Case Summary (G.R. No. L-23771)
Petitioner
The Commissioner of Internal Revenue challenged the taxpayer’s exemption from higher franchise and related taxes, insisting on the 5% rate under Section 259 of the National Internal Revenue Code (NIRC) as amended.
Respondent
Lingayen Gulf Electric holds municipal franchises (approved February 24, 1948; accepted March 1, 1948) obligating payment of 1% of gross earnings for twenty years and 2% thereafter. It later secured a legislative franchise (Republic Act No. 3843 of June 22, 1963) mandating a 2% gross-receipts tax “in lieu of any and all taxes.”
Key Dates
– January 1, 1946–February 29, 1948: pre-franchise period
– February 24, 1948: presidential approval of municipal franchises
– March 1, 1948: franchise acceptance
– November 21, 1955: BIR demand for P19,293.41 (1946–1954) at 5%
– September 19, 1958: appeal to CTA (Case No. 581)
– August 21, 1962: BIR demand for P3,616.86 (1959–1961) at 5%
– November 29, 1962: appeal to CTA (Case No. 1302)
– June 22, 1963: enactment of R.A. 3843 granting 2% in-lieu franchise tax, retroactive to original franchise grant date
– September 15, 1964: CTA decision dismissing tax claims
– August 4, 1988: Supreme Court decision under the 1987 Constitution
Applicable Law
– 1987 Philippine Constitution (Article VI, Section 28: uniformity and equality of taxation)
– National Internal Revenue Code (Commonwealth Act No. 466, as amended by R.A. 39) Section 259 (5% franchise tax)
– Municipal franchise provisions (Resolutions Nos. 14 and 25 of 1946, Section 10: 1%/2% gross-earnings tax)
– Republic Act No. 3843, Section 4 (2% gross-receipts tax “in lieu of any and all taxes,” effective retroactively)
– Act No. 3636 as amended by C.A. 132 (model legislative franchise form)
Issues
- Collectibility of the 5% franchise tax under Section 259 on pre-1963 gross receipts.
- Constitutionality of R.A. 3843’s 2% in-lieu provision under uniformity and equality of taxation.
- Retroactive application of R.A. 3843 to render earlier assessments uncollectible.
- Liability for fixed and deficiency percentage taxes (P3,025.96) for January 1, 1946–February 29, 1948 (pre-approval period).
Analysis
Pre-R.A. 3843 Tax Liability
• The taxpayer’s original municipal franchises lacked an “in lieu” clause but reserved legislative power of amendment or repeal.
• R.A. 3843 expressly amended those franchises, prescribing a 2% gross-receipts tax “in lieu of any and all taxes,” overriding Section 259’s 5% rate.Uniformity and Equality of Taxation
• The Constitution grants the Legislature authority to classify taxpayers and grant exemptions.
• Legislative franchises are akin to private contracts tailored to specific factual circumstances; exemptions do not violate equal-protection or uniformity clauses.
• Section 259 anticipates lower charter rates when a franchise expressly precludes higher taxes.Retroactivity
• R.A. 3843 explicitly retroacted its 2% in-lieu provision to the original
Case Syllabus (G.R. No. L-23771)
Facts of the Case
- Lingayen Gulf Electric Power Co., Inc. operates an electric power plant serving Lingayen and Binmaley in Pangasinan under municipal franchises granted by Resolutions Nos. 14 (June 29, 1946) and 25 (July 2, 1946).
- Section 10 of each municipal franchise required payment into the Pangasinan Provincial Treasury of 1% of gross earnings for the first twenty years and 2% for the remaining fifteen years.
- The President approved these municipal franchises on February 24, 1948.
- On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed P19,293.41 in deficiency franchise taxes and surcharges for 1946–1954, applying the 5% rate prescribed in Section 259 of the National Internal Revenue Code (NIRC) instead of the lower municipal rates.
- The taxpayer sought reinvestigation (1956) and conference (1958) with the Commissioner, both requests were denied.
- The taxpayer appealed to the Court of Tax Appeals (CTA) in CTA Case No. 581 (September 19, 1958).
- On August 21, 1962, the Commissioner assessed P3,616.86 in deficiency franchise taxes and surcharges for 1959–1961, again applying the 5% NIRC rate; this became CTA Case No. 1302 (appeal filed November 29, 1962).
- While these cases were pending, Republic Act No. 3843 (June 22, 1963) granted the taxpayer a new legislative franchise imposing a 2% gross-receipts tax “in lieu of any and all taxes and/or licenses,” effective retroactively from the date the original municipal franchise was granted.
Procedural History
- 1955 – BIR issues first deficiency assessment (P19,293.41).
- 1956 – Taxpayer requests reinvestigation; denied in 1957.
- 1958 – Taxpayer’s conference requests denied; appeal filed in CTA Case No. 581.
- 1962 – BIR issues second deficiency assessment (P3,616.86); protest denied; appeal filed in CTA Case No. 1302.
- 1963 – Enactment of RA 3843, granting new legislative franchise with a 2% tax in lieu of all others.
- 1964 – CTA dismisses B