Commissioner v Lingayen Gulf Electric (1988)

Commissioner v Lingayen Gulf Electric GR No L-23771, August 4, 1988

FACTS:
Lingayen Gulf Electric Power operates an electric power plant serving the municipalities of Lingayen and Binmaley, Pangasinan, pursuant to municipal franchise granted it by the respective municipal councils. The franchises provided that the grantee shall pay quarterly to the provincial treasury of Pangasinan 1% of the gross earnings obtained through the privilege for the first 20 years (from 1946) and 2% during the remaining 15 years of the life of the franchise. In 1955, the BIR assessed and demanded against the company deficiency franchise taxes and surcharges from the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from 1948 to 1954. The company asked for a reinvestigation, which was denied. CTA, however, ruled for Lingayen. Hence, this petition.

ISSUES:
1. Whether the Court can inquire into the wisdom of the franchise
2. Whether a rate below 5% is violative of the uniformity clause in the Constitution

RULING:

1. No, the Court does not have the authority to inquire into the wisdom of the Act. Charters or special laws granted and enacted by the legislature are in the nature of private contracts. They do not constitute a part of the machinery of the general government. Also, the Court ought not to disturb the ruling of the Court of Tax Appeals on the constitutionality of the law in question.
   
   
2. No. The legislature has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed violative of the equal protection clause. Herein, the 5% franchise tax rate provided in Section 259 of the Tax Code was never intended to have universal application. Section 259 expressly allows the payment of taxes at rates lower than 5% when the charter granting the franchise precludes the imposition of a higher tax. RA 3843, the law granting the franchise, did not only fix and specify a franchise tax of 2% on its gross receipts but made it in lieu of any and all taxes, all laws to the contrary notwithstanding. The company, hence, is not liable for deficiency taxes.