Philippine Railway Co. v. Collector of Internal Revenue
REITERATIONFacts
The Antecedents: The plaintiff, Philippine Railway Co., operated a railway line on Panay Island under a franchise granted by Act No. 1497. The defendant was the Collector of Internal Revenue. The plaintiff paid a franchise tax of 1 1/2% on its gross receipts for the fourth quarter of 1946 and for the year 1947. The defendant assessed a deficiency tax, demanding payment at a rate of 5% on the gross receipts, plus surcharges, based on Section 259 of the National Internal Revenue Code (NIRC), as amended by Republic Act No. 39. The plaintiff paid the demanded deficiency taxes and surcharges to avoid penalties but subsequently filed a claim for refund. Procedural History: The plaintiff filed a claim for refund of the difference between the taxes paid at 1 1/2% and the amounts demanded at 5%. The defendant denied this claim. The case was submitted to the court below upon an agreed statement of facts. The Petition: The plaintiff contended that it was only subject to the 1 1/2% tax under Section 13 of Act No. 1497, which stipulated that the franchise tax paid was in lieu of all other taxes. The defendant, sustained by the trial court, relied on Section 259 of the NIRC, which imposed a 5% tax on gross earnings or receipts from the business covered by a franchise, or a higher percentage specified in the special charter, whichever is higher, unless the charter precludes a higher tax.
Issue(s)
Whether Section 259 of the National Internal Revenue Code, as amended by Republic Act No. 39, amended the franchise of the Philippine Railway Co. granted under Act No. 1497. Whether the franchise tax rate of 1 1/2% stipulated in Act No. 1497 was superseded by the 5% rate provided in the National Internal Revenue Code.
Ruling
The Supreme Court reversed the appealed judgment. It ordered the appellee (Collector of Internal Revenue) to refund to the appellant (Philippine Railway Co.) the sums of P15,893.26 and P34,184.92, with legal interest from the date of collection, and to pay the costs.
Ratio Decidendi
On the issue of whether Section 259 of the National Internal Revenue Code amended the plaintiff's franchise: The Court held that the National Internal Revenue Code did not amend the plaintiff's franchise. The Court relied on the principle that special laws are not repealed by general laws by implication. In Manila Railroad Company vs. Rafferty, the Court held that a special charter, like Act No. 1510 (similar to Act No. 1497 in this case), could only be amended, altered, or repealed by an Act of Congress (or the Philippine Legislature, in this context) and not by a subsequent general law unless the intent to repeal is manifest. The Court emphasized that repeals by implication are not favored and require clear repugnance between the statutes. A special statute providing for a particular case is not repealed by a subsequent general statute unless the intent to repeal is manifest, even if the general act's terms are broad enough to include the special case. The Court cited numerous American decisions reinforcing the rule that a later general statute does not ordinarily affect an earlier special statute unless the intention to amend or revoke clearly appears. The Court further noted that a franchise constitutes a property right and, like a private contract, cannot be altered or amended except by consent, unless the right is expressly reserved. The Court found no explicit intention in the NIRC to levy a higher percentage tax on existing franchises, and Section 259 itself contains an exception for franchises that preclude the imposition of a higher tax, which the Court interpreted to include the plaintiff's franchise. On the issue of whether the franchise tax rate was superseded: The Court concluded that Section 259 of the NIRC, as amended by Republic Act No. 39, did not apply to the plaintiff's franchise. The Court found that the NIRC evinced a purpose to respect tax rates incorporated in special charters, particularly those that preclude higher taxes. The last paragraph of Section 13 of Act No. 1497 stated that the annual payments were "in lieu of all taxes of every name and nature." This provision, according to the Court, was precisely the type of provision that Section 259 of the NIRC intended to exempt. Therefore, the 1 1/2% franchise tax rate stipulated in the plaintiff's special charter remained applicable and was not superseded by the 5% rate in the NIRC. The Court also referenced Philippine Railway Co. vs. Nolting, which stated that the plaintiff had a right to believe it would be relieved of all government burdens upon prompt and full payment of the amount imposed by its charter.
Main Doctrine
A general law, such as the National Internal Revenue Code, does not amend or repeal a special law, such as a corporate franchise, by implication, unless the intent to do so is manifest and the provisions are clearly repugnant. A special charter, constituting a private contract, cannot be altered or amended except by consent of all concerned, unless the right is expressly reserved.