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L23611

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RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.L23611April24,1967

THEGUAGUAELECTRICLIGHTPLANTCOMPANY,INC.,petitioner,
vs.
THECOLLECTOROFINTERNALREVENUEandTHEHONORABLECOURTOFTAXAPPEALS,respondents.

EligioLagmanforpetitioner.
OfficeoftheSolicitorGeneralforrespondents.

BENGZON,J.P.,J.:

Guagua Electric Light Plant Co. (hereinafter called Guagua Electric Company for short), a grantee of municipal
franchisebythemunicipalcouncilofGuagua,PampangaunderResolutionNo.42datedDecember13,1927and
bythemunicipalcouncilofSexmoan,PampangaunderResolutionNo.48datedNovember15,1928pursuantto
Act667,asamended,realizedandreportedagrossincomeinthesumofP1,133,003.44duringtheperiodfrom
January1,1947toNovember1956andpaidthereonafranchisetaxintheamountofP56,664.97computedat
5%thereofinaccordancewithSection259oftheNationalInternalRevenueCode.

Believingthatitshouldpayfranchisetaxatthelowerratesprovidedforinitsfranchises1insteadof5%fixedby
Section 259 of the Tax Code, it filed on March 25, 1957 a claim for refund for allegedly overpaid franchise tax
amounting to P35,593.98 on its gross receipts realized from January 1, 1947 to November 1956. The
CommissionerofInternalRevenuedeniedrefundoffranchisetaxcorrespondingtotheperiodpriortothefourth
quarter of 1951 on the ground that the right to its refund had prescribed. 2 He however granted refund of the
followingamounts:

Period SumRefunded
4thquarter,1951to3rdquarter,1953 P7,482.17
1stquarter,1955toSept.1956 P8,232.39
Oct.andNov.1956 879.31

TOTAL P16,593.87
============

NotsatisfiedwiththedeterminationoftheCommissioner,GuaguaElectricappealedtotheCourtofTaxAppeals.
However, its appeal, docketed as C.T.A. Case No. 508 was dismissed upon motion of the Commissioner of
InternalRevenue,interposedbeforefilinghisanswertothepetitionforreviewonthegroundthatthesamewas
institutedbeyondthe30days,periodprovidedforinSection11ofRepublicAct1125.

Subsequently, this Court held in Hoa Hin Co., Inc. vs. David3 that electric franchise holders under Act 567 are
liable for franchise tax at the rate fixed by Section 259 of the Tax Code, that is, 5% of the gross receipts.
Accordingly, on March 2, 1961 the Commissioner of Internal Revenue assessed against Guagua Electric
deficiencyfranchisetaxcomputedthus:

1. Grossreceipts,GuaguaandSexmoan,Oct.1,1952toJune30,1959 P1,116,138.01
Grossreceipts,SexmoanJuly1,1959toOct.31,1959 5,543.25

Grossreceipts,Guagua,July1,1959toJune30,1960 181,354.57

Totalgrossreceipts
P1,303,035.81

5%franchisetaxdue 65,151.79

Less:amountpaid 43,941.64

Taxstilldue 21,210.15

Less:Overpayment,Sexmoan,Nov.1,1959toJune30,1960 181.71
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Deficiencytax 21,028.44

Add:25%surcharge 3,257.11

2 Add:Amountrefunded 16,593.87

Totaltaxdue 42,879.42
============

GuaguaElectriccontestedthedeficiencyassessmentinitsletterdatedMarch30,1961contendingthatthesame
is violative of its franchises that the computation of the gross receipts is contrary to rules and that the right to
assessand/orcollectthetaxhasprescribed.OnAugust21,1961theappellatedivisionoftheBureauofInternal
RevenuerecommendedthattherighttoassessandcollectthetaxcorrespondingtotheperiodpriortoJanuary1,
1956 has prescribed. Consequently, the Commissioner issued the following revised assessment eliminating
therefromthedeficiencytaxfortheperiodpriortoJanuary1,1956,asrecommended:

Grossreceipts,Jan.1,1956toJune30,1962 P858,070.67

5%franchisetaxand3%percentagetaxduethereon 42,662.71

Less:Taxalreadypaid 22,724.59

Balancestilldue P19,938.12
Add:25%surcharge 4,984.53

Amountrefunded 16,593.87

Totaltaxdue P41,516.52
=============

GuaguaElectricappealedfromtheaforesaidCommissioner'sdecisiontotheCourtofTaxAppealswhichinturn
affirmedthesame.Stillnotsatisfied,itelevatedthecasetoUsandsubmittedthefollowingpropositions:

1.Theapplicationoftherateof5%asprovidedforinSection259oftheTaxCode,insteadof1%or2%as
provided for in its franchises granted under Act 667, impairs the obligation of contract and is therefore
unconstitutional.

2.ThegovernmentisprecludedfromrecoveringthesumofP16,593.87representingtheamountrefunded
toitongroundsofprescriptionandfailuretosetupascounterclaiminC.T.A.CaseNo.508.

Theconstitutionalityofcollectingfranchisetaxattherateof5%ofthegrossreceiptsasprovidedforinSection
259oftheTaxCodeinsteadofatthelowerratesfixedbythefranchisegrantedunderAct667,hasalreadybeen
settledinseveralcases.4GuaguaElectric,whosefranchisesweresimilarlygrantedunderAct667,beingsimilarly
situatedasthetaxpayersfranchiseholdersinthosecasesalreadydecidedbyUs,shalllikewisebesubjecttothe
5%rateimposedinSection259oftheTaxCode.

The Commissioner of Internal Revenue seeks the recovery of the amount of P16,593.87 allegedly erroneously
refundedtoGuaguaElectric.Saidamountrepresentsthedifferencebetweenthetaxcomputedat5%pursuantto
Section259oftheTaxCodeandthetaxat1%or2%underitsfranchisescoveringtheperiodfromSeptember
1951throughNovember1956.This,ineffect,isanassessmentfordeficiencyfranchisetax.

It should be noted that the deficiency assessment of P19,638.12 in this case for the difference between the
franchisetaxpaidat1%or2%undertaxpayer'sfranchisesandthetaxcomputedat5%pursuanttoSection259
of the Tax Code covers the period from January 1, 1956 to June 30, 1962. Obviously, if Guagua Electric were
requiredtopayP16,593.87inadditiontothesumofP19,938.12,itwouldbepayingtwiceforthesamedeficiency
taxfortheperiodfromJanuary1toNovember30,1956.

Asaforestated,moreover,theCommissionerofInternalRevenuerevisedhisfirstdeficiencyassessmentdated
March 2, 1961 by eliminating therefrom the deficiency tax for the period prior to January 1, 1956 because the
righttoassessthesamehasprescribed.ByinsistingonthepaymentoftheamountofP16,593.87(whichcovers
theperiodfromSeptember1951toNovember1956),heis,infact,tryingtocollectthesamedeficiencytax,the
righttoassessthesamehehadfoundtohavebeenlostbyprescription.

The Court of Tax Appeals however stated in its decision that Guagua Electric did not raise the issue of
prescriptionoftherightoftheGovernmenttoassessandcollectthesumofP16,593.87.Thisfindingofthelower
courtisnotsupportedbythepleadings.InitsletterdatedMarch30,1961contestingthefirstassessmentdated
March2,1961GuaguaElectricassailedtherighttoassessand/orcollectthetaxongroundsofprescription.In
paragraph 20 of its petition for review (C.T.A. Rec. p. 4), it raised the defense of prescription of the
Commissioner'srighttoassessandcollectthetax.

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AnentthecontentionoftheCommissionerofInternalRevenuethatGuaguaElectricfailedtoadduceevidenceto
proveprescriptionofhisrighttoassessandcollecttheP16.593.87,sufficeittostatethatinparagraph10ofthe
Commissioner's answer he admitted the allegations in paragraph 13 of the petition for review. Paragraph 13
allegedthefacts,supportedbyannexes,constitutingprescription.Therewasthereforenoneedforthetaxpayer
topresentfurtherevidenceinthepoint.

TheCommissionerofInternalRevenuefurthermaintainsthattheprescriptionofhisrighttorecovertheamountof
P16,593.87 is governed by Article 1145(2) in relation to Articles 1154 and 1155 of the Civil Code. Hence,
prescriptionwillsetinonlyaftertheexpirationofsixyearsfrom1957and1959,thedatesrefundsweregranted.
SincethepetitionforreviewandanswertheretowerefiledintheCourtofTaxAppealsonFebruary14,andMay
4,1962,heconcludesthattheprescriptiveperiodofsixyearshasnotexpired. 1 w p h 1 . t

As stated above, the demand on the taxpayer to pay the sum of P16,593.87 is in effect an assessment for
deficiencyfranchisetax.Andbeingso,therighttoassessorcollectthesameisgovernedbySection331ofthe
TaxCode5ratherthanbyArticle1145oftheCivilCode.Aspeciallaw(TaxCode)shallprevailoveragenerallaw
(CivilCode).6

Our above conclusion absolving Guagua Electric from the payment of the sum of P16,593.87 has removed the
necessity of discussing Guagua Electric's assertion that the Government is precluded from recovering the said
sumbecauseitfailedtosetitupasacounterclaiminC.T.A.CaseNo.508.

Withregardtothe25%surchargeintheamountofP4,984.53,itispatentlyunfaironthepartoftheGovernment
torequireitspaymentinasmuchasthetaxpayeractedingoodfaithinpayingthefranchisetaxatthelowerrates
fixedbyitsfranchises.Asamatteroffact,theBureauofInternalRevenuesharedwiththetaxpayertheviewthat
Section 259 of the Tax Code does not apply. Guagua Electric should not therefore be made to pay the 25%
surcharge.7 Wherefore, the judgment appealed from is affirmed with the modification that the amount of
P16,593.87 representing franchise tax allegedly refunded erroneously and the 25% surcharge imposed on
petitionershouldbe,andareeliminated,therebyreducingthetaxfromatotalofP41,516.52toP19,938.12.No
costs.Soordered.

Concepcion,C.J.,Reyes,J.B.L.,Dizon,Regala,Makalintal,Zaldivar,SanchezandCastro,JJ.,concur.

Footnotes
1Guagua:1%ofgrossreceiptsduringfirst20years2%ofgrossreceiptsduringtheremaining15years.
Sexmoan:1%ofgrossreceiptsduringfirsttwoyears2%ofgrossreceiptsduringremaining33years.

2SeeSec.306,TaxCode.

3L9616andL11783,May25,1959.

4Hidalgo vs. David, L8046, Aug. 30, 1956 Hoa Hin Co., Inc. vs. David, L9616, L11783, May 25, 1959
LealdaElectricCo.vs.CommissionerofInternalRevenue.L16428,April30,1963BalangaPowerPlant
Co.vs.CommissionerofInternalRevenue,L20499.June30,1965ImusElectricCo.,Inc.vs.CourtofTax
Appeals,L22421,March28,1967.

5Cf.Hidalgovs.David,supra,Footnote4.

6Lichauco&Co.vs.ApostolandCorpus,44Phil.138.

7ConnellBros.Co.vs.CollectorofInternalRevenue,L15470,Dec.26,1963ImusElectricCo.,Inc.vs.
CourtofTaxAppeals,supra.

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