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    Cagayan Electric Company v. CIR

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    CocoyPangilinan
    This document is a summary of a Supreme Court case from 1985 regarding the tax liability of Cagayan Electric Power & Light Co., Inc. The court ruled that: 1) Cagayan Electric was exempt from income tax due to a tax exemption in its legislative franchise, but a 1968 law subjected franchise companies to income tax. 2) However, a 1969 law amending Cagayan Electric's franchise reinstated the tax exemption, so it was only liable for income tax from January to August 1969 before this law passed. 3) While the income tax assessment for 1969 was controversial given Cagayan Electric's tax exemption, it was only liable for the tax and not penalties given the uncertainty around its

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    Cagayan Electric Company v. CIR

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    CocoyPangilinan
    117 views2 pages
    This document is a summary of a Supreme Court case from 1985 regarding the tax liability of Cagayan Electric Power & Light Co., Inc. The court ruled that: 1) Cagayan Electric was exempt from income tax due to a tax exemption in its legislative franchise, but a 1968 law subjected franchise companies to income tax. 2) However, a 1969 law amending Cagayan Electric's franchise reinstated the tax exemption, so it was only liable for income tax from January to August 1969 before this law passed. 3) While the income tax assessment for 1969 was controversial given Cagayan Electric's tax exemption, it was only liable for the tax and not penalties given the uncertainty around its

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    This document is a summary of a Supreme Court case from 1985 regarding the tax liability of Cagayan Electric Power & Light Co., Inc. The court ruled that: 1) Cagayan Electric was exempt from income tax due to a tax exemption in its legislative franchise, but a 1968 law subjected franchise companies to income tax. 2) However, a 1969 law amending Cagayan Electric's franchise reinstated the tax exemption, so it was only liable for income tax from January to August 1969 before this law passed. 3) While the income tax assessment for 1969 was controversial given Cagayan Electric's tax exemption, it was only liable for the tax and not penalties given the uncertainty around its

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    117 views2 pages

    Cagayan Electric Company v. CIR

    Uploaded by

    CocoyPangilinan
    This document is a summary of a Supreme Court case from 1985 regarding the tax liability of Cagayan Electric Power & Light Co., Inc. The court ruled that: 1) Cagayan Electric was exempt from income tax due to a tax exemption in its legislative franchise, but a 1968 law subjected franchise companies to income tax. 2) However, a 1969 law amending Cagayan Electric's franchise reinstated the tax exemption, so it was only liable for income tax from January to August 1969 before this law passed. 3) While the income tax assessment for 1969 was controversial given Cagayan Electric's tax exemption, it was only liable for the tax and not penalties given the uncertainty around its

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    of 2

    G.R. No.

    L-60126 September 25, 1985


    CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
    vs.
    COMMISSIONER OF INTERNAL REVENUE and COURT OF
    APPEALS, respondents.
    AQUINO, J.:
    This is about the liability of petitioner Cagayan Electric Power & Light Co.,
    Inc. for income tax amounting to P75,149.73 for the more than sevenmonth period of the year 1969 in addition to franchise tax.
    The petitioner is the holder of a legislative franchise, Republic Act No.
    3247, under which its payment of 3% tax on its gross earnings from the
    sale of electric current is "in lieu of all taxes and assessments of whatever
    authority upon privileges, earnings, income, franchise, and poles, wires,
    transformers, and insulators of the grantee, from which taxes and
    assessments the grantee is hereby expressly exempted" (Sec. 3).
    On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax
    Code by making liable for income tax all corporate taxpayers not
    specifically exempt under paragraph (c) (1) of said section and section 27
    of the Tax Code notwithstanding the "provisions of existing special or
    general laws to the contrary". Thus, franchise companies were subjected
    to income tax in addition to franchise tax.
    However, in petitioner's case, its franchise was amended by Republic Act
    No. 6020, effective August 4, 1969, by authorizing the petitioner to furnish
    electricity to the municipalities of Villanueva and Jasaan, Misamis
    Oriental in addition to Cagayan de Oro City and the municipalities of
    Tagoloan and Opol. The amendment reenacted the tax exemption in its
    original charter or neutralized the modification made by Republic Act No.
    5431 more than a year before.
    By reason of the amendment to section 24 of the Tax Code, the
    Commissioner of Internal Revenue in a demand letter dated February 15,
    1973 required the petitioner to pay deficiency income taxes for 1968-to
    1971. The petitioner contested the assessments. The Commissioner

    cancelled the assessments for 1970 and 1971 but insisted on those for
    1968 and 1969.
    The petitioner filed a petition for review with the Tax Court, which on
    February 26, 1982 held the petitioner liable only for the income tax for the
    period from January 1 to August 3, 1969 or before the passage of
    Republic Act No. 6020 which reiterated its tax exemption. The petitioner
    appealed to this Court.
    It contends that the Tax Court erred (1) in not holding that the franchise
    tax paid by the petitioner is a commutative tax which already includes the
    income tax; (2) in holding that Republic Act No. 5431 as amended,
    altered or repealed petitioner's franchise; (3) in holding that petitioner's
    franchise is a contract which can be impaired by an implied repeal and
    (4) in not holding that section 24(d) of the Tax Code should be construed
    strictly against the Government.
    We hold that Congress could impair petitioner's legislative franchise by
    making it liable for income tax from which heretofore it was exempted by
    virtue of the exemption provided for in section 3 of its franchise.
    The Constitution provides that a franchise is subject to amendment,
    alteration or repeal by the Congress when the public interest so requires
    (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution),
    Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it
    is subject to the provisions of the Constitution and to the terms and
    conditions established in Act No. 3636 whose section 12 provides that the
    franchise is subject to amendment, alteration or repeal by Congress.
    Republic Act No. 5431, in amending section 24 of the Tax Code by
    subjecting to income tax all corporate taxpayers not expressly exempted
    therein and in section 27 of the Code, had the effect of withdrawing
    petitioner's exemption from income tax.
    The Tax Court acted correctly in holding that the exemption was restored
    by the subsequent enactment on August 4, 1969 of Republic Act No.
    6020 which reenacted the said tax exemption. Hence, the petitioner is

    liable only for the income tax for the period from January 1 to August 3,
    1969 when its tax exemption was modified by Republic Act No. 5431.
    It is relevant to note that franchise companies, like the Philippine Long
    Distance Telephone Company, have been paying income tax in addition
    to the franchise tax.
    However, it cannot be denied that the said 1969 assessment appears to
    be highly controversial. The Commissioner at the outset was not certain
    as to petitioner's income tax liability. It had reason not to pay income tax
    because of the tax exemption in its franchise.
    For this reason, it should be liable only for tax proper and should not be
    held liable for the surcharge and interest. (Advertising Associates, Inc. vs.

    Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No.


    59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs.
    Commissioner of Internal Revenue, 125 Phil. 1024; C.M. Hoskins & Co.,
    Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71
    SCRA 511.)
    WHEREFORE, the judgment of the Tax Court is affirmed with the
    modification that the petitioner is liable only for the tax proper and that it
    should not pay the delinquency penalties. No costs.
    SO ORDERED.

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