CTA Case No. 2690 (Decision)

�w r C U. ." ~ ~: ~L - . ~ J QUEZQ, CITY L ID E ' c co I c. ' tition r , - - v r us . . c� � > ~..r � 2690 co .!..... J.O LJ �V u � ~/)., -=r/~ - -R sp n nt. - -- - - X c l In thi r. i t. f r th- r v~ of tJ: _cud or ,. or uis~ .... on r of r "'P n ent lnt. r �� ny ng th t t.. 1~..!. a by t i t i nr;.r 1 ctric Com ny , Inc. , g i ,, t hi~ r-nc1i""u t � x a ss nts in olving t fc, l o �in e 1 nt;;;): - (1) T-67-8 for 1 63 to 1~66 (2) IT-70-9 fer 1 67 t<. 196 - - - (3) 1970 to 1~7') "''-... . - - - - - u L i~ petition r poses t , u sti n, s gran.:~ of. a franchi t c ,P rate n el~ctric i J ht p nt to supply el ctric curre.t tc t .e C t� of L g-spi nd ~ unici p l~tv of raga, lb~ . �, --; .. tt r it 1~ li bl to h t X' � 2~ s~ cified in S ction 1~ of ~u-lic ct o . 3730 or 5 provided in T;h � th n ...., .ctic�n 25 vf ~h- - c~na <. by ' . ub- 1.I""10

D Cl.; o. 2690 T C� ~ - 2- lie Act .. o. 39 J public ct o. 18 . Juli n � in n. n s gr nt fr n- chis � un er ct o. 247� . ~ .r v on ebru ry s. 1 15. nd whic w n by ct o . 2620 on ru ry 4, 1~16 , to op r t n 1 c ric light nd po � r pl n u _,� ly lectric curr nt 0 the r ident -f unicip.1i ie 0 9 i (n city) nd D r � th in lb� J rovinc � ubs - u nt:ly. h old his rJnchis � c rt1 ic te of pubic c nv ni .c nd th_ el ctri~ p nt oo r t_d ther und r , to s turnin.:; �'-nito ,. h in rn sol. t lfr o , 1 rio nd enj n, ll ur- n mcd Pnito, on M~rcl 13 . 9 1. Jun 1, 1949, the ito un ot p rtil'! orme a t.ar nership to op r t th. lectric plant . Aft .r the in~or o- r tion o iti r r en e!ru ry 8 ,. 1~51, the fr nchis . c r ific�t of n1blic ccn eni nc n th lectric 1 nt op.rat I d th reunc ... ,~ e tran- f rr d to it y ai rtn n i. � ~11 th t n- c;.Cti n .. re ovca by th then ublic ~ervic~ Co missi'"'n . ~ince tl y r lSJS, h_ rigi 1 grante n , aft r him , hi v ri o u~ s cce a.r in int r.st, id a fr�nc js t � y of 2' on t e gr arnin or r c i -s fr t r J�:s i �s op r t d un .r th . fr cl s pr~vi ed u der r~icl of . ct o. 71.

� � 26 0 - - 3- 2 7s. th t as th r nc hi t X p 1d by '1 d m.t s f r n uicia privil 9 0 hoy xist nt � tt On cc ob r # 1... 46 , ho-w v r , h n th th n ('! c ion 25 of th ticn .'.. In rn vcnu Cod s meno by public ...ct ~ o � 39 ich in re th r nchJ. tax t 5, � v titiuner r ir-d to y by r s c..nd nt Co. is-..i�n r vf lnt rn'l th ~ver.!.le Jncr (�d fr net. is t x , XC pt the t t b c rn y � b be. or its incor or t n , tl s h vin b en ? ic.: 1 y it r d c ors in i r. t .. ' titic.m . filed ith nt s v ral r u o;;,)t ...or r f d 0 .!.1 y .nt ()� franc i<.. tax c .... n n�ing th t , un r .t: ch r.t . i t w .Li�:lbl - tu pay - rc nchis X iv nt t o only 2 nc. of it 0 . r c in~. �. r r. c -~P s no !;i it ac ~n th r 0 t k l1 by r~s n- dent. titi ner on J nu ry 8 , .59 fi) �'j 4 th thL, COllrt titj .n for r vie , dock.t.d. s C.T �� Cas l o .. 613 . pr ying r the r f1lnf'' th t um of 4,573 . 61 r _.prP. n in_, 3S ry- M nt.;; of ft" hL ta r th ~ rem T nuary . - 20 , 1947 to � ctob r 1 � l9r.: �� and fer n or r r t �r inL 9 r~s ponne n and 0:. -9 ntn fro col ct nq fr<*rr: it . .r hon 2 0 its r a r ling or r c 1"" ts a r chi_ tax . t r prop r roce jng , tis Cou�t r n � 2 t!"'-) .

N � 2690 -4 d cision dat d lov mb r 2 . 195 hol ing petition r t ubj ct to p y th 5% franc is tax s re crib d in ection 259 of the tion 1 Int rnal R v nu Cod � c;m .nde y .e lie . ct o . 3 nd, c n u nee th r o . di�mi edt p tit1 n or r und f �r lack cf m ri � ot ati~fied i t l the j udg nt ~ p ti i er fil ith th "upr Court th ccrr -on ing p titicn fer r vi w of id dec L::oi n . hich d ck ed t �� Court L- 164 28 . On pril 30, 19 3 th ~upr r n r < dec i sion ffirt. ing th .... j g .. nt of thi Court . (L ald El ctr1c co � � Inc., vs . Co mis- sioner o Internal ev nue nnd Court of ~ax p l # G. � . o. L-16428 , A ril 30 , 1 63 , 7 �C 728 . ) In �deciding g in t p tition r; th suprem Court rul d th t 1 r h franchis � d s n t specify th .ount of t.h t x p yabl by th~ grante , th fr nellis t X L; 5, o-F � t e gro... receipt s ro- vid d in v ction 259 of th tion 1 Int rn l Reven Cod �� U lie ACt o. 37_0 / On Jun 22 , 19 3 , extended th ur....ticn o ... .; ranchi e c~ peti- ti n r .r p ric of f1 ty year to co rene on ru ry 6, 1'65. B ca se its ri ina ch rte did net pecify the rate of fr,nchis t x to b paid by it ( rt . e , c fo . 2475 a. nt by 73

c N � 26 0 - 5- ct o . 2620) , tition � ver th t in cc ring h x e .... i o:: _h<:.: dur o...icn o':' ics ch r r . it ork � - d < u.w tv it th t o fr nc ise ~s ext nd ~ s eci -ic lly stat h~ r teo th fra- chis_ tax to b p�ii ~.run � r r th gr nt 1 s s cc Thus , ,. cti n 12 o ct o . 3731 provid as f llo� s. �cept under ro. t ~ e f cti i y o pu lie ct o . 37 on Jun 2. 19 3 to !ov r 1 77, t � bu .. it._' 5 of L _l ctric C<.;TH uy , Inc �� h-C! b� n 1rn~ OV r tt. he rat ion 1 !l :oc t -i �ic,..tion d ni'l:r ti -n { ) thru lbay �1 ct ic Coop r tive � C"") I p - ti ioner, in ccor nee ith .;,) ct.ion 12 of R u ic ct l� o . 3730 , ha b n payin � intc th.-. .re� ury of th City f aspi n th unici l'ty c-t= D r a th fra .c lis tax u 1 to 2~o of it gro , rnings . Contending th t h p ym nt of the 2% fr nchise tax to h tr � ur r of th City of L ga i nd 'th rag ... houl..: no b C '"'!1Gi or d p ym nt o! th 5 fr nchi<.> t u d r ction 25 74

D�-Cl I C A C :. o. 26~0 - 6- of the tion 1 Int. r al v nu Code, ne d by e ublic c s o � 39 nd 41 4 w ich rovid s S fol OW II .J shall b ing ano frar- Jercent g _s "' ' � char_es , for r spo d nt a~se.. s d ti cner t th . r t:. of 5, of i s gr -s receipts th umt u tv of 1 , 74G . 6 , 176, 781 . 75 nd 335, L37 . & , cr- tot l f 652 , 655 . 20, covering th I lC63 t:C E66 ; 1~67 to 199 nd lS? to 1-72 , x t..i vel.lr . aint ining th t it 15 nJt 1 � ul to y the 5', fronchis t under ctit- 259, paym nt r th 2.. fr nchis tax uri er wee n 2 75

O�Cl l C1 C ~E 0 . 269 0 - 7- of e )ubl i c ct o . 37 3 �� p ti i e:n r pr otc::;t-d ndent ' sse S t nts . � n d cis ion d t t r i l 8 , 1 9 75 ~ r {. s ~.. on ntt he 11 v r , de nied titio r ' s rot. s t~ enc t is '-"P~ - 1. Th ivo�� 1 nd ci iv i ""Ue in thi~ c i : h th r or not th ym n of t 2 fr chi s t � x t h tr surer o~ th City of L ga i and t .h unicipclity o Drag ohcuid b c .. i oer d '"'yme n o h f~ c his t x unde t tiona! Intern ev-nu Cod. . vt Is t e 2, fr nchi t x r cri d in ~� ction 12 of pu b lic ct o . 3730 i i u 0 th f . .c i..... t .X im os d by ~ection 25 f th ticn 1 Intern R v nu . Co ~.-. e �: h parti r n tin riwp t on ro- vision f lt:n ~ 1 g n.r ir.ci tio ... of fr <: r c i tax a nd a. o unt f fr nchis~ t /: i d by p�titi ner . !le held th t th t:.-Y 1 vi�_d und.r ch r- . t r of Le l d �eerie Con ny , !nc � � (' C: ll ic ct ~0 . 3730} is ( in n 1 r v u X c.n th I fr nchis � and thl..:r o r � L in li c }'; fr n- chi t: h tio .a lnte n 1 e nte Cod � n cpini 1 o . 7 , ,. -ie of l ... 6S ., of th D rt , n (no 1 � i i try) cf Ju icc, J 1- 76

DE CI G I CT S NC . 2690 - 8- tember 20, 1965, in nswer to a quer y whic h res- pond nt himself requ sted thrcugh the Department (now r1in.istry) of Finance , said Of ice ruled tha t in accordance ith the provision of Section 12 of epublic Act o . 37 30 (c harter of ealda Elec tric Comp ny ,. Inc ., ) , the franchise tax pay- ble by petitioner "should ccrue into the trea- s ury of the City of Legaspi and the 1uni c i~ lity of Darga through their respective treasurers" . (p . 281 , BI records) In view o.f thi � op i nion , from hich the Com- . mi~sioner of Inter nal Rev nue concluded that th said 2% tax cannot be considered national inter- nal rev en tax , res~ondent a s vsed against peti- tioner th. 5% fr nchise tax imJosed by ection 259 of t he National Int rnal evenue Code, supra, in t he amount of 140, 746 . 64, '1 76 , 781 . 75 and a 33 5 , 037 . 81 , or total of 65'2 , 6 55. 20 , for th p r i ods 1963 to 1966, 1967 to 1969, and 1970 t o ,1972 , res. ectiv ly , vrhich a"se.� s ents , � fter �they were uly cont~sted by petitioner , ar now th subj~ct m tter of the res nt pr ceedings . e - tit ioner, as stated above, protest d gc:inst th � . assess � ents claiming �th t pay ent of the 2'i t x prescribed by 3ection 12 of epuwlic Act to . . 3730 relieve it from the bligation of paying 77

DECISICl CTA S� O. 2690 - 9- t he 5% franchise tax imtosed by Section 259 of the Tax Code . ence , r s~on ent , t� rough the Depar t - m nt (now Ministry) of F i nance , requested the De- partment (n w �linistry} of Justice for clarifi- c ation of 0 1 inion o . 71 , Series of 1965, spe ci- fically on h � 11 wing queri ~ s: (p. 2&2 , ulR records) "(1) Is the 2'1o tax prescribed in . A . No . 3730 in lieu of the franchise tax i np se by Section 259 of the a- tional Inte nal evenu Code ? Or is it a tax imposed by ~he City of Legaspi and municipality of D raga, independent of the franchis tax prescril.Je in .Sec- tion 259 of th fore id ~ x Code. "(2) Does the pr vision ' sh 11 pay quarterly into th treasury of the City of Legaspi and the Munici ,... li ty of Daraga ' rneau hat th ntire collection of ~he t x shall accrue to said city and munici ~ ality? Should i t n ot be in- terpreted as a mere procedure of payment, the amount col ct.e6. t.o l.Je di8 ~sed of in accordance with the rovi i ns of Secti n 359 (d) of the Tdx Code? ' In Opinion Ho . 89 , eries of 74 1 of the Department (n w ~inlstry) of Ju~tice, d ated July 1 , 1974, the s id Office ruled that: (pp ~ 280-281, urn� records) Th re would s em to be no dou t that the tax levied under the charter of Leal a Electric Co ., Inc . is a fr nchise ta:c; -s such it is an internal revenue tax LPanay lectric Co ., Inc . vs . Collecto r of Int . Rev o 103 Phil . 819 (1958)/. Before the passage of R . � ~o . 2655 in 1960 , prcvin- cial and city tre durers w re deputies of the Bureau of Internal Revenue in the 78

0 CI lvl - - 10 - . c c ~ . � 2690 call cti n �o e c- t. !t i,;;) 1 r rro r~: � in of ....ectio of th 1 Int r al nu Coo th th 'f n- c h s t x" prcvide tt r~in r fer nt;t ot_y to th ta m on d in ctio but al 0 to h - 11 tax I char , c:;.nd t-1 rcent q II nr scrib d in Q th s cial c rter.; und 1hich h 1 ers ,f r n- c i "'es oper t � lu f ct , h co_ c tion of r - chic:-,: t . s nc. th pen~lty for delin u.ncy .... gov rned bf ~ ctic 259. incof r t ere r no~ incon~iat-nt ~ith ~h speci 1 ch r- ter5 . cd a ction ! o ~hP me Co cl rly f.r:ancl i3e t:.. ...., ....... 1 int rnal r - �-" ...... xe"' . It .a d that � ct:.i n 35::t ~rovi.e or th-. c i .�po~ i l.on .:. l..t�� 1chis , cth r na~1 n 1 int PR rPV nuL Thera- for , th r c n n oub"" th t r 1chi~ t-x is� nati n ~ l ~~-rn r~vcnu t x. c �ric Co ., lnc. vs . Col ct ~ cf nt�rn 1 ev ue �n Co rt _f T x p 1-. 103 hil . 81 � 325) In th li9ht of th bov , it f c lew th t 79

2690 - 11 t.e c roll ry q ues ic y r- onient as t J.. !..'" nch �s. tax - h th r or 0 tho p y -rn:. c t:h t o t tr ur �r o .. ...he Cit of L nd th , r".!d 0 y- u~1ici ality of D-r.-g llould be con nt o th fr nc~i t ~ X unJ r .; ct 0 259 f the at~onal lnt rn 1 venue Co must <tr .1ly b~ ns cr d in 1:.h affir, � iv_ . h f ct -r:.h t un- der ection 12 of puolic Act N � 37 30 th 2% r nc hi t. X shculd paid into tr _a ury of h Ci.ty� of spi nd th u~1c" ldli y o Darag would n t convert th tax levi~d in th. 1 g'sl tiv fr nchia of titicner intc unici~ 1 ta~ hat �culd ecru wholly to th 1 c l gov rr�m nt. (Jee pinion 89 , ~ ri~s of 1974 , of the art' . n ot: Ju tic � Court in l? n y ~lectr c Co any , supr , ction 359 of th �tic~cl Internal evenue co:e . ar i- cul rly su f.�ecti'"'n (d) ther of ~ choul qnv rn h di po ition of t.e 2% fr nchia t x pia by i- ticn r , p yr..ent i full to th tre .... urer of h City of L i a n �the. unici~ality o� ~ r not �ith ... t ndi � vied un er the char er of If th ~L t.x . p t.itioncr :... n in rn 1 revenue t Y. on th f:r n- - cr.i ... � re!. ond_n h ver rou "" th t inc t r .... s nc pr c lcoing c <u .. �in ....ecticn 12 of Repu.t.\lic 80

Df;Cl. l cr CA~ - ~ c � 2690 2- t x in ctio 25:' C�f . t ion 1 lnt r.- l Rever;ue Code s ..culd be 1m:o . ~d n ~tillur r . CitJng i y n 'l ctric 4 C..o . � s . D vid , 94. hil. ;69; ec.lda .Clcc:tr.ic co �� lnc . - � com �i sioner of Inte �r. l ev- ~u . , .'..-lt>42 , pril 3 , 1 63 , 7 .c. ~2~; Phili-pinn ~ ll:~y Co . � ' � 1s . Coll ct6r of Interndl e enu~, 91 lhil. 3~; ~io� in Co . , 111c . v . � o� vid. lO:) hil . 7.u3 , , res- pon ~� nt clal � th" t ih r d s ction 259 1 ni n r t n ~he tax s. _ci .i d ln the s ci l ch th l t � r i cottro l~n� i� t.h provir. ir);ls of tl, ~.r nchi ~ -�r cl d the Jm- position of hign r ta �, wher it pr�ov i c "C.hct -. th t X provi t:d in ...... .~.r-nch..:.se nh- 1 b i l i u uf 1 t � .s o ... ny n r.�e an n ~.-ure. II hi t:h Cj r er of petitiol"A ;: tat tl t tt. r.r chis X h l l b~ "in l'eu o.: ot., er . t- . ~~ ~ on �ll )r perti 3 exce:)'L r .c l by j;~l.'O ~rty , U<:iCd t.l �r nt e �nu r th s. fi: 'chiseu � ... t r~s:on ~ c.�""nc .ttdes .. to tll �~..a.' OS C' p r- t.h 't th ex ��~o ptiu ~ lmi" on 1 1 n .� ~ x x mp i.n ~at o:l nrc ud~ conf r or th- high r ta� iJ ~ ction SJ . th venue c �e. Th q ~cion. th r for , 1~ ~ ther pa itioner i t' j c t tc 5 r. chis ta. en it~ gros~ re- 81

I o. 26 0 - 13 - c ipts d ri 9 th p riod f-fectivity of i t r nchi ( uk'lic ct .~o . 3730) - o. more partie l rly , r July 1 .� 1.63 t D m r 31, 972 , in u .iv � tl p riod cov r d by th - m nt of re n en un r ccr. id r io in ur- u nc to ction 25S. . nd d by R ublic ct . Io . 3S (e:;.. ctivc ctob r 1 . 1~ 6) nd R ,uhlic ct o . lc ( f c-c.iv un� a, 194 ) or �o 2CX i t p ovi el in !...ec ion 12 cf s ue ion i~ not ~n of fir t im- pr .;ion. n i lec"t.ri ~ rvic b, Inc. va . ct � co.tm �loner of Int: rn,. l hevenu :, c.~. � c s No . 16 � . pt l.- 30 , 196 � wh r th "" t in is o Cou.r;� ~ un qui vvc � lly ru1.ed th� t wherl. th fr r ch!.;.;c w nt fl.:er th ~en~ent of v ction ?59 of th Co e y ~ public LCt Uo . 3 nd nepu lie ct t '6 . 418 41 ef ...ectiv octo er l , 1 46 no .Tu o 1 � 19 , r s ctiv ly , ~h tc o~ t~x ~ovi ed in th fr .nchis (27) st 11 pr vail . the franchi e being l t r .nv.c ...r. nt , n ith-tan ing the b,.. nc . of ny provi~i in tl'.e fr<n.chi t. t ic sh 11 b in lieu of ll other � cau...e of it. c ntrcllir. . �ectf� 0 th . pre nt cas � I will Ql..l t 1 ngth rom th 82

. c.. c ~ . � 2 <0 - 14 - dec wiO 1. i h 55� .vhether p ng .c �ctivity 4, 1~56 durin vf t. to pu ax rn~nn~ or c~ric this fr-nchis ." 83

c c � � � 26 .. 0 th - 15 - rat of f, tion r. Section 3 is <.1 . insertion . ln stdt Con r m. Jur . in. rt .d st tutory cun~,tn..c - nd t o ection of a ta- sh ul b nd s<.- lely of rn. - w in r f r .nce ".::-ion wi l in sion nc . i� rn < lnde 14 3 n th r is fee that wh r e x: . �- ( 0 Am_ Jur . 7 0 ). o! R p u lie Act i rrPcc � i -ble in rulas o statu- m. Jur. 6 -369) . 84

c . 2690 - 17 - uch p cl ing cl u I conceiv d by r e_ nd nt . h�r. the 1 w ao.e .n t x ct ~ 1 n t t mpticn s cond"ticn th t ul reclud x, thi'! ld n t b . �e in . �h la � n J ie t tr tth 1 lie bil ty th .o� �c t x of 2% e pr ~cri a in 1~ fr i . .. Di l ctric ervices, Inc., hc.d by th court ~ b c us t. t Y.p~y r is tc b n it.... undet th- terms a d c t 363 , r. s on nt ul nt 1.1 v � t nd t>licit-i ru d ther in, th ju!::t lik _ "-h fr nch:i .:~ of r�ct1 tjc, r . ion riv t t e c ncl�sic. 2/ franchis t x pr crib�d in th ch rt . � 73f) , I of titian r , neJut..l'c Ac 1 in li �U C t.he f :c i tux y t� - t i n 259 cf ~he ati co : 2 . p ym n cf fr cribe in � bl i t.ct - C' . 3730 t o th City o s i n- ~ th of 0 r ga by p titi n r i t x und r ction 25 of th � tion<-.1 nt r-nal 86

DC t � 2690 CT - 16 - in cl r y ...,inc .thE; fr r.c j e o f p er, R ul: l c Act No . 3730 . th n<.lt nt c ... .., cti<n 259 0 th' Ta Co by public ct o. 39 nd ct o. 1 � ff ct ' v cto r 1, l 9 46 and June l � 1 ~49 , re - p ctively. th 2 r . t cf r~scri in ction . 12 o" pub lic ct o � 730 sl uld ..~rev il ,. th franchi n g lat r ~n ct nt, r~o � th st n ing th ovido that th fr n c ise t x irn d th in i i ll- of .c ~ c o n y on r ' n rty u d tl g nte � r nchL.. _, �n r in ab lu~ ly no refer nc Jn � id ~ ctio n 59 to 85

DECI Im - CT CASE NO . 2690 - 18 - R v nue Cod e; and 3. Petitioner is liable t o the franch ise tnx r ate of 25{ as speci fied. in Sect ir_,n 12 o f Republi c Act . o . 3730 and ~ t o the 5% as p rovided i n ., Section 259 of the Tax Coda , as ~mend d by Re- public� ct o . 3S and Rovubl ic ~ ct No . 41 , . The sse~ w1ents of res r onden t C ~om i ~ i oner of Internal ev n e de, a;:'lding p aymc nt f r om pet i- tioner Lealda i:1ec tr ic Co.np any 1 Inc ., he a n ount n of 140 , 7 46 . 64, 176 , 7 81 .75 ~pd 335 , 03 7 . 21 , or a t otal of 652,566.2 0 , c ov ring t he p �riods 196 3 t o 1966 , 1967 t o 1969 and 1970 t o 1~72 , r e spec- tive1y, r presenting the 5% fra n c hise tax under Section 259 of the Tax Co e , after petitiuner h a d alr a dy paid the 2 r. franchlse tax un et- SecLion 12 of Republ ic Act rc . 3730 , canno t be sustained . CCORDI GLY, th decis i n under rev ie i hereby reversed . iJo co -ts . ~ uezon City , arc h 27, 19 7 9 . Jctin Presiding J dg I C CU J CO~ T ~TE ~ C '.(.. UI~ Associate Judge 87