Unnumbered BIR Ruling

April 3, 1998 MEMORANDUM FOR: The Commissioner This refers to the protested tax case of Manapla Water District, Manapla, Negros Occidental, involving the sum of P55,518.45 as deficiency fixed and franchise taxes for the years 1987-1989 inclusive of surcharges and interests. STATEMENT OF FACTS Records show that Manapla Water District is a domestic utility company engaged in water services created under Presidential Decree No. 198, as amended. Its Utility Plant in service consists of the old plant water works which is a property of the Municipality. There was no cost of turn-over of this plant as there were no records available at the Municipal Treasurer's Office because all its records were burned. In 1988, it has only 506 active metered connections. Its old plant which was acquired from the local government has an appraised value of P187,000.00 and was treated as capital contribution of the government. Manapla Water District underwent a tax probe and was required by Revenue Region No. 63, Bacolod City to submit financial statements. Obligingly, a Balance Sheet was submitted showing a net loss of P22,767.90 and total liabilities of P2,810,680.07 and P2,904.121.88 for 1988 and 1989 respectively. Inspite of the loss, it was assessed for fixed and franchise taxes covering taxable years 1987-1989. Taxpayer protested, alleging among others that since it was created under PD 198 as amended by Republic act 7109, it is exempt from franchise and fixed taxes. DISCUSSION AND RESOLUTION The only legal issue to be resolved here is whether or not Manapla Water District is subject to the above assessment for deficiency fixed and franchise taxes. Presidential Decree No. 198, under which Manapla Water District was created took effect on May 25, 1973. Pertinent provisions of PD 198 provides: "Sec. 45 Exemption from Taxes . A water district shall be exempt from paying income taxes, and (2) shall be exempt from the payment of (a) all National Government, local government and Municipal taxes and fees, including any franchise, filing, recordation, license or permit fees or taxes and fees, charges or costs involved in any court or administrative proceeding in which it may be a party and (b) all duties or imposts on imported machinery, equipment and materials required for its operation." The Manapla Water District created under PD 198, is therefore entitled to all the privileges set forth therein, hence exempt from all taxes. However, granting that Manapla Water District is liable to the above assessments for the period covered, then its liability was condoned by the passage of Republic Act No. 7019 which was approved on August 14, 1991 Section 5 of which provides: "Section 5. Condonation of Taxes and Duties due . All unpaid taxes and duties or any portion thereof due from a local water district for the period starting October 15, 1984 until the effectivity date of this Act are hereby condoned by the Government subject to the following conditions: xxx xxx xxx In view of the foregoing, it is respectfully recommended that the questioned assessment of P55,518.45 as deficiency fixed and franchise taxes for the years 1987-1989 be withdrawn and cancelled and this case considered closed and terminated. aisadc Respectfully submitted: (SGD.) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) ESTHER R. IBAEZ OIC, Assistant Commissioner Legal Service Recommendation-APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue