Case Summary (G.R. No. L-60126)

Overview of Tax Liability Case

• The case involves Cagayan Electric Power & Light Co., Inc. and its liability for income tax amounting to P75,149.73 for the year 1969, in addition to franchise tax.
• The petitioner holds a legislative franchise under Republic Act No. 3247, which exempts it from all taxes and assessments on privileges, earnings, income, and related assets.
• An amendment to the Tax Code in 1968 (Republic Act No. 5431) made corporate taxpayers liable for income tax unless specifically exempted, thus subjecting franchise companies to income tax alongside franchise tax.

Legislative Amendments and Tax Exemption

• The petitioner’s franchise was amended by Republic Act No. 6020, effective August 4, 1969, allowing it to provide electricity to additional municipalities while reaffirming its tax exemption.
• The amendment effectively neutralized the previous modification made by Republic Act No. 5431, which had subjected the petitioner to income tax.

Tax Assessment and Legal Proceedings

• The Commissioner of Internal Revenue issued a demand letter on February 15, 1973, requiring the petitioner to pay deficiency income taxes for the years 1968 to 1971.
• The petitioner contested the assessments, leading to the cancellation of assessments for 1970 and 1971, while the assessments for 1968 and 1969 remained contested.
• The Tax Court ruled on February 26, 1982, that the petitioner was liable only for income tax from January 1 to August 3, 1969, prior to the restoration of its tax exemption.

Petitioner’s Arguments on Appeal

• The petitioner appealed, arguing that:
  1. The franchise tax paid should be considered a commutative tax that includes income tax.
  2. Republic Act No. 5431 did not alter or repeal the petitioner’s franchise.
  3. The franchise is a contract that cannot be impaired by implied repeal.
  4. Section 24(d) of the Tax Code should be interpreted strictly against the government.

Court’s Ruling on Legislative Franchise

• The court held that Congress has the authority to amend, alter, or repeal a legislative franchise in the public interest, as provided in the Constitution.
• The petitioner’s franchise, under Republic Act No. 3247, is subject to the provisions of the Constitution and can be amended by Congress.
• The amendment made by Republic Act No. 5431 effectively withdrew the petitioner’s exemption from income tax.

Restoration of Tax Exemption

• The Tax Court correctly determined that the tax exemption was restored by the enactment of Republic Act No. 6020 on August 4, 1969.
• Consequently, the petitioner is liable only for...continue reading

Case Syllabus (G.R. No. L-60126)

Background of the Case

• The case examines the liability of Cagayan Electric Power & Light Co., Inc. for an income tax amounting to P75,149.73 for the year 1969, beyond the franchise tax it is required to pay.
• The petitioner operates under a legislative franchise granted by Republic Act No. 3247, which stipulates a 3% tax on gross earnings from electric sales as a substitute for all other taxes and assessments on privileges and earnings.

Legislative Framework

• Republic Act No. 5431 amended section 24 of the Tax Code, imposing income tax on all corporate taxpayers not explicitly exempted, contradicting previous exemptions granted by special or general laws.
• The petitioner’s franchise was later amended by Republic Act No. 6020, effective August 4, 1969, which reinstated its exemption from income tax.

Sequence of Events

• On February 15, 1973, the Commissioner of Internal Revenue issued a demand for payment of deficiency income taxes for the years 1968 to 1971.
• The petitioner contested these assessments, leading to the cancellation of assessments for 1970 and 1971, but the assessments for 1968 and 1969 remained in dispute.
• The Tax Court ruled on F...continue reading