BIR Ruling

October 12, 1967 MEMORANDUM FOR: The Revenue Operations Head (Assessment) There is transmitted herewith the papers bearing on the franchise tax case of the Capital Wireless, Inc., Sabas Almeda Bldg. Corner A. Flores and A. Mabini Sts. Malate, Manila. cdti It appears that Mr. Ricardo P. Ocampo was granted a temporary right and privilege to establish and operate public radiotelephone and radiotelegraph coastal stations under Republic Act No. 2037 (enacted June 23, 1957) as amended by Republic Act No. 2373 (enacted June 20, 1959); that the said grant was subsequently transferred to the abovenamed taxpayer under Republic Act No. 4387, effective June 19, 1965. Republic Act 4387 also amended R. A. No. 2037 by changing its temporary character to a regular franchise, R. A. No. 4387 further provided for the payment by the grantee of 1% tax on its gross receipts. The question to be resolved is whether or not, under Republic Act No. 2037, as amended, the taxpayer is subject to the 5% franchise tax under Section 259 of the Tax Code for the period prior to and including June 18, 1965 or to the 3% tax prescribed by Section 191 of the Tax Code. A "franchise is a privilege of doing that which does not belong to the citizens of the country generally, by common right. (Irvine Toll Bridge Co. v. Estill County, 275 S.W. 634, 636, 210 Ky. 170.) "Franchises" are rights and privileges acquired by special grants from the public through the legislature which impose on the grantee, as the consideration therefore, a duty to the public to see that they are properly used. (St. Louis, A. & T.H.R. Co. vs. Balsley, 18 III. App. 79; see 17 Words & Phrases, 496.) LLpr The operation of radiotelephone or radiotelegraph stations is not a matter of common right. No person may operate said stations in the Philippines without first obtaining a franchise therefor. (Act No. 3846, as amended by Rep. Act Nos. 365 and 571) The temporary permit granted to the taxpayer under Rep. Act. No. 2037 as amended is specifically made subject to the provisions of Act No. 3846. Therefore, the permit granted to the Capitol Wireless Inc., to operate its radio stations is a franchise. The fact that the permit granted by Congress is denominated a "Temporary Permit" does not affect the nature of the grant as a franchise. R.A. 2037, as amended, being in fact a franchise, and there being no provision therein as to the rate of franchise tax payable by the grantee, the said grantee is subject to the 5% tax prescribed by Section 259 on its gross receipts prior to June 18, 1965. The next question is whether or not the grantee of the franchise can further be held liable for the 3% prescribed by Section 191. Republic Act 2037, as amended, does not contain any exemption provision to the effect that the tax therein imposed shall be in lieu of all taxes. Such being the case the grantee is further liable to all other internal revenue taxes due on its operations, such as the fixed tax prescribed by Section 182, the percentage tax prescribed by Section 191, and, the income tax. (J.V. House v. Posadas, 53 Phil. 338) prll He is hereby directed to take immediate action accordingly. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue