QUEZON CITY and THE CITY TREASURER OF QUEZON CITY,

Petitioners, vs ABS-CBN BROADCASTING CORPORATION,
Respondent. G.R. No. 166408, October 6, 2008

FACTS : Under Section 31, Article 13 of the Quezon City

Revenue Code of 1993, a franchise tax was imposed on
businesses operating within its jurisdiction. 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. 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is amended or repealed, in which case the amendment or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. 

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

imposed by Quezon City.

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 P14,233,582.29
  
For failure to obtain any response from the Quezon City
Treasurer.

So, ABS-CBN filed a complaint before the RTC in Quezon

City seeking the declaration of nullity of the imposition of local
franchise tax by the City Government of Quezon City for being
unconstitutional. It likewise prayed for the refund of local
franchise tax in the amount of (P19,944,672.66).
  
RTC ruled 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.
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.
 
 CA dismissed the petition of Quezon City and its Treasurer.

Hence, the present recourse.

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.
 
ISSUE:   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.
 
 HELD : Petition is GRANTED ; Decision REVERSED AND SET
ASIDE. Petition in the trial court for refund of local franchise
tax is DISMISSED.

ABS-CBNs claims for exemption must fail on twin grounds. 

1st, 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. 

2nd , 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.
 
 
I.
NO, the in lieu of all taxes provision in its franchise does
not exempt ABS-CBN from payment of local franchise tax.

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. Such taxing power by the local
government, however, is limited in the sense that Congress
can enact legislation granting exemptions. 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.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. 

Here, by passing R.A. No. 7966, which contains the

in lieu of all taxes provision, Congress does not intended to
exempt ABS-CBN from local franchise tax. 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.

  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.
 
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.
 
II.

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 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. 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.

Radio and/or television companies whose annual gross

receipts do not exceedP10,000,000.00 were granted the
option to choose between paying 3% national franchise tax
or 10% VAT. 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.
 
So, 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). 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.