G.R. No. 166408. October 6, 2008.

QUEZON CITY and THE CITY TREASURER OF QUEZON

CITY, petitioners, vs. ABS-CBN BROADCASTING
CORPORATION, respondent.

Appeals; Pleadings and Practice; An appeal taken to the Court of

Appeals under Rule 41 raising only questions of law is erroneous and shall
be dismissed, issues of pure law not being within its jurisdiction.—Section
2, Rule 50 of the Rules of Court provides that an appeal taken to the CA
under Rule 41 raising only questions of law is erroneous and shall be
dismissed, issues of pure law not being within its jurisdiction. Consequently,
the dismissal by the CA of petitioners’ appeal was in order.
Same; Same; Procedural Rules and Technicalities; Courts have the
prerogative to relax procedural rules of even the most mandatory character,
mindful of the duty to reconcile both the need to speedily put an end to
litigation and the parties’ right to due process.—To serve the demands of
substantial justice and equity, the Court opts to relax procedural rules and
rule upon on the merits of the case. In Ong Lim Sing, Jr. v. FEB Leasing and
Finance Corporation, 524 SCRA 333 (2007), this Court stated: Courts have
the prerogative to relax procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to speedily put an
end to litigation and the parties’ right to due process. In numerous cases, this
Court has allowed liberal construction of the rules when to do so would
serve the demands of substantial justice and equity.
Taxation; Taxes are what civilized people pay for civilized society.—
Taxes are what civilized people pay for civilized society. They are the
lifeblood of the nation. Thus, statutes granting tax exemptions are construed
stricissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of tax exemption must be clearly shown and based on
language in law too plain to be mistaken. Otherwise stated, taxation is the
rule, exemption is the exception. The burden of proof rests upon the party
claiming the exemption to prove that it is in fact covered by the exemption
so claimed.

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* THIRD DIVISION.

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Quezon City vs. ABS-CBN Broadcasting Corporation

Same; Tax Exemptions; Statutory Construction; The basis for the rule
on strict construction to statutory provisions granting tax exemptions or
deductions is to minimize differential treatment and foster impartiality,
fairness and equality of treatment among taxpayers.—The basis for the rule
on strict construction to statutory provisions granting tax exemptions or
deductions is to minimize differential treatment and foster impartiality,
fairness and equality of treatment among taxpayers. He who claims an
exemption from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For exemptions
from taxation are not favored in law, nor are they presumed. They must be
expressed in the clearest and most unambiguous language and not left to
mere implications. It has been held that “exemptions are never presumed,
the burden is on the claimant to establish clearly his right to exemption and
cannot be made out of inference or implications but must be laid beyond
reasonable doubt. In other words, since taxation is the rule and exemption
the exception, the intention to make an exemption ought to be expressed in
clear and unambiguous terms.
Same; Franchise Tax; The right to exemption from local franchise tax
must be clearly established and cannot be made out of inference or
implications but must be laid beyond reasonable doubt.—Section 8 of R.A.
No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3)
percent of all gross receipts of the radio/television business transacted under
the franchise and the franchise tax shall be “in lieu of all taxes” on the
franchise or earnings thereof. The “in lieu of all taxes” provision in the
franchise of ABS-CBN does not expressly provide what kind of taxes ABS-
CBN is exempted from. It is not clear whether the exemption would include
both local, whether municipal, city or provincial, and national tax. What is
clear is that ABS-CBN shall be liable to pay three (3) percent franchise tax
and income taxes under Title II of the NIRC. But whether the “in lieu of all
taxes provision” would include exemption from local tax is not unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must
be clearly established and cannot be made out of inference or implications
but must be laid beyond reasonable doubt. Verily, the uncertainty in the “in
lieu of all taxes” provision should be construed against ABS-CBN. ABS-
CBN has the burden to prove that it is in fact covered by the exemption so
claimed. ABS-CBN miserably failed in this regard.

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Quezon City vs. ABS-CBN Broadcasting Corporation

Same; Franchise Tax; Value Added Tax (VAT); In keeping with the laws
that have been passed since the grant of ABS-CBN’s franchise, the
corporation should now be subject to Value Added Tax (VAT), instead of the
3% franchise tax.—In its decision dated January 20, 1999, the RTC held
that pursuant to the “in lieu of all taxes” provision contained in Section 8 of
R.A. No. 7966, ABS-CBN is exempt from the payment of the local
franchise tax. The RTC further pronounced that ABS-CBN shall instead be
liable to pay a franchise tax of 3% of all gross receipts in lieu of all other
taxes. On this score, the RTC ruling is flawed. In keeping with the laws that
have been passed since the grant of ABS-CBN’s franchise, the corporation
should now be subject to VAT, instead of the 3% franchise tax.
Same; Same; Same; Value Added Tax (VAT) is a percentage tax
imposed on any person whether or not a franchise grantee, who in the
course of trade or business, sells, barters, exchanges, leases, goods or
properties, renders services, while the franchise tax is a percentage tax
imposed only on franchise holders.—VAT is a percentage tax imposed on
any person whether or not a franchise grantee, who in the course of trade or
business, sells, barters, exchanges, leases, goods or properties, renders
services. It is also levied on every importation of goods whether or not in
the course of trade or business. The tax base of the VAT is limited only to
the value added to such goods, properties, or services by the seller,
transferor or lessor. Further, the VAT is an indirect tax and can be passed on
to the buyer. The franchise tax, on the other hand, is a percentage tax
imposed only on franchise holders. It is imposed under Section 119 of the
Tax Code and is a direct liability of the franchise grantee. The clause “in
lieu of all taxes” does not pertain to VAT or any other tax. It cannot apply
when what is paid is a tax other than a franchise tax. Since the franchise tax
on the broadcasting companies with yearly gross receipts exceeding ten
million pesos has been abolished, the “in lieu of all taxes” clause has now
become functus officio, rendered inoperative.

PETITION for review on certiorari of a decision of the Court of

Appeals.
   The facts are stated in the opinion of the Court.
  The City Attorney for petitioners.

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 Quezon City vs. ABS-CBN Broadcasting Corporation

  Quiason, Makalintal, Barot, Torres & Ibarra for respondent.

REYES, R.T., J.:

CLAIMS for tax exemption must be based on language in law
too plain to be mistaken. It cannot be made out of inference or
implication.
The principle is relevant in this petition for review on certiorari
of the Decision1 of the Court of Appeals (CA) and that2 of the
Regional Trial Court (RTC) ordering the refund and declaring
invalid the imposition and collection of local franchise tax by the
City Treasurer of Quezon City on ABS-CBN Broadcasting
Corporation (ABS-CBN).

The Facts

Petitioner City Government of Quezon City is a local

government unit duly organized and existing by virtue of Republic
Act (R.A.) No. 537, otherwise known as the Revised Charter of
Quezon City. Petitioner City Treasurer of Quezon City is primarily
responsible for the imposition and collection of taxes within the
territorial jurisdiction of Quezon City.
Under Section 31, Article 13 of the Quezon City Revenue Code
of 1993,3 a franchise tax was imposed on businesses operating
within its jurisdiction. The provision states:

“Section 31. Imposition of Tax.—Any provision of special laws or

grant of tax exemption to the contrary notwithstanding, any person,
corporation, partnership or association enjoying a franchise whether issued
by the national government or local government and,

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1 Rollo, pp. 56-67. Dated August 31, 2004. Penned by Associate Justice Magdangal M. De
Leon, with Associate Justices Romeo A. Brawner and Mariano C. Del Castillo, concurring.
2  Id., at pp. 46-54. Dated January 20, 1999. Penned by then Judge, now CA Associate
Justice, Lucas P. Bersamin.
3 Quezon City Ordinance No. SP-91, S-93.

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Quezon City vs. ABS-CBN Broadcasting Corporation

doing business in Quezon City, shall pay a franchise tax at the rate of ten
percent (10%) of one percent (1%) for 1993-1994, twenty percent (20%) of
one percent (1%) for 1995, and thirty percent (30%) of one percent (1%) for
1996 and the succeeding years thereafter, of gross receipts and sales derived
from the operation of the business in Quezon City during the preceding
calendar year.”

On May 3, 1995, ABS-CBN was granted the franchise to install

and operate radio and television broadcasting stations in the
Philippines under R.A. No. 7966.4 Section 8 of R.A. No. 7966
provides the tax liabilities of ABS-CBN which reads:

“Section 8. Tax Provisions.—The grantee, its successors or assigns,

shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, as other persons or
corporations are now hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns, shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts of the
radio/television business transacted under this franchise by the grantee,
its successors or assigns, and the said percentage tax shall be in lieu of
all taxes on this franchise or earnings thereof; Provided that the grantee,
its successors or assigns shall continue to be liable for income taxes under
Title II of the National Internal Revenue Code pursuant to Section 2 of
Executive No. 72 unless the latter enactment is amended or repealed, in
which case the amendment or repeal shall be applicable thereto.” (Emphasis
added)
ABS-CBN had been paying local franchise tax imposed by Quezon
City. However, in view of the above provision in R.A. No. 9766 that
it “shall pay a franchise tax x x x in lieu of all taxes,” the corporation
developed the opinion that it is not liable to pay the local franchise
tax imposed by Quezon City.

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4  “An Act Granting the ABS-CBN Broadcasting Corporation a Franchise to

Construct, Install, Operate and Maintain Television and Radio Broadcasting Stations
in the Philippines, and for Other Purposes.” Enacted on March 30, 1995 and date of
effectivity on May 3, 1995.

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Quezon City vs. ABS-CBN Broadcasting Corporation

Consequently, ABS-CBN paid under protest the local franchise tax

imposed by Quezon City on the dates, in the amounts and under the
official receipts as follows:

 O.R. No.  Date  Amount Paid

2464274 07-18-95 P  1,489,977.28
2484651 10-20-95      1,489,977.28
2536134 1-22-96      2,880,975.65
8354906 1-23-97      8,621,470.83
0048756 1-23-97      2,731,135.81
0067352 4-03-97      2,731,135.81
Total   P19,944,672.665 

On January 29, 1997, ABS-CBN filed a written claim for refund

for local franchise tax paid to Quezon City for 1996 and for the first
quarter of 1997 in the total amount of Fourteen Million Two
Hundred Thirty-Three Thousand Five Hundred Eighty-Two and
29/100 centavos (P14,233,582.29) broken down as follows:

 O.R. No.   Date  Amount Paid

2536134 1-22-96 P   2,880,975.65
8354906 1-23-97       8,621,470.83
0048756 1-23-97       2,731,135.81
 Total    P14,233,582.296 

In a letter dated March 3, 1997 to the Quezon City Treasurer,

ABS-CBN reiterated its claim for refund of local franchise taxes
paid.
On June 25, 1997, for failure to obtain any response from the
Quezon City Treasurer, ABS-CBN filed a complaint before the RTC
in Quezon City seeking the declaration of nullity of the imposition
of local franchise tax by the City Government

_______________

5 Rollo, p. 17.
6 Id.

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502 SUPREME COURT REPORTS ANNOTATED

Quezon City vs. ABS-CBN Broadcasting Corporation

of Quezon City for being unconstitutional. It likewise prayed for the

refund of local franchise tax in the amount of Nineteen Million Nine
Hundred Forty-Four Thousand Six Hundred Seventy-Two and
66/100 centavos (P19,944,672.66) broken down as follows:

 O.R. No.  Date  Amount Paid

2464274 7-18-95 P   1,489,977.28
2484651 10-20-95       1,489,977.28
2536134 1-22-96       2,880,975.65
8354906 1-23-97       8,621,470.83
0048756 1-23-97       2,731,135.81
0067352 4-03-97       2,731,135.81
  Total    P19,944,672.667

Quezon City argued that the “in lieu of all taxes” provision in
R.A. No. 9766 could not have been intended to prevail over a
constitutional mandate which ensures the viability and self-
sufficiency of local government units. Further, that taxes collectible
by and payable to the local government were distinct from taxes
collectible by and payable to the national government, considering
that the Constitution specifically declared that the taxes imposed by
local government units “shall accrue exclusively to the local
governments.” Lastly, the City contended that the exemption
claimed by ABS-CBN under R.A. No. 7966 was withdrawn by
Congress when the Local Government Code (LGC) was passed.8
Section 193 of the LGC provides:

“Section 193. Withdrawal of Tax Exemption Privileges.—Unless

otherwise provided in this Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical,
including government-owned or -controlled corporations, except local
water districts, cooperatives duly registered under R.A. 6938, non-stock and
non-profit hospitals and

_______________

7 Id., at pp. 17-18.

8 Id., at pp. 46-60.

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Quezon City vs. ABS-CBN Broadcasting Corporation

educational institutions, are hereby withdrawn upon the effectivity of this

Code.” (Emphasis added)

On August 13, 1997, ABS-CBN filed a supplemental complaint

adding to its claim for refund the local franchise tax paid for the
third quarter of 1997 in the amount of Two Million Seven Hundred
Thirty-One Thousand One Hundred Thirty-Five and 81/100
centavos (P2,731,135.81) and of other amounts of local franchise tax
as may have been and will be paid by ABS-CBN until the resolution
of the case.
Quezon City insisted that the claim for refund must fail because
of the absence of a prior written claim for it.
RTC and CA Dispositions
On January 20, 1999, the RTC rendered judgment declaring as
invalid the imposition on and collection from ABS-CBN of local
franchise tax paid pursuant to Quezon City Ordinance No. SP-91, S-
93, after the enactment of R.A. No. 7966, and ordered the refund of
all payments made. The dispositive portion of the RTC decision
reads:

“WHEREFORE, judgment is hereby rendered declaring the imposition

on and collection from plaintiff ABS-CBN BROADCASTING
CORPORATION of local franchise taxes pursuant to Quezon City
Ordinance No. SP-91, S-93 after the enactment of Republic Act No. 7966 to
be invalid, and, accordingly, the Court hereby orders the defendants to
refund all its payments made after the effectivity of its legislative franchise
on May 3, 1995.
SO ORDERED.”9

In its decision, the RTC ruled that the “in lieu of all taxes”
provision contained in Section 8 of R.A. No. 7966 absolutely
excused ABS-CBN from the payment of local franchise tax imposed
under Quezon City Ordinance No. SP-91, S-93. The intent of the
legislature to excuse ABS-CBN from payment of

_______________

9 Id., at p. 54.

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504 SUPREME COURT REPORTS ANNOTATED
Quezon City vs. ABS-CBN Broadcasting Corporation

local franchise tax could be discerned from the usage of the “in lieu
of all taxes” provision and from the absence of any qualification
except income taxes. Had Congress intended to exclude taxes
imposed from the exemption, it would have expressly mentioned so
in a fashion similar to the proviso on income taxes.
The RTC also based its ruling on the 1990 case of Province of
Misamis Oriental v. Cagayan Electric Power and Light Company,
Inc. (CEPALCO).10 In said case, the exemption of respondent
electric company CEPALCO from payment of provincial franchise
tax was upheld on the ground that the franchise of CEPALCO was a
special law, while the Local Tax Code, on which the provincial
ordinance imposing the local franchise tax was based, was a general
law. Further, it was held that whenever there is a conflict between
two laws, one special and particular and the other general, the
special law must be taken as intended to constitute an exception to
the general act.
The RTC noted that the legislative franchise of ABS-CBN was
granted years after the effectivity of the LGC. Thus, it was
unavoidable to conclude that Section 8 of R.A. No. 7966 was an
exception since the legislature ought to be presumed to have enacted
it with the knowledge and awareness of the existence and prior
enactment of Section 13711 of the LGC.
In addition, the RTC, again citing the case of Province of
Misamis Oriental v. Cagayan Electric Power and Light Company,
Inc. (CEPALCO),12 ruled that the imposition of the local franchise
tax was an impairment of ABS-CBN’s contract with

_______________

10 G.R. No. 45355, January 12, 1990, 181 SCRA 38.

11  Section 137. Franchise Tax.—Notwithstanding any exemption granted by
any law or other special law, the province may impose a tax on business is enjoying a
franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming receipt,
or realized, within its territorial jurisdiction. x x x
12 Supra.

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Quezon City vs. ABS-CBN Broadcasting Corporation

the government. The imposition of another franchise on the

corporation by the local authority would constitute an impairment of
the former’s charter, which is in the nature of a private contract
between it and the government.
As to the amounts to be refunded, the RTC rejected Quezon
City’s position that a written claim for refund pursuant to Section
196 of the LGC was a condition sine qua non before filing the case
in court. The RTC ruled that although Fourteen Million Two
Hundred Thirty-Three Thousand Five Hundred Eighty-Two and
29/100 centavos (P14,233,582.29) was the only amount stated in the
letter to the Quezon City Treasurer claiming refund, ABS-CBN
should nonetheless be also refunded of all payments made after the
effectivity of R.A. No. 7966. The inaction of the City Treasurer on
the claim for refund of ABS-CBN legally rendered any further
claims for refund on the part of plaintiff absurd and futile in relation
to the succeeding payments.
The City of Quezon and its Treasurer filed a motion for
reconsideration which was subsequently denied by the RTC. Thus,
appeal was made to the CA. On September 1, 2004, the CA
dismissed the petition of Quezon City and its Treasurer. According
to the appellate court, the issues raised were purely legal questions
cognizable only by the Supreme Court. The CA ratiocinated:
 “For another, the issues which appellants submit for this Court’s
consideration are more of legal query necessitating a legal opinion rather
than a call for adjudication on the matter in dispute.
x x x x
The first issue has earlier been categorized in Province of Misamis
Oriental v. Cagayan Electric and Power Co., Inc. to be a legal one. There is
no more argument to this.
The next issue although it may need the reexamination of the pertinent
provisions of the local franchise and the legislative franchise given to
appellee, also needs no evaluation of facts. It suffices that there may be a
conflict which may need to be reconciled, without regard to the factual
backdrop of the case.

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Quezon City vs. ABS-CBN Broadcasting Corporation

The last issue deals with a legal question, because whether or not there is
a prior written claim for refund is no longer in dispute. Rather, the question
revolves on whether the said requirement may be dispensed with, which
obviously is not a factual issue.”13

On September 23, 2004, petitioner moved for reconsideration.

The motion was, however, denied by the CA in its Resolution dated
December 16, 2004. Hence, the present recourse.

Issues

Petitioner submits the following issues for resolution: 

I.
Whether or not the phrase “in lieu of all taxes” indicated in the franchise
of the respondent appellee (Section 8 of RA 7966) serves to exempt it from
the payment of the local franchise tax imposed by the petitioners-appellants.
II.
Whether or not the petitioners-appellants raised factual and legal issues
before the Honorable Court of Appeals.14

Our Ruling

The second issue, being procedural in nature, shall be dealt with

immediately. But there are other resultant issues linked to the first.
I. The dismissal by the CA of petitioners’ appeal is in order
because it raised purely legal issues, namely:
1) Whether appellee, whose franchise expressly provides
that its payment of franchise tax shall be in lieu of all taxes in
this franchise or earnings thereof, is abso-

_______________

13 Rollo, pp. 64-65.

14 Id., at p. 23.

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Quezon City vs. ABS-CBN Broadcasting Corporation

lutely excused from paying the franchise tax imposed by

appellants;
2) Whether appellants’ imposition of local franchise tax
is a violation of appellee’s legislative franchise; and
3) Whether one can do away with the requirement on
prior written claim for refund.15
Obviously, these are purely legal questions, cognizable by this
Court, to the exclusion of all other courts. There is a question of law
when the doubt or difference arises as to what the law is pertaining
to a certain state of facts.16
Section 2, Rule 50 of the Rules of Court provides that an appeal
taken to the CA under Rule 41 raising only questions of law is
erroneous and shall be dismissed, issues of pure law not being
within its jurisdiction.17 Consequently, the dismissal by the CA of
petitioners’ appeal was in order.
In the recent case of Sevilleno v. Carilo,18 this Court ruled that
the dismissal of the appeal of petitioner was valid, considering the
issues raised there were pure questions of law, viz.:

_______________

15 Id., at p. 65.
16 Calvo v. Vergara, G.R. No. 134741, December 19, 2001, 372 SCRA 650, as
cited in Lavides v. Pre, G.R. No. 127830, October 17, 2001, 367 SCRA 382.
17  Rule 50, Sec. 2. Dismissal of improper appeal to the Court of Appeals.—An
appeal under Rule 41 taken from the Regional Trial Court to the Court of Appeals
raising only questions of law shall be dismissed, issues of pure law not being
reviewable by said court. Similarly, an appeal by notice of appeal instead of by
petition for review from the appellate judgment of a Regional Trial Court shall be
dismissed.
An appeal erroneously taken to the Court of Appeals shall not be transferred to the
appropriate court but shall be dismissed outright.
18 G.R. No. 146454, September 14, 2007, 533 SCRA 385.

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Quezon City vs. ABS-CBN Broadcasting Corporation

“Petitioners interposed an appeal to the Court of Appeals but it was

dismissed for being the wrong mode of appeal. The appellate court held that
since the issue being raised is whether the RTC has jurisdiction over the
subject matter of the case, which is a question of law, the appeal should
have been elevated to the Supreme Court under Rule 45 of the 1997 Rules
of Civil Procedure, as amended. Section 2, Rule 41 of the same Rules which
governs appeals from judgments and final orders of the RTC to the Court of
Appeals, provides:
SEC. 2. Modes of appeal.—
(a) Ordinary appeal.—The appeal to the Court of Appeals in
cases decided by the Regional Trial Court in the exercise of its
original jurisdiction shall be taken by filing a notice of appeal with
the court which rendered the judgment or final order appealed from
and serving a copy thereof upon the adverse party. No record on
appeal shall be required except in special proceedings and other cases
of multiple or separate appeals where the law or these Rules so
require. In such cases, the record on appeal shall be filed and served
in like manner.
(b) Petition for review.—The appeal to the Court of Appeals in
cases decided by the Regional Trial Court in the exercise of its
appellate jurisdiction shall be by petition for review in accordance
with Rule 42.
(c) Appeal by certiorari.—In all cases where only questions of
law are raised or involved, the appeal shall be to the Supreme Court
by petition for review on certiorari in accordance with Rule 45.
In Macawili Gold Mining and Development Co., Inc. v. Court of
Appeals, we summarized the rule on appeals as follows:
(1) In all cases decided by the RTC in the exercise of its original
jurisdiction, appeal may be made to the Court of Appeals by mere
notice of appeal where the appellant raises questions of fact or mixed
questions of fact and law;
(2) In all cases decided by the RTC in the exercise of its original
jurisdiction where the appellant raises only questions of law, the
appeal must be taken to the Supreme Court on a petition for review
on certiorari under Rule 45;
(3) All appeals from judgments rendered by the RTC in the
exercise of its appellate jurisdiction, regardless of whether

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Quezon City vs. ABS-CBN Broadcasting Corporation
 the appellant raises questions of fact, questions of law, or mixed
questions of fact and law, shall be brought to the Court of Appeals by
filing a petition for review under Rule 42.
It is not disputed that the issue brought by petitioners to the Court of
Appeals involves the jurisdiction of the RTC over the subject matter of the
case. We have a long standing rule that a court’s jurisdiction over the subject
matter of an action is conferred only by the Constitution or by statute.
Otherwise put, jurisdiction of a court over the subject matter of the action is
a matter of law. Consequently, issues which deal with the jurisdiction of a
court over the subject matter of a case are pure questions of law. As
petitioners’ appeal solely involves a question of law, they should have
directly taken their appeal to this Court by filing a petition for review on
certiorari under Rule 45, not an ordinary appeal with the Court of Appeals
under Rule 41. Clearly, the appellate court did not err in holding that
petitioners pursued the wrong mode of appeal.
Indeed, the Court of Appeals did not err in dismissing petitioners’
appeal. Section 2, Rule 50 of the same Rules provides that an appeal from
the RTC to the Court of Appeals raising only questions of law shall be
dismissed; and that an appeal erroneously taken to the Court of Appeals
shall be dismissed outright, x x x.”19 (Emphasis added)

However, to serve the demands of substantial justice and equity,

the Court opts to relax procedural rules and rule upon on the merits
of the case. In Ong Lim Sing Jr. v. FEB Leasing and Finance
Corporation,20 this Court stated:

“Courts have the prerogative to relax procedural rules of even the most
mandatory character, mindful of the duty to reconcile both the need to
speedily put an end to litigation and the parties’ right to due process. In
numerous cases, this Court has allowed liberal construction of the rules
when to do so would serve the demands of substantial justice and equity. In
Aguam v. Court of Appeals, the Court explained:

_______________

19 Sevilleno v. Carilo, id.

20 G.R. No. 168115, June 8, 2007, 524 SCRA 333.

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Quezon City vs. ABS-CBN Broadcasting Corporation

“The court has the discretion to dismiss or not to dismiss an

appellant’s appeal. It is a power conferred on the court, not a duty.
The “discretion must be a sound one, to be exercised in accordance
with the tenets of justice and fair play, having in mind the
circumstances obtaining in each case.” Technicalities, however, must
be avoided. The law abhors technicalities that impede the cause of
justice. The court’s primary duty is to render or dispense justice. “A
litigation is not a game of technicalities.” “Lawsuits unlike duels are
not to be won by a rapier’s thrust. Technicality, when it deserts its
proper office as an aid to justice and becomes its great hindrance and
chief enemy, deserves scant consideration from courts.” Litigations
must be decided on their merits and not on technicality. Every party
litigant must be afforded the amplest opportunity for the proper and
just determination of his cause, free from the unacceptable plea of
technicalities. Thus, dismissal of appeals purely on technical grounds
is frowned upon where the policy of the court is to encourage
hearings of appeals on their merits and the rules of procedure ought
not to be applied in a very rigid, technical sense; rules of procedure
are used only to help secure, not override substantial justice. It is a
far better and more prudent course of action for the court to excuse a
technical lapse and afford the parties a review of the case on appeal
to attain the ends of justice rather than dispose of the case on
technicality and cause a grave injustice to the parties, giving a false
impression of speedy disposal of cases while actually resulting in
more delay, if not a miscarriage of justice.”21

II. The “in lieu of all taxes” provision in its franchise does

not exempt ABS-CBN from payment of local franchise tax.
 A. The present controversy essentially boils down to a dispute
between the inherent taxing power of Congress and the delegated
authority to tax of local governments under the 1987 Constitution
and effected under the LGC of 1991.

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21 Ong Lim Sing, Jr. v. FEB Leasing and Finance Corporation, id., at pp. 343-
344.

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Quezon City vs. ABS-CBN Broadcasting Corporation

The power of the local government of Quezon City to impose

franchise tax is based on Section 151 in relation to Section 137 of
the LGC, to wit:

“Section 137. Franchise Tax.—Notwithstanding any exemption

granted by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at the rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the incoming receipt, or realized within its territorial
jurisdiction. x x x
x x x x
Section 151. Scope of Taxing Powers.—Except as otherwise provided
in this Code, the city may levy the taxes, fees and charges which the
province or municipality may impose: Provided, however, That the taxes,
fees and charges levied and collected by highly urbanized and component
cities shall accrue to them and distributed in accordance with the provisions
of this Code.
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes.” (Emphasis
supplied)

Such taxing power by the local government, however, is limited

in the sense that Congress can enact legislation granting exemptions.
This principle was upheld in City Government of Quezon City, et al.
v. Bayan Telecommunications, Inc.,22 Said this Court:

“This thus raises the question of whether or not the City’s Revenue Code
pursuant to which the city treasurer of Quezon City levied real property
taxes against Bayantel’s real properties located within the City effectively
withdrew the tax exemption enjoyed by Bayantel under its franchise, as
amended.
Bayantel answers the poser in the negative arguing that once again it is
only “liable to pay the same taxes, as any other persons or corporations on
all its real or personal properties, exclusive of its franchise.”

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22 G.R. No. 162015, March 6, 2006, 484 SCRA 169.

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512 SUPREME COURT REPORTS ANNOTATED

Quezon City vs. ABS-CBN Broadcasting Corporation

Bayantel’s posture is well-taken. While the system of local government

taxation has changed with the onset of the 1987 Constitution, the power of
local government units to tax is still limited. As we explained in Mactan
Cebu International Airport Authority:
“The power to tax is primarily vested in the Congress; however,
in our jurisdiction, it may be exercised by local legislative bodies, no
longer merely be virtue of a valid delegation as before, but pursuant
to direct authority conferred by Section 5, Article X of the
Constitution. Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may
 provide which, however, must be consistent with the basic policy of
local autonomy. x x x”
Clearly then, while a new slant on the subject of local taxation now
prevails in the sense that the former doctrine of local government units’
delegated power to tax had been effectively modified with Article X,
Section 5 of the 1987 Constitution now in place, the basic doctrine on local
taxation remains essentially the same. For as the Court stressed in Mactan,
“ the power to tax is [still] primarily vested in the Congress.”
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J.,
himself a Commissioner of the 1986 Constitutional Commission which
crafted the 1987 Constitution, thus:
“What is the effect of Section 5 on the fiscal position of municipal
corporations? Section 5 does not change the doctrine that municipal
corporations do not possess inherent powers of taxation. What it does
is to confer municipal corporations a general power to levy taxes and
otherwise create sources of revenue. They no longer have to wait for
a statutory grant of these powers. The power of the legislative
authority relative to the fiscal powers of local governments has been
reduced to the authority to impose limitations on municipal powers.
Moreover, these limitations must be “consistent with the basic policy
of local autonomy.” The important legal effect of Section 5 is thus to
reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor of
municipal corporations. It is understood, however, that taxes imposed
by local government must be for a public purpose, uniform within a
locality, must not be confiscatory, and must be within the jurisdiction
of the local unit to pass.”

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Quezon City vs. ABS-CBN Broadcasting Corporation

In net effect, the controversy presently before the Court involves, at

bottom, a clash between the inherent taxing power of the legislature, which
necessarily includes the power to exempt, and the local government’s
delegated power to tax under the aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which imposed real
estate taxes on all real properties within the city’s territory and removed
exemptions theretofore “previously granted to, or presently enjoyed by all
persons, whether natural or juridical [x x x]” there can really be no dispute
that the power of the Quezon City Government to tax is limited by Section
232 of the LGC which expressly provides that “a province or city or
municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted.” Under this law, the
Legislature highlighted its power to thereafter exempt certain realties from
the taxing power of local government units. An interpretation denying
Congress such power to exempt would reduce the phrase “not hereinafter
specifically exempted” as a pure jargon, without meaning whatsoever.
Needless to state, such absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT)
vs. City of Davao, this Court has upheld the power of Congress to grant
exemptions over the power of local government units to impose taxes.
There, the Court wrote:
“ Indeed, the grant of taxing powers to local government units
under the Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the constitutional grant
to local governments simply means that in interpreting statutory
provisions on municipal taxing powers, doubts must be resolved in
favor of municipal corporations.”23 (Emphasis supplied)

In the case under review, the Philippine Congress enacted R.A.

No. 7966 on March 30, 1995, subsequent to the effectivity of the
LGC on January 1, 1992. Under it, ABS-CBN was

_______________
 23 City Government of Quezon City v. Bayan Telecommunications, Inc., id., at pp.
183-186.

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514 SUPREME COURT REPORTS ANNOTATED

Quezon City vs. ABS-CBN Broadcasting Corporation

granted the franchise to install and operate radio and television

broadcasting stations in the Philippines. Likewise, Section 8
imposed on ABS-CBN the duty of paying 3% franchise tax. It bears
stressing, however, that payment of the percentage franchise tax
shall be “in lieu of all taxes” on the said franchise.24
Congress has the inherent power to tax, which includes the power
to grant tax exemptions. On the other hand, the power of Quezon
City to tax is prescribed by Section 151 in relation to Section 137 of
the LGC which expressly provides that notwithstanding any
exemption granted by any law or other special law, the City may
impose a franchise tax. It must be noted that Section 137 of the LGC
does not prohibit grant of future exemptions. As earlier discussed,
this Court in City Government of Quezon City v. Bayan
Telecommunications, Inc.25 sustained the power of Congress to grant
tax exemptions over and above the power of the local government’s
delegated power to tax.
B. The more pertinent issue now to consider is whether or not
by passing R.A. No. 7966, which contains the “in lieu of all

_______________

24 Section 8. Tax Provisions.—The grantee, its successors or assigns, shall be

liable to pay the same taxes on their real estate, buildings and personal property,
exclusive of this franchise, as other persons or corporations are now hereafter may be
required by law to pay. In addition thereto, the grantee, its successors or assigns, shall
pay a franchise tax equivalent to three percent (3%) of all gross receipts of the
radio/television business transacted under this franchise by the grantee, its successors
or assigns, and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof; Provided that the grantee, its successors or assigns shall continue to
be liable for income taxes under Title II of the National Internal Revenue Code
pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is
amended or repealed, in which case the amendment or repeal shall be applicable
thereto.
25 Supra note 20.

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Quezon City vs. ABS-CBN Broadcasting Corporation

taxes” provision, Congress intended to exempt ABS-CBN from

local franchise tax.
Petitioners argue that the “in lieu of all taxes” provision in ABS-
CBN’s franchise does not expressly exempt it from payment of local
franchise tax. They contend that a tax exemption cannot be created
by mere implication and that one who claims tax exemptions must
be able to justify his claim by clearest grant of organic law or
statute.
Taxes are what civilized people pay for civilized society. They
are the lifeblood of the nation. Thus, statutes granting tax
exemptions are construed stricissimi juris against the taxpayer and
liberally in favor of the taxing authority. A claim of tax exemption
must be clearly shown and based on language in law too plain to be
mistaken. Otherwise stated, taxation is the rule, exemption is the
exception.26 The burden of proof rests upon the party claiming the
exemption to prove that it is in fact covered by the exemption so
claimed.27
The basis for the rule on strict construction to statutory
provisions granting tax exemptions or deductions is to minimize
differential treatment and foster impartiality, fairness and equality of
treatment among taxpayers.28 He who claims an exemption from his
share of common burden must justify his claim that the legislature
intended to exempt him by unmistakable terms. For exemptions
from taxation are not favored in law, nor are they presumed. They
must be expressed in the clearest and most unambiguous language
and not left to mere implications. It has been held that “exemptions
are never presumed, the burden is on the claimant to establish
clearly his right to exemption and cannot be made out of in-

_______________

26  Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082,
September 11, 1996, 261 SCRA 667, 680.
27 Agpalo, R.E., Statutory Construction, 2003 ed., p. 301.
28 Maceda v. Macaraeg, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771, 799,
citing Sands, C.D., Statutes and Statutory Construction, Vol. 3, p. 207.

516

516 SUPREME COURT REPORTS ANNOTATED

Quezon City vs. ABS-CBN Broadcasting Corporation

ference or implications but must be laid beyond reasonable doubt. In

other words, since taxation is the rule and exemption the exception,
the intention to make an exemption ought to be expressed in clear
and unambiguous terms.29
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise
tax equivalent to three (3) percent of all gross receipts of the
radio/television business transacted under the franchise and the
franchise tax shall be “in lieu of all taxes” on the franchise or
earnings thereof.
The “in lieu of all taxes” provision in the franchise of ABS-CBN
does not expressly provide what kind of taxes ABS-CBN is
exempted from. It is not clear whether the exemption would include
both local, whether municipal, city or provincial, and national tax.
What is clear is that ABS-CBN shall be liable to pay three (3)
percent franchise tax and income taxes under Title II of the NIRC.
But whether the “in lieu of all taxes provision” would include
exemption from local tax is not unequivocal.
As adverted to earlier, the right to exemption from local franchise
tax must be clearly established and cannot be made out of inference
or implications but must be laid beyond reasonable doubt. Verily, the
uncertainty in the “in lieu of all taxes” provision should be construed
against ABS-CBN. ABS-CBN has the burden to prove that it is in
fact covered by the exemption so claimed. ABS-CBN miserably
failed in this regard.
ABS-CBN cites the cases Carcar Electric & Ice Plant v.
Collector of Internal Revenue,30 Manila Railroad v. Rafferty,31
Philippine Railway Co. v. Collector of Internal Revenue,32 and
Visayan Electric Co. v. David33 to support its claim that that

_______________

29 See note 27, at p. 302.

30 53 O.G. (No. 4) 1068.
31 40 Phil. 224 (1919).
32 91 Phil. 35 (1952).
33 92 Phil. 969 (1953).

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Quezon City vs. ABS-CBN Broadcasting Corporation

the “in lieu of all taxes” clause includes exemption from all taxes.
However, a review of the foregoing case law reveals that the
grantees’ respective franchises expressly exempt them from
municipal and provincial taxes. Said the Court in Manila Railroad v.
Rafferty:34
 “On the 7th day of July 1906, by an Act of the Philippine Legislature, a
special charter was granted to the Manila Railroad Company. Subsection 12
of Section 1 of said Act (No. 1510) provides that:
“In consideration of the premises and of the granting of this concession
or franchise, there shall be paid by the grantee to the Philippine
Government, annually, for the period of thirty (30) years from the date
hereof, an amount equal to one-half (1/2) of one per cent of the gross
earnings of the grantee in respect of the lines covered hereby for the
preceding year; after said period of thirty (30) years, and for the fifty (50)
years thereafter, the amount so to be paid annually shall be an amount equal
to one and one-half (1½) per cent of such gross earnings for the preceding
year; and after such period of eighty (80) years, the percentage and amount
so to be paid annually by the grantee shall be fixed by the Philippine
Government.
Such annual payments, when promptly and fully made by the grantee,
shall be in lieu of all taxes of every name and nature—municipal, provincial
or central—upon its capital stock, franchises, right of way, earnings, and all
other property owned or operated by the grantee under this concession or
franchise.”35 (Italics supplied)

In the case under review, ABS-CBN’s franchise did not embody

an exemption similar to those in Carcar, Manila Railroad,
Philippine Railway, and Visayan Electric. Too, the franchise failed
to specify the taxing authority from whose jurisdiction the taxing
power is withheld, whether municipal, provincial, or national. In
fine, since ABS-CBN failed to jus-

_______________

34 Supra.
35 Manila Railroad v. Rafferty, id., at p. 226.

518

518 SUPREME COURT REPORTS ANNOTATED

Quezon City vs. ABS-CBN Broadcasting Corporation

tify its claim for exemption from local franchise tax, by a grant
expressed in terms “too plain to be mistaken” its claim for
exemption for local franchise tax must fail.
C. The “in lieu of all taxes” clause in the franchise of ABS-
CBN has become functus officio with the abolition of the franchise
tax on broadcasting companies with yearly gross receipts exceeding
Ten Million Pesos.
In its decision dated January 20, 1999, the RTC held that
pursuant to the “in lieu of all taxes” provision contained in Section 8
of R.A. No. 7966, ABS-CBN is exempt from the payment of the
local franchise tax. The RTC further pronounced that ABS-CBN
shall instead be liable to pay a franchise tax of 3% of all gross
receipts in lieu of all other taxes.
On this score, the RTC ruling is flawed. In keeping with the laws
that have been passed since the grant of ABS-CBN’s franchise, the
corporation should now be subject to VAT, instead of the 3%
franchise tax.
At the time of the enactment of its franchise on May 3, 1995,
ABS-CBN was subject to 3% franchise tax under Section 117(b) of
the 1977 National Internal Revenue Code (NIRC), as amended, viz.:

“SECTION 117. Tax on franchises.—Any provision of general or

special laws to the contrary notwithstanding, there shall be levied, assessed
and collected in respect to all franchise, upon the gross receipts from the
business covered by the law granting the franchise, a tax in accordance with
the schedule prescribed hereunder:
(a) On electric utilities, city gas, and water supplies Two (2%) percent
(b) On telephone and/or telegraph systems, radio and/or broadcasting
stations Three (3%) percent
(c) On other franchises Five (5%) percent. (Emphasis supplied)

519
 VOL. 567, OCTOBER 6, 2008 519
Quezon City vs. ABS-CBN Broadcasting Corporation

On January 1, 1996, R.A. No. 7716, otherwise known as the

Expanded Value Added Tax Law,36 took effect and subjected to VAT
those services rendered by radio and/or broadcasting stations.
Section 3 of R.A. No. 7716 provides:

“Section 3. Section 102 of the National Internal Revenue Code, as

amended is hereby further amended to read as follows:
SEC. 102. Value-added tax on sale of services and use or lease
of properties.—(a) Rate and base of tax.—There shall be levied,
assessed and collected, as value-added tax equivalent to 10% of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase “sale or exchange of services” means the performance
of all kinds of services in the Philippines, for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; x  x  x services of
franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under
Section 117 of this Code; x x x (Emphasis supplied)

Notably, under the same law, “telephone and/or telegraph

systems, broadcasting stations and other franchise grantees” were
omitted from the list of entities subject to franchise tax. The
impression was that these entities were subject to 10% VAT but not
to franchise tax. Only the franchise tax on “electric, gas and water
utilities” remained. Section 12 of R.A. No. 7716 provides:

“Section 12. Section 117 of the National Internal Revenue Code, as

amended, is hereby further amended to read as follows:
SEC. 117. Tax on Franchises.—Any provision of general or
special law to the contrary notwithstanding there shall be levied,
assessed and collected in respect to all franchises on electric, gas
and water utilities a tax of two percent (2%) on the gross receipts
derived from the business covered by the law granting the franchise.”
(Emphasis added)

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36 Approved on May 5, 1994.

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520 SUPREME COURT REPORTS ANNOTATED

Quezon City vs. ABS-CBN Broadcasting Corporation

Subsequently, R.A. No. 824137 took effect on January 1, 199738

containing more amendments to the NIRC. Radio and/or television
companies whose annual gross receipts do not exceed
P10,000,000.00 were granted the option to choose between paying
3% national franchise tax or 10% VAT. Section 9 of R.A. No. 8241
provides:

“SECTION 9. Section 12 of Republic Act No. 7716 is hereby

amended to read as follows:
“Sec. 12. Section 117 of the National Internal Revenue Code,
as amended, is hereby further amended to read as follows:
“Sec. 117. Tax on franchise.—Any provision of general or
special law to the contrary, notwithstanding, there shall be levied,
assessed and collected in respect to all franchises on radio and/or
television broadcasting companies whose annual gross receipts of the
preceding year does not exceed Ten million pesos
(P10,000,000.00), subject to Section 107(d) of this Code, a tax of
three percent (3%) and on electric, gas and water utilities, a tax of
two percent (2%) on the gross receipts derived from the business
covered by the law granting the franchise: Provided, however, That
radio and television broadcasting companies referred to in this
 section, shall have an option to be registered as a value-added tax
payer and pay the tax due thereon: Provided, further, That once the
option is exercised, it shall not be revoked. (Emphasis supplied)

On the other hand, radio and/or television companies with yearly

gross receipts exceeding P10,000,000.00 were subject to 10% VAT,
pursuant to Section 102 of the NIRC.

_______________

37 Entitled “An Act Amending Republic Act No. 7716, Otherwise Known as the
Expanded Value-Added Tax Law and Other Pertinent Provisions of the National
Internal Revenue Code, as Amended.” Approved on December 20, 1996.
38 Published in the Philippine Star on January 9, 1997. Published in the Official
Gazette, Vol. 93, No. 6, p. 1463, on March 10, 1997.

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Quezon City vs. ABS-CBN Broadcasting Corporation

On January 1, 1998, R.A. No. 842439 was passed confirming the

10% VAT liability of radio and/or television companies with yearly
gross receipts exceeding P10,000,000.00.
R.A. No. 9337 was subsequently enacted and became effective
on July 1, 2005. The said law further amended the NIRC by
increasing the rate of VAT to 12%. The effectivity of the imposition
of the 12% VAT was later moved from January 1, 2006 to February
1, 2006.
In consonance with the above survey of pertinent laws on the
matter, ABS-CBN is subject to the payment of VAT. It does not have
the option to choose between the payment of franchise tax or VAT
since it is a broadcasting company with yearly gross receipts
exceeding Ten Million Pesos (P10,000,000.00).
VAT is a percentage tax imposed on any person whether or not a
franchise grantee, who in the course of trade or business, sells,
barters, exchanges, leases, goods or properties, renders services. It is
also levied on every importation of goods whether or not in the
course of trade or business. The tax base of the VAT is limited only
to the value added to such goods, properties, or services by the
seller, transferor or lessor. Further, the VAT is an indirect tax and can
be passed on to the buyer.
The franchise tax, on the other hand, is a percentage tax imposed
only on franchise holders. It is imposed under Section 119 of the Tax
Code and is a direct liability of the franchise grantee.
The clause “in lieu of all taxes” does not pertain to VAT or any
other tax. It cannot apply when what is paid is a tax other than a
franchise tax. Since the franchise tax on the broadcasting companies
with yearly gross receipts exceeding

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39 Otherwise known as the Tax Reform Act of 1997, amended some provisions of
the 1977 NIRC by renumbering Section 117 as 119 and Section 102 as 108.

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522 SUPREME COURT REPORTS ANNOTATED

Quezon City vs. ABS-CBN Broadcasting Corporation

ten million pesos has been abolished, the “in lieu of all taxes” clause
has now become functus officio, rendered inoperative.
In sum, ABS-CBN’s claims for exemption must fail on twin
grounds. First, the “in lieu of all taxes” clause in its franchise failed
to specify the taxes the company is sought to be exempted from.
Neither did it particularize the jurisdiction from which the taxing
power is withheld. Second, the clause has become functus officio
because as the law now stands, ABS-CBN is no longer subject to a
franchise tax. It is now liable for VAT.
 WHEREFORE, the petition is GRANTED and the appealed
Decision REVERSED AND SET ASIDE. The petition in the trial
court for refund of local franchise tax is DISMISSED.
SO ORDERED.

Ynares-Santiago (Chairperson), Austria-Martinez, Chico-

Nazario and Nachura, JJ., concur.

Petition granted, judgment reversed and set aside.

Notes.—It is an elementary rule in taxation that exemptions are

strictly construed against the taxpayer and liberally in favor of the
taxing authority—it is the taxpayer’s duty to justify the exemption
by words too plain to be mistaken and too categorical to be
misinterpreted. (Radio Communications of the Philippines, Inc.
[RCPI] vs. Provincial Assessor of South Cotabato, 456 SCRA 1
[2005])
The abolition of the 3% franchise tax on telecommunications
companies, and its replacement by the 10% VAT, was effective and
implemented only on January 1, 1996, following the passage of
Revenue Regulation No. 7-95 (Consolidated Value-Added Tax
Regulations). (Commissioner of Internal Revenue vs. Philippine
Global Communications, Inc., 499 SCRA 53 [2006])
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