Implementing Guidelines for the Unconditional Cash Transfer Program

No date supplied BIR RULING NO. 387-61 MEMORANDUM FOR: The Revenue Operations Head (Assessment) Attention : Chief, Income Tax Division To avoid prescription of action to assess and collect the deficiency franchise tax legally due from taxpayers, returned herewith is the docket (consisting of 86 pages) bearing on the case of . . . (hereinafter referred to as the Taxpayer), involving the amount of . . . (including the amount erroneously refunded) for the period from October 1, 1950 to June 30, 1960, with the following comment on the legal issues involved. It appears that the Taxpayer is a municipal franchise grantee under a municipal resolution passed by the municipal council of San Fernando, Pampanga, sometime in 1927, subject to the provisions of Act No. 667, as amended. The municipal franchise of the Taxpayer prescribes a franchise tax rate of 1% on its gross earnings for the first twenty (20) years of its existence and 2% for the remaining fifteen (15) years. Rate of 5% franchise tax applicable . In several cases previously returned to you involving similar issues, we have consistently ruled that holders of municipal franchises, granted in accordance with the provisions of Act No. 667, as amended, are liable to the rate of 5% franchise tax prescribed in Section 259 of the Tax Code, as amended. There is no question that the franchise tax rate of 5% should, likewise, apply to the instant case. (See BIR Rulings 171 & 248, s. of 1961). Prescription of action to collect the tax . The question now arises as to whether or not the Government can still collect the deficiency franchise tax due from the Taxpayer covering the period from January 1, 1955 to June 30, 1960. We have in several cases settled and adhered to the rule that the Government can no longer assess and collect, whether by administrative remedies or judicial action, the franchise tax already barred by prescription in accordance with Sections 331 and 332 of the Code. Unless we have concrete proof that the Taxpayer failed to file the returns required by law, or that the returns filed, if any, are found to be false or fraudulent, then we have no other recourse but to apply the ordinary 5-year limit prescribed by law. (See BIR Ruling No. 305, s. 1961). Comment on Gov't . 's right to recover the tax erroneously refunded . The issue as to whether or not the Government can still recover the amount erroneously refunded to taxpayer was likewise settled in BIR Ruling No. 305, supra, when we ruled that the Government's right of action to recover an amount erroneously refunded must be commenced within six (6) years from the date said sum was actually refunded to the taxpayer. Applying this rule in the case in question, it appears that our right to recover the amount of P. . refunded sometime in 1954 (Voucher No. . . .) has already prescribed in October, 1960. Income tax liability of holders of municipal franchise s. It is alleged by the Taxpayer that under the terms and conditions of its franchise, it is exempt from the payment of income tax. The Court of Tax Appeals has already settled this issue when it ruled that taxpayers who are holders of municipal franchises under Act No. 667 are not exempt from the payment of income tax. (See Guagua Electric Light Plant Co., Inc. vs. Collector of Internal Revenue, C.T.A. Case No. 616, May 23, 1960) Premises considered, it is desired that a recomputation be made immediately as follows: (a) exclude the deficiency franchise tax which is barred by Sections 331 and 332, Tax Code in the computation of such tax for the period from January 1, 1953 to June 30, 1960; (b) include in the assessment the deficiency franchise tax, plus surcharge, for the period from July 1 to December 31, 1960 (refer to p. 50, records); and (c) exclude the amount of P . . erroneously refunded to the Taxpayer sometime in 1954 covering the period from October 1, 1950 to June 30, 1952. A separate investigation should be conducted for the purpose of ascertaining the income tax liability of the taxpayer for the last five years. cdtech