J:'.~Publlc Op' Tui! RNJI.LPP !''~, et al.

DECISION -

- 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 instead 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 moLin t of ~14,036.09 representing deficiency franch i se tax inclus i ve of surcharge for the period covered - May , 15

- 4 - 1972 to December Jl, 1976 .

On September 24 , 1979 , 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 January 16, 198 1 respondent deni ed the protest and reiter ated t he deficie ncy asses sment of ~14,0 36 . 0 9.

Thus, this petition.

The record raises the b asic issues: 1) ~hat the Commission on Aud it had no authority to conduct an a ud it and examination of the books of accounts o f a private c orporation, and 2) That the franchise under RA No . 46 36 of June 19, 196 5 was r epealed by PD No. 240 o n J uly 9, 1973.

It is c ontended 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 he "public services" contemplated muc h less enume- r a ted under Sec tion 13(b) _of CA No. 146 (Public Se 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 - 5 - mes s e ngerial firms, suc h as petitioner corporation, are no t among those enumerated in the statutory de- fin it i on, such non-inc lusion does not support peti- t i oner's contentio n 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 ngerial 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 Government monopoly and no person shall engage therein except as hereinaf ter provided; xx'". As to t he second question , P.D. No . 240 "does no t in any manner r e vo ke the f r anchise or the permit to operate, except when the firm tails to secure the required a uthority 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

- 6 - chartered to perform some special funct i on t hat of a ·"carriage of letter-mails" which used to be a "Gove rnment monopoly and no person shall engage therein except as hereinafter provided" (Sec. 197 4 , Revised Administrative Code)~ It is in this respect we think that peti t ioner corpor 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 private 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 public tn te res t i s t hrust upon it".

(13 Am. Jur. 173).

Expedient

piffle i ndeed if the ~ind of undertaking cannot validly be infused cognizance as a "public service" wi th in the legal c ontempla tion unless petitioner 13

DECISION -

CTA CASE NO . J214 - 7 - is unwilling to take the responsibilities 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 reason of its exclusion in Section 13(b) of CA 146 (Public Service Act}~ which reads: "The 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 may be its classification, 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 - 8 - t he reason interposed by the r esponden t that "such non-inclus i on does not suppor t peti tioner's c on- tention that t he Commission on Audi t has no authority to conduct audit and e xam ination of i ts books of accounts.

At t he time CA 1 46 was passed in 1936, there was no messengerial f irms allowed to operate because the business of carrying letters/mails was a government monopoly", we think the amendment "and other similar public services" engrafted in t he language of Section 13(b) supra, by 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 necessity 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) ,_under such con- ditions and regulation as may be imposed in the public i nterest and for the public security (Cali- fornia v. Califo rnia Pac . R. Co., 1 27 US 1, 8 s . Ct. 1073 , J2 US (L. ed.)

1~0 ; Ashley v. Ryan 15 3 US 456, 14 s . Ct. 865 , 38 US (L. ed .) _773). For th is pu r pose, petitioner cannot pr y itself l oose from the Commissio n on Audit's autho r i ty o.f conducting an "audit and examination of t he books , record s and accounts of all public services" (Sec. 1, CA 325) •. 20

J

..

- 9 - We likewise find illogic the impression preci- pitately broached by the petitioner that PO 240 particularly Section 2 thereof varied the condition s 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 , "pencling the issuance by this off ice of you r ' I\ : t· hnrit y to Operate Private Express and/or Messenge r Delivery 21 - 10 - ~ervice ' your franchise to conduct messenger and de livery service under RA 4636 i s hereby extended for a period of ni nety (90) days commencing Aug ust 9 , 197 3", which tenor of an extension has been rolled over many a time to date.

The basic fac t s ubsists 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 mposed 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 Bank, 5 Ark. 595, 41 Am. Dec. 109; Coy v. I ndia- napolis Gas Co. , 146 Ind. 655, 46 NE l7, 36 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 consi 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 .·

- 11 -

WHEREFORE, the pet i tion is hereby dismissed with costs against petitioner.

WE CONCUR:

CON STANTE

/f..ssocia ......

• ROAQUIN

e Judge ~ --

~EYES

Associate Judge

23