CTA Case No. 1320

.... - -- RE PtTTi .TC OF THE PHTLIPPl~ES

UUUH'l' OF TAX APPEALtl ·

QUEZON Cf:ry l rv. 1320 DIS L.iOn « UTA Chve B¥e 1320 2 life of seid franchise, Prom the start of his operation, petitioner had been paying a franchise tax of 1% on Bis cross earn ings bused on tne aforesaid franchise, — On June 19, 1960, Republic Act Ko, 309% was enacted, grenting petitioner » franchise for slectric light and power subject to the terms ami coniitions of Act Ho, 3635, an amenied, which provides a franchise tax equel to 2% of his gross earnings for electric eurrest sold under said franchise, Uespite the new rate of 2% preseribed fn his legislative franchise, petitioner continued to psy only the 1% franchise tex provided in his euntcipel fronchise, On august 11, 1961, besed upon the letters and recommendations of the General auditing Office dated fovernber 16, 1960 and July 15, 1961, respomient assessed petitioner the tote] amount of %9,926,10, as deflelency franghice tax and surcharge from April 1951 to Decenber — 1960, inclusive of the amount of 7,820.04, representing allsged erroneously refunded frenchise tax, the dstatis of the coli aseesement are stated in the oforessit letter of August 11, 1961 thuss Total gross receipts per ot. ae a ae a a a a) tex due eee et Amount peld «2 sa suees BOG st oes eeuv een eese Adds 25% «© “eee @ © 9, anount erronoously rOtal SMOUBT tiiitiieeeR The 5) tex rate hes been imposed,

DIL LN

CTA GaSe NOs 1320

3 itent Seems toon o ema ‘ ml Severme Jode a n line with the decision of of the Jupreme Court. in Sah cnees ot Bie. Sie Sees Inc.

pars ry jpeg Aig of Internal Sale .

46 amit Lei1783, it appear that your charters are muriicloel franchises nted umier Act Mo, 667) valoh do not in en axemption cleuse, Imerush es the aforesaid letters of the Gener«] suditing Office show a pays the ported receipts you realized umer reviev, es well as penetee em other miscellaneous rok it believed needless to repro=- dace same herein, The 25% surcharge bas boon added to the deficiency in accordance with the seid Seetion 259 of the Tax lode, Ihe anount of Bap ages which was qrre= ore neously refunied to you umier Trensury rant bo, anaays ens codere to the franchise tax you eg as overonyment for cert.in On September 21, 1961, in a reply to respondent, petitioner contested tie legelity of the farecoing asses smerity invoking, axong other things, the defense ef presaription, — Qn Gatoder 23, 1961, redponiont wrote « letter to the suditer Generel requeuting for a reeanputation of the tex ldubilities of petitioaer bhesed on the preserip- tive period provided in “ection 331 of the Tax Codes In this letter, respondent salt "; 4 . Thet Offion ts in g better position to determine the gross recetpte sovered ty the returns flied within the five (5) yeor perto’ for the duflelercy tux thereon," In am lndorsaaect to the Commissioner of Internal Reverie, dated Secesber 23, 1961, the Auditor Cenoral submitted » revise! corputetion of petitioner's franehise WES TALE o

GTA Cath MWe 4320

™ tax liebilities, this tice covering otly the perled trom July 1, 1956 to vecomher 31, = with the fole lowing nete tions the returns of the Willty for the 3rd quarter of 1956 should hove Seen tiled on or before Setober 20, 1956, whieh is obive period frow Auguat ‘i 1961, the tote of the nasessnént notice, Gn the Dasia of the foregoine recomyutetion of the Yeneral swiiting Office, responient, in > letter dated august 6, 1962, revised ths previous asoassment cf Auguat 11, 1961 om! demented from petitioner the pay~ ment of the totel arount of 37,363.10, o8 defietemy fr ochise tox aml surcharge from July 1, 1956 to December 31, 1960, inclusive of the amount of 4, 525,04, representing frenehice tex alleged to have been erroe “eed vafumied to petitioner, computed as follows! & receipts per audit, . i ae ee dao eeee Ay Sioa, “rere ** + *# © Gtill dissatisfied with the revised asserunent, petitionar’s counmel, in a letter deted Oetuber 10, 1962, requested that tne sone be reconsidered, contend} ing thats (1) respontant'’s right te assess the tax frou July 14 1956 to June 30, 1957 had already prose evibeds (2) the. right to recover the sum of MH,20,04, a» olieged erronsously refunded franchise tex te : petitioner for prior years, tad else prescribed; and

HES ISIOR «

CTA CAGE BO, $320 5

(3) the Seficiency assessment from July 1, 1957 to Qecenber 31, 1960 wes contrary to the terms ant com ditions of petitioner's frenehise ard the law opplicables In his reply of Jecerber 17, 1962, rosponient- denied said request for reconsideration thus prompting the latter to interpese his appesi to this Jourt on Jamary 1%, 1963.

On June 22, 1963, after issues were joined by responient's answer, Neyublie Act Mo, 3929, 2 special franghive for petitioner, took effect providing, unier section & thereof, the following!

SBC. In consideretion of the fran Sut poy ats tae Teekay of" al co :

of the gross eornings for electric cure rent sold under this fronetise, Provision . of Llewe to the contra yay the franchise tax eg to tuo per of the es eornings of the grerted oF tacos, abett Ee seogoates eap,reovl . - the date’ the origins) franchise was granted, senile eeeUhAeaal be Sathanas pen Ee copiiak sbect, frenmblase, plant Gf try On February 7, 19%, on amemied petition for review wes filed ty the petitioner alleging that eid Sepublie Aet to, 3829 exexpted hin from the paynent of the 5i) tax provided in section 259 of the Metion:1 eNEENS SARE ARF OO Se Senet 5 Se 41090 Sec lion « CTA GaSe ho, 1320 tax of 2% retroactive to the date of the origin frorchise, This amenied petition wan admitted in open Court on "ebruary 10) 1964 amd, on February 20, — 1964, an amended answer thereto wos filed by res- With respect to the first lssue, thet is, pres eription in connection with the period fros July 1, 1956 to June 30, 1957, it 1s not controverted thet returns were filed by petitioner end they were neither false nor fraudulent, ‘The preseriptive period is there- fore 5 years counted from the filing of the return (Seetion 331, Setional Internal Revenue Code), The return for the months of July, August ani Septenber, | the third quarter! for 1956, by lew should have been fited on Getober 20, 1956 emi it is from this date that preseription started te run, Fron Jetober 20, 1956 to August 6, 1962 when the reviced and final ~~ aosessment was issued 5 yéors, 9 sonths ani 17 days @lapsed, However, petitioner filed a request for reconsideration on September 21, 1961, The time that alapsed from this date to August 6, 1962 = period covering 10 months ond 16 days, should be deducted from the totel prescriptive periot of 5 yeers,9 nonths amd 17 days (Com, of Int. Hav, va. ison, 7 SCRA BB4, Querol vas Soll, of int, Se¥ey © SORA 30%5 Mopublic va, Lovee, 7 2GRA $665 Tom Cuan vay Tabla, 24 SCRA 93), the result 19 that the finel assessment of August 6, » 104

DEC IS LUN

?

1962 was wate in 4 yeors 11 months and 1 dey, whieh is within the preseriptive period of 5 years, | In the secon iseua respondent tries ‘to recover the sup of f,%20,0% which was allegedly. refunied erroneously to petitioner an overpayment, Such s desend if in the noture of om sssessment sed the prese eriptive perlol thersof is counted from the return of the tax involved therein (lagen Slectric 4 Tee Mant, Ine, Vs. Comm, of Int, liev., STi Sosa lo, 1178, May 8, 196%, effirned in 4.0. Pop l<23081, Sept, 30, 1969, ‘ 29 Guna 63% Oungus Mevtrie Plant co,, Ine, va. Com. of Int. evi, STA Case Ko. 1175, bigs 29, 196%, affirmed | A Gy By Bos 1623611, April 2hy 1967, 19 SoA 700, 796), The record shows thet this refuni was xende by Eressury Warrant lo, BeOSt4y¥15 dated Tarmary 22, 1959. No evidence hes been presented by petitioner as to the dete when the return of the texes subject = - of the rePumi was filed or should have been Filed, Bvidence of this point. youll olldv the Uourt to deter wine Af the right of the yovernneat to recover the sum in qliestion hed preseribed when the assessment of August 11, 1961 war issued, le who seserte presoripe tion as a defense cust prove same emi in this vozpect petitioner fallod. - We come wow to the rete of franenisa tex naotieedas to this case, Petitioner insists that it should be 1% as urovided in bis sunteipel franehise wiile res~ ponient oleins that the rete should be 5 as provided 102

DBC ISION «

CTA CASE NO. 1320 in Sectiori 259 of the Tex “ode os snardeihe It oppears thet on Cetober 1, 1946, Seetion 259 of the Tex “ole was samnied by Republie Act Bo, 39 raising the franchice tox to S¥ ani exprossly making same applicebdie to "all existing und futere frenehise," A proviso of the section as anemiel le to the effect that franchise owners whode franchise provide for « different rete shall pay the higher rete, whichever _ Bay be higher, unless the »rovisions of the special franchise preclude: the imposition of such higher rote. Petitioner's franchise. is ene of the ase of eunielped frenchises grante’ uniter ‘ct 567 with lewer retes atip listed, & pumber of such franchises were brought: to Court en the very enne issue row before us, to witt the applicebility of the higher rete of 5F orce vided ty said Section 239 to euch fronshises, In these cases, Mon Hin vs, Savid, 105 Phil. 733; Tews Electric vs. Cole\s et alay 19 0 6125 Gungue Rlestrie va, Coll,, 19 SCA; Solange Power Plant os, Ine, vs. Voom, of Int, Sev., Usite flo, [e20499, June 30, 1965, the Supreme Court ruled that the fracehise owners thereo! oré subject to the higher rate of 58 beosuse the provisions of their franchises do not préalude the imposition of the hicher rate of Sf, In the light of gaid ruling, seedless to sayy peti tioner's franchise is subjest to the 5% rete provited in Section 259 of the Tex Code right from the approval of their runteipsl franchise. | 103 a ee a ~

ORE TIS LOR

Cla CASE WGe 1320

?

Upon the effectivity of Republic Act No, 301% on June 19, 1960 which had prospective effect, the rete applicable to petitioner was 2% as provided — thereing the rate of 2% provided in said net supere seied Section 259 of the Tax Cede as far es petitioner's franchise is concerned (Slaz Sleetric vs, Conn, of Int, Nev,, Celere Uase No, 1628, September 30, 1968), However, beenuse of the effectivity of Nepublie Act Ro, 3929 reiterating the 2% provided in Republic Act Ba, 301% apd providing further thet such rete is retroactive as of thé grant of the orlginsl municipal franghise, petitioner should pay this rate for the tax involved in the assessment now subject of -

COnSFOVERETs

Responient contends that the tex in question was "que ami peyeble as early as August 6, 1962, prior to the enmsctoent of Sepublic Act 3029" hence the provisions of the latter low is not spplicable therete, This question is mo longer one of first impression to this Court, In the case of Lingeyen Sulf Sleetric Power SOey Inc, va, Commissioner of Taternmal Sevenue, Coles Gases Bos, 581 and 1302, it appeared that petitioner therein obtained sumicipsl franchises in 1946 to operate af electric power plant to serve the sunicle pelities of Lingayen and \inmalay providing a rote of 24, Subsequently, the Commissioner of Interne! devenue ~ assessed him at the rete of 5% as provided in Section 259 of the fax Code ant petitioner brought the question 104

UecIsION

10 na to the rate apelicsble te this Court, While the ‘@aa0 was paniing in this Court, Kepublic act No, 3843, whieh granted the petitioner therein » leciuletive franchise to opernte an electric light, teet ant power system in the sane sunicipalities of Lingeyen and Dinmmalsy was approved providing a» rete of 2% with a retronetive effect, When the Commiesioner of Interral Revenue contested the retronetive effect of enid rate this Court suid the followings In the altermtive, respomient Comise stoner cleime Chet Sec, 4 of 2 het Hos 38¥3» waieh ch fixes the franchise tax on peti ‘s gross receipts a Re Ob Tee mot have « retroactive effect, I$ ts urged that thie statutery vrrovision is in the mature of o tex exenption, ani tax exenp- sage operate erp tnt igo ’ net retroactive ; - c 4 - Bas pomient's ilinaiien is of no moment, ~ The question of whetner a statute operates retrospec\iveiy, or pros “ner 4 only, ane of tive 4 ihe tg es 83 stant ve bY wey af 3s Us Ry article & of our Sivil code states?

"art. 4, Law chell have no retroactive effect, unless the eontrary ic provided,” in viev of this coal provision, there should be no question thet jection & of Republic «ct io. ; retroacte to the date when poti s original franchises ly theret However, it is a ionmg ace cepted doctrine that the File of a sta- vo ecfact ts vo.

two exceptions, namely: (1) non the retro- activity of « pemel statute wil) make it an

DSC Is ION =

CTA Cade Avs 1320

"1 a date te Mesa, en VS. 2 a

(2) when ‘getronetive effect of the ste tute will constitute an inpairsent of the ob tien of contract (Asiatic Petroleum vs. Llanes, %9 Phil, de Ke e Agt Bo, 3843 does not come within two exceptions, :

aa to the wisdor of Congress in giving etivity to Section 4 of \epublie Act 3, we are wanting in suthority br pease Woon the same (eorlie vs, Cayat, Phil, 12). Sourts are not concerned with the wisdom, effiency or cornlity of laws : thetr only function belng te ee efi if not in disharmony with the titutlon, 3000," Jenmaey F195: (Uedeetinine sesliea) tespondent further contends thet to coneede pen titioner 2 rete lese than 5! would trench on the rule of uniformity of taxation, ith respect to franchises . it is. often held thet the sonetitutlonel requirenent — of equality and uniformity des mot apply to the taxa= tion of franchisen, where, such texes ara not oroperty taxes but are in the nature of privileges taxes (Gooley »_ Vol. 1, puce 773, “th H4.), In this Jurisdiction, o franchise tax ia in the roture of « privilege tux. Indeed the very Section 259 of the Tax Gode invoked by responient recognizes two rates of franchise taxes and ourely responient doer not pretent that the vary proviaion of lew thet he invokes is unconetitutional, In fine, based updn the 2% fromehise tax provided in Aepublic sct lo, 3629, we find petitioner liable only for the sum of 79,194.82, as deficlency frenehise tex from July 1, 1956 to “ecember 31, 1960, inclusive of 25% aurcharge ani further find him Linbdle for %%4,920,0% as taxes erroneously refumied, computed as follows’ » 406

DECTIION «

STA CAdS BO, 1320 12 Uross receiste per audit. » « Jh50, 88645 2> tax due thereon . « » « * 13,017. ae en Anount ae oe A eS Ps "ooh surcherse.s “ee © # @ ts 6,96 Tax erroneovaly refunded onenttg fi20.0 TOTAL AMOURT DUM, 4 ooo se © 12995086 WHERBPORM, the decision seeanial from in hereby modified und petitioner oriered to pay to responient | Commissioner of Interne] Neverne the sum of 712,95%.86, | representing deficlency franchise tex ant surcharce for the period from July 1, 1956 to Vecerber 31, 1960, and return of amount erroneously refunied, Without promouncerent as to costs.

69 GhosKED, a quezon Uity, May 10, 197%, my

Pegi

Aesociate Judge

we COMVUKa esaniatnn ye | Abana Clb ie ateanaz hesociate Judge — + 107