ~2 -- A of pet.i tioner� ' s f r.3. nc hl. se, Republic Act No. 3660, quoted above~ which amended Republi c Act No. specific: and mandator-y. It merely calls for application as thus ''F'r�� ovision of laws to the c ontrary notwithstanding, the franchise tax equal to two per centum of the gross ear--r1inqs of the grantee shall Effective upon the date the original ,. gr a nted~ no oths~r t .aH upon i t s c:apit. ~::~.l stoc k, �ft-a nc:h.ise , r�ight of way, earnings 42

DEC I !3 I UN CTA CASE NCJ. 1300 -- 10 - and all other- pr-oper-ty owned or� oper-ated by the gr-�antee under- � his ccmces!:"-icm or- fr-anchise s.hal J. be levi ed or- assessed on the her-ein gr-antee except the fr-anchise tax of two per centum of ean1.ing!:-> mentioned in the said or-iginal fl~<:mchise." Ther-e is no room for interpr-etation. It is well- set t 1 ('~ c:l a st.c~tute~ fr-ee a ny c:Dn�s t i tut:i.onal in1'ir-mity~ be en �for-ced as wr� .i.ttm1. F~E~p ub 1 :i. c: No. which .imposes �fr-anc:hi�se t.a:-: on the gr-oss ear-nings of pf.?ti tioner- e:-: pn"?s s 1 y cH'lcl c lf.�? ar-1. y pr.. ov ide s~ t. hat. i t sha 11 t.akf.'? e�ffec:t upon th~?. d a.tE~ the or-�iginal fr-.:mc:his~?. was qr-�ant.e d ~ pr.. ovision o �f laws to the contr-ar� y not."'J:i. th s t.anc:l.i.nq. A s a n.1le~ r� evenu t:-:> pr-o s pective i n oper-ation~ unless~ as in this case , the legislative intent. that the statute oper-ate r-�e tr-�o , , p ee: t i ve 1 y is .intently e:-:pr� essed necessar-ily implied. (51 Am. Jur-. 359; Lor-en zo vs. Posadas , 64 Phil. 353; Commissioner- of Inter-nal Revenue v~;. Filip.inas Cia de Segur-os~ .10 7 Phil. 1055. ) It can said ther-efor-e that the amendator-y legislation has the effect of pr-ecluding the imposition of a hi<;Jher� ta:-: as pr-ovided in 4 1"'\ ( '-~

DEC I~::; I 01\1 �-- CTA CAS E NO . 130 0 -�� 1.1 --� Section 2 59~ as amended by Republic Act No. 3 9~ of the the n applicable National Internal Revenue Code. fkc:or�� d inq 1 y ~ the assessment of r<-'!Sponden t Commi ~;s;ion~::> r of Internal Revenue asse ss ing and demanding from petitioner San Fernando Electric Light and Power Co.~ Inc.~ the payment of the total amount of F'B2~755.14 repr�es<�?n tinq deficiency franchi s e ta x and 25% surcharge for t he period from ,Janua.r.. y .1 ~ 1.9!56 to Dec e mber� 3 .1, .1960 i s cancelled and counterma nd e d. deci s ion C:\ppe.:~ 1 eel from is hereby r everse d without pronouncement as to costs. S O DRDEr;:ED. Du P.z cm City~ Metr�o Manila, ~July 15, 1.988. AMANTE F F' residin WE CONCUF;:: (on offi c ial l eav e) CONSTANTE C. ROAQUIN ~e~ Ass ociate Judqe ~

DEC IS I 01\1 - CTA CASE NO . 1300 -� .1. 2 -- CE RT I F I CAT I 0 N I hen=by cert.i �fy that th.i.s decision was reached after due consultation among the members of the Court. of Tax Appea l s in accordance with Section 13~ Article VIII of the Constitution. AMANTE F Pr-esid in Court of Tax Appeals �.:. �