BIR Ruling

September 13, 1971 1st Indorsement Returned to the Director, Revenue Region No. 3, Dagupan City, the within docket bearing on the tax case of the Western Tarlac Electric Co., Inc., Camiling, Tarlac, involving the amount of P1,187.56 as deficiency franchise tax and surcharge for the period from July 1, 1963 to June 30, 1966. cdt The issue raised for resolution is whether the company whose municipal franchise to supply light, heat and power in Camiling, Tarlac expired in October, 1963 but which continued to operate from October, 1963 to September 26, 1968 pending approval of its application for renewal of its franchise, is subject to 3% tax imposed by Section 191 of the Tax Code or to 5% franchise tax prescribed by Section 259 of the same Code. The records show that the municipal franchise under consideration was originally granted to the Manila Electric Co. which later transferred and sold it to Mr. Publio Dumual. With the approval of the sale and transfer of said franchise by the Public Service Commission by virtue of its decision dated July 2, 1948, another certificate of public convenience and necessity was issued to Mr. Dumual authorizing him to operate electric light and power system in Camiling, Tarlac up to October 11, 1963. The records further show that when the franchise expired on October 11, 1963, Mr. Dumual was granted a franchise by the Municipal Council of Camiling, Tarlac, in its Resolution No. 39, dated April 6, 1962, as amended by Resolution No. 45 dated May 3, 1963, authorizing him to install, operate, and maintain an electric light, heat and power service in Camiling. Said franchise was approved by the Provincial Board of Tarlac in its Resolution No. 382, dated May 11, 1962, as amended by Resolution No. 282, dated May 21, 1963 and Resolution No. 515, dated April 23, 1968, which was finally approved by the Public Service Commission (pursuant to the provisions of Commonwealth Act No. 146 as amended) on September 26, 1968, in its decision rendered in Case No. 63-511. The same franchise was approved by the President of the Philippines on October 10, 1968. The decision itself of the Public Service Commission provides that the same shall take effect immediately and shall become final 30 days after notice to the applicant. The approval of the President provides that the same shall take effect when the said decision of the Public Service Commission becomes final that is 30 days after notice to the applicant. acd The effective date of the renewed franchise is provided for by the decision of the Public Service Commission itself and the approval of the President. Accordingly, the effectivity date of the renewed franchise does not retroact to October 11, 1963. In this connection, it may be stated that the aforesaid company from October 12, 1963 to September 25, 1968 is subject to the 3% tax imposed by Section 191 of the Tax Code because during said period it cannot be considered a franchise grantee since its franchise expired on October 11, 1963 and its renewal was approved only on September 26, 1968. An operator of an electric light and power plant who operates under a municipal franchise not duly approved by the public service commission is subject to the percentage tax imposed in Section 191 of the Tax Code, if the franchise has not as yet been approved by the President of the Philippines and accepted by the grantee. However, after the approval by the President and accepted by the grantee, the operator becomes subject to the franchise tax prescribed by section 259 of the Tax Code even if the certificate of public convenience therefor has not as yet been issued. (Ruling, June 6, 1953, File No. 140.02, Bulletin, Vol. II, No. 2, June 30, 1953) Upon approval of its renewed franchise on September 26, 1968 by the Public Service Commission, the company is not only a holder of a certificate of public convenience and necessity but also a franchise grantee again, hence, starting on said date the same shall be subject to the 5% franchise tax imposed by Section 259 of the said Code. (BIR Ruling No. 49, Series of 1970). Be guided accordingly. cdta MISAEL P. VERA Commissioner of Internal Revenue