Tax Exemption of the Franchise Grantee, Operating a Telephone System

March 28, 1960 BIR RULING NO. 195-60 Dumaguete Telephone Service P. O. Box 59 Dumaguete City Attention : Mr . Placido Ausejo, Manager Gentlemen : Reference is made to your letter dated February 12, 1960 stating the following: cdt "I am a franchise grantee, operating a telephone system under Republic Act No. 501 effective on June 12, 1950. Sections 6 and 7 of the said Act are quoted hereunder: 'Sec. 6. The grantee, his successors or assigns, shall keep a separate account of the gross receipts of their telephone business, and shall furnish to the Auditor General and the Treasurer of the Philippines a copy of such account not later than the thirty-first day of each year for the twelve months proceeding the first day of July. 'Sec. 7. The Grantee, his successors or assigns, shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition, the grantee, his successors, or assigns shall pay to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in section six of this Act, one per centum of all gross receipts if the telephone business transacted under this franchise by the grantee, his successors, or assigns, and the said percentage shall be in lieu of all taxes on this franchise or its earnings.' "Under those above-quoted pertinent provisions on taxation, what kinds of national internal revenue and other taxes administered by the Bureau of Internal Revenue am I liable as an individual taxpayer? When is my franchise tax due and payable as specified in the particular franchise?" In reply I have the honor to inform you that in line with the ruling of the Supreme Court in the case entitled, "Carcar Electric & Ice Plant Co., Inc. vs. The Collector of Internal Revenue" G.R. No. L-9257, promulgated October 17, 1956, it is the opinion that you are exempt from the payment of the income tax on your earnings. You are further exempt from the privilege tax on business imposed under section 178 and 182 of the National Internal Revenue Code it being within the purview of the exemption clause contained in your franchise. Regarding the time when the franchise tax is due and payable section 259 of the National Internal Revenue Code in part provides: "The taxes, charges, and percentages on corporate franchises, shall be due and payable as specified in the particular franchise, or, in case no time limit is specified therein, the provisions of section 183 shall apply; etc." Inasmuch as your franchise prescribes the time of payment, the same shall be controlling. Consequently, the said franchise tax shall be due and payable within 10 days of each year from the date of receipt of the notice of audit and approval of the accounts submitted by you to the Auditor General and the Treasurer of the Philippines as prescribed by Sections 6 and 7 of your franchise, otherwise known as Republic Act No. 501. Incidentally, and in accord with the decision of the Supreme Court in the case entitled, "Philippine Railway Company vs. The Collector of Internal Revenue" G.R. No. L-3859, March 15, 1952, and the well-established principle of statutory construction that a particular and special law must prevail over that of a general law, you are subject to the 1% franchise tax prescribed in your franchise instead of the 5% required under section 259 of the National Internal Revenue Code. However, you are subject to the payment of the compensating tax on materials which may be imported by you even if the same will be used by you in your telephone business as enunciated in the case entitled "Pan Electric Company vs. The Collector of Internal Revenue" G.R. No. L-6753, promulgated July 30, 1955. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue