Republic of the Philippines Court of Jax Appeals Maitila Balanga Power Plant O., Inc., et al. vs. «= Commissioner of Internal Revenue

DECISION

C. T. \ . C/ t:! t.JO.. 979 / The petitioner is the gr&ntec of six identical municipal franchises obtained from the municipal coun- cils of Balanga , Orani , Orion , !bucay , Samal , and Pilar , all in the province of Bataan , by authority of Act No. 667 of the Phili ppine Commission for a uni fonn term of thirty-five years in each case . Under said fran - chises , petitioner is requi red to ~ay 1~ · of its annual gross earnings for the fi~st twenty years and 2Jb" for the remaining fifteen years . From October 1 , 1953 to June 30 , 1957 , it did pay_ 2/S of its gross earnings . On the othe~ hand , respondent claims that petitioner is subj ect to the franchise tax of 5~' of its gross earnings pursuant to Section 259 of the National Inter- nal Revenue Code , as amended , and , consequently , assess- ed against i t a deficiency franchise tax and surcharge in the sum of P26 , 253. 04. Petitioner contested the as - sessment , and , upon denial thereof , filed the instant appeal.

The parties submitted a stipulation of facts ,

DECISION -

C. T •• C,SE no. 979 - 2

X

X

X

1. That the Balanga Power Plant Co •• Inc., the petit ioner herein , is a Filipino corporation with offices at Balanga , Bataan , organized and existing under the laws of the Philippines (See attached certified true copy of the rticles of Incorporation , Annex "Au ; and the respondent is the head of the Bureau of Internal Revenue ;

2. That the ~etition e r is the grantee of six (6 . municipal franchises to operate an el ectric power pl ant from the Llunici pal Councils of six municipalities in the Prov- i nce of ataan , and indicated be low which include the date of the grant :

Balanga --- - - --

Orion ---------

Abucay ---- ---

Pilar --------

Orani

-------- :::>amal - ------- November 5 , 1928 September 20 , 1929 July 16 , 1930 July 16 , 1930 September 29 , 1930 •. pril s, 1932

3. That the munici al fr anchises for Balanga and Samal were granted under the authority conferred by ct No. 667 of the Philippine Commission (See att2.ched certi- fied true copi es of reconstituted munici- : al franchis es for alanga and Samal , ~nne xes "Bu and "C" , respectively) ;

4. That the rate of franchise t ax fixed in the municipal franchises for Bulanga and Samal is one per cent (11 ) of the gross earnings of the oetitioner f or the first twenty ye ars and' two percent

( 2J~ ) for the

remaining fifteen (15) years and the perti- nent provisions of the franchise are herein- be lovv quoted:

"x X X

X X X

X X X on con- siderat ion del privilegio que aqui se concede abonara termestramente a la Tesoraria Provincial de Balanga , el uno !)Or ciento (¹.% ) de los px-i - meros viente afios y el dos por ciento ( ~b ) de los mismos ingresos durant e los quince afi os r est ant es de l a viqenia de est e mismos orivi~ legio. 11 - '

5. That the original demand f or the amount of Pl2, 892.91 as deficiency fran- chise tax for the period from October 1, 1953 to June 30, 1957 was made on Novem- ber 17 , 1958 (See BIR rec. PP• 26 & 27).

DECISION -

C. T. • C/\Sf NO. 979 - 3 - This original assessment was amended and increased to i26 , 253. 04 on the basis of the audit report of the General tuditing Office dated Novem er 3 , 1960 (See BIR rec. p . 65 payment of vvhich was. demanded on January 12, 1961 (3ee BIR rec . pp. 72-74, ;

6. That the tax demanded by the res - pondent upon the petitioner herein in the a:nount of v26 , 253. 04 as deficiency fran- chise tax from October l , 1953 to June 30 , 1957 , is made under the authority of the ruling laid down by the Supreme Court in the tvo related cases entitled "Hoa Hin Co., Inc . v. Saturnine David , and Silverio Blaquera v. Hoa Hin Co ~, Inc. , G. R. No. L-9616 and L-11783 promulg atr:d on May 25 , 1959;

7. That the petitioner has alread pai d the amount of Pl4 , 228.57 covering the period from October l , 1953 to June 30 , 1957 on the basis of ?4~ £ranchi se tax ;

8. That the deficienc franchise tax , p3 ment of which is demanded by res9ondent from the petitioner herein , covers only the difference in the rate of the franchise tax from two percent ( 25~ ) which i s provided in the municioal franchises to five oercent {5/v as provided by Section 259 of the Na- tional Internal Revenue Code ;

9. That the only issue involved in the present case is whether the Balanga Power Plant Co., Inc. is subject to the 2% fr an- chise tax pres c~ibed by the municipal fran- chises or the 5% franchise tax prescribed by Section 259 of the Tax Code, as amended;

10. That the parties have agreed to present before this Honorable Court such other evidence as may be necessary or re- quired to enable the Court to render a decision on this case. (See pages 28-30,

c. T. A. records o ) The s ole issue presented is whether petitioner , • as alleged by it, is subject to a franchise tax of 2J~ 1 of its gross earnings, as provided in its franchise, to the franchise t ax of 5Ji~ as orovided in Section 259 of the Revenue Code , as amended , as contended by res- oondent.

or DECI ICll!

I

C.!.A. c~ss NO. 979 - 4 - The franchises of l)eti tioner require it to pay a tax of 15~ of its gross earnings for the first twenty ears nnd 2/~ for the remaining fifteen years.

Said

franchises do not contain any provision to the effect that the pa ment of the franchise tax therein prescribed shall e "in lieu of all taxes of every name anrl nature." On the contrary, said franchises provide that •tos aqui concesionarios , sus sucesores o cesionaries pagaran per sus bienes muebles los mismos imouestos que exige o mas ?delante exigiere la Ley a las denas personas o"l This brings this case , to our mind , within the doctrine enunciated in Hoa Hin 9616 and L-11783, May Co. , Inc. v~avid, G. R.. Nos. L- 25 , l959 ,r'herein it was held that the increase rate of franchise tax provided in oection 259 of the evenue Code is apolicable and not the tax provided in the franchise of the grantee. Any attempt to distinguish the instant case from the case of Hoa Hin Co., Inc. would be futile in view of the similarity of the facts in both cases as evidenced by the following exclnt from said decision :

,...

11 ~'7hile the then Philippine Commis- sion fixed the yearly tax to be paid to the Government by the original grantee , his successors and assigns at the rat e of 1/2 of 1~ of the gross earnings derived from the operation of the sli pway or mar- ine ail1Na' , the grantor reserved its r ight to assess and collect other business or in- come tax on the grantee ' s business. Se c- tion 259 of the rational Internal Revenue Code , as amended , provides that ' whichever is higher ' etween the rate imposed by the soecial charter of the grantee and the a- ti ona! Internal Revenue Code, shall apply