Tuesday, March 20, 2012

Lealda Electric Co. Inc. vs. CA [G.R. No. L-16428 April 30, 1963]

Facts: In the year 1915, Julian M. Locsin Anson was granted a franchise 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(Act No. 2475, as amended by Act No. 2620). 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 electric plant. After the incorporation of petitioner on February 8, 1951, the franchise, certificate of public convenience and the electric plant operated thereunder, were transferred to it by said partnership. All these transactions were approved by the 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 business operated under the franchise, because that was the same franchise tax paid by "las demas franquicias y privilegios hoy existentes" (Art. 8, Act No. 2475), until October 1, 1946 when Section 259 of the National Internal Revenue Code was amended by Republic Act No. 39 which increased the franchise tax to 5%. Upon the approval of this amendatory act, petitioner was required to pay, as it did pay, the increased franchise tax, except those that became payable before its incorporation, these having been paid by its predecessors in interest. 

On a date not disclosed by the record, petitioner filed with the Commissioner of Internal Revenue a petition for refund contending that, under its charter, it was liable to pay a franchise tax equivalent to only 2% and not 5% of its gross earnings or receipts. On June 22, 1958, petitioner filed its last claim for refund of the total amount of P78,891.34 representing alleged excess payments of franchise tax covering the period from January 20, 1947 to April 15, 1958. No definite action thereon was taken by respondent commission, hence on January 8, 1959 petitioner filed with the Court of Tax Appeals a petition for review praying for the refund of the alleged excess payments of franchise tax for the period from January 20, 1947 to October 14, 1958, and for an order restraining said commission and its agents from collecting from it more than 2% of its gross earnings or receipts, as franchise tax. CTA dismissed such petition 

Issue: Is Lealda Electric Corp liable to pay the increased franchise tax? 

Held: Yes.It should be observed that petitioner's franchise does not specifically state that the rate of the franchise tax to be paid thereunder by the original grantee — and his successors in interest — shall be 2% of his gross earnings or receipts. It simply provides that the grantee and his successors in interest shall pay "por sus entradas en bruto tales como se exigen a las demas franquicias y privilegios hoy existentes." It seems clear, therefore, that the intention of the legislature was to impose upon the grantee and his successors in interest, the obligation to pay the same franchise tax imposed upon other grantees or franchise holders at the time Act No. 2475 was enacted. 

Prior to its amendment, Section 259 of the Tax Code merely provided that the grantees of franchises should pay on their gross earnings or receipts "such taxes, charges and percentages as are specified in special charters of corporations upon whom such franchises are conferred" This provision did not cover the case of franchise holders whose charters did not specify the rate of franchise tax to be paid by them. Consequently, prior to the enactment of Republic Act No. 39, the franchise tax paid by grantees whose charters did not specify the rate of the franchise tax to be paid by them was the one provided for in Section 10 of Act No. 3636 known as the Model Electric Light and Power Franchise Act. Consequently, as correctly held by the respondent court, Section 259 of the Tax Code, as amended by Republic Act No. 39, became the basic franchise tax law because it was not only entitled "Tax on Corporate Franchises" but it fixed the rate of the franchise tax to be paid by holders of all existing and future franchises. Such being the case, the provisions of the act amending said section must be deemed to apply likewise to petitioner because its franchise was already existing at the time of the adoption of the amendment. Furthermore the petitioner's charter (Art. 11, Act No. 2475) contains an express provision to the effect that the same may be altered or repealed by the Congress of the United States - now of the Philippines. And, as already stated heretofore, the rate of the franchise tax petitioner had been paying under the provisions of Section 10 of Act 3686 was expressly amended by Act No. 39. 


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