Case Summary (G.R. No. 248306)
Petitioner
Collector of Internal Revenue, appellant in the Supreme Court, who denied the plaintiff’s claim for refund and contended that the coal mined was subject to the specific internal revenue tax in section 1496 of the Administrative Code.
Respondent
National Coal Company, appellee, which paid P12,044.68 under protest as specific tax on 24,089.3 tons of coal and sought recovery on the ground that it was entitled to a lower tax treatment under sections 14 and 15 of Act No. 2719.
Key Dates and Transactions
- Company created by Act No. 2705 on March 10, 1917.
- Act No. 2719 (leasing and development of coal lands) enacted May 14, 1917.
- Proclamation No. 39 (withdrawing coal-bearing public lands from settlement, etc.) issued October 18, 1917.
- Coal mined by the company between July 1920 and March 1922: 24,089.3 tons.
- Payment under protest to Collector: December 15, 1922, totaling P12,044.68.
- Trial court judgment ordered refund of P11,081.11; defendant appealed.
Applicable Law
- Act No. 2705 — charter creating National Coal Company, granting corporate powers to develop coal deposits.
- Act No. 2719 — “An Act for the leasing and development of coal lands in the Philippine Islands,” including section 15 (internal revenue duty and tax on coal-bearing lands owned by persons or corporations) and section 3 (obligations of lessees).
- Administrative Code, article 6, section 1496 — specific internal revenue tax: fifty centavos per metric ton on all coal and coke.
- Proclamation No. 39 (Gov.-Gen. Francis Burton Harrison, Oct. 18, 1917) — withdrew coal-bearing public lands from settlement, entry, sale, or other disposition pursuant to section 71 of Act No. 926.
- Act No. 2822 — amendment to Act No. 2705 making the company subject to provisions of the Corporation Law so far as not inconsistent with its charter (not relied upon to confer mining privileges).
Procedural Posture and Relief Sought
Plaintiff sued in the Court of First Instance of Manila to recover P12,044.68 allegedly paid under protest. The government’s collector denied liability and pleaded as special defenses that payment had been made without protest and that the amount was due under section 1496 of the Administrative Code. The trial court favored the plaintiff and awarded a partial refund; the Collector appealed to the Supreme Court.
Facts Relating to Possession and Title
The National Coal Company entered and mined coal from lands included in the Governor‑General’s Proclamation No. 39 reservation (about 400 hectares). The company produced 24,089.3 tons of coal. The company presented no lease, title, or permission from the Secretary of Agriculture and Natural Resources or any other authority authorizing occupation or extraction. The company’s witness (a director, Dalmacio Costas) testified that the company took possession solely by virtue of the proclamation; no document of title or authorization was shown. It was also admitted the company was neither owner nor lessee of the lands.
Trial Court’s Findings and Rationale
The trial court interpreted section 15 of Act No. 2719 to include lands “held in lease or usufruct,” concluding that the coal lands the company possessed fell within section 15 and that the tax under that section (P0.04 per ton of 1,016 kilos) was the only tax due. The trial court therefore ordered a refund equal to the difference between the amount collected under section 1496 of the Administrative Code and the amount that should have been collected under section 15 of Act No. 2719 (P11,081.11).
Assignments of Error on Appeal
The Collector’s principal contentions on appeal were: (1) the lower court erred in construing section 15 of Act No. 2719 as not referring to coal lands “owned by persons and corporations”; and (2) the lower court erred in holding the plaintiff was not subject to the tax prescribed in section 1496 of the Administrative Code.
Legal Issue Presented
Whether the coal produced by the National Coal Company was subject to the specific internal revenue tax under section 1496 of the Administrative Code (fifty centavos per metric ton), or whether the company instead fell within the special tax regime of section 15 of Act No. 2719 applicable to owners (or lessees, as the trial court construed it) of coal lands.
Ownership and Authority Analysis
The Supreme Court examined the record and evidence regarding ownership and authority to mine. It found uncontradicted facts: the company had no issued document of title, no lease, and had not obtained permission from the Secretary of Agriculture and Natural Resources. The Proclamation withdrew coal-bearing public lands from settlement, entry, sale, or other disposition but expressly did not authorize exclusive occupation or mining by the National Coal Company. The Court emphasized that the mere fact of government majority shareholding did not transform the company into a public corporation or authorize it to exercise greater rights than other private corporations organized under the Corporation Law.
Construction of Act No. 2719, Section 15
The Court analyzed Act No. 2719 as a comprehensive scheme governing coal-bearing public lands. It identified distinct classes addressed by the Act: (1) unreserved, unappropriated coal-bearing public lands that may be leased by the Secretary (and the obligations of lessees), and (2) coal-bearing lands that are owned by persons, firms, associations, or corporations. Considering the Act’s structure and the differing obligations imposed on lessees (section 3 and related provisions) versus owners, the Court concluded that section 15 should be read as referring only to owners who had become owners prior to the Act’s
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Procedural History
- Action instituted in the Court of First Instance of the City of Manila on July 17, 1923, seeking recovery of P12,044.68 alleged to have been paid under protest as specific tax on 24,089.3 tons of coal.
- Trial was held before Hon. Pedro Concepcion, who entered judgment in favor of the plaintiff in part, ordering refund of P11,081.11 (the difference between amount collected under section 1496 of the Administrative Code and the amount deemed appropriate under section 15 of Act No. 2719), with legal interest from the date of the complaint and costs.
- The Collector of Internal Revenue appealed from that judgment, making two principal assignments of error challenging the lower court’s interpretation of section 15 of Act No. 2719 and the applicability of section 1496 of the Administrative Code.
- The Supreme Court (Johnson, J.) reviewed the evidence and law and revoked the judgment of the lower court, relieving the defendant from responsibility under the complaint; no finding as to costs was made in the final decree.
- Justices Street, Malcolm, Avancena, Villamor, Ostrand, and Romualdez concurred.
Parties
- Plaintiff and Appellee: National Coal Company — a corporation created by Act No. 2705 for developing the coal industry in the Philippine Islands and engaged in coal mining on reserved government lands.
- Defendant and Appellant: The Collector of Internal Revenue — charged with collection of internal revenue taxes under applicable statutes and regulations.
- Trial judge: Honorable Pedro Concepcion; opinion on appeal authored by Johnson, J.
Relief Sought and Amounts Involved
- Plaintiff sought refund of P12,044.68 alleged to have been paid under protest as specific tax on 24,089.3 tons of coal, plus legal interest from filing and costs.
- Trial court ordered refund of P11,081.11 as the difference between the tax collected under section 1496 of the Administrative Code and what the court held should have been collected under section 15 of Act No. 2719.
- Underlying tax rates in dispute: P0.50 per metric ton asserted under section 1496 of the Administrative Code; a rate of P0.04 per ton of 1,016 kilos was identified by the lower court as the internal revenue tax provided by section 15 of Act No. 2719.
Statutory and Regulatory Background (as presented in record)
- Act No. 2705 (creating National Coal Company): Created the National Coal Company on March 10, 1917, to develop coal deposits, granting general corporate powers and powers necessary to mine, extract, transport, and sell coal (Sec. 2 cited). The Government of the Philippine Islands was made majority stockholder to provide supervision, encouragement, and assistance.
- Act No. 2719 (May 14, 1917): “An Act for the leasing and development of coal lands in the Philippine Islands.” Key features noted in the record:
- Section 1: Coal-bearing public domain lands shall not be disposed of except as provided in Act No. 2719.
- The Act provides for leasing of “unreserved, unappropriated coal-bearing public lands” by the Secretary of Agriculture and Natural Resources, and imposes obligations upon the lessee.
- Section 15: Imposes an internal revenue duty and tax upon coal-bearing lands owned by any person, firm, association, or corporation (the Court analyzed whether the section referred to owners prior to the Act).
- Section 3 (referenced): Contains obligations imposed on lessees or holders (used in interpretation of section 15).
- Administrative Code, article 6, section 1496: Provides a specific internal revenue tax “on all coal and coke” to be collected per metric ton at fifty centavos (P0.50).
- Proclamation No. 39 (Governor-General Francis Burton Harrison, Oct. 18, 1917): Withdraws “from settlement, entry, sale, or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas,” pursuant to section 71 of Act No. 926.
Facts Material to the Dispute
- National Coal Company took possession of coal lands within the reservation created by Proclamation No. 39 (area ≈ 400 hectares) almost immediately after the proclamation, without any lease, formal contract, or document of title issued to the company.
- The company mined 24,089.3 tons of coal on the land between July 1920 and March 1922.
- On December 15, 1922, upon demand by the Collector of Internal Revenue, the company paid a tax of P0.50 per ton under section 1496 of the Administrative Code (the company asserts payment was made under protest).
- The company admitted that it was neither the owner nor the lessee of the lands where the coal was mined.
- Corporate ownership: Of the 30,000 shares issued by the National Coal Company, the Government of the Philippine Islands owned 29,809 shares — stated in the record as 991/3 per centum of the capital stock.
- No permission or authority from the Se