Deficiency Franchise Tax of the Torres Electric Plant

March 7, 1960 BIR RULING NO. 125-60 7th Indorsement Respectfully returned to the Provincial Treasurer, Cagayan, the herein papers bearing on the deficiency franchise tax of the Torres Electric Plant, Aparri, Cagayan, for the month of October, 1957. It appears from the records that the Torres Electric plant is operating an electric plant under the franchise originally granted to Oleaga Hermanos y Carral by Act No. 2841 which was approved on March 8, 1919, and that the grantee thereof is required to pay a tax of 1% on its gross earnings during the first twenty (20) years and 2% for the remaining thirty (30) years, pursuant to Section 8 of said Act which states "Sec. 8. . . . . That in consideration of the franchise hereby granted, the grantee shall pay quarterly into the municipal treasury of Aparri one per centum of the gross earnings of the enterprise during the first twenty years, and two per centum during the remaining thirty years of the life of this franchise." Likewise, the same Act says further that "Sec. 11. This franchise is granted with the understanding and upon the condition that it shall be subject to amendment, alteration, or repeal by the Congress of the United States . . ., or by the Philippine Legislature, . . . ." The issue to be resolved, therefore, is whether the Torres Electric Plant should pay the 2% franchise tax on its gross earnings from its business in accordance with its franchise or to the 5% tax prescribed by section 259 of the Tax Code, as amended. This issued was settled by the Supreme Court in a recent case with similar facts to the case in questioned by applying the rate of 5% imposed by section 259 of the Tax Code, as amended. The pertinent portion of the decision says ". . .. Section 259 of the National Internal Revenue Code, as amended, provides that "whichever is higher" between the rate imposed by the special charter of the grantee and the National Internal Revenue Code, shall apply to and be imposed upon, and paid by, the grantee of the franchise. The rate is imposed by section 259 of the National Internal Revenue Code, as amended, being higher than that imposed in the petitioner's charter, Act No. 1256 [granted on November 1, 1904 by the Philippine Legislature], the petitioner has to pay the rate imposed by section 259 of the National Internal Revenue Code, as amended. The rule in Manila Railroad Company vs. Rafferty, 40 Phil. 224; Philippine Railway Company vs. Collector of Internal Revenue G.R. No. L-3859, 25 March 1952; Visayan Electric Company vs. David, 49 Off. Gaz, 1385; Internal Revenue, 53 Off. Gaz. 1068, cannot be invoked by the petitioner, because in the grantee's respective franchises there is a provision that "Such annual payments when promptly and fully made by the grantee, shall be in lieu of all taxes of every name and nature municipal, provincial or central upon its capital stock, franchises, right of way, earnings, and all other property owned or operated by the grantee under this concession or franchise." The petitioner's franchise, Act No. 1256, does not embody such exemption clause." (Hoa Hin Co., Inc. vs. Saturnino David, etc. and Hoa Hin Co., Inc. vs. Silverio Blaquera, etc. G.R. Nos. L-9616 and L-11783, prom. May 25, 1959; BIR General Circular No. V-317 dated Jan. 28, 1960.) Applying the foregoing decision of the Supreme Court to the case in question, this Office is of the opinion, as it hereby holds, that the Torres Electric Light Plant is subject to the 5% tax imposed by section 259 of the Tax Code, as amended, and not to the 2% tax as provided by Section 8 of Act No. 2841. aisadc Please be guided accordingly. MELECIO R. DOMINGO Commissioner of Internal Revenue