BIR Ruling No. 196-61

May 3, 1961 BIR RULING NO. 196-61 1st Indorsement Respectfully returned to the Regional Director, BIR, Regional District No. 4, Quezon City, the herein papers bearing on the deficiency franchise tax of the Hagonoy and Paombong Electric Plants, Bulacan, in the amounts of P3,592.97 and P1,311.71 for the years 1957, 1958 and 1959. prcd It appears from the records that the Paombong and Hagonoy Electric Plants purchased the franchise rights of the MERALCO in 1929. The franchises for the operation of the electric plants at Paombong and Hagonoy, Bulacan, were granted by the municipal council of said municipalities on March 11, 1932 and January 31, 1929, pursuant to the provision of Section 2 of Act No. 667. The law granting the said franchises allegedly provided for the imposition of 1% as franchise tax on the gross earnings or receipts from the business. It was further provided that fifteen (15) years subsequent to said acquisition, the franchise tax shall be 2%. The issue to be resolved, therefore, is whether the taxpayer is subject to the 2% franchise tax on its gross earnings from its business in accordance with its franchise or the 5% tax prescribed by Section 259 of the Tax Code, as amended. LLpr The issue was settled by the Supreme Court in a recent case of Hoa Hin Co. Inc. vs. Saturnino David and Silverio Blaquera vs. Hoa Hin Co. (G.R. Nos. L-9616 & L-11783, promulgated on May 25, 1959) by applying the rate of 5% imposed by Section 259 of the Tax Code, as amended. Examination of the records show that the taxpayer failed to submit copies of their charters. Grantees of municipal franchises under Act No. 667 are not exempt from the payment of other taxes inasmuch as Section 6 thereof provides thus: "Tax exemption not conferrable by local authorities. There shall be no power on the part of municipal council or the provincial board in the granting of franchise to contract for the exemption from taxation of the property of the grantee thereof, such exemption can only be granted by special act o the Commission." Accordingly, franchises granted by municipal councils and approved by the provincial boards do not embody any provision thereon to the effect that payment of the franchise tax is "in lieu of all taxes of every name, and nature municipal, provincial or central upon its capital stocks, franchises, rights of way, earnings and all other property owned or operated by the grantee". prll In the case at bar, there being no express provision in their franchises granted to operate in the municipalities of Paombong and Hagonoy, which preclude the imposition of a higher tax, they are subject to the payment of the increased rate of 5% provided in Section 259 of the National Internal Revenue Code as amended by Republic Act No. 39 effective October 1, 1946. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue