CONSUELO P. BORJA, PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, RESPONDENTS.

Petitioner
Consuelo P. Borja is a grantee of a legislative franchise, by virtue of
Act No. 3810, approved on December 6, 1930, to maintain and operate an
electric light, heat and power system in the municipality (now City) of
Higan, Province of Lanao. During the years 1953, 1954 and 1955, the
petitioner imported from Japan electrical materials and equipment such
as wires, insulators, transformers, conductors, etc. on which
compensating tax in the amount of P4,104.25 was paid to respondent
Collector of Internal Revenue. In her letter of April 21, 1955,
petitioner sought the refund of the amount of P3,977.62 only. Before
the claim for the refund could be acted upon by the respondent
Collector, the petitioner, on November 26, 1955, filed with the Court
of Tax Appeals, a petition for review. On December 20, 1955, said
respondent filed his answer. The Court of Tax Appeals rendered a
decision, denying petitioner’s claim for refund of the said amount,
against which, the petitioner interposed the present appeal.

The
dominant issue posed is: Whether or not petitioner is exempt from the
payment of the compensatory tax prescribed in section 190 of the Tax
Code, on the electrical transmission materials and equipment she
imported and used in connection with her business of furnishing
electric light in Iligan City, under the provisions of her franchise,
Act No. 3810 and Act No. 3636, incorporated thereto by reference.
Petitioner contends she is. Respondent says otherwise.

Section 1, of Act No. 3810, provides —

“SEC.
1. Subject to the rules and conditions established in Act Numbered
Thirty-Six hundred and thirty-six, there is hereby granted to Consuelo
P. Borja, for a period of fifty years from the approval of this Act,
the right, privilege and authority to construct, maintain and operate
an electric light, heat and power system for the purpose of generating
and distributing electric light, heat and power, for sale within the
limits of the municipality of Iligan, Province of Lanao, Philippine
Islands.”

The pertinent portion of Act No. 3636 (Model Electric Light and Power Franchise Act), provides as follows:—

“SEC.
10. The grantee shall pay the same taxes as are now or may hereafter be
required by law from other individuals, copartnerships, private, public
or quasi-public associations, corporations, or joint-stock companies,
on his (its) real estate, buildings, plants, machinery; and other
personal property, except property declared exempt in this section. In
consideration of the franchise and rights hereby granted, the grantee
shall pay into the municipal treasury of the (of each) municipality in
which it is supplying electric current to the public under this
franchise, a tax equal to two per centum of the gross earnings from
electric current sold or supplied under this franchise in said (each)
municipality. Said tax shall be due and payable quarterly and shall be
in lieu of any and all taxes of any kind, nature or description levied,
established, or collected by any authority whatsoever, municipal,
provincial or insular, now or in the future, on its poles, wires,
insulators, switches; transformers and structures, installations,
conductors, and accesories, placed in and over and under all public
property, including public streets and highways, provincial roads,
bridges and public squares, and on its franchise, rights, privileges,
receipts, revenues and profits, from which taxes the grantee is hereby
expressly exempted.”

In view of the last
portion of the section just quoted, petitioner claims that she is
exempt from any and all taxes, compensating tax inclusive, upon payment
of the franchise tax.

The case of the Panay Electric Co. vs.
Collector of Internal Revenue, G. R. No. L-6753, July 30, 1955 would
help Us in resolving the point in controversy. The franchise of the
Panay Electric Co. (Act No. 2983, as amended by Act No. 3665), is
identical with the franchise of petitioner herein, and was also subject
to the terms and conditions of Act No. 3636. Speaking thru Mr. Justice
Alex. Reyes, this Court in said case, declared—

“*
* * Exemption from the tax is claimed by petitioner by virtue of
section 8 of its franchise—Act Ho. 2983, approved October 22, 1921, as
amended by Act No. 3665, approved December 7, 1929— which reads:

‘SEC.
8. * * * Said percentage shall be due and payable quarterly and shall
be lieu of all taxes of any kind levied, established, or collected by
any authority whatsoever, now or in the future, on its poles, wires,
insulators, switches, transformers and other structures, installations,
conductors, and accessories placed in and over the public streets,
avenues, roads, thoroughfares, squares, bridges, and other places on
its franchise, from which taxes the grantee is hereby expressly
exempted.’

“It is contended, in the first place, that the
above provision of its charter exempts petitioner from paying taxes on
its installations, whether on a public or private place, and in the
second place, that the exemption extends to petitioner’s alleged right
or privilege to purchase abroad equipment needed by its electric plant.

As to the first contention, it is enough to point that the
protested tax is not one upon installations, that is to say, upon the
privilege of using public streets and other public places in a way
different from the way they are used by the public in general. The
protested tax is a compensating tax levied upon articles purchased
abroad but used in the Philippines. The tax not being one upon
installations, all discussion as to whether those articles are
installed on a public or private place is immaterial.

As to
the second contention, the rights and privileges which the above
provision exempts from taxation refer to those which are not enjoyed by
the public in general, but only by the grantee of a franchise. They
therefore do not include the common right or privilege of every citizen
to make purchases anywhere.

In this connection, we must not
loss sight of the purpose for which the compensating’ tax has been
instituted. That purpose is explained in the report of the Tax
Commission that proposed the tax, as follows:—

‘The purpose
of this proposal is to place persons purchasing goods from dealers
doing business in the Philippines on an equal footing, for tax
purposes, with those who purchase goods directly from without the
Philippines. Under the present tax law, the former bear the burden of
the local sales tax because it is shifted to them as part of the
selling price demanded by the local merchants, while the latter do not.
The proposed tax will do away with this inequality and render justice
to merchants and firms of all nationalities who are in legitimate
business here, paying taxes wid giving employment to a large number of
people.’

“If petitioner had purchased the equipment in
question in the Philippines, there would be no question that it would
have to bear the burden of the sales tax, because the same would have
to be added to the purchase price by the dealer, and petitioner might
not escape the burden by invoking the exemptions granted in its
franchise. There would appear to be no good reason why petitioner
should be allowed to elude that burden by exempting it from paying
compensating tax when it purchases equipment abroad. And it should be
noted in this connection that petitioner is expressly required by its
charter to pay on its ‘real estate, buildings, plant, machinery, and
other personal property the same taxes as are now or may hereafter be
required by law from other persons’ (Sec. 14, Act. No. 2985, as amended
by Act No. 3665). The tax on personal property purchased or received
from abroad, or the compensating tax, comes quite clearly within the
description.”

Considering, therefore, the
fact that section 190 of the Tax Code is a sort of an equalizer, to
place casual importers, who are not merchants on equal footing with
established merchants who pay sales tax on articles imported by them (I
Report of the Tax Commission, p. 75; II same Report, p. 205; see also
Alejandro’s The Law on Taxation, 1961 Ed., 435). We may conclude that
it was not the intention of the law to exempt the payment of
compensating tax on the personal properties in question. The principle
and legal philosophy underlying the imposition of compensating tax, as
enunciated in the above case, are fundamentally correct and no
plausible reason is advanced for their non-application to the case at
bar.

Petitioner, however, alleges that the Panay Electric
Company case, is not controlling, there being, according to her, some
instances of dissimilarity, between said case and the one at bar. She
argues that since the generators and switch boards imported by the
Panay Electric Company were installed in its electric plant, said
company’s application for refund was properly denied and that since
what was imported by herein petitioner, which were taxed by the
respondent, were articles expressly enumerated in the exempting proviso
of the franchise, the taxes in question should be refunded. What was
expressly exempted in the present case, was the taxes for
installations; not the taxes for importation (compensating tax). The
two cases may vary to a certain decree but the legal principles
treating on similar points of controversy in both, remains stable and
settled. To hold otherwise, is to infringe the deeply rooted legal
principle of stare decisis. The issue involved in both cases
is the same; that is—the question of exemption from compensating tax on
imported goods or articles. The case of Carcar Electric & Ice Plant
Co. vs. Coll. of Int. Rev. (100 Phil., 50; 53 Off. Gaz., [4]
1068), relied upon by herein petitioner, treats of income tax and has
no bearing whatsoever on the issue involved herein. This Court therein
declared; “The case of Panay Electric Co. vs. Collector of
Internal Revenue (G. R. No. L-6753, July 30, 1955), also invoked by the
Collector involved compensating taxes that could not affect receipts,
revenues and profits expressly exempted from taxation in the
case before us” (Resolution on the motion for reconsideration (53 Off.
Gaz., 1068, Jan. 28, 1957). Moreover, the petitioner’s alleged
exemption from the payment of compensating tax in the present case is
not clear or expressed ; unlike the exemption from the payment of
income tax which was clear and expressed in the Carcar case. Unless it
appears clearly and manifestly that an exemption is intended, the
provision is to be construed strictly against the party claiming
exemption. It is held that “exemptions from taxation are highly
disfavored in law; and he who claims exemption must be able to justify
his claim by the clearest grant of organic or statute law. An exemption
from the common burden cannot be permitted to exist upon vague
implication (Asiatic Petroleum Co. vs. Llanes, 49 Phil., 466; see also
House vs. Posadas, 53 Phil., 338)”. (Collector of Int. Revenue vs. Manila Jockey Club, Inc., 98 Phil., 670).

The statement that a franchise being in the nature of a private
contract, can not be impaired, once accepted, is, indeed, a familiar
rule. It is a fact, however, that the imposition of the compensating
tax in the present case, is more of an implementation of the
petitioner’s franchise than an impairment thereof; it is in consonance
with the logical interpretation of the principles underlying the
general Rules of Taxation, as heretofore expounded.

In view
hereof, the petition for review is dismissed, and the decision appealed
from, hereby, is affirmed en toto, with costs against the petitioner.

Bengzon, C. J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., Barrera, Dizon and De Leon, JJ., concur.