CTA Case No. 3214 (Decision)

J:'.~PUBLlC OP' TUI! rnJI.lPP !''~;.. .._;.�.T�1~1~ ')\t' "r ~ y A �-;- ~,.,-_.~ {> i ~ ' , c � ''- � \I I t � \ I� v . �� (\!J 11'.1.-v~ l.:a f1 ~VARIED SERV I CES, INC. Petitioner, - ,versus - C.T.A. CASE NO. 3214 COMMISSIONER OF INTERNAL REVENUE, Respondent . X- - - .x DE C I S I 0 N The case involves an assessment for deficiency tran c hise tax in the total amount of ~14,036.09 inclusive of surcharge for the period May, 1972 to December 31, 1 976 against petitioner. By virtue of R.A. No. 4636 approved on June 19, 1965, petitioner corporation was granted a franchise t o c onduct a messenger and delivery ser- vice for packages and/or oral or written messages f or a period of twenty-five years � (sec . 1) _subject to the taxes imposed by the Internal Revenue Code and an additional annual tax at the r ate of one percent on its net profit (Sec. 3) ~ On July 9, 1973 Presidential Decree No. 240 was promu lgated auth~rizing the Postm as t e r Gene r al to supervise, regulate and control the operation 13

-- . DECIS I ON - CTA CASE NO . 3214 - 2- of private express and/or messenger de livery serv ice firms and to issue, gran t, extend , suspend or cance l franchises or permits fo r such firms. Further pro- viding, among others , that "All express and/or messenger delivery service firms now operating under any franchise or other authority granted either by the former Congress of the Philippines or the defunct Public Service Commission or any government office , shall, within thirty ( 30) _days from the date of approval of this Decree, secure t he necessary 'Authority to Operate an Express and/ or Messenger Delivery Service ' from the Postmaster General other - wise their present franchises and/or authority to operate such service shall be considered cancelled and of no effect after the lapse of said t hirty days." (Sec. 2) ._ Accordingly on August 7, 19 73 pe t it i oner sough t the necessary permit or authori ty . The Postmaster General in a letter dated August 20, 1973, advised , "pending issuance by this Office of your 'Authority to Operate Private Express and Messenger Delivery ~ervice' your franchise to conduct me ssenger and delivery service under Republic Act No. 4636 is hereby extended for a period of n inety ( 90) .days commencing August 9, 1973." Petit i oner would

DECISION - CTA CASE NO. 3214 - 3- consider this extension a new ball game so to speak reducing its franchise to an ordinary contractual duty. Petitioner thus opted f or the payment of the 3% contractor's tax under Section 191 or the Tax Code in stead of the 5% franchise tax (Sec. 2~9, ibid. ) .Prescribed by the terms of the grant under RA No. 4636. As mus t be expected the Commission on Audit's repor t of examination of petitioner's books of account dated November 29, 1977 by authority of Commonwealth Act No. 325 which transferred the audit of the books and accounts of public services from the Public Service Commission to the General Audit ing Office (now the Commission on Audit) ~is closed that petitioner realized taxable gross receipts of ~674,408.00 instead of a declared amount of ~482,565.79 in the returns. Computed at the rate of 5% in accordance with .Section 259 of the Tax Code by the terms in RA No. 4636, the franchise tax due is ~33,720.39. Petitioner paid only the amount of ~22,531.53. Accordingly, the respondent Commissione r of Internal Revenue fur- nished of such findings assessed p etj: io ~ c r ~h e o mo Lin t of ~14,036.09 representing deficiency franch i se tax inclus i ve of surcharge for the period covered - May , 15

DECISION - CTA CASE NO. 3 214 - 4- 1972 to December Jl, 1 976 . On September 2 4 , 1 9 7 9 , petitioner protested the asse s sment alleging essentially of the change of business status as well of tax burden brought about by the promulgation of PD 240. In a letter date d Jan uary 16, 198 1 respo ndent deni ed the protest a nd reiter ated t h e deficie ncy asses sment of ~14,0 36 . 0 9. Th us, this petition. The record raises the b a sic issues: 1) ~hat the Comm ission on Au d it had no authority to conduct an a ud it and examination of the books of accounts o f a private c o rporation, and 2) That the franchise u n der RA No . 46 3 6 of Ju n e 19, 1 96 5 was r epealed by PD No. 2 40 o n J ul y 9, 1973. It is c on tended as reasons of appeal that the Commission on Audit e xceeded its authority in auditing and examining the books of accounts of petitioner, a private corporation, and not among t h e "public services" contemplated mu c h less enu me- r a ted under Se c ti o n 13(b) _of CA No. 1 4 6 (Public S e rvice Act)~ Mo r e over, PO No. 240 modified its franchise under RA No. 4636 to that of a mere per- mittee or a contractor of the Bureau of Posts. In faulting the first, respondent maintains that "while it is not den i ed, as contended, that 18

DECISION - CTA CASE NO. 3214 - 5- mes s e nge rial firms, suc h as petitioner corporation, are n o t among those enumerated in the statutory de- fin it i on, such non-inc lusion does not support peti- t i oner's contention that the Commission on Audit has no authority to conduct audit and examination of its books of a c counts. At the time CA 146 was passed in 1936, there were no me s s e ng erial firms allowed to operate beca use t he busines s of carrying letters/mails was a gover nment monopoly as embodied in Article IV, Section 1974 of the Revised Administrative Code, quoted, 'The busness of carrying letter-mails is a Go vernment monopoly and no person shall engage therein except as herei naf ter provided; xx'". As to t h e second qu esti on , P.D. No . 240 "do es n o t in any manner r e v o ke the f r anchise or the permit to operate, except when the firm tails to secure the required a u thority from the Postmaster General. In other words, revocation of a fr anchise would be the effect of failure to secure the permit. Where the franchise holder secures the required authority, no revocation of the franchise follows. The franchise continues to be in for c e." What we have ln th e c a s e befo r t� ~ !::; 1 ::; ~:; im p l y a private corporation under a legislative franchise 1

DECISION - CTA CASE NO. 3214 - 6- chartered to perform some special funct i on t hat of a � "carriage of letter-mails" which used to be a "Go ve rn ment monopo ly and n o person shall enga g e therein except as he reinafter provided" (Sec. 1974 , Revised Administrative Code)~ It is in this respect we think that peti t ioner corpo r ation come s in that clas s of "private corporations that owe the d uty of exercising t heir corporate powers for the inte rest of the public that they differ fr om ordinary pri vat e c orporat ions." (Nebbia v. State of New York, 291 US 502)~ Such "a business carried under authority of a gran t of privilege which either expressly or impliedly imposes the affirmative duty of rendering a public service demanded by any member of the public is clothe d wi th public interest justifying some public regulations." (Wolf Pac king Co. v. Ct. of Ind. Rel., 262 US 522 ) ~ We cannot therefore avoid the obvious that petitioner corporation is a public serv i ce "by reason of the natu r e and extent of i ts operation and effect upon the welfare of the public the duty of regarding the pub lic tn te res t i s t hrust upon it". (13 Am. Jur. 173). Ex p edient piffle i n deed if th e ~ind of undertaking cannot valid ly be infused cognizance as a "public service" wi th in the legal c on templa tion unless petitioner 13

DECISION - CTA CASE NO . J214 - 7- is unwilling to take the responsibil ities or simply unable to discern what they are. We now come to the proposition that "public service" cou ld be none of petitioner's business by reas on of its exclusion in Section 13(b) of CA 146 (Public Service Act}~ which reads: "T he term 'p~blic service' includes every person that now or hereafter may own, operate, manage or control in the Ph ilippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for freight or passenger, or both with or without fixed route and whatever ma y be its classifica ti on, freight or carrier service of any class, express service, steamboat, or steamship l ine, pontines, ferries, and water craft, engaged in the transpor tation of passengers or freight or both, shipyard, marine r ail- way, marine repair shop, wharf or deck, � ice plant, ice refrigeration plant, canal, irrigation system, gas electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless communications system, wire or wireless brOadcasting stations and other similar public services; x x" (Underscored are amendments introduced by RA No. 2677 approved June 18, 1960) By stressing upon the restrictive application of the above-enumerated "publ ic serv i ce'' entities, petitioner overlooks, as earlier point ~d ~~t , th e nature and purpose which its franch ise ~as granted and the public interest it must serve. Let alone 19

DECISION - CTA CASE NO. 3214 - 8- t he reason interposed by the r esponden t that "such non-inclus i on does not suppor t pe ti tione r's c on- tention that t he Commission on Audi t has no authority to conduct audit and e xam ina tion of i ts books of accounts. At t he time CA 1 46 was passed in 1 936, there was no messengerial f irms allowed to opera te because the business of carrying letters/mails was a government monopo ly", we think the amendment "and other similar public services" engrafted in t he language of Section 1 3(b) supra, b y RA No . 2677 is broader both in purpose and effect as to com- prebend the "carriage o f letters/mails", a business of a public nature and meets a public nece ssity for which the state may ma ke provision (New Orleans Gas-light Co. v. Louisiana Light Mfg. Co. ll ~ . us 650, 6 s. ct. 252, 29 US (L.ed . ) _576) ,_u nder such con - ditions and regulation as may be imposed in the public i n tere st and for the public security (Cali- fornia v. Calif o rnia P ac . R. Co., 1 27 US 1, 8 s . Ct. 1073 , J2 US (L. ed.) 1~0 ; Ashley v. Ryan 15 3 US 4 56, 14 s . Ct. 865 , 38 US (L. ed .) _773). For th is pu r pose, petitioner cannot pr y itself l oos e from the Comm issi o n on Audit's autho r i ty o.f conducting an "audit and examination of t he books , records and accounts of all pub lic services" (Se c. 1, CA 325) �. 20 J

.. DECISION - CTA CASE NO. 3214 - 9- We likew ise find illogic the impression preci- pitately broached by the petitioner that PO 240 particularly Section 2 thereof varied the conditions if not repealed its franch ise under RA 4636 as thus reduced its business into a mere contractor vis-a-vis a franchise holder. The prov1sion provides: "Sec. 2. All express and/or messenger delivery service firms now operating under any franchise o r other authority granted either by the former Congress of the Philippines or the defunct Public Service Commission or any government office, shall, within thirty (30) days from date of approval of this Decree, secure the neces- sary ' Authority to Operate an Express and/ or Messenger Delivery Service' from the Postmaster General otherwise their present franchises a nd/or authority to operate such service shall be conside red cancelled and of no effect after the lapse of said thirty days." But there is nothing cryptic nor abstract in the l anguage of the said provision as would pose an am- biguity in its application. To our minds it but serves as a linchpin as to ensure the continued operation of existing franchises as t he petitioner in the case at bar provided the necessary author ity must be secured from the Postmaste r General within the time constraint. The letter of the Postmaster dated August 20, 1973 ~o the peti tionL:� ~ ~' r '�l i:::; llc:::; the best means of its own exposit i on ~ t h 'JS , "pen cling the issuance by this off ic e of you r ' I\ : t� hnrit y to Operate Private Express and/or Messenge r Delivery 21

DECISION - CTA CASE NO. 3214 - 10 - ~ervice ' your franchise to conduct messenger and de livery service und er RA 4636 i s hereby extended for a period of ni n et y (90) days commencing Aug u st 9 , 197 3", which tenor of an extension has been rolled over many a time to date. The basic fac t s u bsists that the i mport and force of the f ranch i s e has been left pr ecisely as was then contemplated to the extent th~t the franchise tax i mpo sed t hereby under Section 259 of the Tax Code can valid ly be located, as thus, "all the duties and condi tions prescribed in or inferred from the grant wi l l be performed and discharged." (State v. Real Estate Ba nk, 5 Ark. 595, 41 Am. Dec. 109; Coy v. I ndia- napolis Gas Co. , 146 Ind. 6 55, 46 NE l7, 3 6 L.R.A . 535) ~ We do not think that there was an a ttempt to undo with the terms and conditions, privileges and obligations upon which the existing franch i se in the case at bar may be held and exercised. So it appears and we so hold that the r espondent Commissioner of Internal -Revenue fared con si ste n t with the mandate of the law in assessing the pet i- tioner for the deficiency franchise tax incl usive of surcharge for the period of May, 1972 to December 31, 1976. 2 ') r:w

.� DECISION - CTA CASE NO. 3214 - 11 - WHEREFORE, the pet i tion is hereby dismissed with costs against petitioner. SO ORDERED. Quezon City, Metro Manila, January 7 , 1983. ~ -- ~EYES Associate Judge WE CONCUR: ...... CON STANTE � ROAQUIN /f..ssocia e Judge 23