Commissioner of Internal Revenue v. Republic Broadcasting System, Inc.

FIRST DIVISION [CA-G.R. SP No. 32831. September 19, 1994.] (C.T.A. Case No. 4630) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . REPUBLIC BROADCASTING SYSTEM INC., and COURT OF TAX APPEALS , respondents . D E C I S I O N CUI , J p : Petition for review filed by the Commissioner of Internal Revenue assailing the decision dated July 27, 1993 rendered by the Court of Tax Appeals in CTA Case No. 4630, the dispositive portion whereof reads: WHEREFORE, in view of all the foregoing, respondent's decision is SET ASIDE. The deficiency franchise tax assessments in the total amount of P16,159,651.61 inclusive of increments for the third and fourth quarters of 1987 is hereby CANCELLED. No pronouncement as to cost. SO ORDERED. Likewise assailed is the CTA resolution of November 4, 1993 denying petitioner's motion for reconsideration. The facts leading to the present petition are as follows: On June 18, 1990, petitioner Commissioner of Internal Revenue (CIR) issued two (2) notices of assessment against respondent Republic Broadcasting System, Inc., (RBS) for deficiency franchise tax for the third and fourth quarters of 1987, inclusive of surcharge and interest, in the total amount of P16,159,651.61, computed as follows: 1987 Deficiency Franchise Tax THIRD QUARTER: Gross Taxable Receipts P75,103,313.00 Tax Due: =========== 5% P3,520,165.90 3% 140,999.85 Deficiency P3,661,165.75 Add: Surcharge (25%) 915,291.43 Interest (60%) from 1/21/87 to 6/15/90 2,745,874.30 Compromise penalty 15,000.00 P7,337,331.48 =========== FOURTH QUARTER Gross Taxable Receipts P98,454,649.42 Tax Due: =========== 5% P4,598,649.77 3% 194,449.62 Deficiency 4,793,099.39 Add: Surcharge (25%) 1,198,247.85 Interest (60%) from 1/21/87 to 6/15/90 2,815,945.89 Compromise penalty 15,000.00 P8,822,320.13 ========== TOTAL P16,159,651.61 On July 2, 1990, respondent RBS filed a formal protest with the petitioner CIR, alleging therein that since RBS had not operated under a franchise since 1982 until it accepted the new franchise granted to it by Congress (R.A. No. 7252), the assessment against it has no basis in law. On June 21, 1991, petitioner CIR issued a final decision dated May 6, 1991 denying the protest filed by respondent RBS. Consequently, respondent RBS filed on July 9, 1991 a petition for review with the respondent Court of Tax Appeals (CTA) and the same was docketed as CTA Case No. 4630. Thereafter, petitioner filed his answer thereto. After considering the evidence presented by both parties, the respondent CTA concluded that since respondent RBS was not a holder of a legislative franchise during the year 1987, it could be subject to the franchise tax. Thus, pursuant to the foregoing, the respondent CTA rendered its decision of July 27, 1993 setting aside the franchise tax assessment of P16,159,651.61 issued by petitioner. Not satisfied with the decision rendered by the respondent CTA, petitioner filed a motion for reconsideration. Said motion was denied by respondent CTA in its resolution of November 4, 1993. This brought on the instant petition for review. Petitioner maintains that the respondent CTA erred in ruling that respondent RBS is not liable for deficiency franchise tax assessment in the total amount of P16,159,651.61 inclusive of increments for the third and fourth quarters of 1987 on the grounds that: (1) the decision is not in accordance with the law and evidence adduced in the case; (2) the findings of respondent CTA that respondent RBS is not covered by Section 117 of the Tax Code, as amended, is discriminatory; (3) P.D. 576-A did not grant respondent RBS any tax exemption; and (4) respondent RBS is liable to pay the deficiency franchise tax for the 3rd and 4th quarters of 1987 in the total amount of P16,159,651.61 plus surcharge and interest until fully paid. On the other hand, respondent RBS, in its memorandum of February 18, 1994, contends that: (1) the alleged deficiency franchise tax assessed by petitioner against respondent RBS is erroneously and has no legal factual basis, considering that respondent RBS was not a holder of a Congressional franchise subject to franchise tax under Section 117 of the Tax Code during the period in question; (2) the contention of petitioner that the franchise of respondent RBS which was revoked by P.D. No. 576-A was subsequently renewed or revived by way of licenses issued by Board of Communication and the Secretary of Public Works and Communications (now National Telecommunications Commission) is completely erroneous because it disregards the long-accepted distinction between a Congressional franchise and an administrative license/permit; (3) contrary to the position taken by petitioner, the petition filed by respondent RBS before respondent CTS is a protest against improper or unauthorized tax imposition and not a claim for tax exemption, thus the rule on the interpretation of tax statutes granting exemption is inapplicable to the instant case; (4) the rule of uniformity in taxation invoked by petitioner is inapplicable to the instant case, it having been amply shown that during the third and fourth quarters of 1987, it did not fall within the class of individuals, persons/subjects taxed under Section 117 of the National Internal Revenue Code (NIRC), i.e., grantees of legislative franchises; and (5) granting without admitting, that respondent RBS is subject to the dispute franchise tax, respondent RBS should not be held liable to pay the surcharge and the compromise penalty under the prevailing circumstances. After a careful study of the assailed decision, juxtaposed with the evidence and the record, we find the questioned decision to be in accordance with the existing law and jurisprudence. We see no compelling reason to reverse it. The evidence shows that respondent RBS was a grantee of a legislative under Republic Act No. 513 (1950), as amended by R.A. No. 982 (1954) and R.A. 5351 (1968) to construct, maintain and operate stations for radio television broadcasting. The franchise was later terminated by Presidential Decree No. 576-A, the pertinent provisions of which state: "SECTION 1. No radio station or television channel may obtain a franchise unless it has sufficiency capital on the basis of equity for its operation for at least one (1) year, including purchase of equipment. xxx xxx xxx "SEC. 6. All franchises , grants, licenses, permits, certificates or other forms of authority to operate radio of television broadcasting systems shall terminate on December 31, 1981 . Thereafter, irrespective of any franchise, grant, license, permit, certificate or other forms of authority to operate granted by any office, agency of person, no radio or television station shall be authorized to operate without the authority of the Board of Communications and the Secretary of Public Works and Communications or their successors who have the right and authority to assign to qualified parties, frequencies, channels or other means of identifying broadcasting systems; Provided, however, that any conflict over, or disagreement with, a decision of the aforementioned authorities may be appealed finally to the Office of the President within fifteen (15) days from the date of the decision is received by the party in interest. (Emphasis supplied) The evidence further shows that, from January 1, 1982 up to July 31, 1992, respondent RBS continued to operate its radio and broadcasting systems or facilities by virtue of permits and/or licenses issued on an annual basis by the NTC and that it only obtained a franchise through the enactment of Republic Act 7252 denominated as "AN ACT GRANTING THE REPUBLIC BROADCASTING SYSTEM, INC. A FRANCHISE TO CONSTRUCT, INSTALL, OPERATE AND MAINTAIN RADIO AND TELEVISION BROADCASTING STATIONS IN THE PHILIPPINES" (Annex "A", Memorandum of respondent RBS, dated February 18, 1994). We agree with the findings of the respondent CTA that P.D. 576-A terminated all existing franchises including that of the petitioner as of December 31, 1981 and that the franchise of respondent RBS was not revived until it accepted the new Congressional franchise granted to it (R.A. No. 7252) on March 20, 1992. Petitioner's contention that respondent RBS should still be liable for franchise taxes for the third and fourth quarters of 1987 for the reason that at that time respondent RBS continued to operate by virtue of administrative licenses and permits is erroneous because administrative license and permits is erroneous because it blatantly disregards the significant distinction between a legislative franchise and licenses/permits issued by an administrative agency, such as the National Telecommunications Commission (NTC). Thus, as correctly pointed out by the respondent CTA: "A 'franchise' is a right or privilege granted by the sovereignty to one or more parties to do some act or acts, which they could not do without this grant from the sovereign power; a privilege which emanates from the sovereign power of the state government; a branch of the sovereign power of the state, subsisting in a person or corporation by grant from the state." (17 Words and Phrases 471, 482, 469) A "license" on the other hand, confers no right or estate nor vested interest, not does it constitute a binding contract between the parties, but it is a mere leave to be enjoyed as matter of indulgence at the will of the party granting it. It is in no sense a contract between the state and the licensee, but is a mere personal permit, neither transferable nor vendible (25 Words and Phrases 150, 174). Consequently, the following finding of the respondent CTA clearly becomes ineluctable: Respondent's argument that the authority or license issued by the Board of Communications and the Secretary of Public Works and Communications should be considered as franchise does not hold water. A license is a license and a franchise, a franchise. This Court cannot see two sides of a coin at a time. There has to be a demarcation line to this effect. A franchise is a vested right protected by the Constitution while a license is a mere personal privilege and is revocable (Decision, pp. 8-9) Section 117 of the National Internal Revenue Code imposes a franchise tax on the "gross receipts from the business covered by the law granting the franchise". It is, therefore, beyond cavil that said provision may be enforced only upon grantees of legislative franchises. If it were the intent of the farmers of the aforementioned revenue measure to include television and radio stations operating by virtue of administrative permits and licenses, they could have easily so provided the same therein. We cannot thus sustain petitioner's position that the finding of respondent CTA cancelling the assessments against respondent RBS is discriminatory and unfair to other franchise holders. The questioned assessments were precisely set aside by respondent CTA for the reason that during the third and fourth quarters of 1987, respondent RBS was not a holder of a legislative franchise and, therefore, should not and cannot be placed in the same category as that of other franchise holders. We quote with approval the pertinent portion of respondent CTA's resolution of November 4, 1993 denying petitioners' motion for reconsideration: As already amply discussed in our decision in the above-entitled case, there are marked distinction between a franchise and a license . . . Clearly, therefore, corporations or entities which are operating by means of a license are placed in an entire different situations as compared to those covered by a legislative franchise. Prescinding from the foregoing discussion, we could not see any valid reason why the taxing authority cannot impose an additional tax on those radio and television broadcasting corporations which has entered into a contract with the State and has availed certain privileges or advantages in conducting their business under a legislative franchise, separate from those operating by means of a mere license. For purposes of taxation, corporations or business which have been granted and are operating under a franchise may be validly considered as a class by itself upon which the franchise tax may be imposed. (At pp. 3-4) In sum, this Court finds the questioned decision or of respondent CTA to be in accord with existing law and jurisprudence as well as the evidence on record. WHEREFORE, the instant petition for review is, for lack of merit, hereby DISMISSED. Accordingly, the decision of respondent CTA dated July 27, 1993, cancelling and setting aside the deficiency franchise tax assessments in the total amount of P16,159,651.61 inclusive of increments for the third and fourth quarters of 1987 is AFFIRMED. SO ORDERED. Abad-Santos, Jr . and Guingona, JJ., concur.