The Court of Tax Appeals (CTA) has denied the claim for refund of P36.7 million in franchise tax sought by the Davao City Water District (DCWD) from the Bureau of Internal Revenue (BIR) for taxable years 2003 to 2011.

With its ruling, the CTA as a full court denied the petition filed by DCWD which challenged the May 6, 2022 decision handed down by the tax court's third division in favor of the BIR.

"Wherefore, the instant Petition for Review is denied, for lack of merit. The assailed Decision dated May 6, 2022 and the Resolution dated Oct. 7, 2022 of the Court in Division in CTA Case Nos. 9138, 9139, 9140, 9141, 9142 and 9143 are affirmed," the CTA en banc ruled in a decision written by Associate Justice Catherine T. Manahan.

In its petition, DCWD alleged that it cannot be subject to franchise tax because it cannot be a franchise under the Constitution. 

It pointed out that a franchise is not necessary for it to operate as a water utility. It even said that Congress considered local water districts as quasi-public corporations.

But the CTA said: "Petitioner's bone of contention is that since it is not a holder of a primary franchise and it is not required to obtain a secondary franchise for it to operate, it follows that it is not liable to pay franchise tax under Section 119 of the 1997 National Internal Revenue Code, as amended. The Court En Banc disagrees."

It said its third division was correct when it ruled that public utilities, such as the Davao City Water District, require a franchise in order to operate. 

Citing the Supreme Court ruling in Renato V. Diaz and Aurora Ma. F. Timbol vs. The Secretary of Finance and the Commissioner of Internal Revenue, the CTA highlighted that "the word 'franchise' broadly covers government grants of a special right to do an act or series of acts of public concern."

"Considering the foregoing, the Court En Banc finds no compelling reason to reverse or modify the findings of the Court in Division in denying petitioner's claim for refund," it said.

The 21-page decision dated handed down on April 2, 2024 was concurred in by Presiding Justice Roman G. Del Rosario and Associate Justices Ma. Belen M. Ringpis-Liban, Jean Marie A. Bacorro-Villena, Maria Rowena Modesto-San Pedro, Lanee S. Cui-David, Corazon G. Ferrer-Flores, and Henry S. Angeles.