BIR Ruling

March 14, 1967 The General Manager Philippine National Railways Manila S i r : This refers to your letter dated January 16, 1967 requesting the reconsideration of BIR Ruling No. 65-003 holding the Philippine National Railways liable for the payment of the compensating tax on its shipment of imported railway materials. LibLex In reply, I have the honor to inform as follows: Section 12 of Republic Act No. 4156, the PNR Charter, reads as follows: "Sec. 12. Exemption from taxes, duties and port charges . The Corporation is hereby exempt from payment of all taxes of every name and nature-municipal, city, provincial, or national-upon its capital stock, franchises, right of way, earnings, and all other property owned or operated by it and all duties on all railways materials, supplies, and equipment imported in the Philippines for and/or by the said Corporation and this exemption shall extend to port charges upon vessels whose entire cargo consists of materials for the construction of the prescribed port charges on other vessels as the tonnage of materials for such constructions or equipment may bear to the tonnage of the entire cargo of the vessel." Construing this provision, this Office issued on January 25, 1965 Ruling No. 65-003 holding the Philippine National Railways subject to the payment of compensating tax on its importation of railway materials, supplies and equipment on the ground that the exemption from taxes refers only to its capital stock, franchise, right of way, earnings and all other property but not to the importation of railway materials, supplies, and equipment. The reason is that the law made mention only of the word "duties" immediately preceding the statement regarding the exemption of the importation of said materials. And that the fact the term "duties" does not include taxes, it is obvious from the context of the law that the compensating tax is not embraced within the exemption provided therefore. On the other hand, the Government Corporate Counsel maintains that Section 12 of Republic Act No. 4156, as worded, exempts the PNR from the payment of all taxes of every name and nature upon its capital stock, franchise, right of way, earnings and all other property owned or operated by it; that the clause "all other property owned or operated by it" purports to mean that mere ownership of the imported equipment, materials, and supplies to be used for the accomplishment of the corporate purposes of the PNR is sufficient basis for tax exemption; that it is not necessary to mention "taxes" as regards the exemption on railway materials, supplies, and equipment imported, since it would be superfluous to do so inasmuch as exemption from taxes are already taken cared of and included in the first portion of the section; and that by particularly mentioning only the word "duties" in the clause exempting therefrom the imported materials, supplies and equipment, the intention was merely to clarify and eliminate any doubt that the exemption was to include all other charges on the importation of the PNR because in a limited sense the word "tax" does not include "duties". We have reexamined very carefully Section 12 of the Charter of the PNR and after carefully considering the position of the Government Corporate Counsel, we are convinced that the PNR is exempt from the compensating tax on its importations of railway materials, supplies and equipment. This view is also supported by the Secretary of Justice in his opinion No. 106, s. of 1954, wherein he said that grantees whose franchises do not specially provide for the taxation of personal property may be exempt on their importations. The same position is also shared by the Secretary of Finance when he ruled in favor of exemption of the importation of a franchise grantee whose franchise exempts him from all kinds of taxes in his personal properties. In a sense, the Supreme Court also sustained this position when in "Panay Electric Co. v Collector of Internal Revenue, G.R. No. L-6753, July 30, 1955, it held the importation of Panay subject to the compensating tax considering, among others, that the charter of Panay expressly requires it 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. aisadc Ruling No. 65-003 is hereby superseded. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue