RESOLUTION
November 27, 1956 - REYES, J. B. L., J.:chanroblesvirtual 1awlibrary
The Collector of Internal Revenue prays that our decision of October 17, 1956 be reconsidered and set aside insofar as (1) it holds that the franchise grantee Carcar Electric and Ice Plant Co. Inc., is not subject to the payment of income tax; and (2) requires the Collector to refund the taxes illegally collected with legal interest thereon.
The exemption from income taxes of the grantee of the franchise is but a consequence of section 10 of section 1 of the Model Franchise Act (No. 3636) (incorporated by reference in the company’s franchise, Republic Act 444) expressly declaring that the franchise tax shall be in lieu of any and all taxes of any kind, nature and description on its "receipts, revenues and profits, from which taxes the grantee is hereby expressly exempted." It would seem self evident that the income tax is a tax on the receipts and revenues of the grantee, rather than on the property, real or personal, held and used by the corporation in carrying out its functions. In page 5 of our decision care was taken to underline the words receipts, revenues and profits, but apparently the significance of the emphasis was not appreciated.
It is true that section 10 of Act 3636 provides, as quoted by the Collector, that "the grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals copartnerships, private, public or quasi-public associations, corporations, joint stock companies, on his (its) real estate, buildings, plants, machinery and other personal property; but right after these words the law expressly adds (which the motion for reconsideration omits), "except property declared exempt in this section". These last words must necessarily refer to the grantee’s express exemption from taxes on its "poles, wires, insulators, switches, transformers, and structures, installations, conductors and accessories, — and on its franchise, rights, privileges, receipts, revenues and profits."chanrob1es virtual 1aw library
What the Collector sought to gain by tendering mutilated quotations from statutory provisions we fail to appreciate. But such a practice clearly exposes this Court to sanctioning miscarriages of justice and should be forthwith discontinued.
It adds no strength to the Collector’s position to cite previous adjudications of this Court on facts and situations substantially different from those obtaining in the present case. Thus, the Collector quotes from House v. Posadas, 53 Phil. 340, that under an obligation to pay taxes "on other personal property", a grantee is subject to pay income tax. But the House franchise (Act 2700) did not contain a provision that the franchise tax was to be in lieu of other taxes.
"We, not infrequently find in corporate charters, in connection with the imposition of particular charges, that payment of such imposition shall be in lieu of other taxes. No words to this effect are found in sec. 8 of Act No. 2700, where the appellant is required to pay quarterly into the Treasury of Tacloban one half of one per centum of the gross earnings of the enterprise during the first 20 years." (53 Phil. 340). (Emphasis supplied).red:cralawvirtualawlibrary
Plainly, this decision is no precedent in interpreting a franchise whereby payment of the franchise tax is expressly declared to be in lieu of "any and all taxes of any kind, nature and description" (section 10, section 1 Act 3636), on the grantee’s receipts, revenues and profits.
Nor are the decisions in Philippine Telephone Co. v. Collector of Internal Revenue (58 Phil. 639), Manila Gas v. Collector of Internal Revenue (62 Phil. 895), Manila Gas v. Collector of Internal Revenue (71 Phil. 513) any more applicable than the House case. These three cases decided that dividends paid to the stockholders no longer belong to the exempted grantee, and therefore the latter should, in connection with such dividends, comply with the withholding provisions of the Income Tax law, to insure payment of income tax on such dividends. In the present case, the Collector is claiming income taxes from the grantee itself and not from its stockholders. The case of Panay Electric Co. v. Collector of Internal Revenue (G. R. No. L- 6753, July 30, 1955), also invoked by the Collector, involved compensating taxes that could not affect "receipts, revenues and profits" expressly exempted from taxation in the case before us.
Turning now to the question of the Collector’s liability for interest on taxes improperly collected: Under the Internal Revenue Act of 1914, the Collector of Internal Revenue was held liable for such interests (Hongkong Shanghai Bank v. Rafferty, 39 Phil 153; Heacock Co. v. Collector of Customs, 37 Phil. 970; Vda. e Hijos de P. Roxas v. Rafferty, 37 Phil. 957, and authorities cited therein) in the absence of any exempting provision in the law, and on the strength of American authorities to the effect that the State’s exemption from paying interest on its obligations was never applied to subordinate governmental agencies. In Heacock Co. v. Collector of Customs, supra, p. 980-981, this Court said:chanroblesvirtual 1awlibrary
"While the sovereign State, in the absence of statute or contract, is not liable to pay interest, it has been held, however, that governmental agencies, whether individuals or boards, which have been given the power to sue and to defend suits may be compelled to pay interest upon their indebtedness even though the Government itself ultimately pays the indebtedness. Tax collectors are almost universally given the power to defend suits against them for illegal collection of taxes. It is usually provided that the person taxed may protest and appeal to the courts to have the question of the legality of the assessment determined. It is usually provided that when the courts determine that assessment was illegal, the Government itself will refund the money, relieving the collector of personal liability. (See Section 989, Revised Statutes of the United States.)
In the case of Erskine v. Van Arsdale (15 Wall. [U.S.], 68-75), the Supreme Court of the United States held that — "Taxes illegally assessed and paid may always be recovered back, if the collector understands from the payer that the taxes are regarded as illegal and that suit will be instituted to compel the refunding of them. . . . Where an illegal tax has been collected, the citizen who has paid it, and has been obliged to bring suit against the collector, is, we think, entitled to interest in the event of recovery, from the time of the illegal exaction. (See also Schell v. Crockren, 107 U.S., 625; National Home v. Parrish, 229 U.S., 196; White v. Arthur, 10 Fed. Rep. 80; McClain v. Pennsylvania Company, 108 Federal Republic 618.)
In the case of National Rome v. Parrish (229 U.S., 496), the Supreme Court, discussing the question before us, said:chanroblesvirtual 1awlibrary
‘It is quite true that the United States cannot be subjected to the treasury. (Erskine v. Van Arsdale, 15 Wall., [U.S.], 68-75; to pay it or a statute permitting its recovery. (U.S. Ex rel. Angarica v. Bayard, 127 U.S., 251; U.S. v. State of North Carolina, 136 U.S., 211.) But this exemption has never as yet been applied to subordinate governmental agencies. On the contrary, in suits against collectors to recover moneys illegally exacted as taxes and paid under protest, the settled rule is that interest is recoverable without any statute to that effect, and this although the judgment is not to be paid by the collector, but directly from the treasury. (Erskine v. Van Arsdale, 15 Wall. [U.S.], 68-75; Redfield v. Bartels, 139 U.S. 694)"’
Subsequently, section 1579 of the Administrative Code of 1917 (Act 2711) expressly authorized suits against the Collector of Internal Revenue "for the recovery without interest of the sum alleged to have been illegally collected," and thereafter, no judgments for interest were rendered against the Collector. But in 1939, the National Internal Revenue Code came into effect and its section 306 authorized recovery of taxes erroneously or illegally collected, but omitting the expression "without interest" employed in section 1579 of the 1917 Administrative Code that it superseded. Considering the repeated holdings of this Court that in the absence of words of exemption the Collector was liable for interest on taxes improperly collected, the legislature’s failure to reenact the words "without interest" of the Administrative Code of 1917 imparted a desire to return to the rule in force before 1917 and under the Internal Revenue Act of 1914. This view is supported by sec. 310 of the National Internal Revenue Code, as follows:chanroblesvirtual 1awlibrary
"SEC. 310. Satisfaction of judgment recovered against treasurer or other officer. — When an action is brought against any revenue officer to recover damages by reason of any act done in the performance of official duty, and the Collector of Internal Revenue is notified of such action in time to make defense against the same, through the Solicitor-General, any judgment, damages, or costs recovered in such action shall be satisfied by the Collector of Internal Revenue upon approval of the Department Head, or if the same be paid by the person sued, shall be repaid or reimbursed to him."chanrob1es virtual 1aw library
As observed by this Court in Heacock Co. v. Collector of Customs, 37 Phil. 970, 982, the damages for wrongful exaction of money is precisely interest at the legal rate:chanroblesvirtual 1awlibrary
"Section 144 of the Internal Revenue Act of 1914 authorizes the Collector of Internal Revenue, in cases like the present, to pay out of public funds in his hands’any judgment, damages, or costs’ recovered in an action brought against ‘any revenue officer’ by reason of any act done in the performance of official duties. The "damages" for the wrongful exaction or withholding of money is the payment of interest at the legal rate. (Article 1108, Civil Code.)"chanrob1es virtual 1aw library
We conclude that under the present Internal Revenue Code the Collector of Internal Revenue may be made to answer for interest at the legal rate on taxes improperly collected. Such liability serves as additional safeguard in favor of the taxpayer against arbitrariness in the exaction or collection of taxes and imposts.
The motion to reconsider is denied; So ordered.
Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Felix, JJ., concur.