[ G.R. No. L-9257. October 17, 1956 ] 100 Phil. 50
[ G.R. No. L-9257. October 17, 1956 ]
CARCAR ELECTRIC & ICE PLANT CO., INC., PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE, RESPONDENT. D E C I S I O N
REYES, J.B.L., J.:
Petitioner Carcar Electric and Ice Plant Co., Inc. is the holder of a franchise from the government of the Philippines to operate an electric light, heat an$ power plant in the municipality of Carcar, province of Cebu (R. A. No. 444, passed on June 7, 1950).
Section 1 of said Act reads as follows:
“Sec. 1. Subject to the terms and conditions established in Act Numbered Thirty-six hundred and thirty-six, as amended by Commonwealth Act Numbered One hundred and thirty-two, and to the provisions of the Constitution, there is granted to the,Carcar Electric and Ice Plant Co., Inc., for a period of twenty-five years from the approval of this Act, the right, privilege and authority to construct, maintain, and operate an electric light, heat and power plant for the purpose of generating and distributing electric light, heat and/or power for sale within the municipality of Carcar, Province of Cebu.”
During the period from the second quarter of 1950 to the 4th quarter of 1952 (except the 3rd quarter of 1952), plaintiff paid franchise tax at the rate of 5 per cent of its gross earnings, as required by Sec. 259 of the National Internal Revenue Code. It was assessed, and it paid, income tax for the years 1950-51.
On October 23, 1952, petitioner filed with the Collector of Internal Revenue a claim for refund of the sum of P2,565.45 representing alleged overpayment of franchise tax for the period from the 2nd quarter of 1950 to the 2nd quarter of 1952, inclusive, on the theory that it should have paid only a 2 per cent franchise tax under the provisions of its charter; and the sums of P238 and P194 representing income taxes paid for the years 1950-51, on the theory that it is exempt from the payment of income tax.
As the claim for refund was denied by the Collector, petitioner filed the present action in the Court of First Instance of Cebu. In view, however, of the creation of the Court of Tax Appeals by Republic Act 1125, this case was forwarded to said Court which, after trial, affirmed the decision of the Collector of Internal Revenue. From this decision, petitioner has appealed to this Court. On the question of the amount of franchise tax payable by it, petitioner claims that as its franchise was granted “subject to the terms and conditions established in Act 3636, as amended by C. A. 132, and to the provisions of the Constitution” (Rep. Act 444), the franchise tax it should pay to the government is only 2 per cent of its gross earnings, as provided in section 10 of section 1 of Act 3636 (Model Electric Light and Power Franchise Act), to wit:
“Sec. 10. The grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals, co-partnerships, private, public or quasi-public associations, corporations, or joint stock companies, on his (its) real estate, buildings, plants, machinery, and other personal property, except property declared exempt in this section. In consideration of the franchise and rights hereby granted, the grantee shall pay into the municipal treasury of the (of each) municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the gross earnings from electric current sold or supplied under this franchise in said (each said) municipality. Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial, or insular, now or in the future, on its poles, wires, insulators, switches, transformers and structures, installations, conductors and accessories, placed in and over and under all public property, including public streets and highways, provincial roads, bridges and public squares, and on its franchise, rights, privileges, receipts, revenues and profits, from which taxes the grantee is hereby expressly exempted.”
and not the corporate franchise tax of 5 per cent under section 259 of the National Internal Revenue Code, as held by the respondent Court of Tax Appeals.
We find petitioner’s position untenable. We agree that its franchise is, by express provision of its charter, subject to all the terms and conditions expressed in Act 3636.
But we do not believe that the 2 per cent franchise tax, originally provided in section 10 of the model franchise set forth in section 1 of said Act had been intended by the legislature to be part of and incorporated into its charter. The reason is that at the time petitioner’s franchise was granted (1950), the original 2 per cent tax had already been increased to 5 per cent by section 259 of the Internal Revenue Code, as amended by Republic Acts 39 and 418.
It should be noted that at the time of the approval of Act 3636 in 1929, the provisions of the then applicable tax law (section 1508 of the Administrative Code of 1917, the source of our present tax Code) was in accord with section 10 of the model franchise (section 1 of Act 3636) in that sec. 1508 provided:
“Sec. 1508. Tax on corporate franchises.-—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, such taxes, charges, and percentages as are specified in the special charters of the corporations upon whom such franchises are conferred * * *.”
This provision was substantially copied in the original section 259 of the Tax Code, at the time of its passage in 1939. But on October 1, 1946, because of pressing need for increased revenue (see Explanatory Note to H. B. No. 730, Congressional Record, H. R., Vol. 1, No. 69, pp. 1615-1616), Congress passed Republic Act No. 39, amending section 259 of the Tax Code to read as follows:
“Sec. 259. Tax on corporate 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 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 franchises are conferred, whichever is higher, unless the provisions thereof preclude imposition of a higher tax * * *.” (Italics supplied).
Because of the apparent conflict between sec. 259 of the Code as amended by R. A. 39 (5 per cent) and section 10 of the model franchise under Act 3636 (2 per cent) the former must be deemed to have modified the latter. Therefore, when petitioner’s charter was passed and its franchise granted under Republic Act 444 in 1950, the franchise tax payable by it was already the 5 per cent provided for in section 259 of the Tax Code as amended. There is, however merit in petitioner’s contention that it is exempt from “the payment of income tax on its net earnings. Section 1 of the model franchise (section 1 of Act 3636h which we have already said became part of petitioner charter by reference, also provides that the franchise tax payable by the corporation
- Shall be in lieu of any and all taxes of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial or insular, now or in the future, on its poles, wires, insulators, switches, transformers, and! structures,, installations,, conductors, and accessories, placed in and over and under public property, including public streets and highways, provincial roads, bridges and public squares, and on its’ franchise, rights, privileges, receipts, revenues, and profits, from which taxes the grantee is hereby expressly exempted” (Italics supplied) ,
The above portion of section 10 of the model franchise could not have been repealed by section 259 of the Internal Revenue Code, as amended, since the latter is silent on any tax exemptions. There is nothing incompatible or conflicting between the increased franchise tax under section 259 of the Tax Code, and the exemption from any and all other taxes under Act 3636. We can not agree with, the Solicitor General’s view that section 10 of the model franchise prescribed by section 1 of Act 3636 should not be considered part of petitioner’s Charter, not having been actually incorporated therein, since petitioner’s charter, Republic Act 444, expressly provides that its franchise is “subject to the terms and conditions established in Act Numbered thirty-six hundred and thirty-six, as amended by Commonwealth Act Numbered One Hundred and thirty-two”, so that all the provisions of said Act, including the unrepealed portions of section 10 of the model franchise, should be considered part of petitioner’s charter by reference. In fact, such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee.
Wherefore, the appealed decision is modified in the sense that the defendant Collector of Internal Revenue is ordered to refund to plaintiff the amount of P238 and P194 representing income taxes paid for the years 1950 and 1951, with legal interests thereon from the date of payment. In all other respects, the decision appealed from is affirmed. No costs.
Paras, C. J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Felix, JJ., concur.