G.R. No. L-23014. June 30, 1970
ESCUDERO ELECTRIC SERVICE COMPANY, PETITIONER, VS. BENJAMIN N. TABIOS, IN HIS CAPACITY AS COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
MAKALINTAL, J.:
This is a review of the decision of the Court of Tax Appeals in
its Case No. 1226.
Pursuant to Act No. 667, as amended, the Escudero
Electric Service was granted municipal franchises to operate and maintain
electric light, heat and power systems by the municipal council of Candelaria, Quezon, under
Resolution No. 61, dated June 7, 1928
and by the municipal council of Calauan, Laguna under
Resolution No. 11, dated March 19,
1929. The franchise for Candelaria fixed the rate of franchise tax at “uno porciento de los ingresos brutos
que obtenga por dicho privilegio
durante los primeros veinte (20) años y el dos por ciento (2%) de los mismos ingresos durante los quince años restantes de la vigencia de este mismo privilegio.” As to the
franchise of Calauan, since no copy thereof was
presented in evidence, the tax court presumed that the rate of franchise tax
prescribed therein was 2%, as it was the rate being paid by the petitioner.
On November 2, 1960
the respondent assessed against the petitioner deficiency franchise tax and
surcharge in the sum of P20,228.33 for the period from January 1, 1948 to June 30, 1959, computed as follows:
Gross receipts per
audit …………….
P873,691.86
5% tax due thereon
……………………
43,684.59
Less:
Amount already paid ………..
27,501.93
Balance: …………………………………. P
16,182.66
Add:
25% surcharge ………………… 4,045.67
TOTAL
AMOUNT DUE ………… P 20,228.33
_________________________…….___…………………………______________________iiiiiiiii___
All billings made by the petitioner, regardless of whether paid
or not, were made subject to the franchise tax.
According to the respondent, the tax of 5% on the gross receipts, as
well as the 25% surcharge on
the deficiency, was imposed in accordance with Section 259 of the National
Internal Revenue Code, as amended.
The petitioner, through its counsel, protested the assessment and
requested for its withdrawal and cancellation on the following grounds,
namely: (1) that the right to assess the
alleged deficiency tax for the period from January 1, 1948 to September 30,
1955 bad already prescribed; (2) that the 2% tax prescribed in its franchise
prevailed over the 5% tax provided for in Section 259 of the National Internal
Revenue Code, as amended; and
(3) that the uncollected revenues do not constitute part of the taxable gross
receipts or earnings. In his letter
dated February 14, 1961,
the respondent denied the request for lack of legal basis. Thereupon, the petitioner filed with the
Court of Tax Appeals a petition for review of the respondent’s decision.
After proper proceedings, the tax court rendered its decision
dated December 26, 1963,
the dispositive portion of which reads:
“In resume, we are of the opinion that the right of the
Government to assess the deficiency franchise tax against petitioner covering
the period from January 1, 1948
to September 30, 1955 has
already prescribed. With respect to the
deficiency franchise tax and surcharge covering the period from October 1, 1955
to June 30, 1959 in the sum pf P15,772.91 (P12,618.33 deficiency tax plus
P3,154.58 as 25% surcharge), the decision of respondent is hereby affirmed.
“IN VIEW OF THE FOREGOING, petitioner is hereby ordered to pay
the sum of P15,772.91 within thirty days from the date this decision becomes
final, without pronouncement as to costs.”
Unable to secure a reconsideration of the adverse portion of the
decision, the petitioner instituted the instant petition for review.
The first issue to be resolved in this case is whether or not the
provisions of petitioner’s municipal franchises regarding the rate of tax have
been amended by Section 259 of the Tax Code, as amended by Republic Acts Nos. 39
and 418, which reads:
“SEC. 259. Tax on corporate franchises.- There shall be collected in respect
to all existing and future franchises, upon the gross earnings or receipts from
the business covered by the law granting the franchise a tax of five per centum
or such taxes, charges, and percentages as are specified in the special charters of
the grantees upon whom such franchises are conferred, whichever is higher,
unless the provisions thereof preclude the imposition of a higher
tax. For the purpose of facilitating the
assessment of this tax, reports shall be made by the respective holders of the
franchises in such form and at such times, as shall be required by the
regulations of the Department of Finance.
“The taxes, charges, and percentages on corporate franchises,
shall be due and payable as specified in the particular franchise or in case no
time limit is
specified therein, the provisions of section one hundred and eight-three shall
apply; and if such taxes, charges, and percentages remain unpaid for fifteen
days from and after the date on which they must be paid, twenty-five per
centum shall be added to the amount of such taxes, charges, and
percentages, which increase shall form part of the tax.”
In at least four cases[1]
similar to the present case, where the franchises were issued by the municipal
councils also pursuant to Act No. 667, this Court has held that the aforequoted section of the tax code amended the pertinent
provisions of the municipal franchises.
In Balanga Power Plant Co. vs. Commissioner of Internal Revenue, this Court said:
“At the outset, it should be noted the status of petitioner’s
municipal franchises as property and property right is dependent upon or qualified by the nature and limitations of
the authority under which said franchises were granted by the municipal
corporations concerned. Admittedly, such
authority, as regards the franchises for Balanga and Samal, emanated from Act No. 667, pursuant to which
franchises granted thereunder shall be ‘subject to
the power of Congress to alter, modify or repeal the same.’ To the extent that
Section 259 of our National Internal Revenue Code is inconsistent with the
rate of taxes fixed in said municipal franchises – and the theory that Section
259 as applied to petitioner herein is unconstitutional, necessarily implies
such inconsistency – it is obvious that, for all intents and purposes, said
legal provision alters the pertinent provisions of said franchises. In effecting such alteration, our
legislative department has merely exercised, however, a power expressly
reserved thereto by said franchises, and has acted, therefore, in conformity, therewith, not in violation of the provisions thereof
or to the detriment of the rights thereby vested in petitioner herein. x x x“
We now come to the question as to whether the uncollected amounts due
from petitioner’s customers should be excluded in computing the franchise
tax. In upholding the assessment made by
the respondent wherein the franchise tax payable by the petitioner was based
on gross receipts, whether collected or not, the tax curt relied on the case of
Philippine Long Distance Telephone Company vs. Collector of Internal Revenue.[2]
In that case this Court construed “gross receipts” to mean
“gross earnings,” thereby subjecting the uncollected revenues to the
tax. Thus:
“x x x. “Receipts” means amount actually
received, for otherwise they would not be receipts. If the words of the franchise were to be
construed in their literal sense, independently of the organic act or the
Constitution, the theory of the plaintiff-appellant may be plausible; but it
should be noted that the Philippine Legislature granted the franchises through
Acts Nos. 1368 and 3436 under the authority vested in it by Section 74 of the
Philippine Bill of 1902, the first organic act, and by Section 28 of the Jones
Law, x x x.
“The acts of the Legislature granting the franchises should be
construed so as
not to contravene or violate the organic acts above mentioned, for
otherwise said
legislative acts would be null and void or unconstitutional. The organic acts use the word ‘earnings.’ A
person may have earned his salary
but may not have collected it, or may be unable to collect it from an insolvent
employer. A person cannot demand payment of his unpaid salary unless he
has earned it. This would show that to
collect is a different act from to earn.
Consequently, the uncollected “gross receipts” which should
be construed as meaning the same thing as “gross earnings” should be
subject to the franchise tax.”
Indeed, Section 259 of the National Internal Revenue Code, as
amended by Republic Acts Nos. 39 and-418, uses the term “gross earnings or
receipts,” so thus that “gross receipts” as so used has the same
meaning as “gross earnings.” Accordingly, the uncollected charges or
amounts due from the petitioner’s customers should be considered part of the
taxable “gross earnings or receipts.”
With respect to the imposition
of 25% surcharge on the deficiency, this Court in Imus
Electric Co., Inc. vs. Court of Tax Appeals, supra, and Guagua Electric Light Co. Inc., vs. Collector of Internal
Revenue supra, ruled that when the taxpayer acted in good faith in
paying the franchise tax at the lower rate fixed by its franchise, the
surcharge may be dispensed with. In the
instant case, the delay in the
payment of the deficiency tax was due to the erroneous view of the petitioner
that its franchises had not
been amended by Section 259 of the National Internal Revenue Code. Since it appears that at one time or another
the office of the respondent also shared the view of the petitioner to the
extent of making refunds to franchise holders who had paid at the rate of 5% as
in the aforecited cases, it would not be fair to
impose on the herein petitioner the 25% surcharge. Evidently it was only after our decision in
the two cases of Hoa Hin Co., vs. David, G. R.
Nos. L-9616 and L-11783, May 25, 1959, wherein we
held Section 259 of the Tax Code to be applicable, that the Bureau of Internal
Revenue defined its stand accordingly and started assessing municipal franchise
taxes at 5% instead of at the lower rates stated in the corresponding
franchises. In the present case the
assessment of the deficiency taxes, made on November 2, 1960 covered a period up to June 30, 1959 only; and it cannot therefore
be said that the petitioner had been paying before then at the lower rate of 2%
with knowledge that its payments were deficient. Our ruling with respect to the surcharge in
the Imus and Guagua cases
should apply herein.
Wherefore,
modified by eliminating the 25% surcharge on the amount of P3,154.58, the
decision appealed from is hereby affirmed.
No pronouncement as to
costs.
Reyes, J.B.L., Dizon, Zaldivar, Castro, Fernando, Teehankee,
and Barredo,
JJ., concur.
Concepcion, C.J., took no part.
Villamor, J., on leave.
[1]
Balanga Power Plant Co. vs. Commissioner of
Internal Revenue, G. R. No. L-20499, June
30, 1965; Imus Electric Co.,
Inc. vs. Court of Tax Appeals, G. R. No. L-22421, March 28, 1967; Guagua
Electric Light Co., Inc. vs. Collector of Internal Revenue, G. R. No.
L-23611, April 24. 1967; Com. of Internal Revenue vs. Ilagan Electric &
Ice Plant Inc., L-23081
Sept. 30, 1969, 29 SCRA 634.
[2]
90 Phil. 676.