G.R. No.

L-19495

November 24, 1966 INTERNAL and THE REVENUE, petitioner, COURT OF TAX

COMMISSIONER OF vs. LILIA YUSAY GONZALES APPEALS, respondents.

Based on the above findings, the Bureau of Internal Revenue assessed on October 29, 1953 estate and inheritance taxes in the sums of P6,849.78 and P16,970.63, respectively. On January 25, 1955 the Bureau of Internal Revenue increased the assessment to P8,225.89 as estate tax and P22,117.10 as inheritance tax plus delinquency interest and demanded payment thereof on or before February 28, 1955. Meanwhile, on February 16, 1955, the Court of First Instance of Iloilo required Jose S. Yusay to show proof of payment of said estate and inheritance taxes. On March 3, 1955 Jose S. Yusay requested an extension of time within which to pay the tax. He posted a surety bond to guarantee payment of the taxes in question within one year. The Commissioner of Internal Revenue however denied the request. Then he issued a warrant of distraint and levy which he transmitted to the Municipal Treasurer of Pototan for execution. This warrant was not enforced because all the personal properties subject to distraint were located in Iloilo City.

Office of the Solicitor General for the Ramon A. Gonzales for respondent Lilia Yusay Gonzales. BENGZON, J.P., J.:

petitioner.

Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948, leaving two heirs, namely, Jose S. Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child. Intestate proceedings for the settlement of his estate were instituted in the Court of First Instance of Iloilo (Special Proceedings No. 459). Jose S. Yusay was therein appointed administrator. On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and inheritance tax return declaring therein the following properties: Personal properties Palay Carabaos Real Capital, 74 parcels ) Conjugal 19 parcels) Total gross estate The return mentioned no heir. Upon investigation however the Bureau of Internal Revenue found the following properties: Personal properties: Palay Carabaos Packard 2 Aparadors P6,444.00 1,500.00 2,000.00 500.00 properties: P6,444.00 1,000.00

On May 20, 1955 the Provincial Treasurer of Iloilo requested the BIR Provincial Revenue Officer to furnish him copies of the assessment notices to support a motion for payment of taxes which the Provincial Fiscal would file in Special Proceedings No. 459 before the Court of First Instance of Iloilo. The papers requested were sent by the Commissioner of Internal Revenue to the Provincial Revenue Officer of Iloilo to be transmitted to the Provincial Treasurer. The records do not however show whether the Provincial Fiscal filed a claim with the Court of First P7,444.00Instance for the taxes due. On May 30, 1956 the commissioner appointed by the Court of First Instance for the purpose, submitted a reamended project of partition which listed the following properties: P179,760.00 P187,204.00 Personal properties: Buick Packard Aparadors Cash in Palay Carabaos Sedan car Bank (PNB) P8,100.00 2,000.00 500.00 8,858.46 6,444.00 1,500.00

assessed at

P27,402.46

Real properties: Land, 174 parcels assessed at Buildings P10,444.00 Total

Automobile

P324,797.21 4,500.00

P329,297.21 P356,699.67

Real properties: Capital, 25 parcels assessed at 1/2 of Conjugal, 130 parcels assessed at Total

P87,715.32 P121,425.00

The fair market value of the real properties was computed by increasing the assessed value by forty percent.

More than a year later, particularly on July 12, 1957, an agent of the Bureau of Internal Revenue apprised the Commissioner of Internal P209,140.32 Revenue of the existence of said reamended project of partition. Whereupon, the Internal Revenue Commissioner caused the estate of P219,584.32 Matias Yusay to be reinvestigated for estate and inheritance tax liability. Accordingly, on February 13, 1958 he issued the following assessment:

Estate tax 5% surcharge Delinquency interest Compromise No notice Late payment Total Inheritance Tax 5% surcharge Delinquency interest Compromise for late payment Total Total estate and inheritance taxes

P16,246.04 411.29 11,868.90

which to make the assessment counted from the discovery on September 24, 1953 of the identity of the heirs; and (2) that the estate's administrator waived the defense of prescription when he filed a surety bond on March 3, 1955 to guarantee payment of the taxes in question and when he requested postponement of the payment of the taxes pending determination of who the heirs are by the settlement court. On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals assailing the legality of the assessment dated February 13, 1958. After hearing the parties, said Court declared the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in question to have prescribed and rendered the following judgment: WHEREFORE, the decision of respondent assessing against the estate of the late Matias Yusay estate and inheritance taxes is hereby reversed. No costs. The Commissioner of Internal Revenue appealed to this Court and raises the following issues: 1. Was the petition for review in the Court of Tax Appeals within the 30-day period provided for in Section 11 of Republic Act 1125? 2. Could the Court of Tax Appeals take cognizance of Lilia Yusay's appeal despite the pendency of the "Proof of Claim" and "Motion for Allowance of Claim and for an Order of Payment of Taxes" filed by the Commissioner of Internal Revenue in Special Proceedings No. 459 before the Court of First Instance of Iloilo? 3. Has the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in question prescribed? On November 17, 1959 Lilia Yusay disputed the legality of the assessment of February 13, 1958. On March 14, 1960 she received the decision of the Commissioner of Internal Revenue on the disputed assessment. On April 13, 1960 she filed her petition for review in the Court of Tax Appeals. Said Court correctly held that the appeal was seasonably interposed pursuant to Section 11 of Republic Act 1125. We already ruled in St. Stephen's Association v. Collector of Internal 1 Revenue, that the counting of the thirty days within which to institute an appeal in the Court of Tax Appeals should commence from the date of receipt of the decision of the Commissioner on the disputed assessment, not from the date the assessment was issued. Accordingly, the thirty-day period should begin running from March 14, 1960, the date Lilia Yusay received the appealable decision. From said date to April 13, 1960, when she filed her appeal in the Court of Tax Appeals, is exactly thirty days. Hence, the appeal was timely. Next, the Commissioner attacks the jurisdiction of the Court of Tax Appeals to take cognizance of Lilia Yusay's appeal on the ground of lis pendens. He maintains that the pendency of his motion for allowance of claim and for order of payment of taxes in the Court of First Instance of Iloilo would preclude the Court of Tax Appeals from acquiring jurisdiction over Lilia Yusay's appeal. This contention lacks merit.

of

death

P15.00 40.00

55.00 P28,581.23 P38,178.12 1,105.86 28,808.75 50.00 P69,142.73 P97,723.96

Like in previous assessments, the fair market value of the real properties was arrived at by adding 40% to the assessed value. In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs. Florencia Piccio Vda. de Yusay, who succeeded him in the administration of the estate of Matias Yusay. No payment having been made despite repeated demands, the Commissioner of Internal Revenue filed a proof of claim for the estate and inheritance taxes due and a motion for its allowance with the settlement court in voting priority of lien pursuant to Section 315 of the Tax Code. On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an answer to the proof of claim alleging non-receipt of the assessment of February 13, 1958, the existence of two administrators, namely Florencia Piccio Vda. de Yusay who administered two-thirds of the estate, and Lilia Yusay, who administered the remaining one-third, and her willingness to pay the taxes corresponding to her share, and praying for deferment of the resolution on the motion for the payment of taxes until after a new assessment corresponding to her share was issued. On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated February 13, 1958. She claimed that the right to make the same had prescribed inasmuch as more than five years had elapsed since the filing of the estate and inheritance tax return on May 11, 1949. She therefore requested that the assessment be declared invalid and without force and effect. This request was rejected by the Commissioner in his letter dates January 20, 1960, received by Lilia Yusay on March 14, 1960, for the reasons, namely, (1) that the right to assess the taxes in question has not been lost by prescription since the return which did not name the heirs cannot be considered a true and complete return sufficient to start the running of the period of limitations of five years under Section 331 of the Tax Code and pursuant to Section 332 of the same Code he has ten years within

Lilia Yusay's cause seeks to resist the legality of the assessment in question. Should she maintain it in the settlement court or should she elevate her cause to the Court of Tax Appeals? We say, she acted correctly by appealing to the latter court. An action involving a disputed assessment for internal revenue taxes falls within the exclusive 2 jurisdiction of the Court of Tax Appeals. It is in that forum, to the 3 exclusion of the Court of First Instance, where she could ventilate her defenses against the assessment. Moreover, the settlement court, where the Commissioner would wish Lilia Yusay to contest the assessment, is of limited jurisdiction. And 4 under the Rules, its authority relates only to matters having to do with the settlement of estates and probate of wills of deceased 5 persons. Said court has no jurisdiction to adjudicate the contentions in question, which assuming they do not come exclusively under the Tax Court's cognizance must be submitted to the Court of First 6 Instance in the exercise of its general jurisdiction. We now come to the issue of prescription. Lilia Yusay claims that since the latest assessment was issued only on February 13, 1958 or eight years, nine months and two days from the filing of the estate and inheritance tax return, the Commissioner's right to make it has expired. She would rest her stand on Section 331 of the Tax Code which limits the right of the Commissioner to assess the tax within five years from the filing of the return. The Commissioner claims that fraud attended the filing of the return; 7 that this being so, Section 332(a) of the Tax Code would apply. It may be well to note that the assessment letter itself (Exhibit 22) did not impute fraud in the return with intent to evade payment of tax. Precisely, no surcharge for fraud was imposed. In his answer to the petition for review filed by Lilia Yusay in the Court of Tax Appeals, the Commissioner alleged no fraud. Instead, he broached the insufficiency of the return as barring the commencement of the running of the statute of limitations. He raised the point of fraud for the first time in the proceedings, only in his memorandum filed with the Tax Court subsequent to resting his case. Said Court rejected the plea of fraud for lack of allegation and proof, and ruled that the return, although not accurate, was sufficient to start the period of prescription. Fraud is a question of fact. The circumstances constituting it must be 9 alleged and proved in the court below. And the finding of said court as to its existence and non-existence is final unless clearly shown to be 10 erroneous. As the court a quo found that no fraud was alleged and proved therein, We see no reason to entertain the Commissioner's assertion that the return was fraudulent. The conclusion, however, that the return filed by Jose S. Yusay was sufficient to commence the running of the prescriptive period under Section 331 of the Tax Code rests on no solid ground. Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid return. It states: (a) Requirements.In all cases of inheritance or transfers subject to either the estate tax or the inheritance tax, or both, or where, though exempt from both taxes, the gross value of the estate exceeds three thousand pesos, the executor, administrator, or anyone of the heirs, as the case may be, shall file a return under oath in duplicate, setting
8

forth (1) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident not a citizen of the Philippines ; (2) the deductions allowed from gross estate in determining net estate as defined in section eighty-nine; (3) such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes. A return need not be complete in all particulars. It is sufficient if it complies substantially with the law. There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent; (2) when it covers the entire period involved; and (3) when it contains information as to the various items of income, deduction and credit with such definiteness as to permit the computation and assessment of 11 the tax. There is no question that the state and inheritance tax return filed by Jose S. Yusay was substantially defective. First, it was incomplete. It declared only ninety-three parcels of land representing about 400 hectares and left out ninety-two parcels covering 503 hectares. Said huge under declaration could not have been the result of an over-sight or mistake. As found in L11378, supra note 7, Jose S. Yusay very well knew of the existence of the ommited properties. Perhaps his motive in under declaring the inventory of properties attached to the return was to deprive Lilia Yusay from inheriting her legal share in the hereditary estate, but certainly not because he honestly believed that they did not form part of the gross estate. Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law, on the basis of the return, there would be no occasion for the imposition of estate and inheritance taxes. When there is no heir - the return showed none - the intestate estate is 12 escheated to the State. The State taxes not itself. In a case where the return was made on the wrong form, the Supreme Court of the United States held that the filing thereof did not start the 13 running of the period of limitations. The reason is that the return submitted did not contain the necessary information required in the correct form. In this jurisdiction, however, the Supreme Court refrained from applying the said ruling of the United States Supreme Court in Collector of Internal Revenue v. Central Azucarera de Tarlac, L-1176061, July 31, 1958, on the ground that the return was complete in itself although inaccurate. To our mind, it would not make much difference where a return is made on the correct form prescribed by the Bureau of Internal Revenue if the data therein required are not supplied by the taxpayer. Just the same, the necessary information for the assessment of the tax would be missing. The return filed in this case was so deficient that it prevented the Commissioner from computing the taxes due on the estate. It was as though no return was made. The Commissioner had to determine and assess the taxes on data obtained, not from the return, but from other sources. We therefore hold the view that the return in question was no return at all as required in Section 93 of the Tax Code. The law imposes upon the taxpayer the burden of supplying by the return the information upon which an assessment would be 14 based. His duty complied with, the taxpayer is not bound to do

anything more than to wait for the Commissioner to assess the tax. However, he is not required to wait forever. Section 331 of the Tax Code gives the Commissioner five years within which to make his 15 assessment. Except, of course, if the taxpayer failed to observe the law, in which case Section 332 of the same Code grants the Commissioner a longer period. Non-observance consists in filing a false or fraudulent return with intent to evade the tax or in filing no return at all. Accordingly, for purposes of determining whether or not the Commissioner's assessment of February 13, 1958 is barred by prescription, Section 332(a) which is an exception to Section 331 of the 16 Tax Code finds application. We quote Section 332(a): SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission. As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the huge underdeclaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax Code obligated him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations under Section 332(a) of the Tax Code should therefore be reckoned from said date for, as aforesaid, it is from that time that the Commissioner was expected by law to make his return and assess the tax due thereon. From July 12, 1957 to February 13, 1958, the date of the assessment now in dispute, less than ten years have elapsed. Hence, prescription did not abate the Commissioner's right to issue said assessment. Anent the Commissioner's contention that Lilia Yusay is estopped from raising the defense of prescription because she failed to raise the same in her answer to the motion for allowance of claim and for the payment of taxes filed in the settlement court (Court of First Instance of Iloilo), suffice it to state that it would be unjust to the taxpayer if We were to sustain such a view. The Court of First Instance acting as a settlement court is not the proper tribunal to pass upon such defense, therefore it would be but futile to raise it therein. Moreover, the Tax Code does not bar the right to contest the legality of the tax after a taxpayer pays it. Under Section 306 thereof, he can pay the tax and claim a refund therefor. A fortiori his willingness to pay the tax is no waiver to raise defenses against the tax's legality. WHEREFORE, the judgment appealed from is set aside and another entered affirming the assessment of the Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as administratrix of the intestate estate of Matias Yusay, is hereby ordered to pay the sums of P16,246.04 and P39,178.12 as estate and inheritance taxes, respectively, plus interest and surcharge for delinquency in accordance with Section 101 of the National Internal Revenue Code, without prejudice to reimbursement from her coadministratrix, Florencia Piccio Vda. de Yusay for the latter's corresponding tax liability. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Sanchez and Castro, JJ., concur. Zaldivar, J., took no part. RESOLUTION April 24, 1967 BENGZON, J.P., J.: Respondent Lilia Yusay Gonzales seeks reconsideration of our decision holding her liable for the payment of P97,723.96 as estate and inheritance taxes plus delinquency penalties as administratrix of the intestate estate of Matias Yusay. The grounds raised by her deserve this extended resolution. Firstly, movant maintains that the issue of whether or not the estate and inheritance tax return filed by Jose Yusay on May 13, 1949 was sufficient to start the running of the statute of limitations on assessment, was neither raised in the Court of Tax Appeals nor assigned as error before this Court. The records in the Court of Tax Appeals however show the contrary. Paragraph 2 of the answer filed by the Commissioner of Internal Revenue states: 2. That he likewise admits, as alleged in paragraph 1 thereof having received the letter of the petitioner dated November 27, 1959 (Annex "A" of the Petition for Review), contesting the assessment of estate and inheritance taxes levied against the Intestate Estate of the late Matias Yusay, Special Proceedings No. 459, Court of First Instance of Iloilo, on the ground that the said assessment has already prescribed, but specifically denies the allegation that the assessment have already prescribed, the truth of the matter being that the returns filed on May 11, 1949 cannot be considered as a true, and complete return sufficient to start the running of the period of five (5) years prescribed in Sec. 331 of the Tax Code; This point was discussed in the memorandum of the Commissioner of Internal Revenue, thus: In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B & 1, pp. 14-20, B.I.R. records) the net value of the estate of the deceased was claimed to be P203,354.00 and no inheritance tax was shown as the heirs were not indicated. In the final computation of the estate by an examiner of the respondent, the net estate was found to be worth P410,518.38 (p. 105, B.I.R. records) or about more than twice the original amount declared in the return. In the subsequent investigation of this case, it was also determined that the heirs of the deceased were Jose S. Yusay, a legitimate son, and Lilia Yusay, an acknowledged natural child, (petitioner herein). Under the circumstances, we believe the return filed on May 11, 1949 was false or fraudulent in the sense that the value of the properties were underdeclared and that the said return was also incomplete as the heirs to the estate were not specified. Inasmuch as the respondent was not furnished adequate data upon which to base an assessment, the said

return cannot be considered a true and complete return sufficient to start the running of the period of limitations of five (5) years prescribed in Section 331 of the Tax Code. In the lower court the defense of the Commissioner of Internal Revenue against Lilia Yusay Gonzales' plea of prescription, centered on the insufficiency and fraudulence or falsity of the return filed by Jose Yusay. The Court of Tax Appeals overruled the Commissioner of Internal Revenue. Said the Tax Code: The provision of Section 332(a) of the Tax Code cannot be invoked in this case as it was neither alleged in respondent's answer, nor proved during the hearing that the return was false or fraudulent with intent to evade the payment of tax. Moreover, the failure of respondent to charge fraud and impose the penalty thereof in the assessments made in 1953, 1955 and 1956 is an eloquent demonstration that the filing of petitioner's transfer tax return was not attended by falsity or fraud with intent to evade tax. xxx xxx xxx

vs. Lilia Yusay Gonzales" which allegedly had the effect of suspending the running of the period of limitations on assessment. Clearly, therefore, it would be incorrect to say that the question of whether or not the return filed by Jose Yusay was sufficient to start the running of the statute of limitations to assess the corresponding tax, was not raised by the Commissioner in the Court of Tax Appeals and in this Court. Second. Movant contend that contrary to Our ruling, the return filed by Jose Yusay was sufficient to start the statute of limitations on assessment. Inasmuch as this question was amply discussed in Our decision sought to be reconsidered, and no new argument was advanced, We deem it unnecessary to pass upon the same. There is no reason for any change on Our stand on this point. Third. Movant insists that since she administers only one-third of the estate of Matias Yusay, she should not be liable for the whole tax. And she suggests that We hold the intestate estate of Matias Yusay liable for said taxes, one-third to be paid by Lilia Yusay Gonzales and twothirds to be paid by Florencia P. Vda. de Yusay. The foregoing suggestion to require payment of two-thirds of the total taxes by Florencia P. Vda. de Yusay is not acceptable, for she (Florencia P. Vda. de Yusay) is not a party in this case. It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to the Court of Tax Appeals. Thereupon, the Commissioner of Internal Revenue questioned her legal capacity to institute the appeal on the ground that she administered only one-third of the estate of Matias Yusay. In opposition, she espoused the view, which was sustained by the Tax Court, that in co-administration, the administratrices are regarded as one person and the acts of one of them in relation to the regular administration of the estate are deemed to be the acts of all; hence, each administratrix can represent the whole estate. In advancing such proposition, Lilia Yusay Gonzales represented the whole estate and hoped to benefit from the favorable outcome of the case. For the same reason that she represented her coadministratrix and the whole estate of Matias Yusay, she risked being ordered to pay the whole assessment, should the assessment be sustained. Her change of stand adopted in the motion for reconsideration to the effect that she should be made liable for only one-third of the total tax, would negate her aforesaid proposition before the Court of Tax Appeals. She is now estopped from denying liability for the whole tax. At any rate, estate and inheritance taxes are satisfied from the 1 estate and are to be paid by the executor or administrator. Where there are two or more executors, all of them are severally liable for the 2 payment of the estate tax. The inheritance tax, although charged against the account of each beneficiary, should be paid by the executor 3 or administrator. Failure to pay the estate and inheritance taxes before distribution of the estate would subject the executor or administrator to criminal liability under Section 107(c) of the Tax Code. It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the estate and will receive as her share only said portion, 4 for her right to the estate comes after taxes. As an administratrix, she is liable for the entire estate tax. As an heir, she is liable for the entire

But respondent urges upon us that the filing of the return did not start the running of the five (5) year period for the reason that the return did not disclose the heirs of the deceased Matias Yusay, and contained inadequate data regarding the value of the estate. We believe that these mere omissions do not require additional returns for the same. Altho incomplete for being deficient on these matters, the return cannot be regarded as a case of failure to file a return where want of good faith and intent to evade the tax on the part of petitioner are not charged. It served as a sufficient notice to the Commissioner of Internal Revenue to make his assessment and start the running, of the period of limitation. In this connection, it must be borne in mind that the Commissioner is not confined to the taxpayer's return in making assessment of the tax, and for this purpose he may secure additional information from other sources. As was done in the case at bar, he sends investigators to examine the taxpayer's records and other pertinent data. His assessment is based upon the facts uncovered by the investigation (Collector vs. Central Azucarera de Tarlac, G.R. Nos. L-11760 and L-11761, July 31, 1958). Furthermore, the failure to state the heirs in the return can be attributed to the then unsettled conflict raging before the probate court as to who are the heirs of the estate. Such failure could not have been a deliberate attempt to mislead the government in the assessment of the correct taxes. In his appeal, the Commissioner of Internal Revenue assigned as third error of the Court of Tax Appeals the finding that the assessment in question was "made beyond the five-year statutory period provided in Section 332 (a) of the Tax Code," and that the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes has already prescribed. To sustain his side, the Commissioner ventilated in his brief, fraud in the filing of the return, absence of certain data from the return which prevented him from assessing thereon the tax due and the pendency in this Court of L-11374 entitled "Intestate Estate of the late Matias Yusay, Jose C. Yusay, Administrator

inheritance tax although her liability would not exceed the amount of 5 her share in the estate. The entire inheritance tax which amounts to P39,178.12 excluding penalties is obviously much less than her distributive share. Motion for reconsideration denied. G.R. No. L-33139 October 11, 1930

deceased Pamintuan, the said appointees taking their oaths of office on May 4 and May 9, 1925, respectively, and letters of appointment to the committee on claims and appraisals were made on May 9,1925. 1awph!l.net V. That the said committee on claims and appraisals after the publications of the notices required by law held the necessary sessions in accordance with said notices for the presentation and determination of all claims and credits against the estate of the deceased Pamintuan. VI. That on December 1, 1925, the above-mentioned committee rendered its report which was duly approved by the court, and in which report it appears that he only claims presented and that were approved were those of Tomasa Centeno, Jose, Paz, Caridad, and Natividad Pamintuan and Cavanna, Aboitiz and Agan. VII. That on June 12, 1926, Jose V. Ramirez, the duly appointed judicial administrator of the estate of the deceased Florentino Pamintuan presented a proposed partition of the decedent's estate which proposed partition was approved by the court on July 6,1926, the court ordering the delivery to the heirs, the defendants herein, of their respective shares of the inheritance after paying the corresponding inheritance taxes which were duly paid on September 2, 1926, in the amount of P25,047.19 as appears on the official receipt No. 4421361. VIII. That the defendants herein inherited from the deceased Florentino Pamintuan in the following proportions: Tomasa Pamintuan inherited 0.0571 per cent of the decedent's estate and the other defendants 0.0784 per cent each according to the partition approved by the court in civil case No. 27948. IX. That during the pendency of the intestate proceedings, the administrator filed income-tax returns for the estate of the deceased corresponding to the years 1925 and 1926. X. That the intestate proceedings in civil case No. 27948 were definitely closed on October 27, 1926, by order of the court of the same date. XI. That subsequent to the distribution of the decedent's estate to the defendants herein, that is, on February 16, 1927, the plaintiff discovered the fact that the deceased Florentino Pamintuan has not paid the amount of four hundred and sixty-two pesos (P462) as additional income tax and surcharge for the calendar year 1919, on account of the sale made by him on November 14, 1919, of his house and lot located at 922 M. H. del Pilar, Manila, from which sale he realized a net profit or income of P11,000, which was not included in his income-tax return filed for said year 1919. XII. That the defendants cannot disprove that the deceased Florentino Pamintuan made a profit of P11,000 in the sale of the house referred to in paragraph Xl hereof because they have destroyed the voluminous records and evidences regarding the sale in question and other similar transactions which might show repairs on the house, commissions, and

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellants, vs. JOSE MA. PAMINTUAN, ET AL., defendants-appellees. Attorney-General Jaranilla Jose Ma.Cavanna for appellees. VILLA-REAL, J.: This is an appeal taken by the Government of the Philippine Islands from the judgment of the Court of First Instance of Manila dismissing its complaint and absolving the defendants, without costs. In support of the appeal the following alleged errors have been assigned to the court below in its judgment: 1. The lower court erred in holding that the failure of the plaintiff to file its claim with the committee on claims and appraisals barred it from collecting the tax in questions in this action. 2. The lower court erred in holding that this case is governed by the principle laid down in the case of the Government of the Philippine Islands vs. Inchausti & Co. (24 Phil., 315). 3. The lower court erred in absolving the defendants from the complaint and in denying the plaintiff's motion for new trial. The present case was submitted to the court below upon the following agreed statement of facts: I. That on February 27, 1920, Florentino Pamintuan, represented by J. V. Ramirez or his attorney-in-fact charged with the administration of his property, filed income-tax return for the year 1919, paying the amount of P 672.99 on the basis of said return, and the additional sum of P151.01 as a result of a subsequent assessment received from the Collector of Internal Revenue. II. That on April 24, 1925, Florentino Pamintuan died in Washington, D. C., U. S. A., leaving the defendants herein as his heirs. III. That on April 24, 1925, intestate proceedings were instituted in the Court of First Instance of Manila in civil case No. 27948, intestate of the late Florentino Pamintuan. IV. That on April 28,1925, the Court of First Instance of Manila appointed Maximo de la Paz and Candido Ilagan commissioners of appraisal of the property left by the for appellant.

other expenses tending to reduce the profit obtained as mentioned above. XIII. That demand for the payment of the income tax referred to herein was made on February 24, 1927, on the defendants but they refused and still refuse to pay the same either in full or in part. With regard to the first assignment of error, this court held in Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil., 803): To reply to these contentions in turn , we observe that, while there are a few courts that have expressed themselves to the effect that a claim for taxes due to the Government should be presented like other claims to the committee appointed for the purpose of passing upon claims, the clear weight of judicial authority is to the effect that claims for taxes and assessments, whether assessed before or after the death of the decedent, are not required to be presented to the committee. (24 C. J., 325; People vs. Olvera, 43 Cal., 492; Hancock vs.Whittemore, 50 Cal., 522; Findley vs. Taylor, 97 Iowa, 420; Bogue vs.Laughlin,149 Wis., 271; 40 L. R. A. [N.S.], 927; Ann. Cas.1913 C.,p.1367.) See also In re Estate of Frank H.Goulette (G. R. No. 32361, decided on September 22,1930.)
1

paid, as follows: Tomasa Centeno 0.0571 per cent, and each one of the other defendants 0.0784 per cent, with costs against the appellees. So ordered. G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent. Office of the Solicitor General for Manuel B. Pineda for and in his own behalf as respondent. BENGZON, J.P., J.: On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The estate was divided among and awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on the basis of information and data obtained from the aforesaid estate proceedings and issued an assessment for the following: 1. Deficiency income tax 1945 P135.83 1946 436.95 1947 1,206.91 Add: 5% surcharge P1,779.69 88.98 petitioner.

The administration proceedings of the late Florentino Pamintuan having been closed, and his estate distributed among his heirs, the defendants herein, the latter are responsible for the payment of the income tax here in question in proportion to the share of each in said estate, in accordance with section 731 of the Code of Civil Procedure, and the doctrine of this court laid down in Lopez vs. Enriquez (16 Phil.,336) as follows: ESTATE; LIABILITY OF HEIRS AND DISTRIBUTEES. Heirs are not required to respond with their own property for the debts of their deceased ancestors. But even after the partition of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they have respectively received from the estate. The hereditary property consists only of that part which remains after the settlement of all lawful claims against the estate, for the settlement of which the entire estate is first liable. The heirs cannot, by any act of their own or by agreement among themselves, reduce the creditors' security for the payment of their claims. (Pavia vs. De la Rosa, 8 Phil.,70; secs. 731, 749, Code of Civil Procedure; art,1257, Civil Code.) For the reasons stated, we are of opinion and so hold that claims for income taxes need not be filed with the committee on claims and appraisals appointed in the course of testate proceedings and may be collected even after the distribution of the decedent's estate among his heirs, who shall be liable therefor in proportion to their share in the inheritance. Wherefore, let the defendants pay the plaintiff the sum of P462, with 1 per centum monthly interest from August 19, 1927 until fully

1% monthly interest from November 30, 1953 to April 15, 1957 720.77 Compromise for late filing Compromise for late payment Total amount due 2. Additional residence tax for 1945 80.00 40.00 P2,707.44 =========== P14.50 ===========

3. Real Estate dealer's tax for the fourth quarter of 1946 and the whole year of P207.50 1947 =========== Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the heirs."

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the Commissioner on the ground that his right to assess and collect the tax has prescribed. The Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953; assessments for both taxable years were made within five years therefrom or on October 19, 1953; and the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on October 19, 1953, more than five years from the date the return was filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax 1 Court for further appropriate proceedings. In the Tax Court, the parties submitted the case for decision without additional evidence. On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the payment corresponding to his share of the following taxes: Deficiency income tax P135.8 3 436.95

reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income 4a taxes for which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder: If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: . . . By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, 5 Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate. All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action against all the heirs for the collection of the tax. This action rests on the concept that hereditary property consists only of that part which remains after the settlement of all lawful claims against the estate, for 6 the settlement of which the entire estate is first liable. The reason why in case suit is filed against all the heirs the tax due from the estate is levied proportionately against them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the tax. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government 7 and their prompt and certain availability is an imperious need. And as afore-stated in this case the suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the Government recovered said tax. WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of contribution for his co-heirs. No costs. So ordered.

1945 1946

Real estate dealer's fixed tax 4th quarter of 1946 and whole year of 1947 P187.50 The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in the total amount of P760.28 instead of only for the amount of taxes corresponding to his share in the estate.1awphl.nt Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the estate only up to the extent of and in proportion to any share he received. He relies 2 on Government of the Philippine Islands v. Pamintuan where We held that "after the partition of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they have respectively received from the estate." We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed. Pineda is liable for the assessment as an heir and as a holdertransferee of property belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the 3 share he received from the inheritance. His liability, however, cannot 4 exceed the amount of his share. As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property in his possession. The