Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 3473 March 22, 1907

J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.

F.G. Waite for appellant.

Attorney-General Araneta for appellee.

WILLARD, J.:

The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover
the sum of P9,600, paid by him under protest as taxes on certain mining claims owned by him in the
Province of Ambos Camarines. Judgment was rendered in the court below in favor of the defendant,
and from that judgment the plaintiff appealed.

There is no dispute about the facts.

In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of
the 14th of May, 1867, granted to the plaintiff certain mines in the said Province of Ambos
Camarines, of which mines the plaintiff is now the owner.

That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is
conceded. They were so considered by the Collector of Internal Revenue and were by him said to
fall within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That
section is as follows:

SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen
hundred and ninety-nine, there shall be levied and collected on the after January first,
nineteen hundred and five, the following taxes:

2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of
one hundred pesos; (b) and at the same rate proportionately on each claim containing an
area in excess of, or less than, sixty thousand square meters.

3. On the gross output of each an ad valorem tax equal to three per centum of the actual
market value of such output.

The defendant accordingly imposed upon these properties the tax mentioned in section 134, which
tax, as has before been stated, plaintiff paid under protest.

The only question in the case is whether this section 134 is void or valid.

I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the
act of Congress of July 1, 19021 (32 U.S. Stat. L., 691), which provides "that no law impairing the
obligation of contracts shall be enacted." The royal decree of the 14th of May, 1867, provided,
among other things, as follows:

ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first
paragraph of article 13 (sixty thousand square meters) there shall be paid annually a fixed
tax of forty escudos (about P20.00). The pertenencia referred to in the second paragraph of
the same article, though of greater area than the others (one hundred and fifty thousand
square meters), shall pay only twenty escudos (about P10.00).

ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be exempt from
the annual tax for a period of thirty years from the date of publication of this decree.

ART. 80. A further tax of three per centum on the gross earnings shall be paid without
deduction of costs of any kind whatsoever. All substances enumerated in section one shall
be exempt from said tax of three per centum for a period of thirty years.

ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and
metallurgical industries.

The royal decree and regulation for its enforcement provided that the deeds granted by the
Government should be in a particular form, which form was inserted in the regulations. It must be
presumed that the deeds granted to the plaintiff were made as provided by law, and, in fact, one of
such concessions was exhibited during the argument in this court, and was found to be in exact
conformity with the form prescribed by law. The deed is as follows:

Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los Ejercitos
Nacionales, Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de la
Real y distinguida de Isabel la Catolica, de la del Merito Militar Roja, de la de la Corona de
Italia, Comendador de Carlos Tercero, Bennemerito de la Patria en grado eminente,
condecorado con varias cruses de distincion por meritos de guerra, Capitan General y
Gobernador General de Filipinas.

Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck the
concession of a gold mine entitled "Nueva California Segunda" in the jurisdiction of Paracale,
Province of Ambos Camarines: Now, therefore, in the name of His Majesty the King (whom
God preserve), and pursuant to the provisions of article 37 of the royal decree of May 14,
1867, regulating mining in these Islands, I issue, this fifth day of November, eighteen
hundred and ninety-six, this title deed to four pertenencias, comprising an area of two
hundred and forty thousand square meters, as shown in the attached sketch map drafted by
the engineer Don Enrique Abella y Casariego, and dated at Manila December sixteenth of
the said year, subject to the following general terms and conditions:

1. That the mine shall be worked in conformity with the rules in mining, the grantee and his
laborers to be governed by the police rules established by existing regulations.

2. That the grantee shall be liable for all damages to third parties that may be caused by his
operations.

3. That the grantee shall likewise indemnify his neighbors for any damage they may suffer by
reason of water accumulated on his works, if, upon being requested, he fail to drain the
same within the time indicated.
 4. That he shall contribute for the drainage of the adjacent mines and for the general
galleries for drainage or haulage in proportion to the benefit he derives therefrom, whenever,
by authority of the Governor-General, such works shall be opened for a group
of pertenencias or for the entire mining locality in which the mine is situated.

5. That he shall commence work on the mine immediately upon receipt of this concession
unless prevented by force majeure.

6. That he shall keep the mine in active operation by employing at the rate of at least four
laborers for each pertenencia for at least six months of each year.

7. That he shall strengthen the walls of the mine within the time indicated whenever, by
reason of mismanagement of the work, it threatens to cave in, unless he be prevented
by force majeure.

8. That he shall not render further profitable development of the mine difficult or impossible
by avaricious operation.

9. That he shall not suspend the operation of the mine with the intention of abandoning the
same without first informing the Governor of his intention, in which case he must leave the
mine in a good state of timbering.

10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.

11. Finally, that he shall comply with all the requirements contained in the royal decree and
in the regulations for concessions of the same nature as the present.

Without special conditions.

Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet and to
Don Martin Buck the ownership of the said mine for an unlimited period of time so long as
they shall comply with the foregoing terms and conditions, to the end that they may develop
the same and make free use and disposition of the output thereof, with the right to alienate
the said mine subject to the provisions of existing laws, and to enjoy all the rights and
benefits conceded to such grantees by the royal decree and by the mining regulations. And
for the prompt fulfillment and observance of the said conditions, both on the part of the said
grantees and by all authorities, courts, corporations, and private persons whom it may
concern, I have ordered this title deed to be issued — given under my hand and the proper
seal and countersigned by the undersigned Director-General of Civil Administration.

It seems very clear to us that this deed constituted a contract between the Spanish Government and
the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the
Internal Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of
the act of Congress of July 1, 1902. This conclusion seems necessarily to result from the decisions
of the Supreme Court of the United States in similar cases. In the case of McGee vs. Mathis (4
Wallace, 143), it appeared that the State of Arkansas, by an act of the legislature of 1851, provided
for the sale of certain swamp lands granted to it by the United States; for the issue of transferable
scrip receivable for any lands not already taken up at the time of selection by the holder; for
contracts for the making of levees and drains, and for the payment of contractors in scrip and
otherwise. In the fourteenth section of this act it was provided that —
 To encourage by all just means the progress and completion of the reclaiming of such lands
by offering inducements to purchasers and contractors to take up said lands, all said swamp
and overflowed lands shall be exempt from taxation for the term of ten years or until they
shall be reclaimed.

In 1855 this section was repealed and provision was made by law for the taxation of swamp and
overflowed lands, sold or to be sold, precisely as other lands. McGee, before this appeal, had
become the owner by transfer from contractors of a large amount of scrip issued under the Act of
1851, and with this scrip, after the repeal, took up and paid for many sections and parts of sections
of the granted lands. Taxes were levied by the State on the lands so taken up by McGee. The
Supreme Court held that these taxes could not be collected. The Court said at page 156:

It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a
contract between the State and the holders of the land scrip issued under the act.

In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it appeared that on the 3d day
of February, 1853, the legislature of Missouri passed on act to incorporate the Home of the
Friendless in the city of St. Louis. Section 1 of the act provided that —

All property of said corporation shall be exempt from taxation.

The court held that the State had no power afterwards to pass laws providing for the levying of taxes
upon this institution. The Court said among other things at page 438:

The validity of this contract is questioned at the bar on the ground that the legislature had no
authority to grant away the power of taxation. The answer to this position is, that the question
is no longer open for argument here, for it is settled by the repeated adjudications of this
court, that a State may be contract based on a consideration exempt the property of an
individual or corporation from taxation, either for a specified period or permanently. And it is
equally well settled that the exemption is presumed to be on sufficient consideration, and
binds the State if the charter containing it is accepted.

In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it appears that St. Ariva's
Asylum was incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law
incorporating it provided that it should enjoy the same exemption from taxation which was enjoyed
by the Orphan Boys' Asylum of New Orleans. The law relating to the last named institution provided
(page 364):

That, from and after the passage of this act, all the property, real and personal, belonging to
the Orphan Boys' Asylum of New Orleans be, and the same is hereby exempted from all
taxation, either by the State, parish, or city in which it is situated, any law to the contrary
notwithstanding.

It was held that the State had no power by subsequent legislation to impose taxes upon the property
of this institution.

That the doctrine announced in these cases is still maintained in that court is apparent from the case
of Powers vs.The Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of
April, 1906, and reported in 201 U. S., 543. Section 9 of the act of the legislature of Michigan,
incorporating the railway company, provided:
 Said company shall, on or before the 1st day of July, pay to the State treasurer, an annual
tax of one per cent on the capital stock of said company, pain in, which tax shall be in lieu of
all other taxation.

The court said at page 556:

It has often been decided by this court, so often that a citation on authorities in unnecessary,
that the legislature of a State may, in the absence of special restrictions in its constitution,
make a valid contract with a corporation in respect to taxation, and that such contract can be
enforced against the State at the instance of the corporation.

The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the
Metropolitan Street Railway Company vs. The New York State Board of Tax Commissioners (199
U.S., 1). In that case it was provided by various acts of the legislature, that the companies therein
referred to, should pay annually to the city of New York, a fixed amount or percentage, varying from
2 to 8 per cent of their gross earnings additional taxes was sustained by the court. It was sustained
on the ground that the prior legislation did not expressly say that the taxes thus provided for should
be in lieu of all other taxes. The court said at page 37:

Applying these well-established rules to the several contracts, it will be perceived that there
was no express relinquishment of the right of taxation. The plaintiff in error must rely upon
some implication, and not upon any direct stipulation. In each contract there was a grant of
privileges, but the grant was specifically or privileges in respect to the construction, operation
and maintenance of the street railroad. These were all that in terms were granted. As
consideration for this grant, the grantees were to pay something, and such payment is
nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be
extracted from the language used, was a grant of privileges and a payment therefor. Other
words must be written into the contract before there can be found any relinquishment of the
power of taxation.

But in the case at bar, there is found not only the provisions for the payment of certain taxes
annually, but there is also found the provision contained in article 81, above quoted, which expressly
declares that no other taxes shall be imposed upon these mines.

The present case is to be distinguished also from that class of cases of which Grands Lodge vs. The
City of New Orleans (166 U.S., 143) is a type, and which includes Salt Company vs. East Saginaw
(13 Wall., 373) and Welch vs.Cook (97 U.S., 541). In these cases the exemption was a mere bounty
and did not form a part of any contract.

The fact that this concession was made by the Government of Spain, and not by the Government of
the United States, is not important. (Trustees of Dartmouth College vs. Woodward, 4 Wheaton, 518.)

Our conclusion is that the concessions granted by the Government of Spain to the plaintiff, constitute
contracts between the parties; that section 134 of the Internal Revenue Law impairs the obligation of
these contracts, and is therefore void as to them.

II. We think that this section is also void because in conflict with section 60 of the act of Congress of
July 1, 1902. This section is as follows:

That nothing in this Act shall be construed to effect the rights of any person, partnership, or
corporation, having a valid, perfected mining concession granted prior to April eleventh,
eighteen hundred and ninety-nine, but all such concessions shall be conducted under the
 provisions of the law in force at the time they were granted, subject at all times to
cancellation by reason of illegality in the procedure by which they were obtained, or for
failure to comply with the conditions prescribed as requisite to their retention in the laws
under which they were granted: Provided, That the owner or owners of every such
concession shall cause the corners made by its boundaries to be distinctly marked with
permanent monuments within six months after this act has been promulgated in the
Philippine Islands, and that any concessions, the boundaries of which are not so marked
within this period shall be free and open to explorations and purchase under the provisions of
this act.2

This section seems to indicate that concessions, like those in question, can be canceled only by
reason of illegality in the procedure by which they were obtained, or for failure to comply with the
conditions prescribed as requisite for their retention in the laws under which they were granted.
There is nothing in the section which indicates that they can be canceled for failure to comply with
the conditions prescribed by subsequent legislation. In fact, the real intention of the act seems to be
that such concession should be subject to the former legislation and not to any subsequent
legislation. There is no claim in this case that there was any illegality in the procedure by which
these concessions were obtained, nor is there any claim that the plaintiff has not complied with the
conditions prescribed in the said royal decree of 1867.

III. In view of the result at which we have arrived, it is not necessary to consider the further claim
made by the plaintiff that the taxes imposed by article 134 above quoted, are in violation of the part
of section 5 of the act of July 1, 1902, which declares "that the rule of taxation in said Islands shall
be uniform."

The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and
against the defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February,
1906, and the costs of the Court of First Instance. No costs will be allowed to either party in this
court.

After the expiration of twenty days let judgment be entered in accordance herewith and ten days
thereafter let the case be remanded to the court from whence it came for proper action. So ordered.

Arellano, C.J., Torres, Mapa, and Tracey, JJ., concur.

Johnson, J., dissents.

Footnotes

1 I Pub. Laws, 1057.

2 I Pub. Laws, 1071.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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.

Quasha, De Guzman Makalintal & Barot for petitioner.

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 seven-month 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.

Concepcion, Jr., Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.
 THIRD DIVISION

[G.R. No. 131359. May 5, 1999]

MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA

and BENITO R. BALAZO, in his capacity as Provincial Treasurer of
Laguna, respondents.

DECISION
VITUG, J.:

On various dates, certain municipalities of the Province of Laguna including, Bian, Sta Rosa,
San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued
resolutions through their respective municipal councils granting franchise in favor of petitioner
Manila Electric Company (MERALCO) for the supply of electric light, heat and power within
their concerned areas. On 19 January 1983, MERALCO was likewise granted a franchise by the
National Electrification Administration to operate an electric light and power service in the
Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the Local Government
Code of 1991, was enacted to take effect on 01 January 1992 enjoining local government units to
create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations
expressed therein, consistent with the basic policy of local autonomy. Pursuant to the provisions
of the Code, respondent province enacted Laguna Provincial Ordinance No. 01-92, effective 01
January 1993, providing, in part, as follows:

Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during the
preceding calendar year within this province, including the territorial limits on any
city located in the province[1]

On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to
MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then
amounted to P19,520,628.42, under protest. A formal claim for refund was thereafter sent by
MERALCO to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and
continued to pay to the National Government pursuant to P.D. 551 already included the franchise
tax imposed by the Provincial Tax Ordinance.MERALCO contended that the imposition of a
franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned
MERALCO, contravened the provisions of Section 1 of P.D. 551 which read:
Any provision of law or local ordinance to the contrary notwithstanding, the franchise
tax payable by all grantees of franchises to generate, distribute and sell electric current
for light, heat and power shall be two per cent (2%) of their gross receipts received
from the sale of electric current and from transactions incident to the generation,
distribution and sale of electric current.

Such franchise tax shall be payable to the Commissioner of Internal Revenue or his
duly authorized representative on or before the twentieth day of the month following
the end of each calendar quarter or month, as may be provided in the respective
franchise or pertinent municipal regulation and shall, any provision of the Local Tax
Code or any other law to the contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed by any national or local authority on
earnings, receipts, income and privilege of generation, distribution and sale of electric
current.

On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by
Governor Jose D. Lina. In denying the claim, respondents relied on a more recent
law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than the old decree
invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta Cruz,
Laguna, a complaint for refund, with a prayer for the issuance of a writ of preliminary injunction
and/or temporary restraining order, against the Province of Laguna and also Benito R. Balazo in
his capacity as the Provincial Treasurer of Laguna.Aside from the amount of P19,520,628.42 for
which petitioner MERALCO had priority made a formal request for refund, petitioner thereafter
likewise made additional payments under protest on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and
concluded:

WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS,

JUDGMENT is hereby rendered in favor of the defendants and against the plaintiff,
by:

1. Ordering the dismissal of the Complaint; and

2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding,

reasonable and enforceable.[2]

In the instant petition, MERALCO assails the above ruling and brings up the following
issues; viz:

1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial
Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non-
impairment clause of the Constitution and Section 1 of Presidential Decree No. 551.
2. Whether Republic Act. No. 7160, otherwise known as the Local Government Code
of 1991, has repealed, amended or modified Presidential Decree No. 551.

3. Whether the doctrine of exhaustion of administrative remedies is applicable in this

case.[3]

The petition lacks merit.

Prefatorily, it might be well to recall that local governments do not have the inherent power
to tax[4] except to the extent that such power might be delegated to them either by the basic law or
by statute. Presently, under Article X of the 1987 Constitution, a general delegation of that power
has been given in favor of local government units.Thus:

Sec. 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a
system of decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions, and duties of local
officials, and all other matters relating to the organization and operation of the local
units.

xxxxxxxxx

Sec. 5. Each local government shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.

The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out
with a similar delegation of revenue making powers to local governments.[5]
Under the regime of the 1935 Constitution no similar delegation of tax powers was provided,
and local government units instead derived their tax powers under a limited statutory
authority. Whereas, then, the delegation of tax powers granted at that time by statute to local
governments was confined and defined (outside of which the power was deemed withheld), the
present constitutional rule (starting with the 1973 Constitution), however, would broadly confer
such tax powers subject only to specific exceptions that the law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition
by statute, the tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and
self-sufficiency of local government units by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure that, while the local government
units are being strengthened and made more autonomous,[6] the legislature must still see to it that
(a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions;
(b) each local government unit will have its fair share of available resources; (c) the resources of
the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform,
and just.
The Local Government Code of 1991 has incorporated and adopted, by and large the
provisions of the now repealed Local Tax Code, which had been in effect since 01 July 1973,
promulgated into law by Presidential Decree No. 231[7] pursuant to the then provisions of Section
2, Article XI, of the 1973 Constitution. The 1991 Code explicitly authorizes provincial
governments, notwithstanding any exemption granted by any law or other special law, x x x (to)
impose a tax on businesses enjoying a franchise. Section 137 thereof provides:

Sec. 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 a
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. In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding
calendar year, regardless of when the business started to operate, the tax shall be
based on the gross receipts for the preceding calendar year, or any fraction thereof, as
provided herein. (Underscoring supplied for emphasis)

Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax
powers to local government units, the Local Government Code has effectively withdrawn under
Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. This law
states:

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. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Underscoring supplied for emphasis)

The Code, in addition, contains a general repealing clause in its Section 534; thus:

Section 534. Repealing Clause. x x x.

(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly. (Underscoring supplied for emphasis)[8]
 To exemplify, in Mactan Cebu International Airport Authority vs. Marcos,[9] the Court upheld
the withdrawal of the real estate tax exemption previously enjoyed by Mactan Cebu International Airport
Authority. The Court ratiocinated:

x x x These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they enjoy genuine
and meaningful local autonomy to enable them to attain their fullest development as
self-reliant communities and make them effective partners in the attainment of
national goals.The power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of local government units for the
delivery of basic service essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. It may also be relevant
to recall that the original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises, and there was a need
for these entities to share in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them.[10]

Petitioner in its complaint before the Regional Trial Court cited the ruling of this Court in
Province of Misamis Oriental vs. Cagayan Electric Power and Light Company, Inc.;[11] thus:

In an earlier case, the phrase shall be in lieu of all taxes and at any time levied,
established by, or collected by any authority found in the franchise of the Visayan
Electric Company was held to exempt the company from payment of the 5% tax on
corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan
Electric Co. vs. David, 49 O.G. [No. 4] 1385)

Similarly, we ruled that the provision: shall be in lieu of all taxes of every name and
nature in the franchise of the Manila Railroad (Subsection 12, Section 1, Act No.
1510) exempts the Manila Railroad from payment of internal revenue tax for its
importations of coal and oil under Act No. 2432 and the Amendatory Acts of the
Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).

The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act
No. 1497) justified the exemption of the Philippine Railway Company from payment
of the tax on its corporate franchise under Section 259 of the Internal Revenue Code,
as amended by R.A. No. 39 (Philippine Railway Co vs. Collector of Internal Revenue,
91 Phil. 35).

Those magic words, shall be in lieu of all taxes also excused the Cotabato Light and
Ice Plant Company from the payment of the tax imposed by Ordinance No. 7 of the
City of Cotabato (Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company
when it was required to pay the corporate franchise tax under Section 259 of the
Internal Revenue Code as amended by R.A. No. 39 (Carcar Electric & Ice Plant vs.
Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court pointed out that
such exemption is part of the inducement for the acceptance of the franchise and the
rendition of public service by the grantee.[12]

In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V.
Reyes, et al.,[13] the Court has held that the phrase in lieu of all taxeshave to give way to the
peremptory language of the Local Government Code specifically providing for the withdrawal of
such exemptions, privileges, and that upon the effectivityof the Local Government Code all
exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim
liability for the local tax. In fine, the Court has viewed its previous rulings as laying stress
more on the legislative intent of the amendatory law whether the tax exemption privilege is
to be withdrawn or not rather than on whether the law can withdraw, without violating the
Constitution, the tax exemption or not.
While the Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on the
franchise, these exemptions, nevertheless, are far from being strictly contractual in
nature. Contractual tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity. Truly,
tax exemptions of this kind may not be revoked without impairing the obligations of
contracts.[14] These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond
the purview of the non-impairment clause of the Constitution.[15] Indeed, Article XII, Section 11,
of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is
explicit that no franchise for the operation of a public utility shall be granted except under the
condition that such privilege shall be subject to amendment, alteration or repeal by Congress as
and when the common good so requires.
WHEREFORE, the instant petition is hereby DISMISSED. No costs.
SO ORDERED.
Romero, Panganiban, Purisima, and Gonzaga-Reyes, JJ., concur.

[1]
Rollo, p. 27
[2]
Rollo, p. 31.
[3]
Rollo, p. 113
[4]
Basco vs. PAGCOR 197 SCRA 52.
[5]
Art XI 1973 Constitution.
[6]
See Sec. 25, Art. II and Sec. 2, Art. X.
[7]
Later amended by PD 426.
[8]
Rollo, pp. 28-29.
[9]
261 SCRA 667.
[10]
At. p. 690.
[11]
181 SCRA 38 citing Carcar Electric & Ice Plant vs. Colector of Internal Revenue, 56 OG (No. 4) 1068.
[12]
At pp. 42-43.
[13]
G.R. No. 127708, 25 March 1999.
[14]
See Casanovas vs. Hord 8 Phil. 125.
[15]
See Cagayan Electric Co. vs. Commissioner, G.R. No. L-601026, 25 September 1985, but see Prov. Of Misamis
Oriental vs. Cagayan Electric, 181 SCRA 38, reiterated in Comm. vs. CTA, 195 SCRA 445.

FIRST DIVISION

[G.R. No. 144486. April 13, 2005]

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC.

(RCPI), petitioner, vs. PROVINCIAL ASSESOR OF SOUTH
COTABATO, PROVINCIAL TREASURER OF SOUTH COTABATO,
MUNICIPAL ASSESSOR OF TUPI, SOUTH COTABATO, and
MUNICIPAL TREASURER OF TUPI, SOUTH
COTABATO, respondents.

DECISION
CARPIO, J.:

The Case

This is a petition for review[1] to set aside the Decision[2] dated 29 March 2000 of the
Court of Appeals (appellate court) in CA-G.R. SP No. 47446. The appellate court modified
the ruling of the Central Board of Assessment Appeals (CBAA) and exempted petitioner
Radio Communications of the Philippines, Inc. (RCPI) from paying real property tax
assessed on its machinery and radio equipment mounted on its relay station tower as
accessories. However, the appellate court held RCPI liable for real property tax on its
radio station building, machinery shed, and relay station tower.
 The Facts

In 1957, Republic Act No. 2036 (RA 2036)[3] granted RCPI a fifty-year franchise.
Section 14 of RA 2036, as amended by Republic Act No. 4054 (RA 4054) in 1964, reads:

Sec. 14. In consideration of the franchise and rights hereby granted and any provision
of law to the contrary notwithstanding, the grantee shall pay the same taxes as are
now or may hereafter be required by law from other individuals, copartnerships,
private, public or quasi-public associations, corporations or joint stock companies, on
real estate, buildings and other personal property except radio equipment, machinery
and spare parts needed in connection with the business of the grantee, which shall be
exempt from customs duties, tariffs and other taxes, as well as those properties
declared exempt in this section. In consideration of the franchise, a tax equal to one
and one-half per centum of all gross receipts from the business transacted under this
franchise by the grantee shall be paid to the Treasurer of the Philippines each year,
within ten days after the audit and approval of the accounts as prescribed in this
Act. Said tax shall be in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any authority whatsoever,
municipal, provincial or national, from which taxes the grantee is hereby
expressly exempted. (Emphasis supplied)

On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI
real property taxes from 1981 to 1985.[4] The municipal treasurer demanded that RCPI
pay P166,810 as real property tax on its radio station building in Barangay Kablon, as
well as on its machinery shed, radio relay station tower and its accessories, and
generating sets, based on the following tax declarations:[5]

1. Tax Declaration No. 7639 - Radio station building

2. Tax Declaration No. 7640 - Machinery shed

3. Tax Declaration No. 7641 - Radio relay station tower and

accessories (100 feet high)

4. Tax Declaration No. 7642 - Two (2) units machinery [lister

generating set]

RCPI protested the assessment before the Local Board of Assessment Appeals
(LBAA).[6] RCPI claimed that all its assessed properties are personal properties and thus
exempt from the real property tax. Assuming that the assessed properties are real
property, they are still exempt from real property taxes. Section 3 of Presidential Decree
No. 464 (PD 464) states that to be taxable, the machinery should be attached to the real
estate and essential for manufacturing, commercial, mining, industrial, or agricultural
purposes. RCPI claimed that the assessed properties are not used for manufacturing,
commercial, mining, industrial, or agricultural purposes. Besides, the assessed properties
are attached to a building on a lot not owned by RCPI.
RCPI also pointed out that its franchise exempts RCPI from paying any and all taxes
of any kind, nature or description in exchange for its payment of tax equal to one and one-
half per cent on all gross receipts from the business conducted under its franchise. RCPI
further claimed that any deviation from its franchise would violate the non-impairment of
contract clause of the Constitution. Finally, RCPI stated that the value of the properties
assessed has depreciated since their acquisition in the 1960s.
The Provincial Assessor of South Cotabato (provincial assessor) opposed RCPIs
claims on all points. The provincial assessor insisted that the assessed properties are
subject to the real property tax.

The Ruling of the Local Board of Assessment Appeals

In its Decision[7] dated 19 May 1995, the LBAA of Koronadal, South Cotabato affirmed
the notices of assessment as valid and consistent with the law. The properties covered
by Tax Declaration Nos. 7639, 7640, 7641 and 7642 are real properties for purposes of
real property taxation under PD 464. The in lieu of all taxes clause in RCPIs franchise
does not exempt its properties from the real property tax. Finally, despite its protests,
RCPI did not submit evidence as to the date of acquisition, acquisition cost, and condition
of the assessed properties to support its claim of depreciation. The LBAA, in the absence
of contrary evidence, relied on the validity of the Notice of Assessment and on the
presumption that official duty has been regularly performed. The dispositive portion of the
LBAAs decision reads:

WHEREFORE, the appellant is hereby ordered to pay the real property taxes,
inclusive of all penalties, surcharges and interest accruing as of the date of actual
payment, on the properties covered by Tax Declaration Nos. 7639, 7640, 7641, and
7642, as computed.

SO ORDERED.[8]

RCPI appealed to the CBAA.[9] RCPI maintained that the in lieu of all taxes clause in
its franchise forecloses the imposition of taxes other than the franchise tax. RCPI also
reiterated its arguments before the LBAA. Respondent assessors repeated their
opposition to RCPIs appeal.

The Ruling of the Central Board of Assessment Appeals

In its Decision[10] dated 7 November 1996, the CBAA dismissed RCPIs appeal. The
CBAA held that RCPIs liability for the franchise tax does not exempt RCPI from the real
property tax. Under RCPIs franchise, only personal properties such as radio equipment,
machinery and spare parts are exempt from customs duties, tariffs and other taxes. The
CBAA ruled that RCPI was liable for the real property tax on the assessed properties.
RCPI could also not invoke the non-impairment of contract clause since no legal right of
RCPI was violated. The dispositive portion of the CBAAs decision reads:

WHEREFORE, the Decision rendered by the Local Board of Assessment Appeals of

the Province of South Cotabato, dated 19 May 1995, is hereby AFFIRMED and the
instant appeal is hereby DISMISSED.

SO ORDERED.[11]

The Ruling of the Court of Appeals

RCPI filed its petition for review of the CBAA ruling before the appellate court. In its
Decision[12] dated 29 March 2000, the appellate court modified the CBAA ruling. The
appellate court ruled that Section 14 of RA 2036, as amended by RA 4054, clearly
exempts RCPI from tax on radio equipment, machinery, and spare parts needed in
connection with its business. Therefore, RCPI is not liable for real property tax on the
generating sets, and on its radio relay station tower and its accessories consisting of two
units of UHF communication equipment, power distribution unit boar, and battery charger,
which are actually varying types of radio equipment. The appellate court explained thus:

The tower upon which these different types of radio equipment are mounted or
attached is, however, subject to real property tax since a tower is not strictly a radio
equipment as it only serves as a support for antennas or other communication
equipment mounted thereon for the transmission and reception of radio signals
(Colliers Encyclopedia, Vol. 22, p. 127). Nor could it be classified as machinery,
which is a combination of mechanical devices (26 Words and Phrases, p. 7), for
without attachments to it, a tower is merely a structure designed primarily with a view
to elevation (Websters New International Dictionary of the English Language, 2 nd Ed.,
Unabridged).

As RCPIs tax exemption covers only its radio equipment, machinery, and spare parts
essential to its business, it is liable for realty tax on its radio station building. The
machinery shed is likewise taxable as the same is a kind of real property falling within
the classification of buildings or permanent structures intended to shelter human
beings or domestic animals, or to receive, retain, or confine the goods in which a
person deals, or to house the tools or machinery he uses, or the persons he employs in
his business (5 Words and Phrases, p. 877).[13]

The dispositive portion of the appellate courts decision reads:

WHEREFORE, the decision of the Central Board of Assessment Appeals is hereby

MODIFIED. Petitioner is declared exempt from paying the real property taxes
assessed upon its machinery and radio equipment mounted as accessories to its relay
tower. The decision assessing taxes upon petitioners radio station building, machinery
shed, and relay station tower is, however, AFFIRMED.[14]

RCPI filed a partial motion for reconsideration, claiming that its exemption from real
property tax applies to the radio relay station tower, the radio station building, and the
machinery shed.[15] The appellate court denied the motion.[16]

The Issues

RCPI filed its petition for review before this Court. RCPI presented the following
issues for resolution:
1. The appellate court erred when it excluded RCPIs tower, relay station building and
machinery shed from tax exemption; and
2. The appellate court erred when it did not resolve the issue of nullity of the tax
declarations and assessments due to non-inclusion of depreciation allowance.[17]

The Ruling of the Court

Exemption from Real Property Tax

Respondents assert that RCPI not only changed its arguments, RCPI also made
incorrect arguments. RCPI earlier maintained that its radio relay station tower, radio
station building, and machinery shed are personal properties and are thus not subject to
the real property tax. RCPI now argues that its radio relay station tower, radio station
building, and machinery shed are tax-exempt because of the in lieu of all taxes clause in
its franchise, which exempts RCPI from the real estate tax.
RCPI contends that the in lieu of all taxes clause in its amended franchise exempts it
from paying all taxes other than franchise tax. It is thus no longer necessary to determine
whether the tower, relay station building, and machinery shed are radio equipment for
purposes of exemption from the real estate tax.
RCPI also states that legislative enactments during the pendency of this petition
caused it to lose and then regain its tax-exempt status. RCPI enumerated thus:

First, Congress passed the Local Government Code that withdrew all the tax
exemptions existing at the time of its passageincluding that of RCPIs.

Second, Congress enacted the franchise of telecommunications companies, such as

Islacom, Bell, Island Country, IslaTel, TeleTech, Major Telecoms, and Smart, with
the in lieu of all taxes proviso.

Third, Congress passed RA 7925 entitled An Act to Promote and Govern the
Development of Philippine Telecommunications and the Delivery of Public
Telecommunications Services which, through Section 23, mandated the equality of
treatment of service providers in the telecommunications industry.[18]

We are not persuaded.

As found by the appellate court, RCPIs radio relay station tower, radio station
building, and machinery shed are real properties and are thus subject to the real property
tax. Section 14 of RA 2036, as amended by RA 4054, states that [i]n consideration of the
franchise and rights hereby granted and any provision of law to the contrary
notwithstanding, the grantee shall pay the same taxes as are now or may hereafter
be required by law from other individuals, copartnerships, private, public or quasi-public
associations, corporations or joint stock companies, on real estate, buildings and other
personal property x x x.[19] The clear language of Section 14 states that RCPI shall
pay the real estate tax.
The in lieu of all taxes clause in Section 14 of RA 2036, as amended by RA 4054,
cannot exempt RCPI from the real estate tax because the same Section 14 expressly
states that RCPI shall pay the same taxes x x x on real estate, buildings x x x. The in
lieu of all taxes clause in the third sentence of Section 14 cannot negate the first sentence
of the same Section 14, which imposes the real estate tax on RCPI. The Court must give
effect to both provisions of the same Section 14. This means that the real estate tax is an
exception to the in lieu of all taxes clause.
Subsequent legislations have radically amended the in lieu of all taxes clause in
franchises of public utilities. As RCPI correctly observes, the Local Government Code of
1991 withdrew all the tax exemptions existing at the time of its passage including
that of RCPIs with respect to local taxes like the real property tax. Also, Republic Act No.
7716 (RA 7716) abolished the franchise tax on telecommunications companies effective
1 January 1996. To replace the franchise tax, RA 7716 imposed a 10 percent value-
added-tax on telecommunications companies under Section 102[20] of the National
Internal Revenue Code. The present state of the law on the in lieu of all taxes clause in
franchises of telecommunications companies was summarized as follows:

The existing legislative policy is clearly against the revival of the in lieu of all taxes
clause in franchises of telecommunications companies. After the VAT on
telecommunications companies took effect on January 1, 1996, Congress never again
included the in lieu of all taxes clause in any telecommunications franchise it
subsequently approved. Also, from September 2000 to July 2001, all the fourteen
telecommunications franchises approved by Congress uniformly and expressly state
that the franchisee shall be subject to all taxes under the National Internal Revenue
Code, except the specific tax. The following is substantially the uniform tax provision
in these fourteen franchises:

Tax Provisions. The grantee, its successors or assigns, shall be subject to the payment
of all taxes, duties, fees, or charges and other impositions under the National Internal
Revenue Code of 1997, as amended, and other applicable laws: Provided, That
nothing herein shall be construed as repealing any specific tax exemptions, incentives
or privileges granted under any relevant law: Provided, further, That all rights,
privileges, benefits and exemptions accorded to existing and future
telecommunications entities shall likewise be extended to the grantee.

Thus, after the imposition of the VAT on telecommunications companies, Congress

refused to grant any tax exemption to telecommunications companies that sought new
franchises from Congress, except the exemption from specific tax. More importantly,
the uniform tax provision in these new franchises expressly states that the franchisee
shall pay not only all taxes, except specific tax, under the National Internal Revenue
Code, but also all taxes under other applicable laws. One of the other applicable
laws is the Local Government Code of 1991, which empowers local governments to
impose a franchise tax on telecommunications companies. This, to reiterate, is the
existing legislative policy.[21]

RCPI cannot also invoke the equality of treatment clause under Section 23 of Republic
Act No. 7925.[22] The franchises of Smart,[23] Islacom,[24] TeleTech,[25] Bell,[26] Major
Telecoms,[27] Island Country,[28] and IslaTel,[29] all expressly declare that the
franchisee shall pay the real estate tax, using words similar to Section 14 of RA 2036,
as amended. The provisions of these subsequent telecommunication franchises imposing
the real estate tax on franchisees only confirm that RCPI is subject to the real estate tax.
Otherwise, RCPI will stick out like a sore thumb, being the only telecommunications
company exempt from the real estate tax, in mockery of the spirit of equality of treatment
that RCPI is invoking, not to mention the violation of the constitutional rule on uniformity
of taxation.
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 taxpayers duty to justify the
exemption by words too plain to be mistaken and too categorical to be misinterpreted. [30]

Exclusion of Depreciation Allowance

RCPI contends that the tax declarations and assessments covering its radio relay
station tower, radio station building, and machinery shed are void because the assessors
did not consider depreciation allowance in their assessments.
We have examined the records of this case and found that RCPI raised before the
LBAA and the CBAA the nullity of the assessments due to the non-inclusion of
depreciation allowance. Therefore, RCPI did not raise this issue for the first time.
However, even if we consider this issue, under the Real Property Tax Code depreciation
allowance applies only to machinery and not to real property. [31]
WHEREFORE, we DENY the petition. We AFFIRM the Decision of the Court of
Appeals in CA-G.R. SP No. 47446 dated 29 March 2000.
SO ORDERED.
 Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna,
JJ., concur.

[1] Under Rule 45 of the 1997 Rules of Civil Procedure.

[2] Penned by Associate Justice (now Supreme Court Associate Justice) Conchita Carpio Morales, with
Associate Justices Teodoro P. Regino and Jose L. Sabio, Jr., concurring.
[3] An Act Granting the Radio Communications of the Philippines a Franchise to Establish Radio Stations
for Domestic Telecommunications.
[4] Rollo, p. 26.
[5] Ibid., pp. 27-35.
[6] Ibid., pp. 42-55.
[7] Ibid., pp. 62-72.
[8] Ibid., p. 71.
[9] Ibid., pp. 75-89.
[10] Ibid., pp. 97-120.
[11] Ibid., p. 120.
[12] Ibid., pp. 165-170.
[13] Ibid., pp. 168-169.
[14] Ibid., p. 169.
[15] Ibid., pp. 171-176.
[16] Ibid., pp. 177-78.
[17] Ibid., pp. 10-11.
[18] See Rollo, pp. 240-241.
[19] Emphasis supplied.
[20] Now Section 108 of the Tax Reform Act of 1997, Republic Act No. 8424.
[21] Concurring Opinion of Justice Antonio T. Carpio in PLDT v. City of Davao, 447 Phil. 558, 595-596 (2003).
Citations omitted. Emphasis in the original.
[22] This provision states:
Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or
immunity granted under existing franchise, or may hereafter be granted, shall ipso facto become
part of previously granted telecommunications franchise and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, that the foregoing shall
neither apply to nor affect provisions of telecommunications franchises concerning territory covered
by the franchise, the life span of the franchise, or the type of service authorized by the franchise.
[23] Section 9 of Republic Act No. 7294, the franchise of Smart Information Technologies, Inc., states:
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 which are now or hereafter may be required by law to pay. x x x. (Emphasis supplied)
[24] Section 14 of Republic Act No. 7372, the franchise of Isla Communications Co., states:
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
which are now or hereafter may be required by law to pay. x x x. (Emphasis supplied)
[25] Section 10 of Republic Act No. 7617, the franchise of Telecommunications Technologies Philippines,
Incorporated, states:
Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate, buildings and
personal property exclusive of this franchise, as other persons or telecommunication entities are
now or hereafter may be required by law to pay. x x x. (Emphasis supplied)
[26] Section 9 of Republic Act No. 7692, the franchise of Bell Telecommunication Philippines, Inc., states:
Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate, buildings and
personal property exclusive of this franchise, as other persons or telecommunication entities are
now or hereafter may be required by law to pay. x x x. (Emphasis supplied)
[27] Section 14 of Republic Act No. 7783, the franchise of Major Telecoms., Inc, states:
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 or hereafter may be required by law to pay. x x x. (Emphasis supplied)
[28] Section 10 of Republic Act No. 7939, the franchise of Island Country Telecommunications, Inc., states:
Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate, buildings and
personal property exclusive of this franchise, as other persons or telecommunication entities are
now or hereafter may be required by law to pay. x x x. (Emphasis supplied)
[29] Section 10 of Republic Act No. 8095, the franchise of Islatel Corporation, states:
Tax Provision. 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 or hereafter may be required by law to pay. x x x. (Emphasis supplied)
[30] See Province of Tarlac v. Alcantara, G.R. No. 65230, 23 December 1992, 216 SCRA 790.
[31]Section 29, Real Property Tax Code, PD 464 reads:
Depreciation Allowance for Machinery. For purposes of assessment, a depreciation allowance shall be
made for machinery at a rate not exceeding ten per cent of its original cost or its replacement or
reproduction cost (new), as the case may be, for each year of use: Provided, That the remaining
value for all kinds of machinery shall be fixed at not less than twenty per cent of such original or
replacement cost for so long as the machinery is useful and in operation.
The Local Government Code, Republic Act No. 7160, has a similar provision, which reads:
Section 225. Depreciation Allowance for Machinery. For purposes of assessment, a depreciation allowance
shall be made for machinery at a rate not exceeding five percent (5%) of its original cost or its
replacement or reproduction cost, as the case may be, for each year of use: Provided, however,
That the remaining value for all kinds of machinery shall be fixed at not less than twenty percent
(20%) of such original, replacement, or reproduction cost for so long as the machinery is useful and
in operation.
 SECOND DIVISION

THE CITY GOVERNMENT G.R. No. 162015

OF QUEZON CITY, AND THE CITY Present:
TREASURER OF QUEZON CITY,
DR. VICTOR B. ENRIGA, PUNO, J., Chairperson,
Petitioners, SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
- versus -
Promulgated:

BAYAN TELECOMMUNICATIONS, March 6, 2006

INC.,
Respondent.
x-----------------------------------------------------------------------------------x

DECISION
GARCIA, J.:

Before the Court, on pure questions of law, is this petition for review on
certiorari under Rule 45 of the Rules of Court to nullify and set aside the
following issuances of the Regional Trial Court (RTC) of Quezon City, Branch
227, in its Civil Case No. Q-02-47292, to wit:

1) Decision[1] dated June 6, 2003, declaring respondent Bayan

Telecommunications, Inc. exempt from real estate taxation on its real
properties located in Quezon City; and

2) Order[2] dated December 30, 2003, denying petitioners motion for

reconsideration.

The facts:

Respondent Bayan Telecommunications, Inc.[3] (Bayantel) is a

legislative franchise holder under Republic Act (Rep. Act) No. 3259[4] to
establish and operate radio stations for domestic telecommunications,
radiophone, broadcasting and telecasting.

Of relevance to this controversy is the tax provision of Rep. Act No.

3259, embodied in Section 14 thereof, which reads:

SECTION 14. (a) The grantee shall be liable to pay the same taxes on its
real estate, buildings and personal property, exclusive of the franchise, as other
persons or corporations are now or hereafter may be required by law to pay. (b) The
grantee shall further pay to the Treasurer of the Philippines each year, within ten
days after the audit and approval of the accounts as prescribed in this Act, one and
one-half per centum of all gross receipts from the business transacted under this
franchise by the said grantee (Emphasis supplied).

On January 1, 1992, Rep. Act No. 7160, otherwise known as

the Local Government Code of 1991 (LGC), took effect. Section 232 of the
Code grants local government units within the Metro Manila Area the power
to levy tax on real properties, thus:

SEC. 232. Power to Levy Real Property Tax. A province or city or a

municipality within the Metropolitan Manila Area may levy an annual ad valorem
tax on real property such as land, building, machinery and other improvements not
hereinafter specifically exempted.

Complementing the aforequoted provision is the second paragraph of

Section 234 of the same Code which withdrew any exemption from realty
tax heretofore granted to or enjoyed by all persons, natural or juridical, to
wit:

SEC. 234 - Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:

xxx xxx xxx

Except as provided herein, any exemption from payment of real property

tax previously granted to, or enjoyed by, all persons, whether natural or juridical,
 including government-owned-or-controlled corporations is hereby withdrawn
upon effectivity of this Code(Emphasis supplied).

On July 20, 1992, barely few months after the LGC took effect,
Congress enacted Rep. Act No. 7633, amending Bayantels original franchise.
The amendatory law (Rep. Act No. 7633) contained the following tax
provision:
SEC. 11. 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 or 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 telephone
or other telecommunications businesses 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 payable under Title II of the
National Internal Revenue Code . xxx. [Emphasis supplied]

It is undisputed that within the territorial boundary of Quezon City,

Bayantel owned several real properties on which it maintained various
telecommunications facilities. These real properties, as hereunder described,
are covered by the following tax declarations:

(a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-

096-04073 pertaining to Bayantels Head Office and Operations Center in
Roosevelt St., San Francisco del Monte, Quezon City allegedly the nerve
center of petitioners telecommunications franchise operations, said
Operation Center housing mainly petitioners Network Operations Group
and switching, transmission and related equipment;

(b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-

124-00941 covering Bayantels land, building and equipment in Maginhawa
St., Barangay East Teachers Village, Quezon City which houses
telecommunications facilities; and

(c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-

011-11540 referring to Bayantels Exchange Center located in Proj. 8, Brgy.
Bahay Toro, Tandang Sora, Quezon City which houses the Network
Operations Group and cover switching, transmission and other related
equipment.
 In 1993, the government of Quezon City, pursuant to the
taxing power vested on local government units by Section 5, Article X of the
1987 Constitution, infra, in relation to Section 232 of the
LGC, supra, enacted City Ordinance No. SP-91, S-93, otherwise known as
the Quezon City Revenue Code (QCRC),[5] imposing, under Section 5
thereof, a real property tax on all real properties in Quezon City, and,
reiterating in its Section 6, the withdrawal of exemption from real property
tax under Section 234 of the LGC, supra. Furthermore, much like the LGC,
the QCRC, under its Section 230, withdrew tax exemption privileges in
general, as follows:

SEC. 230. 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 RA 6938, non-stock and non-profit hospitals and educational
institutions, business enterprises certified by the Board of Investments (BOI) as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, are
hereby withdrawn effective upon approval of this Code (Emphasis supplied).

Conformably with the Citys Revenue Code, new tax declarations for
Bayantels real properties in Quezon City were issued by the City Assessor
and were received by Bayantel on August 13, 1998, except one (Tax
Declaration No. 124-01013) which was received on July 14, 1999.

Meanwhile, on March 16, 1995, Rep. Act No. 7925,[6]otherwise known

as the Public Telecommunications Policy Act of the Philippines, envisaged to
level the playing field among telecommunications companies, took
effect. Section 23 of the Act provides:

SEC. 23. Equality of Treatment in the Telecommunications Industry. Any

advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications
 franchises concerning territory covered by the franchise, the life span of the
franchise, or the type of service authorized by the franchise.

On January 7, 1999, Bayantel wrote the office of the City Assessor

seeking the exclusion of its real properties in the city from the roll of taxable
real properties. With its request having been denied, Bayantel interposed an
appeal with the Local Board of Assessment Appeals (LBAA). And, evidently
on its firm belief of its exempt status, Bayantel did not pay the real property
taxes assessed against it by the Quezon City government.

On account thereof, the Quezon City Treasurer sent out notices of

delinquency for the total amount of P43,878,208.18, followed by the
issuance of several warrants of levy against Bayantels properties preparatory
to their sale at a public auction set on July 30, 2002.

Threatened with the imminent loss of its properties, Bayantel

immediately withdrew its appeal with the LBAA and instead filed
with the RTC of Quezon City a petition for prohibition with an urgent
application for a temporary restraining order (TRO) and/or writ of preliminary
injunction, thereat docketed as Civil Case No. Q-02-47292, which was raffled
to Branch 227 of the court.

On July 29, 2002, or in the eve of the public auction scheduled the
following day, the lower court issued a TRO, followed, after due hearing, by
a writ of preliminary injunction via its order of August 20, 2002.

And, having heard the parties on the merits, the same court came out
with its challenged Decision of June 6, 2003, the dispositive portion of which
reads:

WHEREFORE, premises considered, pursuant to the enabling franchise

under Section 11 of Republic Act No. 7633, the real estate properties and buildings
of petitioner [now, respondent Bayantel] which have been admitted to be used in
the operation of petitioners franchise described in the following tax declarations are
hereby DECLARED exempt from real estate taxation:
 (1) Tax Declaration No. D-096-04071
(2) Tax Declaration No. D-096-04074
(3) Tax Declaration No. D-124-01013
(4) Tax Declaration No. D-011-10810
(5) Tax Declaration No. D-011-10811
(6) Tax Declaration No. D-011-10809
(7) Tax Declaration No. D-124-00941
(8) Tax Declaration No. D-124-00940
(9) Tax Declaration No. D-124-00939
(10) Tax Declaration No. D-096-04072
(11) Tax Declaration No. D-096-04073
(12) Tax Declaration No. D-011-11540

The preliminary prohibitory injunction issued in the August 20, 2002Order of this
Court is hereby made permanent. Since this is a resolution of a purely legal issue,
there is no pronouncement as to costs.

SO ORDERED.

Their motion for reconsideration having been denied by the court in its
Order dated December 30, 2003, petitioners elevated the case directly to
this Court on pure questions of law, ascribing to the lower court the following
errors:

I. [I]n declaring the real properties of respondent exempt from real property
taxes notwithstanding the fact that the tax exemption granted to Bayantel in
its original franchise had been withdrawn by the [LGC] and that the said
exemption was not restored by the enactment of RA 7633.

II. [In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the enactment of the [QCRC] which withdrew the tax
exemption which may have been granted by RA 7633.

III. [In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the vague and ambiguous grant of tax exemption
provided under Section 11 of RA 7633.

IV. [In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the fact that [it] had failed to exhaust administrative
remedies in its claim for real property tax exemption. (Words in bracket
added.)
 As we see it, the errors assigned may ultimately be reduced to two (2)
basic issues, namely:
1. Whether or not Bayantels real properties in Quezon City are exempt from
real property taxes under its legislative franchise; and
2. Whether or not Bayantel is required to exhaust administrative remedies
before seeking judicial relief with the trial court.

We shall first address the second issue, the same

being procedural in nature.

Petitioners argue that Bayantel had failed to avail itself of the

administrative remedies provided for under the LGC, adding that the trial
court erred in giving due course to Bayantels petition for prohibition. To
petitioners, the appeal mechanics under the LGC constitute Bayantels plain
and speedy remedy in this case.

The Court does not agree.

Petitions for prohibition are governed by the following provision of Rule

65 of the Rules of Court:

SEC. 2. Petition for prohibition. When the proceedings of any tribunal, are
without or in excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal or any other plain,
speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent to
desist from further proceedings in the action or matter specified therein, or
otherwise, granting such incidental reliefs as law and justice may require.

With the reality that Bayantels real properties were already levied upon
on account of its nonpayment of real estate taxes thereon, the Court agrees
with Bayantel that an appeal to the LBAA is not a speedy and adequate
remedy within the context of the aforequoted Section 2 of Rule 65. This is
not to mention of the auction sale of said properties already scheduled
on July 30, 2002.
 Moreover, one of the recognized exceptions to the exhaustion- of-
administrative remedies rule is when, as here, only legal issues are to be
resolved. In fact, the Court, cognizant of the nature of the questions
presently involved, gave due course to the instant petition. As the Court has
said in Ty vs. Trampe:[7]

xxx. Although as a rule, administrative remedies must first be exhausted

before resort to judicial action can prosper, there is a well-settled exception in cases
where the controversy does not involve questions of fact but only of law. xxx.

Lest it be overlooked, an appeal to the LBAA, to be properly

considered, required prior payment under protest of the amount
of P43,878,208.18, a figure which, in the light of the then prevailing Asian
financial crisis, may have been difficult to raise up. Given this reality, an
appeal to the LBAA may not be considered as a plain, speedy and adequate
remedy. It is thus understandable why Bayantel opted to withdraw its earlier
appeal with the LBAA and, instead, filed its petition for prohibition with
urgent application for injunctive relief in Civil Case No. Q-02-47292. The
remedy availed of by Bayantel under Section 2, Rule 65 of the Rules of Court
must be upheld.

This brings the Court to the more weighty question of whether or not
Bayantels real properties in Quezon City are, under its franchise, exempt
from real property tax.

The lower court resolved the issue in the affirmative, basically owing
to the phrase exclusive of this franchise found in Section 11 of Bayantels
amended franchise, Rep. Act No. 7633. To petitioners, however, the
language of Section 11 of Rep. Act No. 7633 is neither clear nor
unequivocal. The elaborate and extensive discussion
devoted by the trial court on the meaning and import of
said phrase, they add, suggests as much. It is petitioners thesis that
Bayantel was in no time given any express exemption from the payment
of real property tax under its amendatory franchise.
 There seems to be no issue as to Bayantels exemption from real estate
taxes by virtue of the term exclusive of the franchise qualifying the phrase
same taxes on its real estate, buildings and personal property, found in
Section 14, supra, of its franchise, Rep. Act No. 3259, as originally granted.

The legislative intent expressed in the phrase exclusive of this

franchise cannot be construed other than distinguishing
between two (2) sets of properties, be they real or personal,
owned by the franchisee, namely, (a) those actually, directly
and exclusively used in its radio or telecommunications business,
and (b) those propertieswhich are not so used. It is worthy
to note that the properties subject of the present controversy
are only those which are admittedly falling under the first category.

To the mind of the Court, Section 14 of Rep. Act No. 3259effectively

works to grant or delegate to local governments of Congress inherent power
to tax the franchisees properties belonging to the second group of properties
indicated above, that is, all properties which, exclusive of this franchise, are
not actually and directly used in the pursuit of its franchise. As may be
recalled, the taxing power of local governments under both the 1935 and
the 1973 Constitutions solely depended upon an enabling law. Absentsuch
enabling law, local government units were without authority to impose and
collect taxes on real properties within their respective territorial jurisdictions.
While Section 14 of Rep. Act No. 3259 may be validly viewed as an implied
delegation of power to tax, the delegation under that provision, as couched,
is limited to impositions over properties of the franchisee which are not
actually, directly and exclusively used in the pursuit of its
franchise. Necessarily, other properties of Bayantel directly used in the
pursuit of its business are beyond the pale of the delegated taxing power of
local governments. In a very real sense, therefore, real properties of
Bayantel, save those exclusive of its franchise, are subject to realty
taxes. Ultimately, therefore, the inevitable result was that all realties which
are actually, directly and exclusively used in the operation of its franchise
are exempted from any property tax.
 Bayantels franchise being national in character, the exemption thus
granted under Section 14 of Rep. Act No. 3259 applies to all its real or
personal properties found anywhere within the Philippine archipelago.

However, with the LGCs taking effect on January 1, 1992, Bayantels

exemption from real estate taxes for properties of whatever kind located
within the Metro Manila area was, by force of Section 234 of the
Code, supra, expressly withdrawn. But, not long thereafter, however, or
on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantels
original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is
a virtual reenacment of the tax provision, i.e., Section 14, supra, of
Bayantels original franchise under Rep. Act No. 3259. Stated otherwise,
Section 14 of Rep. Act No. 3259 which was deemed impliedly repealed by
Section 234 of the LGC was expressly revived under Section 14 of Rep. Act
No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed
by Bayantel under its original franchise, but subsequently withdrawn by force
of Section 234 of the LGC, has been restored by Section 14 of Rep. Act No.
7633.

The Court has taken stock of the fact that by virtue of Section 5, Article
X of the 1987 Constitution,[8] local governments are empowered to levy
taxes. And pursuant to this constitutional empowerment, juxtaposed
with Section 232[9] of the LGC, the Quezon City government enacted in 1993
its local Revenue Code, imposing real property tax on all real properties
found within its territorial jurisdiction. And as earlier stated, the
Citys Revenue Code, just like the LGC, expressly withdrew, under Section
230 thereof, supra, all tax exemption privileges in general.

This thus raises the question of whether or not the Citys Revenue
Code pursuant to which the city treasurer of Quezon Citylevied real property
taxes against Bayantels 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.

Bayantels 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 AirportAuthority:[10]

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. (at p. 680; Emphasis supplied.)

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.[11] (Emphasis supplied).

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 governments
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 citys territory and
removed exemptions theretofore previously granted
to, or presently enjoyed by all persons, whether natural or juridical
.,[12] 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,[13] 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 declarednational policy. The legal effect of the constitutional
grant to localgovernments simply means that in interpreting statutory provisions o
 nmunicipal taxing powers, doubts must be resolved in favor of municipal
corporations. (Emphasis supplied.)

As we see it, then, the issue in this case no longer dwells on whether
Congress has the power to exempt Bayantels properties from realty taxes by
its enactment of Rep. Act No. 7633 which amended Bayantels original
franchise. The more decisive question turns on whether Congress
actually did exempt Bayantels properties at all by virtue of Section
11 of Rep. Act No. 7633.

Admittedly, Rep. Act No. 7633 was enacted subsequent to the

LGC. Perfectly aware that the LGC has already withdrawn Bayantels former
exemption from realty taxes, Congress opted to pass Rep. Act No. 7633
using, under Section 11 thereof, exactly the same defining phrase exclusive
of this franchise which was the basis for Bayantels exemption from realty
taxes prior to the LGC. In plain language, Section 11 of Rep. Act No. 7633
states that 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 or hereafter may
be required by law to pay. The Court views this subsequent piece of
legislation as an express and real intention on the part of Congress to
once again remove from the LGCs delegated taxing power, all of the
franchisees (Bayantels) properties that are actually, directly and exclusively
used in the pursuit of its franchise.

WHEREFORE, the petition is DENIED.

No pronouncement as to costs.

SO ORDERED.
 CANCIO C. GARCIA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

ADOLFO S. AZCUNA
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Courts Division.

REYNATO S. PUNO
Associate Justice
Chairperson, Second Division
 CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division

Chairman's Attestation, it is hereby certified that the conclusions in the above
decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice

[1]
Penned by then Judge Vicente Q. Roxas, now Associate Justice of the Court of Appeals; Rollo, pp. 46-71.
[2]
Rollo, p. 72.
[3]
Formerly named International Communications Corporation.
[4]
An Act Granting the International Communications Corporation a Franchise to Establish Radio Stations for
Domestic Telecommunications, Radiophone, Broadcasting and Telecasting. Approved on June 17, 1961.
This franchise was later extended with the enactment of Republic Act No. 4905 on June 17, 1967, stating
that: SEC. 4. This franchise shall continue for a period of twenty-five years from the date the first of said
stations shall be placed in operation, and is granted upon the express condition that the same shall be void
unless the construction of said station be begun within two years from the date of the approval of this
amendatory Act and be completed within four years from said date.
[5]
This took effect on July 1, 1993.
[6]
Entitled An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of
Public Telecommunication Services.
[7]
250 SCRA 500 (1995).
[8]
Sec. 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes
subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. xxx. Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667 (1996), per
then Associate Justice, now retired Chief Justice Hilario G. Davide, Jr., ponente.
[9]
SEC. 232. Power to Levy Real Property Tax. 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.
[10]
See Footnote #8, supra.
[11]
Bernas, The Constitution of the Republic of the Philippines, a Commentary, Vol. 11, 1988 ed., p. 381.
[12]
Section 6, Quezon City Revenue Code, quoted in Petitioners Memorandum; Rollo, p. 323.
[13]
363 SCRA 522 (2001), per Associate Justice Vicente V. Mendoza, ponente.

THIRD DIVISION

SMART COMMUNICATIONS, INC., G.R. No. 155491

 Petitioner,
Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
THE CITY OF DAVAO, represented NACHURA, and
herein by its Mayor HON. RODRIGO REYES, JJ.
R. DUTERTE, and the
SANGGUNIANG PANLUNGSOD Promulgated:
OF DAVAO CITY,
Respondents. September 16, 2008
x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court
filed by Smart Communications, Inc. (Smart) against the City of Davao, represented
by its Mayor, Hon. Rodrigo R. Duterte, and the Sangguniang Panlungsod of Davao
City, to annul the Decision[1] dated July 19, 2002 of the Regional Trial Court (RTC)
and its Order[2] dated September 26, 2002 in Sp. Civil Case No. 28,976-2002.

The Facts

On February 18, 2002, Smart filed a special civil action for declaratory relief[3] under
Rule 63 of the Rules of Court, for the ascertainment of its rights and obligations
under the Tax Code of the City of Davao,[4]particularly Section 1, Article 10 thereof,
the pertinent portion of which reads:

Notwithstanding any exemption granted by any law or other special law, there is
hereby imposed a tax on businesses enjoying a franchise, at a rate of seventy-five
percent (75%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the income or receipts realized within the territorial
jurisdiction of Davao City.

Smart contends that its telecenter in Davao City is exempt from payment of franchise
tax to the City, on the following grounds: (a) the issuance of its franchise under
Republic Act (R.A.) No. 7294[5] subsequent to R.A. No. 7160 shows the clear
legislative intent to exempt it from the provisions ofR.A. 7160;[6] (b) Section 137
of R.A. No. 7160 can only apply to exemptions already existing at the time of its
effectivity and not to future exemptions; (c) the power of the City of Davao to impose
a franchise tax is subject to statutory limitations such as the in lieu of all taxes clause
found in Section 9 of R.A. No. 7294; and (d) the imposition of franchise tax by the
City of Davao would amount to a violation of the constitutional provision against
impairment of contracts.[7]

On March 2, 2002, respondents filed their Answer[8] in which they contested the tax
exemption claimed by Smart. They invoked the power granted by the Constitution
to local government units to create their own sources of revenue.[9]

On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues
were involved in the case, the RTC issued an order requiring the parties to submit
their respective memoranda and, thereafter, the case would be deemed submitted for
resolution.[10]

On July 19, 2002, the RTC rendered its Decision[11] denying the petition. The trial
court noted that the ambiguity of the in lieu of all taxes provision in R.A. No. 7294,
on whether it covers both national and local taxes, must be resolved against the
taxpayer.[12] The RTC ratiocinated that tax exemptions are construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority and, thus,
those who assert a tax exemption must justify it with words too plain to be mistaken
and too categorical not to be misinterpreted.[13] On the issue of violation of the non-
impairment clause of the Constitution, the trial court cited Mactan Cebu
International Airport Authority v. Marcos,[14] and declared that the citys power to
tax is based not merely on a valid delegation of legislative power but on the direct
authority granted to it by the fundamental law. It added that while such power may
be subject to restrictions or conditions imposed by Congress, any such legislated
limitation must be consistent with the basic policy of local autonomy. [15]

Smart filed a motion for reconsideration which was denied by the trial court in an
Order[16] dated September 26, 2002.

Thus, the instant case.

Smart assigns the following errors:

[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER

PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7294), WHICH
CONTAINS THE IN LIEU OF ALL TAXES CLAUSE, AND WHICH IS A
SPECIAL LAW ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT
CODE, NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.

[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS

FRANCHISE IS A GENERAL LAW AND DID NOT REPEAL RELEVANT
PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL
GOVERNMENT CODE, WHICH ACCORDING TO THE COURT IS A
SPECIAL LAW.

[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137
OF THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO
SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE
FRANCHISE TAX, AND SECTION 193 OF THE CODE, WHICH PROVIDES
FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES, ARE NOT
APPLICABLE TO THIS CASE.

[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137
AND 193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO
EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS ENACTMENT
BUT NOT TO FUTURE EXEMPTIONS.

[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF

STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE
CONSTRUED STRICTLY AGAINST THE TAXPAYER.
 [f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND
EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, THE PUBLIC
TELECOMMUNICATIONS POLICY ACT, TAKING INTO ACCOUNT THE
FRANCHISE OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO.
7229), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED
SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, THEREBY
PROVIDING AN ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY
BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF

THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL
GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE
PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL
GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.

[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE

IMPOSITION OF THE LOCAL FRANCHISE TAX ON PETITIONER WOULD
VIOLATE THE CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT
OF CONTRACTS.

[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.[17]

The Issue

In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise
tax imposed by the City of Davao.

The Ruling of the Court

We rule in the affirmative.

I. Prospective Effect of R.A. No. 7160

On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect.
Section 9 thereof, quoted hereunder, is at the heart of the present controversy:

Section 9. 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 which are now or 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 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 payable 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.

The grantee shall file the return with and pay the tax due thereon to the
Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code and the return shall be subject
to audit by the Bureau of Internal Revenue. (Emphasis supplied.)

Smart alleges that the in lieu of all taxes clause in Section 9 of its franchise exempts
it from all taxes, both local and national, except the national franchise tax (now
VAT), income tax, and real property tax.[18]

On January 1, 1992, two months ahead of Smarts franchise, the Local Government
Code (R.A. No. 7160) took effect. Section 137, in relation to Section 151 of R.A.
No. 7160, allowed the imposition of franchise tax by the local government units;
while Section 193 thereof provided for the withdrawal of tax exemption privileges
granted prior to the issuance of R.A. No. 7160 except for those expressly mentioned
therein, viz.:

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.

In the case of a newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding
calendar year, regardless of when the business started to operate, the tax shall be
based on the gross receipts for the preceding calendar year, or any fraction thereon,
as provided herein.

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 independent 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.

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 RA
No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. (Emphasis supplied.)

Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A.
No. 7160, because its franchise was granted after the effectivity of the said law. We
agree with Smarts contention on this matter. The withdrawal of tax exemptions or
incentives provided in R.A. No. 7160 can only affect those franchises granted prior
to the effectivity of the law. The intention of the legislature to remove all tax
exemptions or incentives granted prior to the said law is evident in the language of
Section 193 of R.A. No. 7160. No interpretation is necessary.

II. The in lieu of all taxes Clause in R.A. No. 7294

The in lieu of all taxes clause in Smarts franchise is put in issue before the Court. In
order to ascertain its meaning, consistent with fundamentals of statutory
construction, all the words in the statute must be considered. The grant of tax
exemption by R.A. No. 7294 is not to be interpreted from a consideration of a single
portion or of isolated words or clauses, but from a general view of the act as a whole.
Every part of the statute must be construed with reference to the context.[19]

Smart is of the view that the only taxes it may be made to bear under its franchise
are the national franchise tax (now VAT), income tax, and real property tax.[20] It
claims exemption from the local franchise tax because the in lieu of taxes clause in
its franchise does not distinguish between national and local taxes.[21]
We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from
local taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax
equivalent to three percent (3%) of all gross receipts of the business transacted under
the franchise and the said percentage shall be in lieu of all taxes on the franchise or
earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes Smart
is exempted from. It is not clear whether the in lieu of all taxes provision in the
franchise of Smart would include exemption from local or national taxation. What
is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all
gross receipts of the business transacted under its franchise. But whether the
franchise tax exemption would include exemption from exactions by both the local
and the national government is not unequivocal.

The uncertainty in the in lieu of all taxes clause in R.A. No. 7294 on whether Smart
is exempted from both local and national franchise tax must be construed strictly
against Smart which claims the exemption. Smart has the burden of proving that,
aside from the imposed 3% franchise tax, Congress intended it to be exempt from
all kinds of franchise taxes whether local or national. However, Smart failed in this
regard.

Tax exemptions are never presumed and are strictly construed against the taxpayer
and liberally in favor of the taxing authority.[22] They can only be given force when
the grant is clear and categorical.[23] The surrender of the power to tax, when
claimed, must be clearly shown by a language that will admit of no reasonable
construction consistent with the reservation of the power. If the intention of the
legislature is open to doubt, then the intention of the legislature must be resolved in
favor of the State.[24]

In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of
all taxes clause applies only to national internal revenue taxes and not to local taxes.
As appropriately pointed out in the separate opinion of Justice Antonio T. Carpio in
a similar case[25] involving a demand for exemption from local franchise taxes:

[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other
than income tax, imposed under the National Internal Revenue Code. The "in lieu
of all taxes" clause does not apply to local taxes. The proviso in the first paragraph
of Section 9 of Smart's franchise states that the grantee shall "continue to be liable
for income taxes payable under Title II of the National Internal Revenue Code."
 Also, the second paragraph of Section 9 speaks of tax returns filed and taxes paid
to the "Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code." Moreover, the same
paragraph declares that the tax returns "shall be subject to audit by the Bureau of
Internal Revenue." Nothing is mentioned in Section 9 about local taxes. The clear
intent is for the "in lieu of all taxes" clause to apply only to taxes under the National
Internal Revenue Code and not to local taxes. Even with respect to national internal
revenue taxes, the "in lieu of all taxes" clause does not apply to income tax.

If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also
apply to local taxes, Congress would have expressly mentioned the exemption from
municipal and provincial taxes. Congress could have used the language in Section
9(b) of Clavecilla's old franchise, as follows:

x x x in lieu of any and all taxes of any kind, nature or description

levied, established or collected by any authority
whatsoever, municipal, provincial or national, from which the
grantee is hereby expressly exempted, x x x. (Emphasis supplied).

However, Congress did not expressly exempt Smart from local taxes. Congress
used the "in lieu of all taxes" clause only in reference to national internal revenue
taxes. The only interpretation, under the rule on strict construction of tax
exemptions, is that the "in lieu of all taxes" clause in Smart's franchise refers only
to national and not to local taxes.

It should be noted that the in lieu of all taxes clause in R.A. No. 7294 has
become functus officio with the abolition of the franchise tax on
telecommunications companies.[26] As admitted by Smart in its pleadings, it is no
longer paying the 3% franchise tax mandated in its franchise. Currently, Smart
along with other telecommunications companies pays the uniform 10% value-
added tax.[27]

The VAT on sale of services of telephone franchise grantees is equivalent to 10% of

gross receipts derived from the sale or exchange of services.[28]R.A. No. 7716, as
amended by the Expanded Value Added Tax Law (R.A. No. 8241), the pertinent
portion of which is hereunder quoted, amended Section 9 of R.A. No. 7294:

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, a value-
added tax equivalent to ten percent (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;
stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their transport
of goods or cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land, air, and water relative to their transport of
goods or cargoes; 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; services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance companies (except
their crop insurances) including surety, fidelity, indemnity and bonding companies;
and similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties. x x x.[29]

R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of
all special laws relative to the rate of franchise taxes. It also repealed, amended, or
modified all other laws, orders, issuances, rules and regulations, or parts thereof
which are inconsistent with it.[30] In effect, the in lieu of all taxes clause in R.A. No.
7294 was rendered ineffective by the advent of the VAT Law.[31]

However, the franchise tax that the City of Davao may impose must comply with
Sections 137 and 151 of R.A. No. 7160. Thus, the local franchise tax that may be
imposed by the City must not exceed 50% of 1% of the gross annual receipts for the
preceding calendar year based on the income on receipts realized within the
territorial jurisdiction of Davao.

III. Opinion of the Bureau of Local Government Finance (BLGF)

In support of its argument that the in lieu of all taxes clause is to be construed as an
exemption from local franchise taxes, Smart submits the opinion of the Department
of Finance, through the BLGF, dated August 13, 1998 and February 24, 1998,
regarding the franchises of Smart and Globe, respectively. [32] Smart presents the
same arguments as the Philippine Long Distance Telephone Company in the
previous cases already decided by this Court.[33] As previously held by the Court, the
findings of the BLGF are not conclusive on the courts:

[T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of petitioner
and in effect restored its exemptions from local taxes. Petitioner contends that
courts should not set aside conclusions reached by the BLGF because its function
is precisely the study of local tax problems and it has necessarily developed an
expertise on the subject.

To be sure, the BLGF is not an administrative agency whose findings on questions

of fact are given weight and deference in the courts. The authorities cited by
petitioner pertain to the Court of Tax Appeals, a highly specialized court which
performs judicial functions as it was created for the review of tax cases. In contrast,
the BLGF was created merely to provide consultative services and technical
assistance to local governments and the general public on local taxation, real
property assessment, and other related matters, among others. The question raised
by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925.
There is, therefore, no basis for claiming expertise for the BLGF that administrative
agencies are said to possess in their respective fields.

Petitioner likewise argues that the BLGF enjoys the presumption of regularity in
the performance of its duty. It does enjoy this presumption, but this has nothing to
do with the question in this case. This case does not concern the regularity of
performance of the BLGF in the exercise of its duties, but the correctness of its
interpretation of a provision of law.[34]

IV. Tax Exclusion/Tax Exemption

Smart gives another perspective of the in lieu of all taxes clause in Section 9 of R.A.
No. 7294 in order to avoid the payment of local franchise tax. It says that, viewed
from another angle, the in lieu of all taxes clause partakes of the nature of a tax
exclusion and not a tax exemption. A tax exemption means that the taxpayer does
not pay any tax at all. Smart pays VAT, income tax, and real property tax. Thus,
what it enjoys is more accurately a tax exclusion.[35]

However, as previously held by the Court, both in their nature and effect, there is no
essential difference between a tax exemption and a tax exclusion. An exemption is
an immunity or a privilege; it is the freedom from a charge or burden to which others
are subjected. An exclusion, on the other hand, is the removal of otherwise taxable
items from the reach of taxation, e.g., exclusions from gross income and allowable
deductions. An exclusion is, thus, also an immunity or privilege which frees a
taxpayer from a charge to which others are subjected. Consequently, the rule that a
tax exemption should be applied in strictissimi juris against the taxpayer and
liberally in favor of the government applies equally to tax exclusions.[36]

V. Section 23 of R.A. No. 7925

To further its claim, Smart invokes Section 23 of the Public Telecommunications

Policy Act (R.A. No. 7925):

SECTION 23. Equality of Treatment in the Telecommunications Industry. Any

advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of
previously granted telecommunications franchise and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise, the
life span of the franchise, or the type of service authorized by the
franchise.(Emphasis supplied.)

In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection
with the franchise of Globe (R.A. No. 7227),[37] which was enacted on March 19,
1992.

Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the most
favored treatment clause or the equality clause, the provision in the franchise of
Globe exempting it from local taxes is automatically incorporated in the franchise
of Smart.[38] Smart posits that, since the franchise of Globe contains a provision
exempting it from municipal or local franchise tax, this provision should also benefit
Smart by virtue of Section 23 of R.A. No. 7925. The provision in Globes franchise
invoked by Smart reads:

(b) The grantee shall further pay to the Treasurer of the Philippines each year after
the audit and approval of the accounts as prescribed in this Act, one and one-half
 per centum of all gross receipts from business transacted under this franchise by
the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature
or description levied, established or collected by any authority whatsoever,
municipal, provincial or national, from which the grantee is hereby expressly
exempted, effective from the date of the approval of Republic Act Numbered
Sixteen hundred eighteen.[39]

We find no reason to disturb the previous pronouncements of this Court regarding

the interpretation of Section 23 of R.A. No. 7925. As aptly explained in the en
banc decision of this Court in Philippine Long Distance Telephone Company, Inc.
v. City of Davao,[40] and recently in Digital Telecommunications Philippines, Inc.
(Digitel) v. Province of Pangasinan,[41] Congress, in approving Section 23 of R.A.
No. 7925, did not intend it to operate as a blanket tax exemption to all
telecommunications entities.[42]The language of Section 23 of R.A. No. 7925 and the
proceedings of both Houses of Congress are bereft of anything that would signify
the grant of tax exemptions to all telecommunications entities, including those whose
exemptions had been withdrawn by R.A. No. 7160.[43] The term exemptionin Section
23 of R.A. No. 7925 does not mean tax exemption. The term refers to exemption
from certain regulations and requirements imposed by the National
Telecommunications Commission.[44]

Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature

incontrovertibly stated that it will be liable for one and one-half per centum of all
gross receipts from business transacted under the franchise, in lieu of any and all
taxes of any kind, nature, or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national, from which the grantee is
hereby expressly exempted.[45] The grant of exemption from municipal, provincial,
or national is clear and categorical that aside from the franchise tax collected by
virtue of R.A. No. 7229, no other franchise tax may be collected from Globe
regardless of who the taxing power is. No such provision is found in the franchise
of Smart; the kind of tax from which it is exempted is not clearly specified.

As previously explained by the Court, the stance of Smart would lead to absurd
consequences.

The acceptance of petitioner's theory would result in absurd consequences. To

illustrate: In its franchise, Globe is required to pay a franchise tax of only one and
 one-half percentum (1%) of all gross receipts from its transactions while Smart is
required to pay a tax of three percent (3%) on all gross receipts from business
transacted. Petitioner's theory would require that, to level the playing field, any
"advantage, favor, privilege, exemption, or immunity" granted to Globe must be
extended to all telecommunications companies, including Smart. If, later, Congress
again grants a franchise to another telecommunications company imposing, say,
one percent (1%) franchise tax, then all other telecommunications franchises will
have to be adjusted to "level the playing field" so to speak. This could not have
been the intent of Congress in enacting 23 of Rep. Act 7925. Petitioner's theory will
leave the Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It is
different if Congress enacts a law specifically granting uniform advantages, favor,
privilege, exemption, or immunity to all telecommunications entities.[46]

VI. Non-impairment Clause of the Constitution

Another argument of Smart is that the imposition of the local franchise tax by the
City of Davao would violate the constitutional prohibition against impairment of
contracts. The franchise, according to petitioner, is in the nature of a contract
between the government and Smart.[47]

However, we find that there is no violation of Article III, Section 10 of the 1987
Philippine Constitution. As previously discussed, the franchise of Smart does not
expressly provide for exemption from local taxes. Absent the express provision on
such exemption under the franchise, we are constrained to rule against it. The in lieu
of all taxes clause in Section 9 of R.A. No. 7294 leaves much room for interpretation.
Due to this ambiguity in the law, the doubt must be resolved against the grant of tax
exemption.

Moreover, Smarts franchise was granted with the express condition that it is subject
to amendment, alteration, or repeal.[48] As held in Tolentino v. Secretary of
Finance: [49]

It is enough to say that the parties to a contract cannot, through the exercise of
prophetic discernment, fetter the exercise of the taxing power of the State. For not
only are existing laws read into contracts in order to fix obligations as between
parties, but the reservation of essential attributes of sovereign power is also read
 into contracts as a basic postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government which
retains adequate authority to secure the peace and good order of society.

In truth, the Contract Clause has never been thought as a limitation on the exercise
of the States power of taxation save only where a tax exemption has been granted
for a valid consideration. x x x.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice
 ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]
Penned by Judge Renato A. Fuentes; rollo, pp. 101-108.
[2]
Id. at 121-123.
[3]
Records, pp. 2-11.
[4]
City Ordinance No. 519, series of 1992, amending Ordinance No. 230, series of 1991, otherwise known as the Tax
Code of the City of Davao.
[5]
An act granting Smart Information Technologies, Inc. (Smart) a franchise to establish, install, maintain, lease and
operate integrated telecommunications/computer/electronic services, and stations throughout the Philippines for
public domestic and international telecommunications, and for other purposes.
[6]
Smarts franchise lapsed into law on March 27, 1992 without the Presidents signature in accordance with Article VI,
Section 27(1) of the Constitution.
[7]
Records, pp. 7-8.
[8]
Id. at 21-26.
[9]
CONSTITUTION, Art. X, Sec. 5.
[10]
Records, p. 62.
[11]
Supra note 1.
[12]
Id. at 104.
[13]
Id. at 106.
[14]
G.R. No. 120082, September 11, 1996, 261 SCRA 667.
[15]
Rollo, p. 107.
[16]
Id. at 121-123.
[17]
Id. at 24-26.
[18]
Id. at 258.
[19]
Aquino v. Quezon City, G.R. No. 137534, August 3, 2006, 497 SCRA 497, 507.
[20]
Rollo, p. 258.
[21]
Id.
[22]
Commissioner of Internal Revenue v. Visayan Electric Company, 132 Phil. 203, 215 (1968).
[23]
Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation, G.R. Nos. 83583-84, September 30,
1991, 202 SCRA 137.
[24]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, 415 Phil. 764, 775 (2001).
[25]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, 447 Phil. 571, 594 (2003).
[26]
Id. at 593.
[27]
Rollo, p. 269.
[28]
Section 108, National Internal Revenue Code, as amended by the Tax Reform Act of 1997 (R.A. No. 8424).
[29]
Now Section 108, R.A. No. 8424, as amended. (Emphasis supplied.)
[30]
SECTION 20. Repealing Clauses. The provisions of any special law relative to the rate of franchise taxes are
hereby expressly repealed. Sections 113, 114 and 116 of the National Internal Revenue Code are hereby repealed.
Paragraphs (c), (d), and (e) of Article 39 of Executive Order No. 226, otherwise as the Omnibus Investment Code of
1987, are hereby repealed: Provided, however, That the benefits and incentives under said paragraphs shall continue
to be enjoyed by enterprises registered with the Board of Investments before the effectivity of this Act.
Unless otherwise excluded by the President pursuant to Section 17 hereof, Sections 19 and 20 of the National Internal
Revenue Code shall be repealed upon the expiration of two (2) years from the effectivity of this Act. During the period
that the freight services rendered by international cargo vessels are not covered by the value-added tax imposed under
this Act, said services shall pay a tax at a rate of three per centum (3%) of their quarterly gross receipts derived from
outgoing cargoes.
All other laws, orders, issuances, rules and regulations of parts thereof inconsistent with this Act are hereby repealed,
amended or modified accordingly.
[31]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24.
[32]
Rollo, pp. 303-309.
[33]
Philippine Long Distance Telephone Company, Inc. v. Province of Cebu, G.R. No. 151208, October 16,
2006; Philippine Long Distance Telephone Company, Inc. v. Province of Laguna, G.R. No. 151899, August 16, 2005,
467 SCRA 93; Philippine Long Distance Telephone Company, Inc. v. City of Bacolod,G.R. No. 149179, July 15,
2005, 463 SCRA 528; Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 25; Philippine
Long Distance Telephone Company, Inc. v. City of Davao, supra note 24.
[34]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 779-780.
[35]
Rollo, pp. 276-277.
[36]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 775.
[37]
An Act approving the merger between Globe Mackay Cable and Radio Corporation and Clavecilla Radio System
and the consequent transfer of the franchise of Clavecilla Radio System granted under Republic Act No. 402, as
amended, to Globe Mackay Cable and Radio Corporation, extending the life of said franchise and repealing certain
sections of RA No. 402, as amended.
[38]
Rollo, p. 256.
[39]
Section 9 of R.A. No. 4540. (Emphasis supplied).
[40]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24.
[41]
G.R. No. 152534, February 23, 2007, 516 SCRA 541.
[42]
Id.
[43]
Id.
[44]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 25.
[45]
Section 11 of R.A. No. 7229 provides: All other provisions of Republic Act No. 402, as amended by Republic Act
Nos. 1618 and 4540, and the provisions of Batas Pambansa Blg. 95 which are not inconsistent with the provisions of
this Act and are still unrepealed shall continue to be in full force and effect.
In view of the above-mentioned provision, Section 3 of R.A. No. 4540, the pertinent portion of which is quoted herein,
is incorporated into R.A. No. 7229: "(b) The grantee shall further pay to the Treasurer of the Philippines each year
after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts
from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any
kind, nature or description levied, established or collected by an authority whatsoever, municipal, provincial or
national, from which the grantee is hereby expressly exempted, effective from the date of the approval of Republic
Act Numbered Sixteen hundred eighteen.
[46]
Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 776.
[47]
Rollo, pp. 310-313.
[48]
CONSTITUTION, Art. XII, Sec. 11.
[49]
G. R. No. 115455, August 25, 1994, 235 SCRA 630, 685.

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION

QUEZON CITY and THE CITY G.R. No. 166408

TREASURER OF QUEZON CITY,
Petitioners,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

ABS-CBN BROADCASTING Promulgated:

CORPORATION,
Respondent. October 6, 2008

x--------------------------------------------------x

DECISION

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 Decision[1] of
the Court of Appeals (CA) and that[2] 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, 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. 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 P19,944,672.66[5]

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 P14,233,582.29[6]

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

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 Cityseeking the declaration
of nullity of the imposition of local franchise tax by the City Government 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 P19,944,672.66[7]

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 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 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 137[11] 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-CBNs contract with
the government. The imposition of another franchise on the corporation by the local
authority would constitute an impairment of the formers 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 Citys 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 Cityand 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 Courts consideration are more of
legal query necessitating a legal opinion rather than a call for adjudication on the matter in
dispute.
 xxxx

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.

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 absolutely excused from paying the franchise tax imposed by appellants;

2) Whether appellants imposition of local franchise tax is a violation of

appellees 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.:

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 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 courts 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:
The court has the discretion to dismiss or not to dismiss an appellants 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 courts
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 rapiers
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.

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

xxxx

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 Citys Revenue Code pursuant to which
the city treasurer of Quezon City levied real property taxes against Bayantels 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.

Bayantels 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.

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 governments 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 citys 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 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
governments 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 taxes provision, Congress intended to
exempt ABS-CBN from local franchise tax.

Petitioners argue that the in lieu of all taxes provision in ABS-CBNs 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 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.[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. David[33] to support its claim that
that 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 (1) 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] (Underscoring
supplied)

In the case under review, ABS-CBNs 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 justify 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 RTCfurther 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-CBNs 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)
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)

Subsequently, R.A. No. 8241[37] took effect on January 1, 1997[38]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.

On January 1, 1998, R.A. No. 8424[39] 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 ten million
pesos has been abolished, the in lieu of all taxes clause has now become functus
officio, rendered inoperative.

In sum, ABS-CBNs 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
oflocal franchise tax is DISMISSED.

SO ORDERED.

RUBEN T. REYES
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

REYNATO S. PUNO
Chief Justice
[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 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.
[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.
[5]
Rollo, p. 17.
[6]
Id.
[7]
Id. at 17-18.
[8]
Id. at 46-60.
[9]
Id. at 54.
[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.
[13]
Rollo, pp. 64-65.
[14]
Id. at 23.
[15]
Id. at 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.
[19]
Sevilleno v. Carilo, id.
[20]
G.R. No. 168115, June 8, 2007, 524 SCRA 333.
[21]
Ong Lim Sing Jr. v. FEB Leasing and Finance Corporation, id. at 343-344.
[22]
G.R. No. 162015, March 6, 2006, 484 SCRA 169.
[23]
City Government of Quezon City v. Bayan Telecommunications, Inc., id. at 183-186.
[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.
[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.
[29]
See note 27, at 302.
[30]
53 O.G. (No. 4) 1068.
[31]
40 Phil 224 (1919).
[32]
91 Phil 35 (1952).
[33]
92 Phil. 969 (1953).
[34]
Supra.
[35]
Manila Railroad v. Rafferty, id. at 226.
[36]
Approved on May 5, 1994.
[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. Approvedon 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.
[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.