CTA Case No. 2727 (Decision)

P.UBUC G 'Hi!!. PUI Li i> r; cou� T 0 .. ""A1\ AP ;)'r," ABS-C N BROADCASTING CORPOR.l\'�IONI Petitioner , - .versu s - C.T.A. CASE NO . 2727 THE C0!'-1J".vliSSIONER OF INTERNAL REVENUE , Re s pondent. X- - - - - - - .X DE C I S I 0 N In a letter da t ed May 1 5 , 1973, responde nt Commissioner of Internal Re venue in� rmed peti- t i on er ABS-CBN Broa dcast i ng Cor poration t hat upon inves t igation, there has be n found due from it deficiency income tax for the year 1970 in the amoun t o f P519,399.98, details of which are a s fol l ovls: (A nnex "A", Pet i tion for Reviev;, p. 6, CTA records ; Exhs . "B" & "5 " , p . 20, BIR records .) 1970 Net i ncome per investigation - - - - - - :- :- Pl , 08_1,03 3. 5.~ Tax due thereon � - -- - - - - 369,412,~ 00 Add: 25% surcharge - :- ~- - - - - - 92,353 .00 ~% rro~ int.� fr. 4-�1~-� 71 to 1 2- 3;1.- 72 - 37,864. 73 14% mo. i nt. fr. 1-1:-73 to 5-15-7~ 19,320. 25 Compromise for .late f iling of return - 300 . 00 Canpromise for l ate payment - :- :- :- :- __.__l.?.Q.!..OO 'IOI'AL AMOJ!: T JJJE & COI..LE::TIBE - :- :- :- :- :- :- !:..,_il9 ,_39 ~.98 Petitioner was t herefore requested to present the assessme n t not ice enclosed therein to the collection agent i n the off i c e of t he r egional d i r ector of 9:1' ��

DECISION CTA CASE NO . 2727 - 2- Revenue Region No. 6 in Quezon City f or payment in order that the case ma y be considered closed. In requesting for the reconsideration of the deficiency income tax assessment and its eventual withdrawal and cancellation, petitioner, in its letter of July 23, 1973 explained to respondent that the "net it, come per investigation of fill 084,033.55 actually repre~ents gain on sale of In vestments for 1969 and not 1 970"; that its payment of the franchise tax in lieu of "any and all . taxes of any kind, natur e or description levied, established or collected by any authority whatsoever, municipal, provincial or national", commuted or substituted for all other taxes that may be le~ied or assessed upon petitioner; and that whatever gain it made was realized "from the placement of funds generated from operations and intended for expansion of its facilities", and in fact, said "proceeds from th.e sale of the shares of stock was plowed back for operational use." (Annex "B", Petition for Review, pp. 7-9, CTA records; , ' Exhs. "C", "C-~", "C-2 " pp. 21- ' "6", "6-A" & "6-B" ' 2~, BIR records.) After acting on the request for reconsideration and cancellation dated July 23, 1973 of the afore- mentioned de fl ciency income tax assessment of peti- tioner (pp. 24-26, BIR record~,.respondent, in his

DECISION - CTA CASE NO . 2727 -3 - letter of October 15, 1974 informed petitioner that upon final investigation, there has been found due from it deficiency income tax for the year 1969 in the amount of P537,297.98, details of which are as follows: {Exhs. "D", "D-1." , "8 11 & 11 8-A.", pp. 28-29, BIR records~) 1969 Net income per final inves,_,iCJation - - �:--:- �:- -:- -:- P1,084,033.55 - -:- -:- - :- -:- :- ~369-;412.00 'rax due thereon Add: 25% surcharge - - - - -� - :- 92,353.00 ~% mo. int. fro 4-1~70 to 12-31-72 - - - 60,029.45 14% int. fr. 1-1:-7~ to 4-1~-7~ - ~ :- :- ~ 15,053.53 Canpromise - �- �- - .... :- ~ _ _ _450. 00_ 'IOI'AL AMOUN'I' DUE & COLLE.C'i'IBE Again petitioner was urged to present the modified assessment notice enclosed t herein to the collection agent in the office of the revenue regional director of Quez0n City for payment so that the case may be terminated. Apparently , this revised assessment and demand of respondent dated October 15, 1974 was not received by petitioner for it was returned to the Bureau of Internal Revenue ~ncl aimed . (pp. 35-36, BIR records.) However, the revised assessment, with the letter of demand, was finally delivered personally on July 30, 1975, thru a messenger, to the corporate secretary of petitioner. (Exhs. "10" & "11", pp. 39-4.0, BIR records .) ... �

DECISION - CTA CASE NO. 2727 - 4- Against this backdrop petitioner filed t he instant petition for the review of th~ deficiency income tax assessment of P537~297.98 for the year 1969 issued against it, praying that the same be cancelled and ~� ithdrawn for the reasons that: 1. Petitioner is not subject to income tax. Under the terms of its franchise - Republic Acts Nos . 511 and 512 in connecLion with Republic Acts Ncs. 2997 anj 4054 - .the franchise tax it pays is lieu of "any and all taxes of any kind, nature o:r des- cription levied, established or collecl:..ed by any authority idhatsoeve1:, municipal, provincial, or national." Hence, pet.itioner can not be subjected to any other tax except the franchise tax . 2. A~suming that the gain of P1,084r033.55 from the sale of investments in the year 1969 is subject to income tax, the right of respondent to assess and/or collect the income tax for that year had already prescribe~ in view of the provision of Section 331 of the then i n force National Internal Revenue Code that "internal revenue taxes shall be assessed within five years after the return was filed and no proceeding in court without asses~;ment for the coliection of such taxes shall be begun after th e e xpi.: a tio:1 of s u:::h r �cl:' io d o II 96

.. DECISION - CTA CASE NO. 2727 ....5 �- Is petitioner exempt from income tax? Petitioner ABS-GBN Broadcasting Corporation, formerly known as the Bolinao Electronics Corporation, is a corporation duly organized and existing under the laws of the Philippines. It is a holder of two temporary permits under Republic Acts~ Nos. 511 and 512, as amended by Republic Acts Nos. 5730 and 5731, re;z.pective- ly: one, to const.ruct, mainta.i.n and opera �:e st.atio s for j.-:~.ternational. telecommunications and televiE;ion stations in the Philippines ~ and another, to construct, maintain and operate radio broadcasting stations also in the Philippines for a period of fifty years. Section 4 of Republic Act No. 511 and Sec tion 3 of Hepublic Act No. 512 contain an ".~E.�E f~5;tc~" clause which reads: "In the event of any competing individual, partnership or cor~oration receiving from the Congress a s�imilar temporary perrrit in which there shall be a n y hete-rremri1�o�-rgratenr-mte cs r rmo r e fa v orable th an t.ho s e �n~y-�to - pla ce 07 ti..n d i the herein grantee at any disadvantage, then such ter:m or terms shall, iJ?_�.S?.. fa_cto, become a pa.r:t of the terrns he.ccof and shall operate equally in favor of the grantee as in the case of sa.id com- . peting i~dividual, partn.rship or corpo- ration." (Underscoring supplied .. ) Subseqqent to the enactment of the <:1forementioned Acts, Congress passed Republic Act Noo 2036; grantins . a franchise to operate radio stat ions for the r eception and transmissio:1 of \'Jireless me ss ages, whi h was l.a'.. ::: r 97

DECISION CTA CASE NO. 2727 - 6- amended by Reputlic Act No. 4054 . S�ect.ion 1 of Republic Act No . 2036, as amended by Republic Act No. 2963, provides: "~;ec .. 1.. Subject t.o the provisions of the Constitution, and to the provisions, not inconsistent herewith, of Act Numbered Three Thousand Eight Hundred and Forty-six, entitled 'An Act providing for the regulation of radio ~:;tations and radio communications in the Philippine Islands, and for other purposes;' Commonwealth Act Numbered One Hundred Forty-six, known as the Public Ser- vice Act, and their amendments, and other applicable laws, !'-ll~.~ is hereb:r__g,!=anted t.2 the Rad i �.. c omm~u1 i s_a t :t_O...!l:~L._t;:.tl..~....R hi I:.iE.E i~ ne s , Inc., its successors or assigns the right ana privilege of constructing, insl:alling, establishing and operating in the Philippines, at such places as the said corporation may select and the Secretary of Public v7orks and Communications may approve, radio stations for the reception and transmission of wire- less messages or radiotelegraphy and/or radio telephony, including both coastal a~d marine telecommunications, each station to consist of two radio apparatus comprising of the receiving and sending radio appar~tus, stations fo r international telecommunications ~nd stations for broadcasting, including television." (Underscoring supplied). And Section 14 of the same Act, as amended by Republic Act No. 4054, reads: "Sec. 14. In consideration of the franchise and rights hereby granted to and any provision of law to the contrary notwithstanding, the g~antee shall pay the same taxes as are now or ma y here- after be requi red by law from other individuals, co-partnership, private, public, or quasi-public associations, corporations or joint-s.tock companies, real estate, buildings and other personal prope rt y except _radi<?~Ems:nJ:, machil!.~r. y_ and.. spa re_p~_r_ts ne ed ed in c~nnec_-t~.9.!1 \�lith DS

, '. DECISION - CTA CASE NO . 2727 - 7- .thEL..E.!:!.�).neg '2f_!he_...:;;Lrantee, which s h21:.1._be ~~IJ2..s_.JJ.:_�l.!!_~?..\:,1_~!:9_f!}p_d u t i e ~, tariffs and other taxes, as well as those properties declared exempt in this .. section In considera tion of the fran- chi se, a tax equal to one and one-~alf per centum of all gross receipts from the business transacted under this franchise by the grant..ee shall be paid to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act. Said tax shall be in liel1 c::_t_�l.ny _�.n_9_E.ll ta.~~any- k in~....!!.� t u r~-o rM _9.5? sc r i.P..�9.~--l~S i e 4 , estab;U._shed_�r coll~ct;.el~....E_y___any autl]_s;,- . !. it~1.~~..0- mt:E~l-..t.._l?J: oyJ nc i ~11 or nati~~-~-1.L.. fr_om whi�.!2 taY~.3....~!h~_gfar.!..t~ l~~L~?.SE~-~l,Y.~-2!enU?~e� . '' {Underscoring supplied) . � Pursuant to the above-!1\entioned "ipso facto' clauses, it may be argu ed , as petitioner contends, that Section 14 of Republic Act No. 2036, as amended by Republic Act No . 4054, is deemed incorporated in the temporary permitc of petitioner contained in Republic Acts Nos . 511 and 512, as amended. The franchise tax it pays is therefore in lieu of nany and all taxes of any kind , nature or description levied, established or collected by any authority whatsoever, municipal , provincial or national.n Hence, petitioner cannot be. subjected to income tax or to anytther tax except the franchise tax. This position of petitioner however at once loses ita base and support on the face of Sectirn 24(d) o� the then in force National Internal Revenue

, DECISION - CTA CASE NO. 2727 - .8 - Code, as amended by Republ ic Act No. 5431, effect- . ive June 27, 1968, which provides that "the provisions of existing special or general laws to tbe contrary notwithstanding, all co~porate t axpayers not speci- fically exempted un der Sec tions 24(c) {1) _and 27 of t he Code shall pay the rates of income tax provided in thi s section." (now Section 24 (g) _o f �the 1977 National In ternal Revenue Code .) Otherwise stated, as e xpressed by this Court i n Koronadal Electric Light and Power Co. Inc . vs. Commissioner of Internal Revenue, CTA Case No. 2600, Jun e 26, 197 9, and reiterated in Rural Bank of Calinog, Inc. vs. Com- missione r of Internal Revenue, CTA Case No. 2658, January 30, 1981: "x x x x Sectioi1 24 (d) was evidently meant to be applicable even "to cor porations enjoying in come tax exemption b efo re the enactment o f R~A. 5431. Otherwise, there would have been no need for said exclusion . The resulting conclusion is that outside of those referred to in Sections 24(c) (1) and 27 of the Tax Code, ali corporationi w~ose liability for income tax was be fore governed by general laws or special statutes appli- cable to designated classes or groups o f corporate entities, are now subject to the rates prescri bed in R.A. 5431. " (Excerpts fr om the Opinion o f the Secretary (nmv Minister ) of Justice contained in a 3rd indorsemerit to the Secretary (now Minister) of Finance date d Mar ch 28, 1969) Even on the assum2ti~~ that the temporary pe rm its of petitioner under Republic Acts Nos. 511 and 512 partake of the natu re of a "franchise" and Section 14 1 00

DECISION - CTA CASE NO. 2727 - 9- of Republic Act No. 2036, as amended, is considered in effect incorporated in the said "franchise", this Court has already ruled in ~naq~J.:. that the imposition of the corporate income tax as prescribed by Republic Act No. 5431 amending Sect.ion 24 (d) .of the National Internal Revenue Code on grantees of franchise that a~e enjoying tax exemption is not violative of the constitutional command that no law impairing the obligation of contracts shall be passed, in v i ew of the constitutional provision that no franchise or right shall be granted except under the condi tion that it shall be subjec t to amendment, alteration or repeal ~hen public interest so requires. (Sec. 5, Art. XIV, 1935 Constitution, under which the franchise or special �permits of petitioner were gr�anted.) . And on petitioner'~ argument that the franchise tax imposed under its "franchise"� is a "commutative tax" , compounding or commuting for a just equivalent all other taxes payable by it, payment of which would give rise to exemption from other taxes, this same contention has likewise been disposed of in _!Soronad~J: in clear and unequivocal terms , in the following wise: 11 Pe titioner c l aims, however, t ha t Republic Ac t No. 5431 did not repeal or revoke its exemption from income tax 10 1

DECISION - CTA CASE NO. 2727 - 10 - because the franch i se tax provided in i'l:s franchisF~ is 2. commutative ta.x , com- . pounding or c omm ~ting for a just equivalent all other taxe s, including the income tax , payable by ::.. ._ , in view of the nin lieu of any and all taxes" provision of its special charter* Hence, payment of the franchise tax includes payment of its income tax. XXX XXX Assum i ng that t he liabil i ty of peti- tioner for in ~ ome tax is governed by its franchise or special charter because the franchise tax payable by it includes the payment of its income tax, i t is q~ite apparent and explic it under the terms of the amendatory law that all corporate tax-� payers '.'hOS(~ 1 iabil i ty or non -l.iab.il i ty for income tax is governed by general or special laws, unless specifically exempt u~lder Sections 24(c)(l} and 27 of \:.he National Internal Reven~e tode, are now required to pay the rates of income tax specified in Section 24 of the Code as amended by Republic Act No~ 5431. The amendatory l aw employs the words "all corporate taxpayers not specifically exempt under Sections 2 4(c) (1) and 27 of this Code"� - .without more.. Nothing t here said speaks of the exemption of cc.r.:po- r ations paying a co~nutative ta x or not paying any income tax prior to the enactment of Republic Act No. 5431. No justification can be found, therefc>l::~~ 1 for reading into the law an exemption which is not there. We cannot ignore the prin~iple that e x press men- tion in a statute of an exemption p:ecludes r eading others into it. (tvlan il a Electric Company vs. Misael Vera, L-29987 , and Manila Electric Company vsQ Benjamin Ta b ios, L-23847, October 22, 19 75, 67 SCFU\ 351 1 cit.'ng Hoard vs. Sears, Roebuck & Co., 122 Conn. 185, 193, 188, A.26 9 ) . On this point, respondent correctly argues, q uoting the opinion of the Secretary (now Minister) of Justice, contained in his 3 rd Indor s erneni to t h e Secretar y (now Min ister) o f Fi n a~ ce, da te d Ma rch 28, 196 9, that: '"I'h e con te n tion t ha t Rep u b li c Act No. 5 4 31 merely int ended- to change the exist ing rate s o f c o r po- 1 0 ~) . ''"'

DECISION - CT! CASE NO. 2727 - 11 - rate tax applicable to corporations already subject to income tax and not to l~ft the tax exemptions g :�anteC.ibyspec:i.al law, is without merit, just as the argument that the term �corporate taxpayer' should be construed as referring only to those corporations already subject to tax at the time of the amendment. For in providing for tbe general appli- cation� of the nevv tax ratc~s and ex- pressly excluding therefrom 'all corporate ta},paye r s' !1..21,...E.i2ec i~f i_c�:L:.l:..Y. exempt under Section � � � � 27 of this Code' which significantly refe~ to ent.itieG z who,L!.. exewJ?..._I:. fr:om income tax, Sect i on 24(d) was evidently meant to be applicable e~en to corporaticns enjoying income tax exernption before the enactment of R~A . 5431. Otherwise, there would have been no need for said exclusion. The resulting conclusion is that outside of those referred to in Sections 24 (c) (1) and 27 of the Tm' Code , all corpora~ions whose liability for income tax was before governed by general laws or special statutes appli- cable to designated classes or groups of corporate entities, are now subject to the rates prescribed in R.A. 5431." At any rate, it can never be said that the pay- -. ment of the franchise tax on petitioner 1 s gain of Pl,084 , 033.55 from the sale of securities in 1969 commuted or compensated its income tax liability thereon because the records of this case clearly show that no franchise tax was paid by petitio ~ er on such gain. (p. 9, BIR records.) We find no cogent reason to modify, much less depart from the conclusion reached in Koronacal and 103

.' DECISION CTA CASE NO. 2727 - 12 - same should ~esolve the identical problem now before us in this appeal. Accordingly, the gain of Pl, 08 4,033.55 in 1969 realized by petitioner from the disposal of securities is subject to income tax. Not much need be said on petitioner'~ contention that the right of respondent to a ssess the deficiency income tax for the year 1969 had already prescribed under Section 331 of the then in force National Internal Revenue Code. Settled is the rule that the ordinary period of pr: escr iption of f i\re ( 5) _years within which to assess under Section 331 should be applicable to norma l circumstances, but whenever the Government is placed at a disadvantage so as to prevent its lawful agents . from proper assessmeht of tax liabiliti es due to false returns, fraudulent returns inte n ded to evade payment of tax or ~lu~_E;. _E�_file_f.�!:.~�E!�-~r the period Qf ten (10) .years as provided �n Section 332 of the Code s hould apply ~ (Aznar vs. Court of Tax Appeals, L-20569, August 23, 1974, 58 SCRA 519.) Since the agents of the Bureau of Internal Revenue were prevente d from properly assessing the tax liabilitie s of petitioner on it.s gain of Pl,084,033.55 from the sale of investments in 1969 because of petitioner's failure to file the return ei ther for income tax or franchi se tax purposes , 1 0 �l

DECISION - CTA CASE NO. 2727 - 13 - and it was only due to the lett er of the Auditor General (now Chairman of the Commission on Audit) to respondent on this matter that the latter was able to assess the deficiency income tax due there- on (p. 9, BIR records)~ the period of ten year s under Section 332 (now Section 319) of the National Internal Revenue Code should apply. Nevertheless, on the assumption that the ordi- nary period of five years under Section 331 (now Section 318) .of the National Internal Revenue Code should apply, the right of respondent to assess the deficiency income tax for the year 1969 has not yet prescribed. If the taxpayer requests reconsideration of the assessment, the per: iod be�tween the petition or request for recons ideration and the revised assessment is to be subtracted from the total pres- criptive period. (Republic vs. Ablaza, L-~4519, July 26, 1960, 108 Phil . 1105; Commissioner of Internal Revenue vs. Sison, L-13739, April 30, 1963, 7 SCRA 884; Querol vs . Collector of Internal Re ; enue, L ~6705, October 30, 1962, 6 SCRA 304; Republic vs. Lopez, L-18007, March 30, 1963, 7 SCRA 566.) The original assessment of P519,399.98 as deficiency income tax for the ye ar 1969 wa s i s sued by re s pondent on May 15, 1973 and receive d by peti- tioner on July 20 , 1 97 3. (par. 2, Pet i ti on fo r 1 05

.' DECISION - CTA CASE NO. 2727 - 14 - Review.) . On July 23, 1973 petitioner protested the assessment by filing a request for reconsideration, which was received by respondent on August 3, 1973. (par. 3, Peti tion for Review; Exhs. "C", "C-ln & "C-2" 1 pp. 21-2,3, BIR records.) On October 15, 1974 respondent revised the assessment by increasing the deficiency income tax of petitione r to ~537,297.98. (E xhs. "D", "D-1", "D-2", "8" & 11 8-A;", pp. 28-2.9, BIR records.) This revised assessment was received by petitioner on July� 30, 1975. (par. 4, Petition for Review.) Assuming arguendo that the five-year prescrip- tive per i od wi t hin which respondent'~ right to assess the deficiency income tax in question started on April 15, 1970, when the income tax return should have been filed, the deadline for the issuance of the assessment would be April 15, 1975. However, the period from August 3, 1973, when petitioner filed its request for reconsideration, to October 15, 1974, when respondent issued the revised assessment, which is one (1) .Year, two (2) _months and twelve (12) _days, should be deducted therefrom. So that even if the r evised assessment letter was rece ived by petitioner only on July 30, 1975, it was still within the five- year period fixed by law. It should be stressed, however, that for purposes of the prescriptive period 1 0G

DECISION - CTA CASE NO. 2727 - 15 - established by Sections 331 and 332 (now Sections 318 and 319} .of the National Internal Revenue Code, an assessment is deemed made when the notice is released, mailed or sent by the Commissioner of Internal Revenue to the taxpayer. Failure of the taxpayer to receive the assessment within the pres- criptive 9eriod will not affect the validity of the assessment if it was mailed and released within said period . (Republic vs. Alane, L-~8865, September 28, 1964, 12 SCRA 24; Nava vs. Collector of Internal Revenue, L-~9470, January 30, 1965, 13 SCRA 104; Basilan Estates vs. Commissioner of Internal R venue, L-22492, September 5, 1967, 21 SCRA 17.} Consequently, on the assumEtion that the ordinary period of prescription of five (5} years should be applied to the instant case, as contended by petitioner, still the r~ght of respondent to assess the deficiency income tax of ~537,297.98 for the year 1969 has not prescribed. As to petitioner's argument ~hat the assessment made by respondent is without factual basis, suffice it to state th a t in its letter of July 23, 1973 to respondent, contesting the deficiency income tax assessment of ~ 519,399.98 issued on May 15, 1973, petitioner clearly and unequivocally admitted 1 07

DECISION CTA CASE NO. 2727 - 16 - therein that "the net income per investigation of Pl,084,033.55 actually represents gain on sale of investments for 1969" and said letter forms part of its petition for review. Under Section 2, Rule 129 of the Rules of Court, admissions made by the parties in the pleadings, or in the course of the trial or other proceedings do not require proof and can not be contradicted unless previously shown to have been made through palpable mistake. Aside from the fact that said letter was presented and admitted by the Court as Exhibits "C", "C-1" and "C-2" of petitioner, as well as Exhibits "6", "6-1\" and "6-S" of respondent (pp. 21-23, BIR records}~ the same is also Annex "B" of paragraph 3 of petitioner's. petition . for review . (pp 1-2., CTA records.) . To say th e r efore that the asses sment is without factual basis is to incur in self-contradiction. Accordingly, we find no.merit in the instant petition for review and the decision of respondent Commissioner of Internal Revenue finding petitioner ABS-CBN Broadcasting Corporation liable for the amount of P537,297.98 representing deficiency income tax for the year 1969 must be sustained. The corn- promise penalty in the amount of ~450 .00 suggested by respondent in his deficiency assessment should not however be i mposed or collected without the 1 08

DECISION - CTA CASE NO. 2727 - 17 - agreement and conformity of petitione r . And it does not appear that petitioner accepted the imposition of the compromise amount. (Wonder Mechanical Engi- neering Corporation vs. Court of Tax Appeals, L-~2805 & 27858, June 30, 1975, 64 SCRA 555; see also Collector of Internal Revenue vs. University of Santo Tomas, L-11274 & L-~1280, November 28, 1958, 104 Phil. 1062, Unpub.; Philippine International Fair, Inc. vs. Collector of Internal Reven ue, L-12928 & L-~2932, March 31, 1962, 4 SCRA 774.) Petitioner is therefore ordered to pay respondent the sum of ~536,847.98 as defic iency inc ome tax for the year 1969, plus the surcharges and interest which have accrued thereon incident to delin- quency, pursuant to Section 51 (e) .of the National Internal Revenu Code, as amended. WHEREFORE, the decision appealed from is hereby modified ~ n the sense that the compromise penalty should not be imposed and is affirmed in all other respects. With costs against petitioner. SO ORDERED. Quezon City, Metro Manila, February 25, 1981. WE CONCUR: M1ANTE Presidi ...._ � ROAQUIN Judge 1 09