G.R. No. L-24942 March 30, 1970
COTABATO LIGHT & POWER COMPANY, INCORPORATED, petitioner-appellee, vs. THE CITY OF COTABATO, THE HONORABLE MAYOR OF COTABATO CITY, THE HONORABLE BOARD MEMBERS OF COTABATO CITY and AUGUSTO PACIS, as City Treasurer, respondents-appellants.

FACTS

Petitioner Cotabato Light & Power Company, Inc. was granted a legislative franchise under Commonwealth Act No. 487 (June 18, 1939) to operate an electric light, heat, and power plant in Cotabato for 25 years. The franchise was subject to the terms of Act No. 3636 , as amended by Commonwealth Act No. 132 . Section 10 of Act 3636 stipulated that the grantee shall pay a tax equal to 2% of its gross earnings to the municipal treasury, and this payment “shall be in lieu of any and all taxes of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial, or insular, now or in the future” on its franchise, rights, privileges, receipts, revenues, and profits, among other properties. This franchise was later extended for another 25 years under Republic Act No. 3217 (June 17, 1961), which again made it subject to the terms of Act 3636, as amended.
Pursuant to the Local Autonomy Act ( Republic Act No. 2264 , enacted June 19, 1959), which granted local governments broader taxing powers, the Municipal Board of Cotabato City enacted Ordinance No. 7 on October 3, 1962. The ordinance imposed a license fee on any person or entity engaged in the operation, manufacture, or sale of electric light, heat, or power within the city. The fee was computed per kilowatt sold at varying rates.
The Cotabato Light & Power Company refused to pay the fee, contending the ordinance was ultra vires. The city officials insisted on enforcement. The company filed an action for declaratory relief. The Court of First Instance of Cotabato declared Ordinance No. 7 null and void and ultra vires, and enjoined its enforcement. The City of Cotabato et al. appealed.

ISSUE

Whether the City of Cotabato, under the Local Autonomy Act, can impose the license fee/tax under Ordinance No. 7 upon the Cotabato Light & Power Company, which holds a legislative franchise containing an exemption from all other taxes in consideration of its payment of a 2% franchise tax on gross earnings.

RULING

The Supreme Court modified the trial court’s decision. It held that the City of Cotabato could not impose the tax or license fee under Ordinance No. 7 on the Cotabato Light & Power Company. The company’s franchise, as extended by Republic Act No. 3217, remained expressly subject to the terms of Act 3636, as amended. Section 10 of Act 3636 granted a clear exemption from “any and all taxes” municipal, provincial, or insular, in lieu of the 2% franchise tax. This exemption was not repealed by the Local Autonomy Act. The Local Autonomy Act’s general grant of power to tax electric utilities (Section 2(d)) must yield to the specific and express exemption contained in the company’s legislative franchise. Furthermore, Section 2(j) of the Local Autonomy Act prohibits cities from levying “taxes of any kind on… persons paying franchise tax,” which includes the appellee. The ordinance, being a revenue measure (a tax), was therefore invalid as applied to the company. The Court eliminated the portion of the trial court’s decision declaring the ordinance null and void and ultra vires on grounds other than the exemption, but affirmed the judgment in favor of the company.