San Fernando Electric Light and Power Co., Inc. vs. T1e 1 ·::>C:.I.O H. J Tnminqo ~.::. !:, et al.

DECISION -

CTA CASE NO. 1200 August &, 198° the above-entitled case was set for hearing for the parties to manifest as to whether or not they are still interested in prosecuting this appeal or in a decision therecef as supervening events might have transpired which may render the case moot and academic or otherwise substantially affect the same. During the hearing, however, the parties submitted this case for decision on the basis of the pleadings and the records of the case after petitioner has presented and the Court has admitted its exhibits. ~ As alleged in the petition for review § and admitted in the answer, the antecedent facts of this case are: es 1, That petitioner is a domestic corporation Organized and existing under and by yirtue of the laws of the Fhilippines, doing business and with principal offices: located in San Fernando, Fampanga.

en That petitioner is the grantee of a municipal franchise for an electric light, heat and power system in the municipality of San Fernando, province of Flampanga, granted by the Council of said municipality sometime in 1927, in pursuance to DECISIDI'-.1 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 first 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 --

-- 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-·econsidered and withdrawn.

7.

That after over a year and a hal ·f later~ the respondent by a letter dated Dct. 10, 1962, and which 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 pe titioner dated Octobe r- 10, 1962 be cancelled a nd wit hdrawn . Bas ica ll y, t hE·) lon e question tender-ed r·esolution is ~o.Jhether· petition e r- is s ubject to a franchi s e tax of 2% as pres cr-ibed in its municipal flr·a n ch.ise, instead the 5 /.

fr·anch.ise ta:-:

pres;c:r:i. bed by Section 259 of the then applicable Na tion a l Inter-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 Section 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 petitioner· · 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 --

- 6 - 1.

ThE> last 1 eg isla ti ·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 1 ev 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 w 9 P.gr. __ .f_~IJ .. t .. 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

- 7 ·- SEC.

This Act s hall tak e ef feet '"' ... ::. "

upon its approval.

Approved~ cJune

1963 .

2.

On August 4, p~titioner wrote respon dent Commissioner of Internal Revenue a letter 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.:·: because pl:'?t.i tioner' s new franchi se, Republic Act No .

3660~ supra, which ..

imposes 2 /.

fr-anchi se ta :·:

on its gr-·oss receipts, 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 canc e lling the additional assessment 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~ pe 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 I l

DEC IS I 01\1

- 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 . cas e and the law involved, as well a s the arguments you have presented~ this Office agrees 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 .

3660, 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 assessment. 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 Commissioner of Internal c:a ll.i.n<.J attention to the f a ct that res 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 DEC I ~3 I Of\.1 CTA CASE NO. 13 00 - 9 --· wi thd r·aw and cance 1 his def .i.e .i.ency franchise ta:-:

assess 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 et ter dated Clc tober 7, .1964~ nothing has 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 end s that in vi e w of Section 2 - A, quute d above, .it i s 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 its , .

c:apit. ~::~.l stoc k, ·ft-anc:h.ise , r·ight of way, earnings 42

DECISION --

and all other property owned or operated hy the ion oar franchise shall be grantee under “his cances levied or assessed on the herein grantee except the franchise tax of two per centum af the gross earnings mentioned in the said original franchise." There is ma roan far interpretation. Tt is well- settled that a statute, free fram any canstitutional infirmity. muss t be enforced as written.

Republic: Act No. BO60 which imposes ah franchise tax on the gross earnings of petitioner expr sely and clearly provides that it shall take effech upon the date the original franchise was granted. pravisian aft Laws toa the cantrary notwithstanding. AS ao orule, revenue laws are - = praspective in aperation, unless, as in this case, the legislative intent that the statute operate retrospectively is intently expresmec or necessarily implied. (Si) Am. Jur. S593 Lorenzo vs. Fosgadas, 64 Phil. 35%: Commissioner of Internal Revenue vs. Filipinas Cia de Seguros, i107 Fhil. 1oOS8,) Tt can he said therefare that the amendatory legislation has the effect of precluding the imposition of a higher tax as provided in ane | phe DEC I~::; I 01\1 ·-- CTA CASE NO . 1300 -·· 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 assess 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.

DuP.z cm City~ Metr·o Manila, ~July 15, 1.988.

WE CONCUF;::

(on offi c ial l eav e) CONSTANTE C. ROAQUIN ~e~ Ass ociate Judqe ~

AMANTE F

F'residin

DEC IS I 01\1 -

CTA CASE NO . 1300 -· .1. 2 -- C E R T I F I C A T 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 ·.:.

•