BIR Ruling

May 28, 1969 The Director Revenue Region No. 20 Zamboanga City S i r : This refers to your letter dated February 19, 1969 requesting for a ruling on the correct rate of tax to be paid by franchise grantees whose franchises were granted by Congress subsequent to the approval of Republic Act No. 39 on October 1, 1946, when the rate of tax fixed in the franchises concerned are lower than that fixed by Section 259 of the Tax Code as amended. It is represented that upon investigation it was ascertained that the Pioneer Electric and Ice Plant, Inc., of Pagadian, Zamboanga del Sur, have paid the franchise tax of only 2%, on its gross earnings from the sale of electric current during the years 1965 and 1966, in accordance with its franchise, Republic Act No. 3907, which was approved on June 18, 1964, notwithstanding the provision of Section 259 of the Tax Code. Apparently, the question to be resolved here is whether the 2% rate prescribed by the taxpayer's franchise or the 5% rate prescribed by Section 259 of the Tax Code should apply. In reply, you are informed that the question was finally resolved in CTA Case No. 1628 entitled "A.S. Diaz Electrical Service Inc. vs. Acting Commissioner of Internal Revenue", September 30, 1968, which this Office accepted as correct, wherein it was held that the rate prescribed in grantee's franchise should prevail and not the rate of 5% provided for in Section 259 of the Tax Code. The Court stated that to hold otherwise "would restrict or limit the power of succeeding Congress to amend, repeal, or modify a law, which is against the fundamental principles of our government. (Black, Interpretation of Laws, 2nd Ed., pp. 136-137). To prescribe for its successors special additional words to modify a law would in the last analysis be tantamount to limiting the latter's power to plenary repeal or modify a law using their own language and diction." The case of the Pioneer Electric and Ice Plant, Inc., and that of the aforementioned court case are similarly situated, both are exactly the same, having been granted franchises providing for a lower rate of tax after the amendment of Section. In view thereof, the Pioneer Electric and Ice Plant, Inc. is deemed to have paid the correct rate of tax at 2% as provided for in its franchise. casia Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue