THIRD DIVISION

[ G.R. No. 213136, September 05, 2018 ]

ANGELES ELECTRIC CORPORATION V. CITY OF ANGELES AND
JULIET G. QUINSAAT, IN HER CAPACITY AS OLC-CITY TREASURER,
ANGELES CITY

Sirs/Mesdames:

Please take notice that the Court, Third Division, issued a Resolution dated September
5, 2018, which reads as follows:

"G.R. No. 213136 (Angeles Electric Corporation v. City of Angeles and Juliet G.

Quinsaat, in her capacity as OlC-City Treasurer, Angeles City) - This resolves the
Petition for Review[1] seeking to reverse the Decision[2] dated February 20, 2013 and the
Resolution[3] dated June 20, 2014 of the Court of Appeals (CA) in CA-G.R. CV No.
97272. The CA found petitioner Angeles Electric Corporation (AEC) liable to pay local
business taxes and fees amounting to P63,369,097.80 covering the period from 2000 to
2004.

The Antecedents

This case stemmed from an action for declaratory relief. The parties had earlier elevated
an incident to this Court in a case questioning the preliminary injunction issued by the
Regional Trial Court (RTC) docketed as G.R. No. 166134.[4] The relevant facts, as found
by this Court, are as follows:
On June 18, 1964, AEC was granted a legislative franchise under Republic Act No. (RA)
4079 to construct, maintain and operate an electric light, heat, and power system for the
purpose of generating and distributing electric light, heat and power for sale in Angeles
City, Pampanga. Pursuant to Section 3-A thereof, AEC's payment of franchise tax for
gross earnings from electric current sold was in lieu of all taxes, fees and assessments.

On September 11, 1974, Presidential Decree No. (PD) 551 reduced the franchise tax of
electric franchise holders. Section 1 of PD 551 provided that:
SECTION 1. Any provision of law or local ordinance to the contrary notwithstanding, the
franchise tax payable by all grantees of franchises to generate, distribute and sell electric
current for light, heat and power shall be two percent (2%) of their gross receipts received
from the sale of electric current and from transactions incident to the generation,
distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly
authorized representative on or before the twentieth day of the month following the end
of each calendar quarter or month as may be provided in the respective franchise or
pertinent municipal regulation and shall, any provision of the Local Tax Code or any
other law to the contrary notwithstanding, be in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on earnings, receipts, income
and privilege of generation, distribution and sale of electric current.
On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was passed
into law, conferring upon provinces and cities the power, among others, to impose tax on
businesses enjoying franchise. In accordance with the LGC, the Sangguniang
Panlungsod of Angeles City enacted on December 23, 1993 Tax Ordinance No. 33, S-93,
otherwise as the Revised Revenue Code of Angeles City (RRCAC).

On February 7, 1994, a petition seeking the reduction of the tax rates and a review of the
provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles
Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a member. There
being no action taken by the Sangguniang Panlungsod on the matter, MACCI elevated
the petition to the Department of Finance, which referred the same to the Bureau of Local
Government Finance (BLGF). In the petition, MACCI alleged that the RRCAC is
oppressive, excessive, unjust and confiscatory; that it was published only once,
simultaneously on January 22, 1994; and that no public hearings were conducted prior to
its enactment. Acting on the petition, the BLGF issued a First Indorsement to the City
Treasurer of Angeles City, instructing the latter to make representations with
the Sangguniang Panlungsod for the appropriate amendment of the RRCAC in order to
ensure compliance with the provisions of the LGC, and to make a report on the action
taken within five days.

Thereafter, starting July 1995, AEC has been paying the local franchise tax to the Office
of the City Treasurer on a quarterly basis, in addition to the national franchise tax it pays
every quarter to the Bureau of Internal Revenue (BIR).

Proceedings before the City Treasurer

On January 22, 2004, the City Treasurer issued a Notice of Assessment to AEC for
payment of business tax, license fee and other charges for the period 1993 to 2004 in the
total amount of P94,861,194.10.

Within the period prescribed by law, AEC protested the assessment claiming that:
(a) pursuant toRA 4079, it is exempt from paying local business tax;
 
(b) since it is already paying franchise tax on business, the payment of business tax would result
in double taxation;
 
(c) the period to assess had prescribed because under the LGC, taxes and fees can only be
assessed and collected within five (5) years from the date they become due; and
 
(d) the assessment and collection of taxes under the RRCAC cannot be made retroactive to
1993 or prior to its effectivity.
On February 17, 2004, the City Treasurer denied the protest for lack of merit and
requested AEC to settle its tax liabilities.

Proceedings before the RTC

Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a
Petition for Declaratory Relief, docketed as Civil Case No. 11401.

On April 5, 2004, the City Treasurer levied on the real properties of AEC. A Notice of
Auction Sale was published and posted announcing that a public auction of the levied
properties of AEC would be held on May 7, 2004.

This prompted AEC to file with the RTC, where the petition for declaratory relief was
pending, an Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of
Preliminary Injunction to enjoin Angeles City and its City Treasurer from levying,
annotating the levy, seizing, confiscating, garnishing, selling and disposing at public
auction the properties of AEC.[5]
The RTC issued a temporary restraining order, and after AEC posted the required bond, it
issued a Writ of Preliminary Injunction on May 28, 2004. It was later affirmed by this
Court in G.R. No. 166134.

Meanwhile, on April 26, 2011, the RTC rendered a Decision on the merits declaring Tax
Ordinance No. 33 and the assessments against AEC null and void. The RTC upheld the
tax exemption privilege of AEC under Republic Act (R.A.) No. 4079[6] with respect to
business taxes and fees. It further awarded exemplary damages and attorney's fees.

On appeal to the CA, the RTC Decision was reversed. The CA ruled that petitioner AEC
was proscribed from questioning the validity of the tax ordinance via a Petition for
Declaratory Relief for the reason that it failed to appeal to the Secretary of Justice within
thirty (30) days from the effectivity date of the ordinance as mandated by Section 187 of
the Local Government Code (LGC). It further held that AEC was not exempted from
paying business taxes, license or regulatory fees assessed by the City Treasurer of
Angeles considering that it was not one of those enumerated under Sec. 193 of the LGC.
The CA found no double taxation and distinguished franchise tax from business tax. The
two taxes were not of the same kind and character and could be imposed by the same
taxing authority at the same time. The CA, however, held that respondent could only
assess and collect taxes, fees or charges from petitioner from 2000 to 2004 as the
previous period had already prescribed. On the issue of damages, the CA disallowed the
award of exemplary damages as it had no basis. It likewise found the imposition of
attorney's fees improper.

The Motion for Reconsideration of petitioner AEC was denied for lack of merit.
However, Associate Justice Danton Q. Bueser dissented and opined that failure of the
local government unit to comply with the mandatory and vital procedural requirement of
prior public hearing and publication rendered the entire tax ordinance and the
assessments issued pursuant thereto, void. He further asserted that a general law cannot
repeal a special law; thus, where there is a conflict between a general law and a special
statute, the special statute shall prevail since it evinces legislative intent more clearly than
the general statute.[7]

ISSUE

The central issue presented to the Court for resolution is whether the CA committed
reversible error when it declared petitioner AEC liable to pay local business taxes and
fees.

The Court's Ruling

We find no merit in the petition.

Basis of the local government

to impose taxes, suck as
franchise tax

At the outset, we uphold the power of the local government to impose taxes, such as
franchise tax, which power emanates from the Constitution itself. In City of Iriga v.
Camarines Sur III Electric Cooperative, Inc.[8] the Court ruled:
Indisputably, petitioner has the power to impose local taxes. The power of the local
government units to impose and collect taxes is derived from the Constitution itself
which grants them "the power to create its own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and limitation as the Congress may provide."
This explicit constitutional grant of power to tax is consistent with the basic policy of
local autonomy and decentralization of governance. With this power, local government
units have the fiscal mechanisms to raise the funds needed to deliver basic services to
their constituents and break the culture of dependence on the national government. Thus,
consistent with these objectives, the LGC was enacted granting the local government
units, like petitioner, the power to impose and collect franchise tax, to wit:
SEC. 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction, xxx

SEC. 151. Scope of Taxing Powers. — Except as otherwise provided in this Code, the
city, may levy the taxes, fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and distributed
in accordance with the provisions of this Code. The rates of taxes that the city may levy
may exceed the maximum rates allowed for the province or municipality by not more
than fifty percent (50%) except the rates of professional and amusement taxes.[9]
This Court, in a number of cases, ruled that by virtue of Sec. 193 of the LGC, all tax
exemption privileges then enjoyed by all persons, save those expressly mentioned, have
been withdrawn effective January 1, 1992 -the effectivity date of the LGC.[10] It is
likewise contained in Sec. 137 of the LGC. The withdrawal of exemptions, whether under
Sees. 193 or 137, pertains to those already existing when the LGC was enacted. The
intention of the legislature was to remove all tax exemptions or incentives granted prior
to the LGC.[11]

In sum, the explicit language of Sec. 137 which authorizes the province to impose
franchise tax "notwithstanding any exemption granted by any law or other special law" is
all encompassing and clear. Moreover, Sec. 193 buttresses the withdrawal of existing tax
exemption privileges.[12] In the absence of any provision to the contrary, petitioner's tax
exemption privileges under existing law was clearly intended to be withdrawn. Therefore,
respondent has the power to impose local franchise tax within its jurisdiction.

Business tax and local

franchise tax: No double
taxation

Petitioner claims that the assessment of business tax in addition to local franchise tax is a
case of double taxation.

We do not agree. As aptly ruled by the CA, the two taxes are not of the same kind and
character and can be imposed by the same taxing authority at the same time.[13]

First, "[bjusiness taxes imposed in the exercise of police power for regulatoiy purposes
are paid for the privilege of carrying on a business in the year the tax was paid. It is paid
at the beginning of the year as a fee to allow the business to operate for the rest of the
year. It is deemed a prerequisite to the conduct of business."[14]

A franchise tax, on the other hand, is a tax on the privilege of transacting business in the
state and exercising corporate franchises granted by the state. It is not levied on the
corporation simply for existing as a corporation, upon its property or its income, but on
its exercise of the rights or privileges granted to it by the government. It is within this
context that the phrase tax on businesses enjoying a franchise in Sec. 137 of the LGC
should be interpreted and understood.[15] This Court went on further that to be liable for
local franchise tax, the following requisites should concur: (1) that one has a "franchise"
in the sense of a secondary or special franchise; and (2) that it is exercising its rights or
privileges under this franchise within the territory of the pertinent local government unit.
[16]

Clearly, there can be no double taxation as the two taxes are of different nature and
imposed for different purposes. Undeniably, both requisites for local franchise tax are
also present in this case.

Given the foregoing, we find that the CA committed no reversible error in finding
petitioner AEC liable to pay local taxes.

It bears to reiterate that tax exemptions are highly disfavored. The tax exemption must be
expressed in the statute in clear language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even if it is granted, the exemption must be
interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.[17]

WHEREFORE, the petition is DENIED. The Decision dated February 20, 2013 and the
Resolution dated June 20, 2014 of the Court of Appeals in CA-G.R. CV No. 97272
are AFFIRMED.

SO ORDERED."

Very truly yours,

(Sgd.) WILFREDO V. LAPITAN

Division Clerk of Court

[1] 
Rollo, pp. 13-43.

Id. at 51-63; penned by Associate Justice Amelita G. Tolentino, concurred in by

[2] 

Associate Justices Ramon R. Garcia and Danton Q. Bueser.

Id. at 65-70; penned by Associate Justice Amelita G. Tolentino, concurred in by

[3] 

Associate Justices Ramon R. Garcia, Priscilla J. Baltazar-Padilla and Eduardo B. Peralta,

Jr., with a dissenting opinion from Associate Justice Danton Q. Bueser.
 Angeles City v. Angeles Electric Corporation, et al, 636 Phil. 43 (2010); penned by
[4] 

Associate Justice Mariano C. Del Castillo, concurred in by then Chief Justice Renato C.
Corona, Associate Justices Presbitero J. Velasco, Jr., Teresita J. Leonardo-De Castro, and
Jose P. Perez.
[5] 
Id. at 46-49. (citations omitted

An Act Amending Certain Sections of Republic Act Numbered Twenty-Three Hundred

[6] 

and Forty-One (June 18, 1964).

[7] 
Rollo, p. 77.
[8] 
694 Phil. 378(2012).
[9] 
Id. at 389.

See Philippine Long Distance Telephone Company, Inc. (PLOT) v. City of Bacolod, et

[10] 

al, 502 Phil. 100, 105 (2005); Mactan Cebu International Airport Authority v. Marcos,
330 Phil. 392, 399 (1996); City of Iloilo v. Smart Communications, Inc., 599 Phil. 492,
498 (2009).
[11] 
See City of Iloilo v. Smart Communications, Inc., supra note 10, at 498-499.

City Government of San Pablo, Laguna, et al. v. Judge Reyes, et al, 364 Phil. 842, 853
[12] 

(1999).
[13] 
Rollo, p. 61.
[14] 
Mobil Philippines, Inc. v. City Treasurer of Makati, et al., 501 Phil. 666, 672 (2005).
[15] 
National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 252-253 (2003).
[16] 
City of lriga v. Camarines Sur III Electric Cooperative, Inc., supra note 8, at 390.
[17] 
PDLT v. City ofDavao, et al, 415 Phil. 764, 775 (2001).

(URES)
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