Philippine Telephone & Telegraph Company v. Revenue

IMPERIAL, J.:

This is an appeal interposed by the plaintiff corporation, Philippine Telephone & Telegraph Company, from the decision of the Court of First Instance of Manila, the dispositive part of which reads as follows: For the foregoing reasons, the defendant is absolved from the complaint, and plaintiff is condemned to pay the defendant of the first counterclaim the sum of fifteen thousand fifty-seven pesos and fifty-nine centavos (P15,057.59) and on the second counterclaim the sum of forty-two thousand three hundred sixty pesos and eighty-two centavos (P42,360.82), making a total of fifty-seven thousand four hundred eighteen pesos and forty-one centavos (P57,418.41) with legal interest in each case from the date of the filing of defendant's counterclaim, on November 28, 1930. The plaintiff will pay the costs. Let judgment be entered accordingly.

It is so ordered. The plaintiff, a domestic corporation organized in accordance with the laws now in force, with its main office in the City of Manila, brought an action against the Collector of Internal Revenue to recover the sum of P30,421.65, which had been collected from it as income tax corresponding to the years 1927, 1928 and 1929 on the total sum of P1,014,055, which was paid and delivered by said appellant to the foreign corporations, Philippine Islands Telephone & Telegraph Company and Telephone Investment Corporation, in the form of dividends distributed by it in said years, and as shares dividends corresponding to the aforesaid foreign corporations as stockholders. In his answer the appellee substantially admitted the facts above stated, but denied the right invoked by the appellant; and, as his first counterclaim, he sought to recover from it the sum of P15,057.59, This amount having been received by the appellant, which was then a foreign corporation and the biggest stockholder of the Philippine Islands Telephone & Telegraph Co., from the latter as annual dividends, which said Philippine Islands Telephone & Telegraph Co., having authority to engage in business and in fact engaged in business in the Philippines as a holder of the franchise created by Act No. 1368, failed to deduct, as it was its duty to deduct, as income tax for the years 1919, 1920 and 1921, from the earnings obtained in said years, amounting to P613,559.34; and as a second and last counterclaim the appellee sought to recover from the appellant the sum of P42,360.82, which the latter was bound to pay as income tax on the sum of P1,412,027.26, paid and delivered by it to the Philippine Islands Telephone & Telegraph Co. as dividends corresponding to the years 1923 to 1926, and from which said appellant had acquired at the beginning of the year 1923 the franchise granted by said Act.

The case was submitted for decision on the following: STIPULATION OF FACTS The plaintiff and the defendant, by their undersigned attorney, hereby stipulated and degree that the following are the facts of this case, and that judgment may be entered thereon. With respect to plaintiff the admitted facts are as follows: "1. Plaintiff is a domestic corporation duly organized and existing under the laws of the Philippine Islands with its principals office in the City of Manila therein, and the defendant is the Collector of Internal Revenue of the Philippine Islands.

"2. Plaintiff was, during all the times set forth in the complaint, transacting the business of furnishing telephone service in the Island of Luzon, in the Philippine Islands, under and by virtue of a special franchise granted by the Philippine Commission in Act No. 1368, which it had duly acquired. "3.

It is provided in section 5 of said Act No.

1368, the franchise under which the plaintiff is and has been transacting business, as aforesaid, among other things, that the grantee, their successors or assigns, should pay to the Insular Treasurer each year, two per centum (2%) of their gross receipts from the telephone, telegraph or other electrical transmission business transacted under said franchise, and that said percentage should be in lieu of all taxes on the franchise or earnings thereof. "4. During the years 1927, 1928 and 1929, as well as during the years prior thereto, the plaintiff corporation duly paid to the Insular Treasurer the full percentages corresponding of the franchise referred to in the last preceding paragraph.

"5. Among the stockholders holding stock in the plaintiff corporation during the said years 1927, 1928 and 1929, and who received dividends from the plaintiff out of its operations under said franchise, were the Philippine Islands Telephone & Telegraph Company and the Telephone Investment Corporation, both of which stockholders are foreign corporations domiciled in the United States, not engaged in business or trade within the Philippine Islands, and not having any office or place of business therein. "6.

During the aforesaid years 1927, 1928 and 1929, plaintiff paid to the stockholder corporations mentioned in the last preceding paragraph, as dividends duly and lawfully declared by the plaintiff for said years the aggregate sum of P1,014,055 as follows: Name of Stockholder 1927 1928 1929 Total P.I. Telephone and Telegraph Company P286,600 P352,560 P358,495 P997,655 Telephone Investment Corporation 6,600 9,800 16,400 Totals