Commissioner of Internal Revenue v. Lealda Electric Co., Inc.

[CA-SP No. 20911. September 7, 1990.] [C.T.A. Case No. 2690.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . LEALDA ELECTRIC COMPANY, INC., ET AL. , respondents . Solicitor General Estelito P. Mendoza, Assistant Solicitor General Santiago M. Kapunan, Solicitor Erlinda B. Masakayan and Special Attorney Ramon A. Agullana for petitioner. Kallos Law Office for respondents. SYLLABUS 1. TAXATION; FRANCHISE TAXES; SPECIFIC RATE OF FRANCHISE TAX IMPOSED UPON THE GRANTEE UNDER ITS CHARTER PREVAILS OVER THE FRANCHISE TAX RATE PROVIDED FOR UNDER SECTION 259 OF THE NATIONAL INTERNAL REVENUE CODE. Considering that under the private respondent's first franchise (Act 2475), there was no provision fixing the rate of franchise tax while under Section 12 of its new franchise, Rep. Act No. 3730, there is specified a franchise tax of 2%, and further considering that at the time of R.A. 3730's approval on June 22, 1963, Section 259 as amended of the Internal Revenue Code providing for 5% on the gross receipts as franchise tax, was in force and in effect, the legislative intent in R.A. 3730 to fix that rate of franchise tax to only 2% can not be any clearer that legislature burden on the private respondent by fixing its rate of franchise tax to only 2% of the annual gross receipts. The inclusion of said Section 12 in R.A. 3730 cannot be purposeless and meaningless. The law making body is presumed to have inserted every part of a statute for a purpose and to have intended that every part thereof should be carried into effect. (50 Am. Jur. 361). 2. ID.; ID.; FRANCHISE TAX IMPOSED UNDER THE GRANTEE'S CHARTER IS IN LIEU OF ALL OTHER TAXES OTHERWISE IT WILL BE PAYING MORE THAN THAT REQUIRED UNDER THE NATIONAL INTERNAL REVENUE CODE. A further allegation of the petitioner is that the 2% franchise tax provided in R.A. 3730 is not in lieu of franchise tax imposed by Section 259, as amended, for as stated in said Section 12 of R.A. 3730, the 2% tax "shall be in lieu of all other taxes on all properties except real property, used by the grantee under this (its) franchise; and therefore said Section 12 of R.A. 3730 refers to exemption for taxes on personal property. The aforementioned interpretation advanced by the petitioner would certainly result in the private respondent even paying a franchise tax more than 5% provided for in Sec. 259, as amended, of the National Internal Revenue Code. And such a result defies reason. 3. ID.; ID.; STATUTORY CONSTRUCTION; SPECIAL LAW PROVIDING FOR A SPECIFIC TAX RATE PREVAILS OVER THE PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE WHICH IS A GENERAL STATUTE. Anent the passage of Rep. Act No. 6110 on September 1, 1969 further amending Section 259 of the Tax Code, it should be stated that said R.A. No. 6110 is a general law, and there is no specific provision therein that provides for the repeal of R.A. No. 3730. And on the other hand, repeals by implication are neither favored. (Velunta vs. Philippine Constabulary, 157 SCRA 147). Be it noted that the very proviso in said Section 259 as amended by R.A. 6110 "unless the provisions thereof preclude the Imposition of a Higher Tax," admits of exception to the 5% franchise tax. Inasmuch as R.A. 3730 is a special law that deals solely and specially with the franchise of the private respondent and there is a specific provision therein (said Section 12 thereof) that treats of the rate of franchise over provisions of Section 259, as amended, of the National Internal Revenue Code, which is a general statute. General legislation must give way to special legislation on the same subject. Leveriza vs. Intermediate Appellate Court 157 SCRA 282). PETITION FOR REVIEW of a judgment of the Court of Tax Appeals. Amante Filler, J. The facts are stated in the opinion of the Court. D E C I S I O N PARAS , J p : Referred to this Court by the First Division of the Supreme Court in its resolution dated May 14, 1990, is the present petition for review of the decision dated March 27, 1979 of the Court of Tax Appeals in CTA Case No. 2690 entitled "Lealda Electric Company Inc., v. Commissioner of Internal Revenue". The herein respondent initially filed a suit in the respondent court fir the review of the decision of the herein petitioner, Commissioner of Internal Revenue, denying its protest against the latter's franchise tax assessment made against the former, involving the following amounts: 1) IT-67-8 for 1963 to 1966 P140,746.64 2) IT-70-9 for 1967 P176,781.75 3) IT 1970 to 1972 P335,037.81 Total P652,037.81 ========== The uncontroverted facts as found by the respondent court (wherein the herein private respondent was the petitioner) are as follows: "Julian M. Locsin Anson was granted a franchise, under Act No. 2475, approved on February 5, 1915, and which was amended by Act No. 2620 on February 4, 1916, to operate an electric light and power plant to supply electric current to the residents of the municipalities of Legaspi (now city) and Daraga, both in Albay province. Subsequently, he sold his franchise, certificate of public convenience and the electric plant operated thereunder, to Saturnino Benito, who in turn sold the same to Alfredo, Mario and Benjamin, all surnamed Benito, on March 13, 1941. On June 11, 1949, the Benitos and other parties formed a partnership to operate the plant. After the incorporation of petitioner on February 8, 1951, the franchise, certificate of public convenience and the electric plant operated thereunder (were transactions) were approved by the then Public Service Commission. Since the year 1915, the original grantee and, after him, his various successors in interest, paid a franchise tax of 2% on the gross earnings or receipts from the operated under the franchise. As provided under Article 8 of Act No. 2475, that was the same franchise tax paid by 'las demas franquicias y privilegios hoy existentes'. On October 1, 1946, however, when the then Section 259 of the National Internal Revenue Code was amended by republic Act No. 39 which increased the franchise tax to 5%, petitioner was required to pay by respondent Commissioner of Internal Revenue the increased franchise tax, except those that became payable before its incorporation, these having been paid by its predecessors in interest. Petitioner filed with respondent several requests for refund of alleged excess payments of franchise tax contending that, under its charter, it was liable to pay franchise tax equivalent to only 2% and not 5% of its gross earnings receipts. As no definite action thereon was taken by respondent, petitioner on January 8, 1959 filed with this Court a petition for review, docketed as C.T.A. Case No. 613, praying for the refund of the total sum of P84,573.61 representing alleged excess payments of franchise tax for the period from January 20, 1947 to October 14, 1958, and for an order restraining respondent and his agents from collecting from it more than 2% of its gross earnings or receipts as franchise tax. After proper proceedings, this Court rendered a decision dated November 2, 1959 holding petitioner 'subject to pay the 5% franchise tax as prescribed in Section 259 of the National Internal Revenue Code, as amended by Republic Act No. 39' and, as a consequence thereof, dismissed the petition for refund for lack of merit. Not satisfied with the judgment, petitioner filed with the Supreme Court the corresponding petition for review of said decision, which was docketed therein as G.R. No. L-16428. On April 30, 1963, the Supreme Court rendered a decision affirming the judgment of this Court. (Lealda Electric Co., Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals, G.R. No. L-16438, April 30, 1963, 7 SCRA 728). In deciding against petitioner, the Supreme Court ruled that where the franchise does not specify the amount of the tax payable by the grantee, the franchise tax is 5% of the gross receipts as provided in Section 259 of the National Internal Revenue Code. On June 22, 1963, Republic Act No. 3730 extended the duration of the franchise of petitioner for a period of fifty years to commence on February 6, 1965. Because its original charter did not specify the rate of franchise tax to be paid by it (Art. 8, Act No. 2475 as amended by Act No. 2620), petitioner avers that in securing the extension of the duration of its charter, it worked and saw to it that the franchise as extended specifically state the rate of the franchise tax to be paid thereunder by the grantee, its successors or assigns. Thus, Section 12 of Republic Act No. 3730 provides ass follows: 'Sec. 12. In consideration of the franchise hereby granted, the grantee, its successors or assigns, shall pay quarterly into the treasury of the City of Legaspi and the Municipality of the gross earnings from electric current sold or supplied under this franchise in said city and municipality., This tax shall be in lieu of all other taxes on all properties except real property, used by the grantee under this franchise." From the effectivity of Republic Act. No. 3730 on June 22, 1963 to November, 1977, when the business of Lealda Electric Company, Inc., had been turned over to the National Electrification Administration (NEA) thru Albay Electric Cooperative (ALECO), petitioner, in accordance with Section 12 of Republic Act No. 3730, had been paying into the Treasury of the City of Legaspi and the Municipality of Daraga the franchise tax equal to 2% of its gross earnings. Contending that the payment of the 2% franchise tax to the treasurer of the City of Legaspi and the Municipality of Daraga should not be considered payment of the 5% franchise tax under Section 259 of the National Internal Revenue Code, as amended by Republic Acts Nos. 39 and 418, which provides as follows: xxx xxx xxx respondent assessed petitioner at the rate of 5% of its gross receipts the amounts of P140,746.64, P176,781.75 and P335,037.81, or a total of P652,655.20, covering the periods 1963 to 1966, 1967 to 1969 and 1970' to 1972, respectively. Maintaining that it is not liable to pay the 5% franchise tax under Section 259, supra, after payment of the 2% franchise tax under Section 12 of Republic Act No. 3730, petitioner protested respondent's assessments. In a decision dated April 8, 1975, respondent, however, denied petitioner's protest." Lealda Electric Company, Inc. thus appealed the Commissioner's decision to the respondent Court of Tax Appeals, which arrived at the following conclusions: 1. The franchise tax prescribed in the charter of Lealda, Republic Act No. 3730, is in lieu of the franchise tax imposed by Section 259 of the National Internal Revenue Code; 2. Payment of the 2% franchise tax prescribed in Republic Act No. 3730 to the treasurer of the City of Legaspi and the municipality of Daraga by Lealda is payment of the franchise tax under Section 259 of the National Internal Revenue Code; and 3. Lealda is liable to the franchise tax rate of 2% as specified in Section 12 of Republic Act No. 3730 and not to the 5% as provided in Section 259 of the Tax Code, as amended by Republic Act No. 39 and Republic Act No. 418. In reversing the decision of the Commissioner of Internal Revenue, the said court more particularly stated that "The assessment of the Commissioner of Internal Revenue demanding payment from Lealda Electric Company, Inc. the amounts of P140,746.64, P176,781.75 and P335,037.81, or a total of P652,655.20, covering the periods 1963 to 1966, 1967 to 1969 and 1970' to 1972, respectively, representing the 55 franchise tax under Section 259 of the Tax Code, after Lealda had already paid the 2% franchise tax under Section 12 of Republic Act No. 3730, cannot be sustained." The Commissioner's motion for reconsideration of the aforesaid decision of the respondent court was denied in its resolution on September 4, 1980. Hence, the instant petition for review was filed by the Commissioner of Internal Revenue. The assignment of errors reads: I. The Honorable Court of Tax Appeals erred in holding respondent Lealda Electric Co., Inc. liable to the 2% tax specified in its charter (Sec. 12 Republic Act No. 3730) and not to the 5% franchise tax provided in Section 259 of the Tax Code, as amended. II. The Honorable Court of Tax Appeals erred in holding that the 2% tax prescribed in private respondents new charter (RA 3730) is in lieu of the franchise tax imposed by Section 259 of the Tax Code. The petitioner disagrees with the ruling of the respondent court, to wit: "Since the franchise of petitioner, Republic Act No. 3730, was granted on June 23, 1963 after the amendment of Section 259 of the Tax Code by Republic Act No. 39 and Republic Act No. 418, effective October 1, 1946 and June 18, 1949, respectively, the 2% rate of tax prescribed in Section 12 of Republic Act No. 3730 should prevail, the franchise being a later enactment, notwithstanding the proviso that the franchise tax imposed therein is in lieu of taxes only on personal property used by the grantee under the franchise, there being absolutely no references in said Section 259 to such a precluding clause as conceived by respondent. Where the law does not exact a blanket tax exemption as a condition that would preclude the imposition of the higher tax, that condition should not be read into the law. . . " Alleged as reasons for such disagreement of the petitioner that: 1) Under the provisions of Section 259 of the National Internal Revenue Code as amended by Section 7 of R.A. No. 39 (approved on October 1, 1946), which states: "Sec. 7. Section two hundred and fifty nine of Commonwealth Act Numbered Four Hundred and Sixty-Six is hereby amended to read as follows: Sec. 259. Tax on Corporate Franchise . There shall be in respect to all existing and future franchise, upon the gross earnings or receipts from the business covered by the law granting a tax of five per centum or such taxes, charges and percentages as are specified in the special charters of the corporations upon whom such franchise are conferred whichever is higher, unless the provisions thereof preclude the imposition of a higher tax. . . ." and which was later amended by Section 1 R.A. No. 418 (approved on June 18, 1949), to wit: "Sec. 1. Section two hundred and fifty-nine of the National Internal Revenue Code, as amended by Section of Republic Act Numbered Thirty-nine, is hereby further amended, so as to read as follows: Sec. 259. Tax on Franchise . 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 tax of five per centum 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. . . ." the rate of franchise tax equivalent to 5% or that specified in the franchise, whichever is higher, unless the provisions thereof preclude the imposition of a higher tax on the gross earnings or receipts from the business covered by the law, applies to the private respondent's franchise because of the presence in the aforesaid statutes of the phrase "in respect to all existing and future franchise"; 2) Under Section 53, R.A. No. 6110 which further amended said Section 259 of the Tax (and which took effect after the enactment of R.A. 3730), and which reads: Sec. 53. Section two hundred and fifty-nine of the same act is hereby amended to read as follows: Sec. 259. Tax on Franchise . There shall be collected in respect to all franchises upon the gross receipts the business covered by the law granting the franchise of a tax of five per centum 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. . . ." the rate of franchise tax equivalent to 5% or that specified in the franchise, whichever is higher, unless the provisions thereof preclude the imposition of a higher tax on the gross earnings or receipts from the business covered by the law, also applies to the private respondent's franchise in view of the phrase in said R.A. 6110 "in respect to all existing and future franchise"; 3) Although under Section 12 of private respondent's Charter. R.A. 3730 (extending the duration of the franchise and effective June 22, 1963), which provides: 'Sec. 12. In consideration of the franchise hereby granted, the grantee, its successors or assigns, shall pay quarterly into the treasury of the City of Legaspi and the Municipality of Daraga a tax equal to two per centum of the gross earnings from electric current sold or supplied under this franchise in said city and municipality., This tax shall be in lieu of all other taxes on all properties except real property, used by the grantee under this franchise." the rate franchise tax is 2%, there being no clause therein that explicitly precludes the imposition of the higher tax, the rate of 5% imposed under Section 259, as amended, being the higher rate than that provided in the private respondent's Charter (R.A. 3730), should be applied to the private respondent 4) The 2% franchise tax provided in private respondent's new Charter (R.A. No. 3730), is not in lieu of franchise tax imposed by Section 259, as amended, for as worded in Section 12 of its Charter, R.A. 3730, the 2% tax "shall be in lieu of all other taxes on all properties except real property used by the grantee under this (its) charter"; 5) The case of A.S. Diaz Electric Services, Inc. vs. Acting Commissioner of Internal Revenue (Case No. 1625, Sept. 20, 1968 (wherein the respondent court held that where the franchise was granted after the amendment of section 259 of the Tax Code by R.A. No. 39 and R.A. 418, effective October 1, 1946 and June 19, 1949, respectively, that rate of 2% tax provided in the franchise shall prevail the franchise being a later enactment, notwithstanding the absence of any provision in the franchise that said tax shall be in lieu of all other taxes), is not in point because the original franchise (R.A. No. 1452) of A.S. Diaz Electric Services which was granted on June 14, 1956 specified the franchise tax of 2% to be imposed on the grantee unlike in the case of the herein private respondent, where its original franchise (Act 2475) granted on February 1, 1915 did not specify the rate of franchise tax to be paid and thus, the rate of 2% franchise tax provided for under Section 10 of Act. No. 3636 dated December 7, 1929, known as the Model Electric Light and Power Act, was imposed on the private respondent which 2% rate continued until rate of franchise tax increased to 5% on October 1, 1946 by R.A. No. 39 which rate the private respondent paid from 1946 up to the enactment of R.A. No. 3730 on June 22, 1963; and 6) In the construction of tax statutes, exemptions are not favored and are construed against the taxpayer. Act No. 2475 which granted the private respondent's original franchise did not fix any rate of franchise tax to be paid. Consequently, the rate of 2% franchise tax provided for under Section 10 of Act No. 3636 of December 7, 1929, known as the Model Electric Light and Power Act, was imposed on the private respondent. When Rep. Act No. 39 was passed amending Section 259 of the Tax Code, and later amended by Rep. Act No. 418, approved on October 1, 1946 and June 18, 1949, respectively, and increasing the rate of the franchise tax to 5%, the private respondent paid the increased rate because of the absence in its old franchise (Act 2475) of a definite/specific rate of franchise tax. The private respondent sought the extension of its franchise, and R.A. No. 3730 was approved extending the said franchise. R.A. 3730 now contains a specific provision, Section 12 thereof, providing for a franchise tax of TWO PERCENT (2%) on the annual gross receipts. Considering that under the private respondent's first franchise (Act 2475), there was no such provision fixing the rate of franchise tax while under Section 12 of its new franchise, Rep. Act No. 3730, there is specified a franchise tax of 2%, and further considering that at the time of R.A. 3730's approval on June 22, 1963, Section 259 as amended of the Internal Revenue Code providing for 5% on the gross receipts as franchise tax, was in force and in effect the legislative intent in R.A. 3730 to fix the rate of franchise tax to only 2% can not be any clearer than that legislature wanted to impose a lesser burden on the private respondent by fixing its rate of franchise tax to only 2% of the annual gross receipts. The inclusion of said Section 12 in R.A. 3730 can not be purposeless and meaningless. The law making body is presumed to have inserted every part of a statute for a purpose and to have intended that every part thereof should be carried into effect. (50 Am. Jur. 361). A further allegation of the petitioner is that the 2% franchise tax provided in R.A. 3730 is not in lieu of franchise tax imposed by Section 259, as amended, for as stated in said Section 12 of R.A. 3730, the 2% tax "shall be in lieu of all other taxes on all properties except real property, used by the grantee under this (its) franchise; and therefore said Section 12 of R.A. 3730 refers to exemption for taxes on personal property. The aforementioned interpretation advanced by the petitioner would certainly result in the private respondent even paying a franchise tax more than 5% provided for in Sec. 259, as amended, of the National Internal Revenue Code. And such a result defies reason. Anent the passage of Rep. Act No. 6110 on September 1, 1969 further amending Section 259 of the Tax Code, it should be stated that said R.A. No. 6110 is a general law, and there is no specific provision therein that provides for the repeal of R.A. No. 3730. And on the other hand, repeals by implication are neither favored. (Velunta vs. Philippine Constabulary, 157 SCRA 147). Be it noted that the very proviso in said Section 259 as amended by R.A. 6110 "unless the provisions thereof preclude the Imposition of a Higher Tax", admits of exception to the 5% franchise tax. Inasmuch as R.A. 3730 is a special law that deals solely and specially with the franchise of the private respondent and there is a specific provisions therein (said Section 12 thereof) that treats of the rate of franchise tax it should pay, said provision should prevail over the provisions of Section 259, as amended, of the National Internal Revenue Code, which is a general statute. General legislation must give way to special legislation on the same subject. (Leveriza vs. Intermediate Appellate Court, 157 SCRA 282). WHEREFORE, the decision appealed from is hereby AFFIRMED, and the instant petition for review is DISMISSED for lack of merit. No pronouncement as to costs. Cacdac, Jr . and Guingona, JJ., concur. Judgment affirmed and petition dismissed .