Cagayan Electric Power & Light Co. Inc. v CIR
GR No. L-60126, September 25, 1985
FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment of 3% tax on gross earning is in lieu of all taxes and assessments upon privileges. In 1968, RA 5431 amended the franchise by making all corporate taxpayers liable for income tax. In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was reenacted. The commissioner required the company to pay deficiency income taxes for the intervening period (1968-1969).
ISSUE:
Is CEPALCO liable for the tax?
RULING:
Yes. Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. However, it cannot be denied that the said 1969 assessment appears to be highly controversial. It had reason not to pay income tax because of the tax exemption its franchise. For this reason, it should be liable only for tax proper and should not be held liable for surcharge and interest.
FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment of 3% tax on gross earning is in lieu of all taxes and assessments upon privileges. In 1968, RA 5431 amended the franchise by making all corporate taxpayers liable for income tax. In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was reenacted. The commissioner required the company to pay deficiency income taxes for the intervening period (1968-1969).
ISSUE:
Is CEPALCO liable for the tax?
RULING:
Yes. Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. However, it cannot be denied that the said 1969 assessment appears to be highly controversial. It had reason not to pay income tax because of the tax exemption its franchise. For this reason, it should be liable only for tax proper and should not be held liable for surcharge and interest.
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