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CITY OF PASIG
G.R. No. 176667, 22 November 2007
The imposition of local business tax based on the taxpayers gross revenue will
inevitably result in the constitutionally proscribed double taxation taxing of the same
person twice by the same jurisdiction for the same thing inasmuch as the taxpayers
revenue or income for a taxable year will definitely include its gross receipts already
reported during the previous year and for which local business tax has already been
paid.
Ericsson Telecommunications, Inc (Ericsson) was assessed by the City of
Pasig with a business tax deficiency based on its gross revenues. Ericsson
protested the assessment on the ground that it should be based on gross
receipts and not on gross revenues. The City of Pasig denied the protest
which prompted Ericsson to file a petition for review for the annulment and
cancellation of its deficiency local business taxes.
The Regional Trial Court (RTC) declared the City of Pasig in default
due to its failure to include a notice of hearing in its motion to dismiss.
Ericsson was allowed to present evidence ex parte which became the basis
of the RTC to cancel and set aside the assessments. On appeal, the Court of
Appeals (CA), dismissed Ericssons c o m p l a i n t without prejudice. The CA
sustained the City of Pasigs claim that the petition filed with the RTC should
have been dismissed due to Ericssons failure to show that their Manager for
Tax and Legal Affairs and the person who signed the Verification and
Certification of Non- Forum Shopping, was duly authorized by the Board of
Directors. The motion for reconsideration was also denied and the case now
comes before the Court via a Petition for Review on Certiorari.
ISSUE:
Whether or not the local business tax, as imposed by the Pasig City
Revenue Code and the Local Government Code of 1991, should be based on
gross receipts or gross revenues
HELD:
Petition GRANTED.
The law is clear. Gross receipts include money or its equivalent actually
or constructively received in consideration of services rendered or articles
sold, exchanged or leased, whether actual or constructive. There is,
therefore, constructive receipt, when the consideration for the articles sold,
exchanged or leased, or the services rendered has already been placed under
the control of the person who sold the goods or rendered the services
without any restriction by the payor.
In contrast, gross revenue covers money or its equivalent actually or
constructively received, including the value of services rendered or articles
sold, e x c h a n g e d o r leased, the payment of which is yet to be received.
This is in consonance with the International Financial Reporting Standards,
which defines revenue as the gross inflow of
economic benefits (cash, receivables, and other assets) arising from the ordinary
operating activities of an enterprise (such as sales of goods, sales of services,
interest, royalties, and dividends), which is measured at the fair value of the
consideration received or receivable.
In Ericssons case, its audited financial statements reflect income or revenue
which accrued to it during the taxable period although not yet actually or
constructively received or paid. This is because Ericsson uses the accrual method
of accounting, where income is reportable when all the events have occurred
that fix the taxpayers right to receive the income, and the amount can be
determined with reasonable accuracy; the right to receive income, and not the
actual receipt, determines when to include the amount in gross income.
The imposition of local business tax based on petitioners gross revenue will
inevitably result in the constitutionally proscribed double taxation taxing of
the same person twice by the same jurisdiction for the same thing inasmuch as
petitioners revenue or income for a taxable year will definitely include its gross
receipts already reported during the previous year and for which local business tax
has already been paid.
Thus, the City of Pasig committed a palpable error when it assessed
petitioners local business tax based on its gross revenue as reported in its audited
financial statements, as Section 143 of the Local Government Code and Section
22(e) of the Pasig Revenue Code clearly provide that the tax should be computed
based on gross receipts.
Moreover, the recourse sought by petitioner before the Supreme Court was
improper; resort to Rule 65 is only available when all means of appeal are already
availed of or are not available, in this case, the petitioner has not sought
reconsideration before the RTC that ordered the TRO nor did the petitioner seek the
proper remedy before the Court of Appeals through Rule 45. Although litigation is
not a battle of technicalities, the SC emphasized that that procedure must be
followed for the orderly and efficient administration of justice and is a matter of
jurisdiction. In fact, petitioner was also beyond the reglamentary period to question
the order. With regards to the Provincial Treasurers continued enforcement of the
levy despite the LBAA appeal, the SC gave focus to the LBAA Rules of Procedure
whereby it is stated in Section 7, Rule V that: An appeal shall not suspend the
collection of the corresponding realty taxes on the real property subject of the
appeal as assessed by the Provincial, City or Municipal Assessor, x x x. An appeal
may be entertained but the hearing thereof shall be deferred until the
corresponding taxes due on the real property subject of the appeal shall have been
paid under protest or the petitioner shall have given a surety bond, x x x.
Corollarily, Section 11 of Republic Act No. 9282, which amended Republic Act No.
1125 (The Law Creating the Court of Tax Appeals) provides: No appeal taken to the
Court of Appeals from the Collector of Internal Revenue x x x shall suspend the
payment, levy, distraint, and/or sale of any property for the satisfaction of his tax
liability as provided by existing law. Provided, however, That when in the opinion of
the Court the collection by the aforementioned government agencies may
jeopardize the interest of the Government and/or the taxpayer the Court at any
stage of the processing may suspend the collection and require the taxpayer either
to deposit the amount claimed or to file a surety bond for not more t h a n double
the amount with the Court. Thus, although it is true that the LBAA or the courts
generally cannot suspend the payment of taxes even on appeal, however should a
bond be posted, it is proper to suspend.
receipt of the denial of the protest or from the lapse of the sixty-day (60) period
prescribed herein within which to appeal with the court of competent jurisdiction,
otherwise the assessment becomes conclusive and unappealable. That petitioner
protested in writing against the assessment of tax due and the basis thereof is on
record as in fact it was on that account that respondent sent him the above-quoted
July 15, 2005 letter which operated as a denial of petitioners written protest
.Petitioner should thus have, following the earlier above-quoted Section 195 of the
Local Government Code, either appealed the assessment before the court of
competent jurisdiction [15] or paid the tax and then sought are fund. Petitioner did
not observe any of these remedies available to him, however. He instead opted
to file a petition for mandamus to compel respondent to accept payment of transfer
tax as computed by him.