G.R. No.

192945               September 5, 2012 It alleged that as of December 31, 2003, CASURECO III‟s franchise and real property taxes
liability, inclusive of penalties, surcharges and interest, amounted to Seventeen Million Thirty-
CITY OF IRIGA, Petitioner, Seven Thousand Nine Hundred Thirty-Six Pesos and Eighty-Nine Centavos (₱ 17,037,936.89)
vs. and Nine Hundred Sixteen Thousand Five Hundred Thirty-Six Pesos and Fifty Centavos (₱
CAMARINES SUR III ELECTRIC COOPERATIVE, INC. (CASURECO III), Respondent. 916,536.50), respectively.12

DECISION In its Answer, CASURECO III denied liability for the assessed taxes, asserting that the
computation of the petitioner was erroneous because it included 1) gross receipts from service
areas beyond the latter‟s territorial jurisdiction; 2) taxes that had already prescribed; and 3)
PERLAS-BERNABE, J.:
taxes during the period when it was still exempt from local government tax by virtue of its
then subsisting registration with the CDA.13
The Court reiterates that a franchise tax is a tax levied on the exercise by an entity of the rights
or privileges granted to it by the government.1 In the absence of a clear and subsisting legal
Ruling of the Trial Court
provision granting it tax exemption, a franchise holder, though non-profit in nature, may
validly be assessed franchise tax by a local government unit.
In its Decision dated February 7, 2005, the RTC ruled that the real property taxes due for the
years 1995-1999 had already prescribed in accordance with Section 194 14 of the LGC. However,
Before the Court is a petition filed under Rule 45 of the Revised Rules of Court seeking to set
it found CASURECO III liable for franchise taxes for the years 2000-2003 based on its gross
aside the February 11, 2010 Decision2 and July 12, 2010 Resolution3 of the Court of Appeals
receipts from Iriga City and the Rinconada area on the ground that the "situs of taxation is the
(CA), which reversed the February 7, 2005 Decision of the Regional Trial Court (RTC) of Iriga
place where the privilege is exercised."15 The dispositive portion of the RTC Decision reads:
City, Branch 36 and ruled that respondent Camarines Sur III Electric Cooperative, Inc.
(CASURECO III) is exempt from payment of local franchise tax.
WHEREFORE, in view of the foregoing, defendant is hereby made liable to pay plaintiff real
property taxes and franchise taxes on its receipts, including those from service area covering
The Facts
Nabua, Bato, Baao and Buhi for the years 2000 up to the present. The realty taxes for the years
1995 and 1999 is hereby declared prescribed. The City Assessor is hereby directed to make the
CASURECO III is an electric cooperative duly organized and existing by virtue of Presidential proper classification of defendant‟s real property in accordance with Ordinance issued by the
Decree (PD) 269,4 as amended, and registered with the National Electrification Administration City Council.
(NEA). It is engaged in the business of electric power distribution to various end-users and
consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and
SO ORDERED.16
Balatan of the Province of Camarines Sur, otherwise known as the "Rinconada area." 5

Only CASURECO III appealed from the RTC Decision, questioning its liability for franchise taxes.
Sometime in 2003, petitioner City of Iriga required CASURECO III to submit a report of its gross
receipts for the period 1997-2002 to serve as the basis for the computation of franchise taxes,
fees and other charges.6 The latter complied7 and was subsequently assessed taxes. Ruling of the Court of Appeals

On January 7, 2004, petitioner made a final demand on CASURECO III to pay the franchise In its assailed Decision, the CA found CASURECO III to be a non-profit entity, not falling within
taxes due for the period 1998-2003 and real property taxes due for the period 1995- the purview of "businesses enjoying a franchise" pursuant to Section 137 of the LGC. It
2003.8 CASURECO III, however, refused to pay said taxes on the ground that it is an electric explained that CASURECO III‟s non-profit nature is diametrically opposed to the concept of a
cooperative provisionally registered with the Cooperative Development Authority (CDA), 9 and "business," which, as defined under Section 131 of the LGC, is a "trade or commercial activity
therefore exempt from the payment of local taxes. 10 regularly engaged in as a means of livelihood or with a view to profit." Consequently, it
relieved CASURECO III from liability to pay franchise taxes.
On March 15, 2004, petitioner filed a complaint for collection of local taxes against CASURECO
III before the RTC, citing its power to tax under the Local Government Code (LGC) and the Petitioner moved for reconsideration, which the CA denied in its July 12, 2010 Resolution for
Revenue Code of Iriga City.11 being filed a day late, hence, the instant petition.
Issues Before the Court PD 269, which took effect on August 6, 1973, granted electric cooperatives registered with the
NEA, like CASURECO III, several tax privileges, one of which is exemption from the payment of
Petitioner raises two issues for resolution, which the Court restates as follows: (1) whether or "all national government, local government and municipal taxes and fees, including franchise,
not an electric cooperative registered under PD 269 but not under RA 6938 17 is liable for the filing, recordation, license or permit fees or taxes."22
payment of local franchise taxes; and (2) whether or not the situs of taxation is the place
where the franchise holder exercises its franchise regardless of the place where its services or On March 10, 1990, Congress enacted into law RA 6938,23 otherwise known as the
products are delivered. "Cooperative Code of the Philippines," and RA 6939 24 creating the CDA. The latter law vested
the power to register cooperatives solely on the CDA, while the former provides that electric
CASURECO III, on the other hand, raises the procedural issue that since the motion for cooperatives registered with the NEA under PD 269 which opt not to register with the CDA
reconsideration of the CA Decision was filed out of time, the same had attained finality. shall not be entitled to the benefits and privileges under the said law.

The Court’s Ruling On January 1, 1992, the LGC took effect, and Section 193 thereof withdrew tax exemptions or
incentives previously enjoyed by "all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly
The petition is meritorious.
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions."25
Before delving into the substantive issues, the Court notes the procedural lapses extant in the
present case.
In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary,
Department of Interior and Local Government,26 the Court held that the tax privileges granted
Proper Mode of Appeal from the to electric cooperatives registered with NEA under PD 269 were validly withdrawn and only
Decision of the Regional Trial those registered with the CDA under RA 6938 may continue to enjoy the tax privileges under
Court involving local taxes the Cooperative Code.

RA 9282,18 which took effect on April 23, 2004, expanded the jurisdiction of the Court of Tax Therefore, CASURECO III can no longer invoke PD 269 to evade payment of local taxes.
Appeals (CTA) to include, among others, the power to review by appeal decisions, orders or Moreover, its provisional registration with the CDA which granted it exemption for the
resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them payment of local taxes was extended only until May 4, 1992. Thereafter, it can no longer claim
in the exercise of their original or appellate jurisdiction. 19 any exemption from the payment of local taxes, including the subject franchise tax.1âwphi1

Considering that RA 9282 was already in effect when the RTC rendered its decision on Indisputably, petitioner has the power to impose local taxes. The power of the local
February 7, 2005, CASURECO III should have filed its appeal, not with the CA, but with the CTA government units to impose and collect taxes is derived from the Constitution itself which
Division in accordance with the applicable law and the rules of the CTA. Resort to the CA was, grants them "the power to create its own sources of revenues and to levy taxes, fees and
therefore, improper, rendering its decision null and void for want of jurisdiction over the charges subject to such guidelines and limitation as the Congress may provide." 27 This explicit
subject matter. A void judgment has no legal or binding force or efficacy for any purpose or at constitutional grant of power to tax is consistent with the basic policy of local autonomy and
any place.20 Hence, the fact that petitioner's motion for reconsideration from the CA Decision decentralization of governance. With this power, local government units have the fiscal
was belatedly filed is inconsequential, because a void and non-existent decision would never mechanisms to raise the funds needed to deliver basic services to their constituents and break
have acquired finality.21 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
The foregoing procedural lapses would have been sufficient to dismiss the instant petition and collect franchise tax, to wit:
outright and declare the decision of the RTC final. However, the substantial merits of the case
compel us to dispense with these lapses and instead, exercise the Court‟s power of judicial SEC. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special
review. 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
CASURECO III is not exempt from year based on the incoming receipt, or realized, within its territorial jurisdiction. xxx
payment of franchise tax
SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may It should be stressed that what the petitioner seeks to collect from CASURECO III is a franchise
levy the taxes, fees, and charges which the province or municipality may impose: Provided, tax, which as defined, is a tax on the exercise of a privilege. As Section 137 35 of the LGC
however, That the taxes, fees and charges levied and collected by highly urbanized and provides, franchise tax shall be based on gross receipts precisely because it is a tax on
independent component cities shall accrue to them and distributed in accordance with the business, rather than on persons or property. 36 Since it partakes of the nature of an excise
provisions of this Code. The rates of taxes that the city may levy may exceed the maximum tax/37 the situs of taxation is the place where the privilege is exercised, in this case in the City of
rates allowed for the province or municipality by not more than fifty percent (50%) except the Iriga, where CASURECO III has its principal office and from where it operates, regardless of the
rates of professional and amusement taxes. place where its services or products are delivered. Hence, franchise tax covers all gross
receipts from Iriga City and the Rinconada area.
Taking a different tack, CASURECO III maintains that it is exempt from payment of franchise tax
because of its nature as a non-profit cooperative, as contemplated in PD 269, 28 and insists that WHEREFORE, the petition is GRANTED. The assailed Decision dated February 11, 2010 and
only entities engaged in business, and not non-profit entities like itself, are subject to the said Resolution dated July 12, 2010 of the Court of Appeals are hereby SET ASIDE and the Decision
franchise tax. of the Regional Trial Court oflriga City, Branch 36, is REINSTATED.

The Court is not persuaded. SO ORDERED.

In National Power Corporation v. City of Cabanatuan, 29 the Court declared that "a franchise tax ESTELA M. PERLAS-BERNABE
is „a tax on the privilege of transacting business in the state and exercising corporate Associate Justice
franchises granted by the state."30 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 WE CONCUR:
granted to it by the government.31 "It is within this context that the phrase „tax on businesses
enjoying a franchise‟ in Section 137 of the LGC should be interpreted and understood." 32
ANTONIO T. CARPIO
Associate Justice
Thus, to be liable for local franchise tax, the following requisites should concur: (1) that one Chairperson
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
ARTURO D. BRION MARIANO C. DEL CASTILLO
unit.33
Associate Justice Associate Justice

There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA
granted CASURECO III a franchise to operate an electric light and power service for a period of JOSE PORTUGAL PEREZ
fifty (50) years from June 6, 1979,34 and it is undisputed that CASURECO III operates within Iriga Associate Justice
City and the Rinconada area. It is, therefore, liable to pay franchise tax notwithstanding its
non-profit nature.
ATTESTATION

CASURECO III is liable for

I attest that the conclusions in the above Division had been reached in consultation before the
franchise tax on gross receipts
case was assigned to the writer of the opinion of the Court's Division.
within Iriga City and
Rinconada area
ANTONIO T. CARPIO
Associate Justice
CASURECO III further argued that its liability to pay franchise tax, if any, should be limited to
Chairperson
gross receipts received from the supply of the electricity within the City of Iriga and not those
from the Rinconada area.
CERTIFICATION
Again, the Court is not convinced.
I certify that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court's Division.

MA. LOURDES P. A. SERENO

Chief Justice