BIR Ruling No. 378-61

No date supplied BIR RULING NO. 378-61 MEMORANDUM FOR: The Revenue Operations Head (Assessment) Returned are the papers (consisting of 4 pages) bearing on the franchise tax case of the . . . , hereinafter referred to as the Taxpayer for brevity, covering the period from January 1, 1953 to June 30, 1959, with the following observation and comment on the legal issues involved: llcd Issues The legal issues in this case are as follows: (1) Whether the Taxpayer is subject to the franchise tax rate of 5% in accordance with Section 259, Tax Code, as amended, or to the rate of 2% prescribed in its charter (Act No. 3215), covering the period above stated, and (2) Whether or not the Government can still collect the total deficiency franchise tax, if any, from the Taxpayer in accordance with law. Observation and Comment I. On First Issue . It appears that Act No. 3215 granted Mr. . . . a franchise to establish and operate an electric plant for a period of 25 years in the Municipality of Daet, Camarines Norte. Subsequently, the rights of Mr. . . . under said franchise were acquired by the . . . Co-partnership. The term of the franchise, in question, was supposed to have expired on December 6, 1949 but prior to said expiry date, or on June 14, 1948, Congress passed Republic Act No. 255, extending its existence for another 25 years, to be computed from the date of its expiration "under the same terms and conditions" provided in Act No. 3215. cdta The pertinent provisions of Act No. 3215 are quoted hereunder for ready reference as follows: "Sec. 8 " . . . Provided, That in consideration of the franchise hereby granted, the grantee, his successors, or assigns shall pay quarterly into the municipal treasury of Daet one per centum of the gross earnings of their business during the first ten years, and two per centum during the remaining fifteen years, of the life of this franchise." Sec. 11 "This franchise is granted with the understanding and upon the condition that it shall be subject to the amendment, alteration, or repeal by the . . . Philippine Legislature . . ." It has been noted that the provision of Section 8 or Act No. 3215 does not contain an exemption clause or a provision precluding the imposition of a higher rate of tax. On the other hand, Section 11 thereof expressly provides that the franchise shall be subject to amendment, alteration or repeal by the "Philippine Legislature" (now Congress of the Philippines). Such being the case, the prescribed rate of 5% franchise tax in Section 250 of the Tax Code, as amended, would necessarily apply in view of the ruling laid down by the Supreme Court in Hoa Hin Co., Inc. cases (G.R. Nos. L-5616 & L-11783, prom. May 25, 1959) and in the case of Lealda Electric Co., Inc., decided by the Court of Tax Appeals on November 2, 1956, C. T. A. Case No. 613. We are not unaware and there is no question as to the pertinent ruling of the Supreme Court in the case of Mercedes Hilario Vda. de Hidalgo, et al. vs. Saturnino David, G.R. No. L-8046, promulgated on August 30, 1956, which says: "Inasmuch as the life of the franchise was extended by Republic Act No. 255, from twenty-five (25) to fifty (50) years, said portion of Act No. 3215 should be construed as if it had been amended to provide that '. . . the grantee, his successors or assigns shall pay . . . one per centum of the gross earnings of their business during the first ten (10) years, and two per centum during the remaining thirty-five (35) years of the life of this franchise . . . ' cdti We will be noted, however, that the Supreme Court did not rule on the effect of the absence of an exemption clause in Act No. 3215, as extended by Republic Act No. 255. This is so, because this important question was never squarely raised as an issue at the time the abovecited case was heard in court. This vacuum created in the Supreme Court's decision in the Hidalgo case, supra, will lead us to conclude, as we hereby rule, that the Taxpayer herein is subject to the rate (5%) imposed under Section 259 of the Tax Code, as amended by Republic Act No. 39, following the recent decision of the Supreme Court in Hoa Hin cases and the decision of the Court of Tax Appeals in Lealda Electric case, above-stated. II. On Second Issue . Can the Government still collect the total deficiency franchise tax from the Taxpayer covering the period from January 1, 1953 to June 30, 1959 in accordance with law? It is now settled that the Government can no longer collect, whether by administrative remedies or judicial action, the franchise tax already barred by prescription in accordance with Sections 331 and 332 of the Tax Code (BIR Ruling No. 305, s. 1961). Promises considered, it is desired that a recomputation of the deficiency franchise tax of the Taxpayer be made immediately, by excluding therefrom the amounts already barred by the statute of limitations as above explained. In this connection, the Taxpayer shall be made to understand that this Office will entertain no further reconsideration of our decision for the reason that the issue or issues in similar cases have already been settled by this Office and the Supreme Court. prll