THIRD DIVISION

[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., * respondent.

DECISION

AUSTRIA-MARTINEZ, J : p

Ericsson Telecommunications, Inc. (petitioner), a corporation with

principal office in Pasig City, is engaged in the design, engineering, and
marketing of telecommunication facilities/system. In an Assessment Notice
dated October 25, 2000 issued by the City Treasurer of Pasig City, petitioner
was assessed a business tax deficiency for the years 1998 and 1999
amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its
gross revenues as reported in its audited financial statements for the years
1997 and 1998. Petitioner filed a Protest dated December 21, 2000, claiming
that the computation of the local business tax should be based on gross
receipts and not on gross revenue.
The City of Pasig (respondent) issued another Notice of Assessment to
petitioner on November 19, 2001, this time based on business tax
deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and
P4,710,242.93, respectively, based on its gross revenues for the years 1999
and 2000. Again, petitioner filed a Protest on January 21, 2002, reiterating
its position that the local business tax should be based on gross receipts and
not gross revenue.
Respondent denied petitioner's protest and gave the latter 30 days
within which to appeal the denial. This prompted petitioner to file a petition
for review 1 with the Regional Trial Court (RTC) of Pasig, Branch 168, praying
for the annulment and cancellation of petitioner's deficiency local business
taxes totaling P17,262,205.66.
Respondent and its City Treasurer filed a motion to dismiss on the
grounds that the court had no jurisdiction over the subject matter and that
petitioner had no legal capacity to sue. The RTC denied the motion in an
Order dated December 3, 2002 due to respondents' failure to include a
notice of hearing. Thereafter, the RTC declared respondents in default and
allowed petitioner to present evidence ex-parte.
In a Decision 2 dated March 8, 2004, the RTC canceled and set aside
the assessments made by respondent and its City Treasurer. The dispositive
portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered
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 in favor of the plaintiff and ordering defendants to CANCEL and SET
ASIDE Assessment Notice dated October 25, 2000 and Notice of
Assessment dated November 19, 2001. ITcCSA

SO ORDERED. 3

On appeal, the Court of Appeals (CA) rendered its Decision 4 dated

November 20, 2006, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby ordered SET
ASIDE and a new one entered DISMISSING the plaintiff/appellee's
complaint WITHOUT PREJUDICE.

SO ORDERED. 5

The CA sustained respondent's claim that the petition filed with the
RTC should have been dismissed due to petitioner's failure to show that Atty.
Maria Theresa B. Ramos (Atty. Ramos), petitioner's 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.
Its motion for reconsideration having been denied in a Resolution 6
dated February 9, 2007, petitioner now comes before the Court via a Petition
for Review on Certiorari under Rule 45 of the Rules of Court, on the following
grounds:
(1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR
LACK OF SHOWING THAT THE SIGNATORY OF THE
VERIFICATION/CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED
FOR AND IN BEHALF OF PETITIONER.

(2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO

RESPONDENT'S APPEAL, CONSIDERING THAT IT HAS NO
JURISDICTION OVER THE SAME, THE MATTERS TO BE RESOLVED
BEING PURE QUESTIONS OF LAW, JURISDICTION OVER WHICH IS
VESTED ONLY WITH THIS HONORABLE COURT.

(3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER

RESPONDENT'S APPEAL, SAID COURT ERRED IN NOT DECIDING
ON THE MERITS OF THE CASE FOR THE SPEEDY DISPOSITION
THEREOF, CONSIDERING THAT THE DEFICIENCY LOCAL BUSINESS
TAX ASSESSMENTS ISSUED BY RESPONDENT ARE CLEARLY
INVALID AND CONTRARY TO THE PROVISIONS OF THE PASIG
REVENUE CODE AND THE LOCAL GOVERNMENT CODE. 7

After receipt by the Court of respondent's complaint and petitioner's

reply, the petition is given due course and considered ready for decision
without the need of memoranda from the parties.
The Court grants the petition.
First, the complaint filed by petitioner with the RTC was erroneously
dismissed by the CA for failure of petitioner to show that its Manager for Tax
and Legal Affairs, Atty. Ramos, was authorized by the Board of Directors to
sign the Verification and Certification of Non-Forum Shopping in behalf of the
petitioner corporation. cEATSI

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 Time and again, the Court, under special circumstances and for
compelling reasons, sanctioned substantial compliance with the rule on the
submission of verification and certification against non-forum shopping. 8
In General Milling Corporation v. National Labor Relations Commission,
9 the Court deemed as substantial compliance the belated attempt of the

petitioner to attach to the motion for reconsideration the board

resolution/secretary's certificate, stating that there was no attempt on the
part of the petitioner to ignore the prescribed procedural requirements.
I n Shipside Incorporated v. Court of Appeals, 10 the authority of the
petitioner's resident manager to sign the certification against forum
shopping was submitted to the CA only after the latter dismissed the
petition. The Court considered the merits of the case and the fact that the
petitioner subsequently submitted a secretary's certificate, as special
circumstances or compelling reasons that justify tempering the
requirements in regard to the certificate of non-forum shopping. 11
There were also cases where there was complete non-compliance with
the rule on certification against forum shopping and yet the Court proceeded
to decide the case on the merits in order to serve the ends of substantial
justice. 12
In the present case, petitioner submitted a Secretary's Certificate
signed on May 6, 2002, whereby Atty. Ramos was authorized to file a protest
at the local government level and to "sign, execute and deliver any and all
papers, documents and pleadings relative to the said protest and to do and
perform all such acts and things as may be necessary to effect the
foregoing." 13
Applying the foregoing jurisprudence, the subsequent submission of
the Secretary's Certificate and the substantial merits of the petition, which
will be shown forthwith, justify a relaxation of the rule.
Second, the CA should have dismissed the appeal of respondent as it
has no jurisdiction over the case since the appeal involves a pure question of
law. The CA seriously erred in ruling that the appeal involves a mixed
question of law and fact necessitating an examination and evaluation of the
audited financial statements and other documents in order to determine
petitioner's tax base.
There is a question of law when the doubt or difference is on what the
law is on a certain state of facts. On the other hand, there is a question of
fact when the doubt or difference is on the truth or falsity of the facts
alleged. 14 For a question to be one of law, the same must not involve an
examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what
the law provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the question posed is one
of fact. Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is
whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case, it is a question of law;
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 otherwise it is a question of fact. 15

There is no dispute as to the veracity of the facts involved in the

present case. While there is an issue as to the correct amount of local
business tax to be paid by petitioner, its determination will not involve a look
into petitioner's audited financial statements or documents, as these are not
disputed; rather, petitioner's correct tax liability will be ascertained through
an interpretation of the pertinent tax laws, i.e ., whether the local business
tax, as imposed by the Pasig City Revenue Code (Ordinance No. 25-92) and
the Local Government Code of 1991, should be based on gross receipts, and
not on gross revenue which respondent relied on in computing petitioner's
local business tax deficiency. This, clearly, is a question of law, and beyond
the jurisdiction of the CA. EDCTIa

Section 2 (c), Rule 41 of the Rules of Court provides that in all cases
where questions of law are raised or involved, the appeal shall be to this
Court by petition for review on certiorari under Rule 45.
Thus, as correctly pointed out by petitioner, the appeal before the CA
should have been dismissed, pursuant to Section 5 (f), Rule 56 of the Rules
of Court, which provides:
Sec. 5. Grounds for dismissal of appeal. — The appeal may be
dismissed motu proprio or on motion of the respondent on the
following grounds:

xxx xxx xxx

(f) Error in the choice or mode of appeal.

xxx xxx xxx

Third, the dismissal of the appeal, in effect, would have sustained the
RTC Decision ordering respondent to cancel the Assessment Notices issued
by respondent, and therefore, would have rendered moot and academic the
issue of whether the local business tax on contractors should be based on
gross receipts or gross revenues.
However, the higher interest of substantial justice dictates that this
Court should resolve the same, to evade further repetition of erroneous
interpretation of the law, 16 for the guidance of the bench and bar. AHaDSI

As earlier stated, the substantive issue in this case is whether the local
business tax on contractors should be based on gross receipts or gross
revenue.
Respondent assessed deficiency local business taxes on petitioner
based on the latter's gross revenue as reported in its financial statements,
arguing that gross receipts is synonymous with gross earnings/revenue,
which, in turn, includes uncollected earnings. Petitioner, however, contends
that only the portion of the revenues which were actually and constructively
received should be considered in determining its tax base.
Respondent is authorized to levy business taxes under Section 143 in
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 relation to Section 151 of the Local Government Code.
Insofar as petitioner is concerned, the applicable provision is
subsection (e), Section 143 of the same Code covering contractors and other
independent contractors, to wit:
SEC. 143. Tax on Business . — The municipality may impose
taxes on the following businesses:
xxx xxx xxx

(e) On contractors and other independent contractors, in

accordance with the following schedule:

With gross receipts for the Amount of Tax

preceding calendar year in Per Annum
the amount of:
xxx xxx xxx
(Emphasis supplied)

The above provision specifically refers to gross receipts which is

defined under Section 131 of the Local Government Code, as follows:
xxx xxx xxx
(n) "Gross Sales or Receipts " include the total amount of
money or its equivalent representing the contract price, compensation
or service fee, including the amount charged or materials supplied with
the services and the deposits or advance payments actually or
constructively received during the taxable quarter for the services
performed or to be performed for another person excluding discounts if
determinable at the time of sales, sales return, excise tax, and value-
added tax (VAT);
xxx xxx xxx

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.
I n Commissioner of Internal Revenue v. Bank of Commerce, 17 the
Court interpreted gross receipts as including those which were actually or
constructively received, viz.:
Actual receipt of interest income is not limited to physical
receipt. Actual receipt may either be physical receipt or
constructive receipt. When the depository bank withholds the final
tax to pay the tax liability of the lending bank, there is prior to the
withholding a constructive receipt by the lending bank of the amount
withheld. From the amount constructively received by the lending
bank, the depository bank deducts the final withholding tax and remits
it to the government for the account of the lending bank. Thus, the
interest income actually received by the lending bank, both physically
and constructively, is the net interest plus the amount withheld as final
tax . AEHCDa

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 The concept of a withholding tax on income obviously and
necessarily implies that the amount of the tax withheld comes from the
income earned by the taxpayer. Since the amount of the tax withheld
constitutes income earned by the taxpayer, then that amount
manifestly forms part of the taxpayer's gross receipts. Because the
amount withheld belongs to the taxpayer, he can transfer its
ownership to the government in payment of his tax liability. The
amount withheld indubitably comes from income of the taxpayer, and
thus forms part of his gross receipts. (Emphasis supplied)

Further elaboration was made by the Court in Commissioner of Internal

Revenue v. Bank of the Philippine Islands, 18 in this wise:
Receipt of income may be actual or constructive. We have held
that the withholding process results in the taxpayer's constructive
receipt of the income withheld, to wit:
By analogy, we apply to the receipt of income the rules on
actual a n d constructive possession provided in Articles
531 and 532 of our Civil Code.
Under Article 531:
"Possession is acquired by the material occupation of
a thing or the exercise of a right, or by the fact that it is
subject to the action of our will, or by the proper acts and
legal formalities established for acquiring such right."

Article 532 states:

"Possession may be acquired by the same person
who is to enjoy it, by his legal representative, by his agent,
or by any person without any power whatever; but in the
last case, the possession shall not be considered as
acquired until the person in whose name the act of
possession was executed has ratified the same, without
prejudice to the juridical consequences of negotiorum
gestio in a proper case."
The last means of acquiring possession under Article
531 refers to juridical acts — the acquisition of possession
by sufficient title — to which the law gives the force of acts
of possession. Respondent argues that only items of
income actually received should be included in its gross
receipts. It claims that since the amount had already been
withheld at source, it did not have actual receipt thereof.

We clarify. Article 531 of the Civil Code clearly

provides that the acquisition of the right of possession is
through the proper acts and legal formalities established
therefor. The withholding process is one such act. There
may not be actual receipt of the income withheld; however,
as provided for in Article 532, possession by any person
without any power whatsoever shall be considered as
acquired when ratified by the person in whose name the
act of possession is executed.
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 In our withholding tax system, possession is acquired
by the payor as the withholding agent of the government,
because the taxpayer ratifies the very act of possession for
the government. There is thus constructive receipt. The
processes of bookkeeping and accounting for interest on
deposits and yield on deposit substitutes that are subjected
to FWT are indeed — for legal purposes — tantamount to
delivery, receipt or remittance. 19

Revenue Regulations No. 16-2005 dated September 1, 2005 20 defined

and gave examples of "constructive receipt", to wit: STaIHc

SEC. 4. 108-4. Definition of Gross Receipts. — . . .

"Constructive receipt" occurs when the money consideration
or its equivalent is placed at the control of the person who rendered
the service without restrictions by the payor. The following are
examples of constructive receipts:
(1) deposit in banks which are made available to the seller of
services without restrictions;
(2) issuance by the debtor of a notice to offset any debt or
obligation and acceptance thereof by the seller as payment for services
rendered; and
(3) transfer of the amounts retained by the payor to the
account of the contractor.

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, exchanged or leased, the payment of which is yet to
be received. This is in consonance with the International Financial
Reporting Standards, 21 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), 22 which is measured at the
fair value of the consideration received or receivable. 23
As aptly stated by the RTC:
"[R]evenue from services rendered is recognized when services
have been performed and are billable." It is "recorded at the amount
received or expected to be received." (Section E [17] of the
Statements of Financial Accounting Standards No. 1). 24

In petitioner's 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 petitioner uses
the accrual method of accounting, where income is reportable when all the
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 events have occurred that fix the taxpayer's 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. 25
The imposition of local business tax based on petitioner's 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 26 — inasmuch as petitioner's 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, respondent committed a palpable error when it assessed
petitioner's 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. DIETcH

WHEREFORE, the petition is GRANTED. The Decision dated November

20, 2006 and Resolution dated February 9, 2007 issued by the Court of
Appeals are SET ASIDE, and the Decision dated March 8, 2004 rendered by
the Regional Trial Court of Pasig, Branch 168 is REINSTATED.
SO ORDERED.
Ynares-Santiago, Chico-Nazario, Nachura and Reyes, JJ., concur.

Footnotes
* Only Pasig City is named as respondent in the body of herein Petition for
Review, pp. 1-2; rollo, pp. 17-18.
1. Entitled "Ericsson Telecommunications, Inc., Plaintiff, v. Pasig City thru its
Mayor, Hon. Soledad Eusebio and the City Treasurer, Hon. Crispino Salvador,
Defendants."
2. Rollo , pp. 60-67.
3. Rollo , p. 67.
4. Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices
Rosalinda Asuncion-Vicente and Ramon M. Bato, Jr., concurring; id. at 6-13.
5. Id. at 12-13.
6. Id. at 14.
7. Rollo , pp. 24-25.
8. Estribillo v. Department of Agrarian Reform, G.R. No. 159674, June 30, 2006,
494 SCRA 218, 232; General Milling Corporation v. National Labor Relations
Commission , 442 Phil. 425, 427 (2002); Shipside Incorporated v. Court of
Appeals, 404 Phil. 981, 995 (2001).
9. Supra note 8.
10. Supra note 8, at 995.
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 11. Id. at 996.
12. De Guia v. De Guia, 408 Phil. 399, 408 (2001); Damasco v. National Labor
Relations Commission, 400 Phil. 568, 581 (2000).
13. Rollo , p. 68.
14. Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004, 430 SCRA 492,
506.
15. Velayo-Fong v. Velayo, G.R. No. 155488, December 6, 2006, 510 SCRA 320,
329-330.
16. See Velayo-Fong v. Velayo, supra note 15; Province of Batangas v. Romulo,
G.R. No. 152774, May 27, 2004, 429 SCRA 736, 757.
17. G.R. No. 149636, June 8, 2005, 459 SCRA 638, 653.
18. G.R. No. 147375, June 26, 2006, 492 SCRA 551.

19. Id. at 569-570.

20. Consolidated Value-Added Tax Regulations of 2005.
21. In March 2005, the Accounting Standards Council approved the issuance of
International Accounting Standards 18, Revenue, issued by the International
Accounting Standards Board as a Philippine Financial Reporting Standard,
consisting of the Philippine Financial Reporting Standards corresponding to
the International Financial Reporting Standards, the Philippine Accounting
Standards corresponding to International Accounting Standards, and
Interpretations.

22. International Accounting Standards 18.7.

23. International Accounting Standards 18.9.
24. Rollo , p. 66.
25. Filipinas Synthetic Fiber Corporation v. Court of Appeals, 374 Phil. 835, 842
(1999).
26. Commissioner of Internal Revenue v. Solidbank Corporation, 462 Phil. 96,
133 (2003). ACETSa

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