LINGAYEN VS.

CTA

Facts of the Case:

An appeal from the decision of CTA, absolving the respondent taxpayer from liability for the deficiency
percentage, franchise and surcharge assessed.
Lingayen Gulf Electric Power Operates an Electric power plant serving the municipalities of Lingayen and
Binmaley, Pangasinan, pursuant to Municipal Franchise granted it by respective Municipal councils under
Resolution Nos. 14 and 25 of June 29 and July 2, 1946.
Sec. 10 of such franchises provided that the grantee shall pay quarterly to the provincial treasury of Pangasinan
of Pangasinan 1% of the Gross Earnings obtained through the privilege for the first 20 years and 2% during the
remaining 15 years of the life of the Franchise.
On February 1948, President of Philippines approved the franchises granted to the private respondent.
In 1955, BIR assessed and demanded against the Company Deficiency franchise taxes and surcharges from the
years 1946 to 1954 applying tax rate of 5% as provided for in Sec. 259 of NIRC, instead of the one provided in
Municipal Franchise.
On 1956, respondent requested for reinvestigation. Contending that instead of incurring deficiency liability, it
made an overpayment of franchise tax.
On 1957, Regional Director of BIR, denied the request. And reiterated the demand for payment of the same.
On 1958, Respondent protested the assessment and requested for conference.
Commissioner still denied the request of respondent.
The respondent then filed a case to CTA on September 1958.
On 1962, Commissioner demanded the respondent the payment of P3, 616 which is the deficiency.
The respondent still protested and requested for reconsideration, thus respondent filed a case to CA on
November 1962.
Pending the hearing of such cases ,RA 3843 was passed on June 1963, granting to private respondent a
legislative franchise for the operation of electric, light, heat and power system in the same municipalities of
Pangasinan. Sec 4 provides that the grantee shall pay a tax equal to 2 per centum of gross receipts from electric
current sold/supplied under this franchise. Shalll be payable quarterly and shall be in stead of all taxes collected
by any authority may it be that of municipal, provincial, national, now or in the future, and that the grantee is
exempted and effective upon the date the originalfranchise was granted.
On September 1964, CTA ruled that RA 3843 should apply and dismissed the claims of BIR.
But the BIR raised contentions of the following:
Private respondent should have been liable for the franchise of 5% prescribed in sec 259 of NIRC,
because sec 259 ofTax code as amended by RA39 of October 1, 1946 apllied to existing and future
franchises. And that the franchises of the respondent were already in existence at the time of the
adoption of said amendment. The Franchised was accepted last March 1, 1948 after approval of
President on Feb 24, 1948. Which is therefore modified and amended by Sec 259 of Tax code.
Also it contend that Sec4 of RA 3843 is unconstitutional for it provides for the payment by the private
respondent of a ftax of 2% of its gross receipt, while other tax payers were subjected to 5% Ftax
imposed in Sec 259 of Tax code, making it discriminatory and violative of the rule on uniformity and
equality of taxation.

Issues:
 W/N 5% Ftax prescribed in Sec 259 of NIRC assessed against respondent realized before the effectivity of RA
3843 is collectible.
W/N Sec 4, RA 3843 is unconstitutional for being violative of Uniformity and Equality of Taxation clause of
Constitution and if valid could be given retroactive effect.

Ruling

The Court finds no merit in petitioners contention. As to the first issue; RA 8343, granted private respondent a
legislative franchise in June 1963, amending, altering and even repealing the original municipal franchises. (read
RA 3843, and its clearly stated that it should be effective further upon the date of original franchise was granted.
Thus by virtue of this respondent is liable to pay only 2% ftax effective from the date the original municipal
franchise was granted.
Tax is uniform when it operated with the same force and effect in every place where the subject of it is found.
Uniformity is when all property belonging to the same class shall be taxed alike. The rule contend that the
legislature has the inherent power not only to select the subjects of taxation but to grant exemptions., and such
tax exemptions have never been deemed violative of equal protection clause.
Although Municipal Franchises were obtained under Act no. 667, of the Philippine Commision but these original
franchises have been replaced by new legislative franchise. Respondents power plant were identified in the
conditions set forth in RA 3843, and such transferred from that class provided for in Act no 667 to which it
belonged until the approval of 3843, and placed it within the class falling under Act No. 3636. Which therefore
only affect the transfer of taxable property from one class to another.
5% Franchise tax rate of Sec 259 of Tax code was never intended to have a universal application. It allows the
payment of taxes at rates lower than 5% when the charter granting the franchise of a grantee. Ra 3843 did not
only fix and specify franchise but made it in stead of any and all taxes, so all laws to the contrary
notwithstanding.
Charters or special laws granted and enacted by Legislature are in nature of private contracts, they do not
constitute a part of machinery of the general government.
Whether a statute operates retrospectively or pros depends on the legislative intent.
Therefore CA affirmed the decision of CTA. Ruling in favor
of Lingayen.