Tax liability of Tigaon Electric Plant

August 12, 1960 BIR RULING NO. 361-60 1st Indorsement Respectfully returned to the Regional Director, B.I.R. Regional District No. 6, Naga City, the papers bearing on the case of the Tigaon Electric Plant, Tigaon, Camarines Sur. It appears that the Tigaon Electric Plant is the holder of municipal franchise by virtue of a grant made by the municipal council of Tigaon, Camarines Sur, authorized under Act No. 667, as amended by Act No. 1022, both acts of the then Philippine Commission. The said Franchise was approved by the President of the Philippines on February 24, 1937. Section 9 of the said franchise stipulates that the grantee shall pay a franchise tax of 1% on its gross receipts during the first twenty (20) years and 2% on the remaining years of the life of the franchise. Subsequently Republic Act No. 39 amended section 259 of the National Internal Revenue Code effective October 1, 1946, which Act in part provides: "SEC. 259. Tax on corporate franchises . There shall be collected in respect to all existing and future franchises, upon the gross earnings or receipts from the business covered by the law granting the franchise a tax of 5% or such taxes, charges, and percentages as are specified in the special charters of the grantees upon whom such franchises are conferred, whichever is higher, unless the provisions thereof preclude the imposition of a higher tax, Etc ." The issue is whether the herein grantee, Tigaon Electric Plant, should be held liable for the payment of 5% franchise tax under section 259 of the Tax Code as amended, or to only 1% as specified in its charter for the period commencing from the second quarter of 1949 to the last quarter of 1953. The Supreme Court in the case entitled "Hoa Hin Co., Inc. vs. Saturnino David, as Collector of Internal Revenue", G.R. No. L-9616 and "Hoa Hin Co., Inc. vs. Silverio Blaquera, as Collector of Internal Revenue," G.R. No. L-11783, both promulgated on May 25, 1959, laid down the rule that where the law granting a franchise fixes the rate of tax payable by the grantee but does not preclude the imposition of a higher franchise tax, the rate of tax prescribed in section 259 of the Tax Code, as amended, shall apply if the same is higher than provided in the charter of the grantee. The franchise of the Tigaon Electric Plant does not contain any provision which would preclude the imposition of a higher rate of tax. It does not show, for instance, the fact that the rates of 1% and 2% for the periods stated in the franchise, are to be "in lieu of all taxes of every name and nature, etc." as this particular phrase was cited and interpreted by the Supreme Court in the case entitled "Philippine Railway Company vs. Collector of Internal Revenue", G.R. No. L-3859, promulgated March 25, 1952, to mean a preclusion in the imposition of a higher rate of tax. In view thereof, it is, therefore, the opinion that subject taxpayer should be liable to the payment of the franchise tax of 5% under section 259 of the Tax Code and not to the rates stated in its franchise. aisadc MELECIO R. DOMINGO Commissioner of Internal Revenue