House v. Posadas
REITERATIONFacts
The Antecedents: J.V. House operated an electric light, heat, and power system in Tacloban, Leyte, under a franchise granted by Act No. 2700, as amended by Act No. 2750. The Collector of Internal Revenue exacted various sums from House, including percentage tax on business under section 1462 of the Administrative Code, income taxes for the years 1921-1924 and 1926, surcharges on percentage tax, and a fixed tax of P4 under section 1457 in relation to section 1462 of the Administrative Code. Procedural History: House instituted an action to recover the taxes paid under protest, amounting to P3,875.64, alleging they were illegally exacted. The Court of First Instance of Manila ruled that the taxes were properly collected and absolved the defendant. House appealed this decision. The Appeal: The plaintiff-appellant, J.V. House, argued that the taxes exacted were illegal. The core of his contention was that the franchise granted under Act No. 2700, specifically the payment of a percentage of gross earnings to the municipality of Tacloban, implicitly exempted him from other taxes, such as the percentage tax on business, income tax, and fixed tax imposed by general laws. He contended that the franchise tax was intended to be in lieu of all other taxes.
Issue(s)
Whether the franchise granted to J.V. House under Act No. 2700 exempts him from paying the percentage tax on business, income tax, and fixed tax imposed by the Administrative Code and other general laws. Whether the payment of a percentage of gross earnings to the municipality of Tacloban, as required by the franchise, is in lieu of all other taxes.
Ruling
The Supreme Court affirmed the decision of the lower court, holding that the taxes were legally collected. The Court ruled that the franchise granted to J.V. House did not exempt him from the payment of the percentage tax on business, income tax, and fixed tax imposed by general laws. The payment of the franchise tax to the municipality of Tacloban was not in lieu of other taxes.
Ratio Decidendi
On Issue 1: The Court held that the contention of the appellant is untenable and that the taxes paid were exacted in conformity with law. It is a well-recognized principle in taxation law that exemptions are not permitted to arise by implication. A corporate charter will not be construed as conveying immunity from state tax laws unless there is an express provision to that effect. Section 14 of Act No. 2700 explicitly states that the grantee shall pay on his real estate, buildings, plant, machinery, and other personal property the same taxes as are required by law from other persons. Income, once accrued, is personal property, and thus subject to income tax. The percentage tax on business, being a tax on the privilege of doing business, is also legally collectible from the appellant under general laws. On Issue 2: The Court found no merit in the argument that the franchise tax payable to Tacloban was intended to be in lieu of all other taxes. Section 8 of Act No. 2700 requires payment of a percentage of gross earnings to the treasury of Tacloban, which is consistent with Section 28 of the Philippine Autonomy Act mandating such payments for franchises. However, there is nothing in these provisions to suggest that this payment was meant to be a substitute for all other taxes. The Court emphasized that the payment of this specific tax does not relieve the appellant from his obligation to pay other types of taxes imposed by general laws.
Main Doctrine
The Court held that a franchise granted under Act No. 2700 does not exempt the grantee from paying general taxes such as percentage tax on business, income tax, and fixed tax on business, as imposed by the Administrative Code and other general laws. The specific franchise tax payable to the municipality of Tacloban was not intended to be in lieu of all other taxes, and any claim for exemption must be clearly and expressly provided for in the charter, not merely implied.