Cagayan Electric Power & Light Co.

Inc. v CIR (1985)

Cagayan Electric Power & Light Co. Inc. v CIR GR No. L-60126, September
25, 1985

FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where
payment of 3% tax on gross earning is in lieu of all taxes and assessments
upon privileges. In 1968, RA 5431 amended the franchise by making all
corporate taxpayers liable for income tax. In 1969, through RA 6020, its
franchise was extended to two other towns and the tax exemption was
reenacted. The commissioner required the company to pay deficiency
income taxes for the intervening period (1968-1969).

ISSUE:
Is CEPALCO liable for the tax?

RULING:
Yes. Congress could impair the company’s legislative franchise by making it
liable for income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the
Congress when the public interest so requires. However, it cannot be denied
that the said 1969 assessment appears to be highly controversial. It had
reason not to pay income tax because of the tax exemption its franchise. For
this reason, it should be liable only for tax proper and should not be held
liable for surcharge and interest.