National Coal Company vs. Collector of Internal Revenue

A private corporation created by special law but subject to the Corporation Law, even if the Government is the majority stockholder, is liable for the specific tax on coal under Section 1496 of the Administrative Code when it is neither an owner nor a lessee of the coal-bearing lands from which it extracted coal, and therefore does not fall within the tax provisions of Act No. 2719.

The National Coal Company was created by Act No. 2705 of the Philippine Legislature on March 10, 1917, to develop the coal industry in the Philippine Islands, with the Government of the Philippine Islands as majority stockholder holding 29,809 of the 30,000 shares issued. The company was made subject to all provisions of the Corporation Law insofar as they were not inconsistent with Act No. 2705, and no provisions of that Act were found to be inconsistent with the Corporation Law. Two months after the company's creation, the Legislature enacted Act No. 2719, providing for the leasing and development of coal lands in the Philippine Islands, imposing internal revenue duties on two classes of persons: lessees of unreserved, unappropriated coal-bearing public lands, and owners of coal-bearing lands. On October 18, 1917, Governor-General Francis Burton Harrison issued Proclamation No. 39, withdrawing all coal-bearing public lands in the Province of Zamboanga and the Island of Polillo from settlement, entry, sale, or other disposition. The company took possession of approximately 400 hectares within the reservation without any lease, contract, or authority from the Secretary of Agriculture and Natural Resources.

The National Coal Company was incorporated on March 10, 1917, by virtue of Act No. 2705, for the purpose of developing the coal industry in the Philippine Islands. The Act granted the company the general powers of a corporation and such other powers as may be necessary to prosecute the business of developing coal deposits, mining, extracting, transporting, and selling coal. The Government of the Philippine Islands was made the majority stockholder, owning 29,809 of the 30,000 shares issued — approximately 99⅓ percent of the total capital stock — evidently to insure proper government supervision and control. Act No. 2705, as amended by Act No. 2822, made the company subject to all provisions of the Corporation Law insofar as they were not inconsistent with the Act, and no provisions of Act No. 2705 were found to be inconsistent with the Corporation Law.

On May 14, 1917, two months after the company's creation, the Philippine Legislature enacted Act No. 2719, providing for the leasing and development of coal lands in the Philippine Islands. Section 1 of that Act declared that coal-bearing lands of the public domain shall not be disposed of in any manner except as provided in the Act, thereby indicating that no coal-bearing public lands had been disposed of prior to its enactment. The Act made provision for leasing by the Secretary of Agriculture and Natural Resources of unreserved, unappropriated coal-bearing public lands, and imposed internal revenue duties upon lessees under Section 3 and upon owners of coal-bearing lands under Section 15. On October 18, 1917, upon petition of the National Coal Company, Governor-General Francis Burton Harrison issued Proclamation No. 39, pursuant to Section 71 of Act No. 926, withdrawing from settlement, entry, sale, or other disposition all coal-bearing public lands within the Province of Zamboanga and the Island of Polillo. Almost immediately after the issuance of the proclamation, the company took possession of approximately 400 hectares of coal lands within the reservation, without any further formality, contract, or lease, and without any permission from the Secretary of Agriculture and Natural Resources.

Between July 1920 and March 1922, the company mined 24,089.3 tons of coal from the public lands it occupied. Upon demand of the Collector of Internal Revenue, it paid a tax of ₱0.50 per ton on December 15, 1922, amounting to ₱12,044.68, under Section 1496 of the Administrative Code. The company claimed it was liable only for the lower tax of ₱0.04 per ton provided under Section 15 of Act No. 2719 and filed suit on July 17, 1923, seeking a refund. The sole witness presented by the company on the question of ownership, Mr. Dalmacio Costas, a member of the board of directors, testified that the company took possession by virtue of the proclamation alone, that no document had been issued in its favor, and that it had received no permission from the Secretary of Agriculture and Natural Resources.

The trial court, Judge Pedro Conception presiding, had difficulty interpreting Section 15 of Act No. 2719 due to perceived differences between the Spanish and English versions. The court held that the words "lands owned by any person" in Section 15 should be understood to mean "lands held in lease or usufruct," in harmony with the other provisions of the Act, and that the coal lands possessed by the company fell within Section 15. The court ordered the defendant to refund ₱11,081.11 — the difference between the amount collected under Section 1496 of the Administrative Code and the amount that should have been collected under Section 15 of Act No. 2719. From that sentence the defendant appealed.

• Applicability of Act No. 2719: Whether Section 15 of Act No. 2719 applies to the plaintiff, thereby exempting it from the specific tax under Section 1496 of the Administrative Code.
• Liability under Section 1496: Whether the plaintiff is subject to the specific tax of ₱0.50 per ton under Section 1496 of the Administrative Code.

• Applicability of Act No. 2719: No. The plaintiff is neither an owner nor a lessee of the coal-bearing lands from which it mined coal, and therefore does not fall within the two classes of persons to whom Act No. 2719 applies.
• Liability under Section 1496: Yes. Having produced coal in the Philippine Islands without being an owner or lessee of the source lands, the plaintiff is subject to the specific internal revenue tax of ₱0.50 per metric ton under Section 1496 of the Administrative Code.

• Applicability of Act No. 2719: The Court examined the evidence on the question of ownership and found that the plaintiff was neither the owner nor the lessee of the coal lands. The sole witness, Mr. Dalmacio Costas, testified that the company took possession solely by virtue of Proclamation No. 39, that no document had been issued in its favor, and that it had received no permission from the Secretary of Agriculture and Natural Resources. The proclamation itself merely withdrew the lands from settlement, entry, sale, or other disposition; it contained nothing authorizing the plaintiff or any other person to enter upon the reservations and mine coal. The Court emphasized that the plaintiff was a private corporation — the mere fact that the Government was the majority stockholder did not make it a public corporation — and it had no greater rights, powers, or privileges than any other corporation organized under the Corporation Law. Act No. 2719 imposed taxes on only two classes of persons: lessees of unreserved, unappropriated coal-bearing public lands under Section 3, and owners of coal-bearing lands under Section 15. Section 15, the Court reasoned, had reference only to persons, firms, associations, or corporations that had already, prior to the enactment of the Act, become owners of coal lands; it could not refer to lessees or holders because practically all other provisions of the Act already governed lessees, and the tax rate in Section 15 differed from the obligations imposed upon lessees under Section 3. Since the plaintiff was neither an owner nor a lessee, it was not subject to any provision of Act No. 2719.

• Liability under Section 1496: Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected, per metric ton, fifty centavos." This section forms part of Article 6, which provides for specific internal revenue taxes upon all things manufactured or produced in the Philippine Islands for domestic sale or consumption. Having demonstrated that the plaintiff produced coal in the Philippine Islands and was not a lessee or owner of the land from which the coal was produced, the Court held that the plaintiff was subject to the specific tax under Section 1496 and was not entitled to the benefit of any provision of Act No. 2719.

• Government ownership of stock does not convert a private corporation into a public corporation — The mere fact that the Government is the majority stockholder of a corporation created by special law does not make it a public corporation. Where the enabling statute makes the corporation subject to all provisions of the Corporation Law insofar as they are not inconsistent with the enabling Act, and no inconsistency exists, the corporation is an ordinary private corporation with no greater rights, powers, or privileges than any other corporation organized under the Corporation Law. The Court applied this principle to reject the plaintiff's implicit claim to special status and to hold it liable for the same specific tax that would apply to any other coal producer.

• Statutory tax provisions apply only to the classes of persons expressly identified — Act No. 2719 imposed internal revenue duties on only two classes of persons: lessees of unreserved, unappropriated coal-bearing public lands, and owners of coal-bearing lands. A party that is neither an owner nor a lessee cannot claim the benefit of the Act's tax provisions and is instead subject to the general specific tax under the Administrative Code. The Court applied this by examining the plaintiff's status — neither owner nor lessee — and concluding it fell outside Act No. 2719 entirely.

• "The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does not make it a public corporation." — This passage articulates the controlling principle that government majority ownership of stock does not alter the private character of a corporation created under the Corporation Law, a point central to the Court's rejection of the plaintiff's claimed tax preference.

• "A reading of said Act clearly shows that the tax imposed thereby is imposed upon two classes of persons only — lessees and owners." — This sentence defines the scope of Act No. 2719's tax provisions and is the analytical hinge upon which the Court excluded the plaintiff from the Act's coverage.

• "[I]t having been demonstrated that the plaintiff has produced coal in the Philippine Islands and is not a lessee or owner of the land from which the coal was produced, we are clearly of the opinion, and so hold, that it is subject to pay the internal revenue tax under the provisions of section 1496 of the Administrative Code, and is not subject to the payment of the internal revenue tax under section 15 of Act No. 2719, nor to any other provisions of said Act." — This is the ratio decidendi stated in its most direct form, linking the plaintiff's status (neither owner nor lessee) to its liability under the general specific tax provision.

• Section 1496, Administrative Code — Provides that "on all coal and coke there shall be collected, per metric ton, fifty centavos." This is the general specific internal revenue tax on coal and coke produced in the Philippine Islands. The Court held the plaintiff liable under this provision because it produced coal without being an owner or lessee of the source lands.

• Sections 14 and 15, Act No. 2719 — Provide for the internal revenue duty and tax on coal-bearing lands owned by any person, firm, association, or corporation. The Court held that Section 15 applies only to pre-existing owners of coal lands, not to lessees or to parties occupying public lands without authority, and therefore did not cover the plaintiff.

• Section 3, Act No. 2719 — Imposes obligations upon lessees or holders of unreserved, unappropriated coal-bearing public lands leased by the Secretary of Agriculture and Natural Resources. The Court noted that the plaintiff was not a lessee and thus did not fall under this section either.

• Section 1, Act No. 2719 — Declares that coal-bearing lands of the public domain shall not be disposed of except as provided in the Act, indicating that no coal-bearing public lands had been disposed of by virtue of Proclamation No. 39.

• Act No. 2705 (as amended by Act No. 2822) — Created the National Coal Company and made it subject to all provisions of the Corporation Law insofar as not inconsistent with the Act. The Court relied on this to classify the company as a private corporation.

• Section 71, Act No. 926 — The authority pursuant to which Governor-General Harrison issued Proclamation No. 39, withdrawing coal-bearing public lands from settlement, entry, sale, or other disposition. The Court found the proclamation did not grant the plaintiff any right to enter upon or mine the reserved lands.

Street, Malcolm, Avanceña, Villamor, Ostrand, and Romualdez, JJ., concurred.