GR 176667; (November, 2007) (Digest)
G.R. No. 176667 November 22, 2007
ERICSSON TELECOMMUNICATIONS, INC., petitioner, vs. CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et al., respondents.
FACTS
Ericsson Telecommunications, Inc., with its principal office in Pasig City, was assessed deficiency local business taxes for 1998-2001 based on its gross revenues as reported in audited financial statements. Ericsson protested, arguing the tax base should be gross receipts, not gross revenue. The City denied the protest. Ericsson filed a petition for review with the Regional Trial Court (RTC), which ruled in its favor and canceled the assessments. The City appealed to the Court of Appeals (CA). The CA reversed the RTC and dismissed Ericsson’s complaint without prejudice. The CA held that the Verification and Certification of Non-Forum Shopping attached to the RTC petition was defective, as it was signed by Ericsson’s Manager for Tax and Legal Affairs without proof of specific authorization from the Board of Directors. Ericsson filed this Petition for Review.
ISSUE
The primary issues are: (1) Whether the CA erred in dismissing the case due to a defective Verification and Certification of Non-Forum Shopping; and (2) Whether the local business tax should be computed based on gross receipts or gross revenue.
RULING
The Supreme Court granted the petition and reinstated the RTC decision. On the procedural issue, the Court ruled the CA erred in dismissing the complaint. While the authority of the corporate officer signing the certification was initially not shown, Ericsson subsequently submitted a Secretary’s Certificate dated May 6, 2002, authorizing the Manager for Tax and Legal Affairs to sign all documents relative to the tax protest. Following jurisprudence, the Court sanctioned this substantial compliance, especially given the merits of the case which justify a relaxation of procedural rules to serve substantial justice.
On the substantive tax issue, the Court held that the local business tax must be computed based on “gross receipts” and not “gross revenue.” Section 143 of the Local Government Code and the pertinent Pasig Revenue Code provision explicitly use the term “gross receipts.” Gross receipts refer to money or its equivalent actually or constructively received, excluding amounts previously taxed. Gross revenue, an accounting concept, includes all earnings without deductions and may encompass amounts not yet received. The City’s assessment based on audited financial statement gross revenue was therefore invalid, as it taxed income not yet actually received and potentially double-taxed amounts from prior years. The deficiency assessments were correctly canceled by the RTC.