HEPLJBL.LC of the Phtltppjnes Couht Lif Tax Appeals Utiezun City Repij Bl1c Bhoaocasting Systei'I. I Nc vs. Cohmis S Ion ~R of Internal Revenue, et al.

DECISION -

C.T.A.

CASE NO.

4630.

protested that they 1987, Deficiency

THIRD QUARTER:

Gross Taxable Receipts Tax Due:

5% 3% Deficiency Add: Surcharge (25%) Interest (60%) FOURTH, QUARTER:

Gross Taxable Receipts Tax Due:

3% 3% Deficiency Add: Surcharge (25%) Interest (607%) The assessments totalling P16, 159,651.61 by petitioner on July 2Z, _Franchise Tax 75, 103, 313. 00 my iN] ~ o) GJ) oO P 3,520, 165.90 —~---t492.999. 85 P 3,661, 165.75 915, 291. 43 from 1/21/87 to 6/15/90 Compromise penalty 2, 745, 874. 30 —15,.900..00 lee ac Eee P 4,598, 649.77 P 4,793, 099. 39 1, 198, 274. 85 from 1/21/87 to 6/15/90 Compromise penalty 2, 815, 945. 89 <a mine t Se OOO. OO EW) eee, 320.18 were 1990 alleging have no basis in law since petitioner at that time the Tax Code.

On June 21, 1991, decision dated May 6, 1991 denying protest.

Hence, this petition for review.

was not Bubject to the franchise tax under respondent issued his final petitianer’s

DECISION -

C.T.A. CASE NO. 4fi30. - 3 - Petition er, in its Memorandum, states that it was a grantee of a legislative franchise under Republic Act < R. A. > No.

513 < 1950 >, as amended by R.A.

No.

982 <1954> and R.A.

No.

5351 <1968> to construct, maintain and operate stations :for radio and television broadcasting. It contends that the :franchise was existing and operative unti l its t ermination e:ffecti ve December 31, 1 98 1 as mandated by Presidential Decree < P. D. > No. 576-A, the pertinent provisions o:f which read as :follows :

" SECTION 1 .

No radio station or television c h a nneJ may obta i n a :franchise unless it has su f ficiency CCif'i tal on the basis of eq u ity for its operation for at least one < 1 > year , including purchase of equipment.

XXX XXX XXX SECTION 6.

All :franchises, grants, licenses, permits, certificates or other :forms of authority to operate radio or television br o ad c a sting systems ~hall terminate on Decl?mber 31 ' · 1981.

Thereaft.P r , i rr i?Spl?ctive of a ny franchise, grant , lj c ensl?, p e rmit, certificate or other f or ms of authori. ty to o perate qranted by any office, aqe n c y or person, no radio or ·televi s ion station shall be authori z Pd t~ operate wi thout the authority o f the Board of Cnmmunicati on s and the S <=w rf?tary of Publ i c Works and Commun icatinnR o r th~?ir s u c cessors who h ave th e r jq ht. nnd a ut.h o r]ty to assign to qualified p Arti e s, frequen~je s , channels or other mPRn s of identifying b roa d c asting sys tems;

Pr0vide d , hiJwever, that any conf l i c t over, o r djsaqree>me n t with , a d e cision of th e aforement i on e d aut h or i ties

DECIS ION -

C.T.A. CASE NU. 4630. - 'i - may bF.?

appealed fi nally to the Office of the President within fifteen (15> days from the date the decision is received by the party in interest."

<Underscoring supplied> Petitioner aver s that during the period from January 1, 19B2 up to July 31, 1992 , it continued to operat e its radio and television broadcasting stations by virtue of mere permits and/or licenses issued on a yearly basis by the National Telecommunications Commission <NTC> and that it only obt ained a franchise thro ugh the enactment of R. A. No. 7252 which took effect on August 1, 1992. Further, petitioner notes that: "Th us , to insist that peti ticmer continued to be a franchise holder notwithstanding P. D.

576-A and prior to the passage of R. A.

7252 as hereinbefore me nt ioned would be an illogical proposition .

If the franchise of petitioner, as argued by respondent, was not terminated hy P. D.

576 - A, then there would have been no need for petitioner to apply for a new franchise and for Congress to pass a law granting the same unto pe i tioner.

The f;:wt that R. A.

7252 was passed into J <=! W plainly demonst.rat.es that prior to its enactment in 1992, petitioner was not a hold e r o£ any franchise tn operate its broadcas ting stations. It is precise l y for th e aforesaid reason that pet.itionPr was not subjec t t o the franch ise t ax frnm 19 8 2 to July 1992, for Section 11 7 as herei nbefore quoted, expressly imposeR a franchise tax only 'in respect to all franchises , upon the gross r eceipts from t h e business covered by the law g rr)n t i nq the franchise Since peti t.i r>n r:>r had rt=>;;u:;ed to operate under a franch i sr> as of Decem her 3 1, 1981, no IJ Rsi.

tlt rrt=> fflr exists from that date un ti. l

~J ') 0

I

~- 'I

DECISION -

C.T.A. CASE NO.

4&30.

- 5 - .July 31, 1'392 for the imposition of the franchise tax against petitioner."

<Memorandum for Petitioner , p.

8, C. T. A.

Hecords,

p. 104> Respondent, on the other hand , advanced the following arguments to support hi s assessments . Firstly, he claims that although Section 6 of P.O. No.

576 ~ A re vok ~d the earliPr franchise granted to petitioner, "neve1·t he less, such franchi se wa s subse que n tly t·estored or reinstated by wa y of a corres ponding a u thority or l icense duly issued by the Board of Communications and the Secretary of Publ ic Works and Communication s ". <Answer, p.

4, C. T. A.

Records, p.

36 > It is the contention of the respondent that the authority or license issued in favor of th e petitioner to o k the place of a franchise maid nq it possi ble fo r th e petitioner to engage in brn~dcRstinq operations uninterruptedly considering th<:1t. Section .1 of the Decree expressl y provides for a requir e ment in obtaining a franchise and therefore , the corresponding franchise tax s h ould be att ac he d against the petitioner . Secondly, rPs po nd .nt's only witness, Gorqonia Ching made th e follow i nq sta temPo t s at the witness stand, to wit:

"xxx XXX XXX IJ.

You Rt~ ted awhi .l.e ago Mada m Wi tness , that you conducted an investiga ion

- 6 - on Republic Broadcasting System and you recommended an assessment for the deficiency franchise tax for the second semester of 1987. May we know.

the basis of your r ecommendation, Mad::Jm Witness ?

A.

The basis o f my recommenda tion on the deficiency f ranchise tax for the second semes ter 1987 was because as pr.e sc r i be>d hy Executi v e Order 72 all fr an c h i se> holde rs are taxable under fran c h i.se t ax .

XXX XXX XXX Q.

In your second memorandum Madam Witness, you r e iterated this time that t he Republ ic Broadcasting System is l i a ble for deficiency franchise t ax for the second semester of 1987. May we know your basis, Madam Wi tne>ss?

A.

XXX <P>er ExPcutive Order No.

72, it says that Sectjo n 3 of Executive Order No.

72 states that t he pertinPnt provision of the charters of fra nchise grantees and all other laws , orders, issuances, rules and r egulatio n s or parts thereof inconsistent wit h this executive order are hereby repealed or modified a ccordingly. xxx XXX XXX xxx. "

<Direct 1992, pp.

ExamJn <'ltion, 9 , 12 - 14) T. S. N.

October 15, Q.

"xxx Havp y ou .franc hise Syste m?

XXX examined of Republic XXX the :former Broadcasting A.

Fo r wr->r?

Wh ::J t d o you me a n by former fr a nc hjse?

Q .

Th r:> f anchj s <=?

of the co mpany up o n whi ch you ba s e d th e franr;hise tax? 7').

, . l · ....

- 7 - A.

Because we just started the year 1987 which the E.O.

No.

72 begin its effectiv ity, only July 1987." XXX <Cross Examination,

1992 ,

pp. 5 - 6> XXX T. S. N.

xxx. "

October 22, Respondent's wit ness is of the opinion that E.O.

No.

72 repealed P.D.

No.

5 76- A.

Her testimony however is bereft of any explanation as to its relevance to the alleged existence of petitioner's franchise except perhaps to forward a theory th~t since P. D.

No.

576- A, which repealed the franchise o£ the peti t.ioner, was subsequently repealed, the said franchis e i s deeme d revived. And thirdly, respondent contended that P. D. No.

576 - A did not ex pressly repeal petitioner's existing franchise.

li e argued that the Decree "was promulgated merely for the purposes of regulation and avoidance o£ monopol y i n ownership and operation of radio and television s tation s as expressly provided in its preamble. "

<Memorandum for Respondent, p.

5, C. T. A.

Records , p.

1 26> Neither did it " gra nt petit. i o ne.r t ax exemption ".

<Ibid.,

p. 9 , Ibid., p . 130 > The sol e issue be fore this Court is wh ether or not petitioner is li a ble for franchise tax under Sect ion 117 of the T x Code, as amended, for the r-~ ') ~ · ' \ .l! ....

DECISION -

C.T.A. CASE NO.

~630.

- 8 - thir d a nd fourt h quarters of 1987 amounting to ?16,159,651.61 inclusive of increments . Prior to the pr o mulgation o:f P. D.

No.

576-A, the controlling law on radio and television operation was Act No. 3846, as amended.

It provides among others that :

" SECTION 1.

No person, firm, company, associati o n or corporation shall construct, install, establish , or operate a radio transmitting station or a radio receivin g station used for commercial purposes or a radio broadcasting station, without having first obtained a :franchise therefor from the Congress o:f the Philippines xxx.

SECTION 2.

The construction or installation of any station shall not be begun, unless a permit therefor has been granted by the Secretary of Commerce and I ndustry.

No station shall be operated except under and in accordance 'With the provisions of a license issued there:for by the Secretary of Commerce and Industry xxx" The Act, as amended, required a person, :firm, company , associatio n, or corporat i on to :first secure the following a > a franch ise from Congress;

b > a permi t to con s tr u c t or install a station :from th e Secretary of Co mme rce a nd Industry; and a> a lice nse to operate a station fro m the Secretary o:f Commerce and Industry, before the same could operate a radio broadcasting sta tion. A "franchise " is a righ t or privilege granted by the so v er ei~ nty tn one or more par ies to do some 7 •) r , ..) •)

DECIS ION -

- 9 - act or acts, which the y could not do without this grant from the sovereign power; a privilege which emanates from t he sove reign po wer o:f the state or government ;

a branch of the sovereign power o:f the state, subsisting in a person or corporation by grant :from the state. <Words and Phrases, Vol. 17, pp. 471 , 482, 469 ) A "license" on the other hand, con:fers no right or e s tate nor ves t e d interest, nor does it const itute a binding c ontract between the parties, but it is a mere l eave to be enjoyed as matter o:f indulgence at the will of the party granting it. It is in no sense a contract bet ween the state and the licensee, but is a me re pe rsona l permit, neither ..

transferable n o r vendible (Word s and Phrases, Vol.

25 , pp. 150, 1 711 ).

Responde n t's a rgum e nt tha t the authority or licens e i ssu ed b y the Bo a r d of Communications and the Secretary o f Public Works and Communications should be co nsi d er ed as franc h ise does not hold water.

A lice nse is a license and a :fra n chise, a fran c hise , thi s Court cannot see two sides o f a coin at a time.

There h i3a to be a d e marcation line to this effec t.

A fr~nc h is e i s a vested right pro t e ted by the Co n s t ituti o n wh i l e a 1 i cense is a m re pe r sona l p r i v ile e an d s r e v ocabl e .

In a 7 ')' \ _l • t

- 10 - franchis e , the rights , privileges and obligations of both the contracting parties <the franchise holder and the state > are well defined and serves as the contract between them. Such matters like extent of operation, area of responsibilities, franchise tax to be paid , to the state, and tax exemption privileges ar e recited . I t is clear that the promulgation o:f P. D. No.

576-A terminated all existi ng :franchises including the petitioner's .

The question is:

Was the petitioner given a new franchise? The Secretary of Justice, in h is opinion dated June 20, 1991, has made this stat ement : "We h•::? l ieve t h at E. 0. No.

5 46 <which is a law i r~ sued p urs uant to P . D. No.

1416, as amendPd , granting the then President c ontinu ing a u t hority to reorganize the admi.nist rrt t i. ve structure of the national governme nt) is one la w which authorizes an administra t ive agency, the NTC, to issue authorizat.i.ons for the operation o:f radio and television broadcasting systems wi 1;. hg ut nPed __ of .. _a .. p r.::.:V~.r::. ___ :f:f'C!D.f!h:i.:.?~ .§.§ued l;l y (::ongress . "

<Opinion No.

98, , p.

6, C. T. A.

Recor d s , p.

23 ) <Underscoring supplied) In the case of Albano v. Reyes <175 SCRA 264>, the Su p reme Court held that : "FranchiRes issued by Congress are not required before each and every publ ic utility m:=t y nper Rte.

Thu s , the law has q r a nted certain administrati v e agencies t he power to gr a nt licenses for or to a u t h ori z P the operation of c ertain public u t i it i _s.

X XX •

...

DECI!:JDN - C.T.A. CASE NU. 4630. -· 11 - Th a t the Co n stituti o n p rovides in Ar t.

XI T.

Ser: .

11 that the issuance o:f a franchi s e , c~rtificate or o ther :form o:f authorizAtion for th e operatio n o:f a publi c utility shal l be subjec t to amendm e nt , a]tPration or repeal by CongrPs s dfJes nnt necessarily imply, a s petition o=> r posil :"> , th"it o n l y C:ongress ha s t hr.?

pfJ wrr· tfJ o r :=t n t s u c h authorization.

Our str.~ t- 11t.P.

b ooks are rep l.r.?te with law s grRnt"nq specified agencies in the E x ecutiv e nrRnch t h e power to issu e su c h authori? 'l ti.o n for cer t ain cJ asses o:f p u b 1 i c \) t. i l i t i '"' s . " A.l thouqh P. D.

No.

5'76 - A terminated all existing :franch ises as of December 3 1, 1981 and vested unto the President t h e pow er to issue franchises in his l egislative c apacit y, it did not abolish the requir e me nt imposGd in Sectio n 1 of Act No.

3846, as amP.nded .

Cont~ r"l ry t 0 n ?spo ndent ' s view, Section 1 of P. D.

No.

5 '7 6 A mere ly provides for a requirement be:fore on e may obtai n a :franchi se but is silent as to a p r ior fra n c h ise being required before one may operate a bro :=tdcastinq s ta t ion. E. 0.

No.

546 how ever, rendered the requirement unnecessa ry ior it aut h or i zed an administrative age n c y of th e e x ec u ti ve branch of government to i ss u e certif ic a t es of p ubl ic convenience for the opera t io n of rommu nicatio n s utilities. A person or firm may tllen?:fore opP r at e communications and brn<=ldcns tinq f a r_; .L l i t i ~, 8 by ITI PJ I?

cert. if i cates of public convenience, permits or licenses without a need of a prior franchise.

As to the applicability of E.0. No. 72, this Court finds that it did not repeal P.D. No. S76-A. There can he no implied repeal in this case for there lies no inconsistency/contradiction nor similar subject matter to speak of. The statute provides:

"SECTION 1. Section 127 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

“SECTION 227 (now Section 117). Tax oan franchises. - Any pravision of general or special law to the contrary “notwithstanding, there shall be levied, assessed and collected in respect to all franchises, upon the gross receipts from the business covered by the law granting the franchise, a tax in accordance with the schedule prescrihed hereunder:

(a) (rm electric utilities, city qas and water supplies .... Two (2%) per cent

(b) On telephone and/or telegraph systems, and radio broadcasting statians .... Three (3%) per cent

(c) On other franchises .... Five (3%) per cent The arantee shall file the return with, and pay the tax due thereon to, the Commissioner of Internal Revenue or his duly authorized representative in accordance with the provisions of Section 162 of this Corde, and the return shall be 7370 subject to audit by the Bureau of Internal Revenue, any provision of any existing law to the contrary notwithstanding. ’

SECTTON 2. Any provision of general or special law to the contrary notwithstanding, all qrantees of franchines shall be subject to the income tax levied under Title If of the National Internal Revenue Code, as amended.”

There is no doubt that the law merely amended the Tax Code to make the tax rate uniform to franchise holders, to subject the tax return to audit, and to hold franchise holders liable for corporate income tax amending the "in lieu of all taxes" provision common in most franchises in so far as exempting holders from income tax. This Court cannot read into the law something that is clearly not there. Petitioner ably discussed in its Memorandum that:

"(Refore an implied repeal is deemed to exist, it. must be sufficiently established that the statute or statutory provisions concerned deal with the same subject matter and that the latter he irreconcilable and inconsistent with the former:

“Lt has been the constant holding of this Court that repeals by implication are nok favored and will not be s90 declared unless it be mani fest that the leqislature so intended. Such 2a doretrine goes as far back ass “tnited States v. Reyes, a 1908 decision, Tt is necessary then befare surmh a repeal is deemed to exist that it be shown that the statutes or statutory provisions 736 deal with the same subject matter and that the latter be inconsistent with the. former. There must be a showing of repugnancy clear and convincina in character. The lanquage used in the latter statute must be such as to render it irreconcilable with what had been formerly enacted. An inconsistency that falls short of that standard does not suffice. What is needed is a manifest indication of the legislative purpose to repeal.’ (Villegas vs. Subido, 41 SCRA 196; Villegas vs. Enrile, 50 SCRA 10; Velunta vr. Chief, Phil. Constahulary, 157 SCRA 153; Underscoring supplied) Applying the aforequoted criteria to the instant case, it cannot be denied that P.D. S76-A and E.O. 72 do not deal with the same subject matter. E.O. 72, on one hand, pertains to the new tax rate structure imposable on franchise operators and the withdrawal of income tax exemptions granted upon the latter. On the other hand, P.D. 576-A deals specifically with the regulation of ownership and operation of radio and television stations by terminating franchises covering the same as of December 31, 1981. The principle of implied repeal, therefore, cannot be applied to the instant case on account of the apparent difference in subject matter of the statutes herein concerned. Moreover, P.D. 5S76-A and E.0O. 72 are not irreconcilable with each other. Suffice it to say that the passage of E.O. 72 did not in any manner have the effect of restoring or reviving the franchise of petitioner which was terminated by P.D. (76-A," (Memorandum for Petitianer, pp. 14-15; C.T.LA. Records, pp 119-111) P. Ds No. S76-A made possible the then President’s desire to review and control mass media.

The reasons oft the statute as found in its "whereas" 739°

DECISION -

C.T.A .

CASE NO.

1 G30.

- 15 - clauses are t o monopoly in ownersh i p and operation o:f r u d i o and television stations and to regulate th e samP.

Th e r e wa s no c o n f lict b et ween the objects of the st <J tu t e and the tPrmination of :franchises.

Th E' latte r was a means to accomplish the :fo r mer .

1n fact , by termin ating the existing franchis e s a -t-.

t hat.

ti me , the President , under martial 1 a w ru l P. , was able t o have complete control over the media of bro a d c- a s ting . Furthermore , this is not a claim :for tax exemption but rather :for tax imposition in which case the tax provision shou ld be interpreted in case of doubt agai n st the taxing a utho r ity because burden s are not to bl?

imp o sed b e yo nd what the st.atut P S 1::-x p rPP :=r J y and c l•?ar 1 y i rn p or t ( Commj sai oner of In ternal He vc=-flue v.

Court of Appeals, 204 SCRA 182;

RPpub I -:

v .

In f. p r mPd iat£> Appella te Court, 1 9 6

SC RJ\

:n 5:

Co n n• .i n R i oner of In·t ern a l Revenue v.

Fi. remen 'R Fund TtHIUI- ancP Company. e ·t al.,

148 SC RA

315 ; Commisaionr r of I n ternal Re venue v. La Tondena . Inc., 5

SC RA

G65 ;

'H;::mila Ra i lroad Company v.

CollPct.or of Cus t:omn, 52 Ph i. l.

950 ;

Lu zon Str->vPdor i nq Go.

v.

T r i n i rl ~ d, 4 j Phi 1. 803) .

S P c t in n 117 of the

T '1 X

Co d e js t ha t t h e ·.mpos i · i.nn of ;:'lpply onl y to

74 J

- j6 - "xxx (T) here shall be levied, assessed and collected in respect to all franchises, upon the gross receipts from the business covered by. the_law. qranting the. franchise xxx. * (Underscoring supplied) Pursuant to this provision of law, it follows that if the petitioner has no franchise, it could not be subject to franchise tax.

WHEREFORE, in view of all the foregoing, respondent’s decisjon is SET ASIDE. The deficiency franchise tax assessments in the total amount of P16,159,651.61 inclusive of increments for the third and fourth quarters of 1987 is hereby CANCELLED. No pronouncement as to cost.

DECTSTON -

C.T.A. CASE NO. 4690.

CERTEETLCAT LON

I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIIT of the Constitution.

~~, ERNESTO D. ACOSTA Presiding Judge Caurt of Tax Appeals 742