THE GUAGUA ELECTRIC LIGHT PLANT COMPANY, INC., PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE AND THE HONORABLE COURT OF TAX APPEALS, RESPONDENTS.

Guagua Electric Light Plant Co.
(hereinafter called Guagua Electric for short), a
grantee of municipal fran­chises by the municipal council of Guagua, Pampanga under Resolution
No. 42 dated December 13, 1927 and by the mu­nicipal council of Sexmoan, Pampanga under
Resolution No. 48 dated November 15, 1928 pursuant to Act 667, as amen­ded,
realized and reported a gross income in the sum of P1,133,003.44 during the
period from January 1, 1947 to November 1956 and paid thereon a franchise tax
in the amount of P56,664.97 computed at 5% thereof in accordance with Section
259 of the National Internal Revenue Code.

Believing that it should pay franchise tax at the lower rates
provided for in its franchises^[1]
instead of 5% fixed by Section 259 of the Tax Code, it filed on March 25, 1957
a claim for refund for allegedly overpaid fran­chise tax amounting to
P35,593.98 on its gross receipts realized from January 1, 1947 to November
1956.  The Com­missioner of Internal
Revenue denied refund of franchise tax corresponding to the period prior to the
fourth quar­ter of 1951 on the ground that the right to its refund had
prescribed.^[2]
He however granted refund of the fol­lowing amounts:

Not satisfied with the determination of the Commis­sioner, Guagua Electric appealed to the Court of Tax Ap­peals.  However, its appeal, docketed as C.T.A. Case
No. 508, was dismissed upon motion of the Commissioner of In­ternal Revenue,
interposed before filing his answer to the petition for review, on the ground
that the same was instituted beyond the 30-day period provided for in Sec­tion
11 of Republic Act 1125.

Subsequently, this Court held in Hoa Hin Co., Inc. v. David^[3]
that electric franchise holders under Act 667 are liable for franchise tax at
the rate fixed by Section 259 of the Tax Code, that is, 5% of the gross
receipts. Accordingly, on March 2, 1961
the Commissioner of Inter­nal Revenue assessed against Guagua
Electric deficiency franchise tax computed thus:

Guagua Electric contested the
deficiency assessment in its letter dated March 30, 1961 contending that the same is violative of its franchises; that the computation of the
gross receipts is contrary to rules; and that the right to assess and/or
collect the tax has prescribed.  On August 21, 1961 the appellate
division of the Bureau of Internal Revenue recommended that the right to assess
and collect the tax corresponding to the period prior to January 1, 1956 has prescribed.  Consequently, the Commissioner issued the
following revised assessment elimi­nating therefrom
the deficiency tax for the period prior to January 1, 1956, as recommended:

Guagua Electric appealed from the
aforesaid Commis­sioner’s decision to the Court of Tax Appeals which in turn
affirmed the same.  Still not satisfied,
it eleva­ted the case to Us and submitted the following proposi­tions:

1.  The application of the
rate of 5% as provided for in Section 259 of the Tax Code, instead of 1% or 2%
as provided for in its franchises granted under Act 667, impairs the obligation
of contract and is therefore un­constitutional.

2.  The government is
precluded from recovering the sum of P16,593.87 representing the amount
refunded to it on grounds of prescription and failure to set up as coun­terclaim
in C.T.A. Case No. 508.

The constitutionality of collecting franchise tax at the rate of
5% of the gross receipts as provided for in Section 259 of the Tax Code instead
of at the lower rates fixed by the franchise granted under Act 667, has already
been settled in several cases.^[4] Guagua Electric, whose franchises were similarly granted
under Act 667, being similarly situated as the taxpayers-franchise holders in
those cases already decided by Us, shall likewise be subject to the 5% rate
imposed in Section 259 of the Tax Code.

The Commissioner of Internal Revenue seeks the recovery of the
amount of P16,593.87 allegedly erroneously refunded to Guagua
Electric.  Said amount represents the
difference between the tax computed at 5% pursuant to Section 259 of the Tax
Code and the tax at 1% or 2% un­der its franchises covering the period from
September 1951 through November 1956. 
This, in effect, is an as­sessment for deficiency franchise tax.

It should be noted that the deficiency assessment of P19,938.12
in this case for the difference between the franchise tax paid at 1% or 2%
under taxpayer’s fran­chises and the tax computed at 5% pursuant to Section 259
of the Tax Code covers the period from January
1, 1956 to June 30, 1962.  Obviously, if Guagua
Electric were re­quired to pay P16,593.87 in addition to the sum of P19,938.12,
it would be paying twice for the same defi­ciency tax for the period from
January 1 to November 30, 1956.

As afore-stated, moreover, the Commissioner of In­ternal Revenue
revised his first deficiency assessment dated March 2, 1961 by eliminating therefrom
the defi­ciency tax for the period prior to January 1, 1956 be­cause the right to assess the same has
prescribed.  By insisting on the payment
of the amount of P16,593.87 (which covers the period from September 1951 to
Novem­ber 1956), he is, in fact, trying to collect the same deficiency tax, the
right to assess the same he had found to have been lost by prescription.

The Court of Tax Appeals however stated in its de­cision that Guagua Electric did not raise the issue of prescription of
the right of the Government to assess and collect the sum of P16,593.87.  This finding of the lower court is not
supported by the pleadings.  In its
letter dated March 30, 1961
contesting the first assess­ment dated March
2, 1961 Guagua Electric assailed the
right to assess and/or collect the tax on grounds of pres­cription.  In paragraph 20 of its petition for review
(C.T.A. Rec. p. 4), it raised the defense of prescrip­tion of the
Commissioner’s right to assess and collect the tax.

Anent the contention of the Commissioner of Inter­nal Revenue
that Guagua Electric failed to adduce evi­dence to
prove prescription of his right to assess and collect the P16,593.87, suffice
it to state that in pa­ragraph 10 of the Commissioner’s answer he admitted the
allegations in paragraph 13 of the petition for review.  Paragraph 13 alleged the facts, supported by
annexes, constituting prescription. 
There was therefore no need for the taxpayer to present further evidence
on the point.

The Commissioner of Internal Revenue further maintains that the
prescription of his right to recover the amount of P16,593.87 is governed by
Articles 1145(2) in relation to Articles 1154 and 1155 of the Civil Code.  Hence, prescription will set in only after the
expira­tion of six years from 1957 and 1959, the dates refunds were
granted.  Since the petition for review
and ans­wer thereto were filed in the Court of Tax Appeals on February 14, and May 4, 1962, he concludes that the
pres­criptive period of six years has not expired.

As stated above, the demand on the taxpayer to pay the sum of
P16,593.87 is in effect an assessment for de­ficiency franchise tax.  And being so, the right to as­sess or collect
the same is governed by Section 331 of the Tax Code^[5]
rather than by Article 1145 of the Civil Code. 
A special law (Tax Code) shall prevail over a general law (Civil Code).^[6]

Our above conclusion absolving Guagua
Electric from the payment of the sum of P16,593.87 has removed the necessity of
discussing Guagua Electric’s assertion that the
Government is precluded from recovering the said sum because it failed to set
it up as a counterclaim in C.T.A. Case No. 508.

With regard to the 25% surcharge in the amount of P4,984.53, it
is patently unfair on the part of the Go­vernment to require its payment
inasmuch as the taxpayer acted in good faith in paying the franchise tax at the
lower rates fixed by its franchises.  As
a matter of fact, the Bureau of Internal Revenue shared with the taxpayer the
view that Section 259 of the Tax Code does not apply.  Guagua Electric
should not therefore be made to pay the 25% surcharge.^[7]

WHEREFORE, the judgment appealed from is affirmed with the
modification that the amount of P16,593.87 representing franchise tax allegedly
refunded erroneously and the 25% surcharge imposed on petitioner should be, and
are, eliminated, thereby reducing the tax from a total of P41,516.52 to
P19,938.12.  No costs.

SO ORDERED.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez, and Castro, JJ., concur.

^[1] Guagua:  1% of gross
receipts during first 20 years; 2% of gross receipts during the remaining 15
years.

Sexmoan: 1-1/2% of gross receipts
during the first two years; 2% of gross receipts during remaining 33 years.

^[2]
See Sec. 306, Tax Code.

^[3]
L-9616 and L-11783, May 25, 1959.

^[4]
Hidalgo v. David, L-8046, Aug. 30, 1956; Hoa Hin Co., Inc. v. David, L-9616, L-11783, May 25,
1959; Lealda Electric Co. v. Commissioner of
Internal Revenue, L-16428, April 30, 1963; Balanga
Power Plant Co. v. Commissioner of Internal Revenue, L-20499, June 30,
1965; Imus Electric Co., Inc. v. Court of Tax
Appeals, L-22421, March 18, 1967.

^[5]
Cf. Hidalgo v. David, supra,
Footnote 4.

^[6] Lichauco & Co. v. Apostol
and Corpus, 44 Phil. 138.

^[7]
Connell Bros. Co. v. Collector of Internal Revenue, L-15470, Dec. 26,
1963; Imus Electric Co., Inc. v. Court of Tax
Appeals, supra.