Republic of the Philippines

SUPREME COURT
Manila

order of July 29, 1969, but was denied in an Order

dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning
the following errors:

FIRST DIVISION
G.R. No. L-31364 March 30, 1979

1. The lower court erred in holding that

the claim for taxes by the government
against the estate of Luis D. Tongoy
was filed beyond the period provided in
Section 2, Rule 86 of the Rules of Court.

MISAEL P. VERA, as Commissioner of Internal

Revenue, and JAIME ARANETA, as Regional
Director, Revenue Region No. 14, Bureau of
Internal
Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of
First Instance of Negros Occidental, Branch V,
and FRANCIS A. TONGOY, Administrator of the
Estate of the late LUIS D. TONGOY respondents.

2. The lower court erred in holding that

the claim for taxes of the government
was already barred under Section 5,
Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute
of non-claims Section 5, Rule 86 of the New Rule of
Court, bars claim of the government for unpaid taxes,
still within the period of limitation prescribed in Section
331 and 332 of the National Internal Revenue Code.

DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of
Negros Occidental, Branch V in Special Proceedings No.
7794, entitled: "Intestate Estate of Luis D. Tongoy," the
first dated July 29, 1969 dismissing the Motion for
Allowance of Claim and for an Order of Payment of
Taxes by the Government of the Republic of the
Philippines against the Estate of the late Luis D.
Tongoy, for deficiency income taxes for the years 1963
and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly
interest and compromise penalties, and the second,
dated October 7, 1969, denying the Motion for
reconsideration of the Order of dismissal.

Section 5, Rule 86, as invoked by the respondent

Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as
follows:

The Motion for allowance of claim and for payment of

taxes dated May 28, 1969 was filed on June 3, 1969 in
the abovementioned special proceedings, (par. 3,
Annex A, Petition, pp. 1920, Rollo). The claim
represents the indebtedness to the Government of the
late Luis D. Tongoy for deficiency income taxes in the
total sum of P3,254.80 as above stated, covered by
Assessment Notices Nos. 11-50-29-1-11061-21-63 and
11-50-291-1 10875-64, to which motion was attached
Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The
Administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of
the Rules of Court (par. 4, Opposition to Motion for
Allowance of Claim, pp. 23-24, Rollo). Finding the
opposition well-founded, the respondent Judge, Jose F.
Fernandez, dismissed the motion for allowance of claim
filed by herein petitioner, Regional Director of the
Bureau of Internal Revenue, in an order dated July 29,
1969 (Annex D, Petition, p. 26, Rollo). On September
18, 1969, a motion for reconsideration was filed, of the
Page 1 of 15
TAX

All claims for money against the

decedent, arising from contracts,
express or implied, whether the same
be due, not due, or contingent, all
claims for funeral expenses and
expenses for the last sickness of the
decedent, and judgment for money
against the decedent, must be filed
within the time limited in they notice;
otherwise they are barred forever,
except that they may be set forth as
counter claims in any action that the
executor or administrator may bring
against the claimants. Where the
executor or administrator commence
an action, or prosecutes an action
already commenced by the deceased
in his lifetime, the debtor may set forth
may answer the claims he has against
the decedents, instead of presenting
them independently to the court has
herein provided, and mutual claims
may be set off against each other in
such action; and in final judgment is
rendered in favored of the decedent,
the amount to determined shall be
considered the true balance against
the estate, as though the claim has
been presented directly before the

court
in
the
administration
proceedings. Claims not yet due, or
contingent may be approved at their
present value.
A perusal of the aforequoted provisions shows that it
makes no mention of claims for monetary obligation of
the decedent created by law, such as taxes which is
entirely of different character from the claims expressly
enumerated therein, such as: "all claims for money
against the decedent arising from contract, express or
implied, whether the same be due, not due or
contingent, all claim for funeral expenses and
expenses for the last sickness of the decedent and
judgment for money against the decedent." Under the
familiar rule of statutory construction of expressio
unius est exclusio alterius, the mention of one thing
implies the exclusion of another thing not mentioned.
Thus, if a statute enumerates the things upon which it
is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect
(Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs.
Ilagan Electric & Ice Plant, et al., G.R. No. L-23081,
December 30, 1969, it was held that the assessment,
collection and recovery of taxes, as well as the matter
of prescription thereof are governed by the provisions
of the National Internal revenue Code, particularly
Sections 331 and 332 thereof, and not by other
provisions of law. (See also Lim Tio, Dy Heng and Dee
Jue vs. Court of Tax Appeals & Collector of Internal
Revenue, G.R. No. L-10681, March 29, 1958). Even
without being specifically mentioned, the provisions of
Section 2 of Rule 86 of the Rules of Court may
reasonably be presumed to have been also in the mind
of the Court as not affecting the aforecited Section of
the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it
was even more pointedly held that "taxes assessed
against the estate of a deceased person ... need not be
submitted to the committee on claims in the ordinary
course of administration. In the exercise of its control
over the administrator, the court may direct the
payment of such taxes upon motion showing that the
taxes have been assessed against the estate." The
abolition of the Committee on Claims does not alter the
basic ruling laid down giving exception to the claim for
taxes from being filed as the other claims mentioned in
the Rule should be filed before the Court. Claims for
taxes may be collected even after the distribution of
the decedent's estate among his heirs who shall be
liable therefor in proportion of their share in the
inheritance. (Government of the Philippines vs.
Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for

taxes against a decedent's estate in the form of
exception from the application of the statute of nonclaims, is not hard to find. Taxes are the lifeblood of the
Government and their prompt and certain availability
are imperious need. (Commissioner of Internal Revenue
vs. Pineda, G. R. No. L-22734, September 15, 1967, 21
SCRA 105). Upon taxation depends the Government
ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or
omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm
or detriment to the people, in the same manner as
private persons may be made to suffer individually on
account of his own negligence, the presumption being
that they take good care of their personal affairs. This
should not hold true to government officials with
respect to matters not of their own personal concern.
This is the philosophy behind the government's
exception, as a general rule, from the operation of the
principle of estoppel. (Republic vs. Caballero, L-27437,
September 30, 1977, 79 SCRA 177; Manila Lodge No.
761, Benevolent and Protective Order of the Elks Inc.
vs. Court of Appeals, L-41001, September 30, 1976, 73
SCRA 162; Sy vs. Central Bank of the Philippines, L41480, April 30,1976, 70 SCRA 571; Balmaceda vs.
Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs.
Court of Tax Appeals, 59 SCRA 110; Republic vs.
Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic
vs. Philippine Long Distance Telephone Company, L18841, January 27, 1969, 26 SCRA 620; Zamora vs.
Court of Tax Appeals, L-23272, November 26, 1970, 36
SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal
Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As
already shown, taxes may be collected even after the
distribution of the estate of the decedent among his
heirs
(Government
of
the
Philippines
vs.
Pamintuan, supra;
Pineda
vs.
CFI
of
Tayabas,supra Clara
Diluangco
Palanca
vs.
Commissioner of Internal Revenue, G. R. No. L-16661,
January 31, 1962).
Furthermore, as held in Commissioner of Internal
Revenue vs. Pineda, supra, citing the last paragraph of
Section 315 of the Tax Code payment of income tax
shall be a lien in favor of the Government of the
Philippines from the time the assessment was made by
the Commissioner of Internal Revenue until paid with
interests, penalties, etc. By virtue of such lien, this
court held that the property of the estate already in the
hands of an heir or transferee may be subject to the
payment of the tax due the estate. A fortiori before the
inheritance has passed to the heirs, the unpaid taxes
due the decedent may be collected, even without its
having been presented under Section 2 of Rule 86 of
the Rules of Court. It may truly be said that until the
property of the estate of the decedent has vested in
the heirs, the decedent, represented by his estate,

Page 2 of 15
TAX

continues as if he were still alive, subject to the

payment of such taxes as would be collectible from the
estate even after his death. Thus in the case above
cited, the income taxes sought to be collected were
due from the estate, for the three years 1946, 1947
and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to
be filed within the time prescribed in Section 2, Rule 86
of the Rules of Court, the claim in question may be filed
even after the expiration of the time originally fixed
therein, as may be gleaned from the italicized portion
of the Rule herein cited which reads:
Section 2. Time within which claims
shall be filed. - In the notice provided in
the preceding section, the court shall
state the time for the filing of claims
against the estate, which shall not be
more than twelve (12) nor less than six
(6) months after the date of the first
publication of the notice. However, at
any time before an order of distribution
is entered, on application of a creditor
who has failed to file his claim within
the time previously limited the court
may, for cause shown and on such
terms as are equitable, allow such
claim to be flied within a time not
exceeding one (1) month. (Emphasis
supplied)
In the instant case, petitioners filed an application
(Motion for Allowance of Claim and for an Order of
Payment of Taxes) which, though filed after the
expiration of the time previously limited but before an
order of the distribution is entered, should have been
granted by the respondent court, in the absence of any
valid ground, as none was shown, justifying denial of
the motion, specially considering that it was for
allowance Of claim for taxes due from the estate,
which in effect represents a claim of the people at
large, the only reason given for the denial that the
claim was filed out of the previously limited period,
sustaining thereby private respondents' contention,
erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since
the Tax Commissioner's assessment in the total
amount of P3,254.80 with 5 % surcharge and 1 %
monthly interest as provided in the Tax Code is a final
one and the respondent estate's sole defense of
prescription has been herein overruled, the Motion for
Allowance of Claim is herein granted and respondent
estate is ordered to pay and discharge the same,
subject only to the limitation of the interest collectible

thereon as provided by
pronouncement as to costs.

the

Tax

Code.

No

SO ORDERED.

FIRST DIVISION
COMMISSIONER OF INTERNAL G.R. No. 134062
REVENUE,
Petitioner, Present:
PUNO
, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and

GARCIA,
J.
BANK OF THE
PHILIPPINE
ISLANDS,
Respondent. Promulgated:
April

2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CORONA, J.:

This is a petition for review on certiorari [1] of a

decision[2] of the Court of Appeals (CA) dated May 29,
1998 in CA-G.R. SP No. 41025 which reversed and set
aside the decision[3] and resolution[4] of the Court of Tax
Appeals (CTA) dated November 16, 1995 and May 27,
1996, respectively, in CTA Case No. 4715.

In

two

notices

dated October

28,

1988,

petitioner Commissioner of Internal Revenue (CIR)

assessed respondent Bank of the Philippine Islands
(BPIs) deficiency percentage and documentary stamp

Page 3 of 15
TAX

taxes

for

the

year

1986

in

the

total

the briefest form, why he believes the

taxpayer has a deficiency documentary
and percentage taxes, and as to the
percentage tax, it is important that the
taxpayer be informed also as to what
particular
percentage
tax
the
assessment refers to.

amount

of P129,488,656.63:
1986 Deficiency Percentage Tax
Deficiency
percentage
tax P 7,
270,892.88
Add: 25% surcharge 1,817,723.22
20% interest from 1-21-87 to
10-28-88 3,215,825.03
Compromise penalty 15,000.00
TOTAL
AMOUNT
DUE
AND
COLLECTIBLE P12,319,441.13

2. As
to
the
alleged
deficiency
documentary stamp tax, you are aware
of the compromise forged between
your office and the Bankers Association
of the Philippines [BAP] on this issue
and
of BPIs submission
of
its
computations
under
this
compromise. There is therefore no
basis whatsoever for this assessment,
assuming it is on the subject of the BAP
compromise. On the other hand, if it
relates to documentary stamp tax on
some other issue, we should like to be
informed about what those issues are.

1986 Deficiency Documentary Stamp

Tax
Deficiency
percentage
tax P93,723,372.40
Add: 25% surcharge 23,430,843.10
Compromise penalty 15,000.00
TOTAL
AMOUNT
DUE
AND
COLLECTIBLE P117,169,215.50.[5]

3. As
to
the
alleged
deficiency
percentage tax, we are completely at a
loss on how such assessment may be
protested since your letter does not
even tell the taxpayer what particular
percentage tax is involved and how
your
examiner
arrived
at
the
deficiency. As soon as this is explained
and clarified in a proper letter of
assessment, we shall inform you of the
taxpayers decision on whether to pay
or protest the assessment.[7]

Both notices of assessment contained the

following note:
Please
be
informed
that
your
[percentage and documentary stamp
taxes have] been assessed as shown
above. Said assessment has been
based on return (filed by you) (as
verified) (made by this Office) (pending
investigation) (after investigation). You
are requested to pay the above amount
to this Office or to our Collection Agent
in the Office of the City or Deputy
Provincial Treasurer of xxx[6]

On June 27, 1991, BPI received a letter from

CIR dated May 8, 1991 stating that:
although in all respects, your letter
failed to qualify as a protest under
Revenue Regulations No. 12-85 and
therefore not
deserving of
any
rejoinder by this office as no valid issue
was raised against the validity of our
assessment still we obliged to explain
the basis of the assessments.

In a letter dated December 10, 1988, BPI,

through counsel, replied as follows:
1. Your deficiency assessments
are
no
assessments
at
all. The
taxpayer is not informed, even in the
vaguest terms, why it is being assessed
a deficiency. The very purpose of a
deficiency assessment is to inform
taxpayer why he has incurred a
deficiency so that he can make an
intelligent decision on whether to pay
or to protest the assessment. This is all
the more so when the assessment
involves astronomical amounts, as in
this case.

xxx xxx xxx

this constitutes the final decision of this
office on the matter.[8]

On July

6,

reconsideration

of

1991,
the

BPI

requested

assessments

stated

a
in

the CIRs May 8, 1991 letter.[9] This was denied in a

We therefore request that the examiner

concerned be required to state, even in
Page 4 of 15
TAX

letter dated December 12, 1991, received by BPI

and documentary stamp taxes for 1986

on January 21, 1992.[10]

had

On February 18, 1992, BPI filed a petition for

the

CTA

dismissed

the

case

for

lack

become

final

and unappealable and

review in the CTA.[11] In a decision dated November 16,

1995,

already

2)

whether or not BPI was liable for

of

the said taxes.

jurisdiction since the subject assessments had become

The former Section 270[18] (now renumbered as
final and unappealable. The CTA ruled that BPI failed to
protest on time under Section 270 of the National

Section 228) of the NIRC stated:

Sec.
270. Protesting
of
assessment. When the [CIR] or his
duly
authorized
representative
finds that proper taxes should be
assessed, he shall first notify the
taxpayer of his findings. Within a
period
to
be
prescribed
by
implementing regulations, the taxpayer
shall be required to respond to said
notice. If the taxpayer fails to respond,
the [CIR] shall issue an assessment
based on his findings.

Internal Revenue Code (NIRC) of 1986 and Section 7 in

relation

to

Section

11

of

RA

1125.[12] It

denied

reconsideration in a resolution dated May 27, 1996.[13]

On appeal, the CA reversed the tax courts

decision and resolution and remanded the case to the
CTA

[14]

for a decision on the merits.

the October

28,

1988 notices

[15]

were

xxx xxx xxx (emphasis

supplied)

It ruled that
not

valid

assessments because they did not inform the taxpayer

WERE THE OCTOBER 28, 1988

NOTICES VALID ASSESSMENTS?

of the legal and factual basestherefor. It declared that

The first issue for our resolution is whether or

the proper assessments were those contained in

the May 8, 1991 letter which provided the reasons for
the claimed deficiencies.[16] Thus, it held that BPI filed
the petition for review in the CTA on time.[17] The CIR

not

the October

1988 notices[19] were

valid

assessments. If they were not, as held by the CA, then

the

correct

assessments

were

in

the May

8,

1991 letter, received by BPI on June 27, 1991. BPI, in

elevated the case to this Court.

its July
This petition raises the following issues:
1)

28,

6,

1991 letter,

seasonably

asked

for

reconsideration of the findings which the CIR denied in

whether or not the assessments

issued to BPI for deficiency percentage

his December

12,

1991 letter,

received

by

BPI

on January 21, 1992. Consequently, the petition for

Page 5 of 15
TAX

review filed by BPI in the CTA on February 18,

1992 would be well within the 30-day period provided

BPIs contention

28,

1988 notices

were

merit. The

present

Sec.
228. Protesting
of
Assessment. When the [CIR] or his
duly
authorized
representative
finds that proper taxes should be
assessed, he shall first notify the
taxpayer of his findings: Provided,
however, That a preassessment notice
shall not be required in the following
cases:
xxx xxx xxx
The
taxpayer
shall
be
informed in writing of the law and
the facts on which the assessment
is
made;
otherwise,
the
assessment shall be void.

The CIR argues that the CA erred in holding

the October

no

Section 228 of the NIRC provides:

by law.[20]

that

has

invalid

assessments. He asserts that he used BIR Form No.

17.08 (as revised in November 1964) which was
designed for the precise purpose of notifying taxpayers

xxx xxx xxx (emphasis

supplied)

of the assessed amounts due and demanding payment

thereof.[21] He contends that there was no law or
jurisprudence then that required notices to state the
reasons for assessing deficiency tax liabilities. [22]

Admittedly, the CIR did not inform BPI in writing of the

law and facts on which the assessments of the
deficiency taxes were made. He merely notified BPI of
his findings, consisting only of the computation of the

BPI counters that due process demanded that

tax liabilities and a demand for payment thereof within
the facts, data and law upon which the assessments

30 days after receipt.

were based be provided to the taxpayer. It insists that

In merely notifying BPI of his findings, the CIR relied on
the NIRC, as worded now (referring to Section 228),
specifically provides that:

the provisions of the former Section 270 prior to its

amendment by RA 8424 (also known as the Tax Reform

[t]he taxpayer shall be informed in

writing of the law and the facts on
which the assessment is made;
otherwise, the assessment shall be
void.

Act of 1997).[23] In CIR v. Reyes,[24] we held that:

According to BPI, this is declaratory of what sound tax

procedure is and a confirmation of what due process

In the present case, Reyes was

not informed in writing of the law and
the facts on which the assessment of
estate taxes had been made. She was
merely notified of the findings by the
CIR, who had simply relied upon the
provisions of former Section 229 prior
to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act
of 1997.
First, RA 8424 has already
amended the provision of Section 229
on protesting an assessment. The old
requirement
of merely notifying

requires even under the former Section 270.

Page 6 of 15
TAX

the taxpayer of the CIR'sfindings

was
changed
in
1998 to informing the taxpayer of not
only the law, but also of the facts on
which an assessment would be made;
otherwise, the assessment itself would
be invalid.

[t]he taxpayers shall be informed in

writing of the law and the facts on
which the assessment is made;
otherwise, the assessment shall be
void

It was on February 12, 1998,

that a preliminary assessment notice
was issued against the estate. On April
22, 1998, the final estate tax
assessment notice, as well as demand
letter, was also issued. During those
dates, RA 8424 was already in
effect. The notice required under
the old law was no longer
sufficient under the new law.
[25]
(emphasis supplied; italics in the
original)

was not in the old Section 270 but was only later on
inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the
former

Section

270

the aforequoted sentence.[27] The

by
fact

inserting
that

the

amendment was necessary showed that, prior to the

introduction of the amendment, the statute had an

Accordingly,

when

the

assessments

were

made
entirely different meaning.[28]

pursuant

to

the

former

Section

270,

the

only

requirement was for the CIR to notify or inform the

Contrary to the submission of BPI, the inserted

taxpayer of his findings. Nothing in the old law required

sentence in the renumbered Section 228 was not an

a written statement to the taxpayer of the law and

affirmation of what the law required under the former

facts on which the assessments were based. The Court

Section 270. The amendment introduced by RA 8424

cannot read into the law what obviously was not

was an innovation and could not be reasonably inferred

intended

from the old law.[29] Clearly, the legislature intended to

by

Congress. That

would

be

judicial

insert

legislation, nothing less.

new

provision

regarding

the

form

and

substance of assessments issued by the CIR.[30]

Jurisprudence,

on

the

other

hand,

simply
In ruling that the October 28, 1988 notices

required that the assessments contain a computation

of tax liabilities, the amount the taxpayer was to pay

were not valid assessments, the CA explained:

xxx. Elementary concerns of
due process of law should have
prompted the [CIR] to inform [BPI] of
the legal and factual basis of
the formers decision to charge the
latter for deficiency documentary
stamp and gross receipts taxes.[31]

and a demand for payment within a prescribed period.

[26]

Everything

considered,

there

was

no

doubt

the October 28, 1988 notices sufficiently met the

requirements of a valid assessment under the old law
and jurisprudence.

In other words, the CAs theory was that BPI

The sentence

was deprived of due process when the CIR failed to

Page 7 of 15
TAX

resorted to dilatory tactics and

dangerously
played
with
time.
Unfortunately, such strategy proved
fatal to the cause of his client. [33]

inform it in writing of the factual and legal bases of the

assessments even if these were not called for under
the old law.

The CA never disputed these findings of fact by

We disagree.

the CTA:
[T]his Court recognizes that the
[CTA], which by the very nature of its
function is dedicated exclusively to the
consideration of tax problems, has
necessarily developed an expertise on
the subject, and its conclusions will not
be overturned unless there has been
an abuse or improvident exercise of
authority. Such findings can only be
disturbed on appeal if they are not
supported by substantial evidence or
there is a showing of gross error or
abuse on the part of the [CTA].[34]

Indeed, the underlying reason for the law was

the basic constitutional requirement that no person
shall be deprived of his property without due process of
law.[32] We note, however, what the CTA had to say:
xxx xxx xxx
From the foregoing testimony,
it can be safely adduced that not only
was [BPI] given the opportunity to
discuss with the [CIR] when the latter
issued the former a Pre-Assessment
Notice (which [BPI] ignored) but that
the examiners themselves went to
[BPI] and "we talk to them and we try
to [thresh] out the issues, present
evidences as to what they need." Now,
how can [BPI] and/or its counsel
honestly tell this Court that they did
not
know
anything
about
the
assessments?

Under the former Section 270, there were two

instances

when

an

assessment

became

final

and unappealable: (1) when it was not protested within

30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA

Not only that. To further

buttress the fact that [BPI] indeed
knew beforehand the assessments[,]
contrary to the allegations of its
counsel[,] was the testimony of Mr.
JerryLazaro, Assistant Manager of the
Accounting Department of [BPI]. He
testified to the fact that he prepared
worksheets which contain his analysis
regarding the findings of the [CIRs]
examiner, Mr. San Pedro and that the
same worksheets were presented to
Mr. Carlos Tan, Comptroller of [BPI].

within 30 days from receipt of the final decision: [35]

Sec.
assessment.

270. Protesting

of

xxx xxx xxx

Such assessment may be
protested administratively by filing a
request
for
reconsideration
or
reinvestigation in such form and
manner as may be prescribed by the
implementing regulations within thirty
(30) days from receipt of the
assessment; otherwise, the assessment
shall become final and unappealable.

xxx xxx xxx

From
all
the
foregoing
discussions, We can now conclude that
[BPI] was indeed aware of the nature
and basis of the assessments, and was
given all the opportunity to contest the
same but ignored it despite the notice
conspicuously
written
on
the
assessments which states that "this
ASSESSMENT
becomes
final
and unappealable if
not
protested
within 30 days after receipt." Counsel

If the protest is denied in whole

or in part, the individual, association or
corporation adversely affected by the
decision on the protest may appeal to
the [CTA] within thirty (30) days from
receipt of the said decision; otherwise,
the
decision
shall
become
final, executory and demandable.
Page 8 of 15
TAX

defense that would reopen the question of its liability

IMPLICATIONS OF A
VALID ASSESSMENT

on

the

merits.[37] Not

only

that.

There

arose

presumption of correctness when BPI failed to protest

Considering that the October 28, 1988 notices

the assessments:
Tax
assessments
by
tax
examiners are presumed correct and
made in good faith. The taxpayer has
the duty to prove otherwise. In the
absence of proof of any irregularities in
the
performance
of
duties,
an
assessment duly made by a Bureau of
Internal
Revenue
examiner
and
approved by his superior officers will
not be disturbed. All presumptions are
in favor of the correctness of tax
assessments.[38]

were valid assessments, BPI should have protested the

same

within

30

days

from

receipt

thereof. The December 10, 1988 reply it sent to the CIR

did not qualify as a protest since the letter itself stated
that [a]s soon as this is explained and clarified in a
proper letter of assessment, we shall inform you of
the taxpayers decision on whether to pay or
protest

the

assessment.[36] Hence,

we

considered

the December

10,

1988 letter as a protest, BPI must nevertheless be

declaration, BPI did not regard this letter as a protest

deemed to have failed to appeal the CIRs final decision

against the assessments. As a matter of fact, BPI never

regarding the disputed assessments within the 30-day

deemed this a protest since it did not even consider

period

the October

1991 response, stated that it was his final decision on

1988 notices

as

valid

its

if

own

28,

by

Even

or

proper

assessments.

provided

by

law. The

CIR,

in

his May

8,

the matter. BPI therefore had 30 days from the time it

received the decision on June 27, 1991 to appeal but it

The inevitable conclusion is that BPIs failure to

did not. Instead it filed a request for reconsideration
protest the assessments within the 30-day period
and lodged its appeal in the CTA only on February 18,
provided in the former Section 270 meant that they
1992, way beyond the reglementary period.BPI must
became

final

and unappealable. Thus,

the

CTA
now suffer the repercussions of its omission. We have

correctly dismissed BPIs appeal for lack of jurisdiction.

already declared that:
BPI was, from then on, barred from disputing the
correctness

of

the

assessments

or invoking

any

Page 9 of 15
TAX

the [CIR] should always indicate to the

taxpayer in clear and unequivocal
language whenever his action on an
assessment questioned by a taxpayer
constitutes his final determination on

the
disputed
assessment,
as
contemplated by Sections 7 and 11 of
[RA 1125], as amended. On the basis
of
his
statement
indubitably
showing that the Commissioner's
communicated action is his final
decision
on
the
contested
assessment,
the
aggrieved
taxpayer would then be able to
take recourse to the tax court at
the
opportune
time.
Without
needless difficulty, the taxpayer
would be able to determine when
his right to appeal to the tax court
accrues.

the taxes validly due it and the public will suffer if

taxpayers will not be held liable for the proper taxes
assessed against them:
Taxes are the lifeblood of the
government, for without taxes, the
government can neither exist nor
endure. A principal attribute of
sovereignty, the exercise of taxing
power derives its source from the very
existence of the state whose social
contract with its citizens obliges it to
promote public interest and common
good. The theory behind the exercise of
the power to tax emanates from
necessity; without taxes, government
cannot fulfill its mandate of promoting
the general welfare and well-being of
the people.[40]

The rule of conduct would

also
obviate
all
desire
and
opportunity on the part of the
taxpayer to continually delay the
finality of the assessment and,
consequently, the collection of the
amount demanded as taxes by
repeated
requests
for recomputation and
reconsideration. On the part of the
[CIR], this would encourage his office to
conduct a careful and thorough study
of every questioned assessment and
render a correct and definite decision
thereon in the first instance. This would
also deter the [CIR] from unfairly
making the taxpayer grope in the dark
and speculate as to which action
constitutes the decision appealable to
the tax court. Of greater import, this
rule of conduct would meet a pressing
need for fair play, regularity, and
orderliness in administrative action.
[39]
(emphasis supplied)

WHEREFORE,

the

petition

is

hereby GRANTED. The May 29, 1998 decision of the

Court

of

Appeals

in

CA-G.R.

SP

No.

41025

is REVERSEDand SET ASIDE.

SO ORDERED.
Either way (whether or not a protest was
made), we cannot absolve BPI of its liability under the
Republic of the Philippines
SUPREME COURT
Manila

subject tax assessments.

We realize that these assessments (which have

been

pending

for

almost

20

years)

involve

considerable amount of money. Be that as it may, we

cannot legally presume the existence of something

EN BANC
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.

which was never there. The state will be deprived of

Page 10 of 15
TAX

Office of the Solicitor General for petitioner.

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
194
P135.83
5
194
436.95
6
194
1,206.91
7
Add: 5% surcharge
1% monthly interest from
November 30, 1953 to April
15, 1957
Compromise for late filing
Compromise for late payment
Total amount due

2. Additional residence tax for 1945

3. Real Estate dealer's tax for the
fourth quarter of 1946 and the
whole year of 1947

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 Court for further appropriate
proceedings.1
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
1945
1946

Real estate dealer's

fixed tax 4th quarter of
1946 and whole year of P187.5
1947
0

P1,779.69
88.98

720.77
80.00
40.00
P2,707.44
=======
====
P14.50
=======
====
P207.50
=======
====

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

P135.8
3
436.9
5

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
on Government of the Philippine Islands v.
Pamintuan2 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
holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually
answerable for the part of the tax proportionate to the

Page 11 of 15
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share he received from the inheritance. 3 His liability,

however, cannot exceed the amount of his share.4
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 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 taxes4a 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, jointaccount (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: . . .

an imperious need.7 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.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.

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, Pineda will have a
right of contribution from his co-heirs,5 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 the settlement of which the entire estate is first
liable.6 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 and their prompt and certain availability is

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX
APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance On
the other hand, such collection should be made in
accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of
the common good, may be achieved.

Page 12 of 15
TAX

The main issue in this case is whether or not the

Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent
Algue as legitimate business expenses in its income
tax returns. The corollary issue is whether or not the
appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time
and in accordance with law.

authorities. During the intervening period, the warrant

was premature and could therefore not be served.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private
respondent, a domestic corporation engaged in
engineering, construction and other allied activities,
received a letter from the petitioner assessing it in the
total amount of P83,183.85 as delinquency income
taxes for the years 1958 and 1959. 1 On January 18,
1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on
the same day in the office of the petitioner. 2 On March
12, 1965, a warrant of distraint and levy was presented
to the private respondent, through its counsel, Atty.
Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest
in the dockets of the case proved fruitless. Atty.
Guevara produced his file copy and gave a photostat to
BIR agent Ramon Reyes, who deferred service of the
warrant. 4 On April 7, 1965, Atty. Guevara was finally
informed that the BIR was not taking any action on the
protest and it was only then that he accepted the
warrant of distraint and levy earlier sought to be
served. 5 Sixteen days later, on April 23, 1965, Algue
filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax
Appeals. 6
The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal
may be made within thirty days after receipt of the
decision or ruling challenged. 7 It is true that as a rule
the warrant of distraint and levy is "proof of the finality
of the assessment" 8 and renders hopeless a request
for reconsideration," 9being "tantamount to an outright
denial thereof and makes the said request deemed
rejected." 10 But there is a special circumstance in the
case at bar that prevents application of this accepted
doctrine.
The proven fact is that four days after the private
respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of
distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It
was only after Atty. Guevara gave the BIR a copy of the
protest that it was, if at all, considered by the tax

As the Court of Tax Appeals correctly noted," 11 the

protest filed by private respondent was not pro
forma and was based on strong legal considerations. It
thus had the effect of suspending on January 18, 1965,
when it was filed, the reglementary period which
started on the date the assessment was received, viz.,
January 14, 1965. The period started running again
only on April 7, 1965, when the private respondent was
definitely informed of the implied rejection of the said
protest and the warrant was finally served on it. Hence,
when the appeal was filed on April 23, 1965, only 20
days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of
P75,000.00 was properly disallowed because it was not
an ordinary reasonable or necessary business expense.
The Court of Tax Appeals had seen it differently.
Agreeing with Algue, it held that the said amount had
been legitimately paid by the private respondent for
actual services rendered. The payment was in the form
of promotional fees. These were collected by the
Payees for their work in the creation of the Vegetable
Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine
Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner
had Originally claimed these promotional fees to be
personal holding company income 12 but later
conformed to the decision of the respondent court
rejecting this assertion.13 In fact, as the said court
found, the amount was earned through the joint efforts
of the persons among whom it was distributed It has
been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as
its agent, authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such authority,
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara,
Edith, O'Farell, and Pablo Sanchez, worked for the
formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it. 14 Ultimately,
after its incorporation largely through the promotion of
the said persons, this new corporation purchased the
PSEDC properties. 15 For this sale, Algue received as
agent a commission of P126,000.00, and it was from
this commission that the P75,000.00 promotional fees
were paid to the aforenamed individuals. 16

Page 13 of 15
TAX

There is no dispute that the payees duly reported their

respective shares of the fees in their income tax
returns and paid the corresponding taxes
thereon. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of
dividends was involved. 18
The petitioner claims that these payments are fictitious
because most of the payees are members of the same
family in control of Algue. It is argued that no indication
was made as to how such payments were made,
whether by check or in cash, and there is not enough
substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a
legitimate assessment by involving an imaginary
deduction.

during the taxable year in carrying on

any trade or business, including a
reasonable allowance for salaries or
other compensation for personal
services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading
as follows:
SEC. 70. Compensation for personal
services.--Among the ordinary and
necessary expenses paid or incurred in
carrying on any trade or business may
be included a reasonable allowance for
salaries or other compensation for
personal services actually rendered.
The test of deductibility in the case of
compensation payments is whether
they are reasonable and are, in fact,
payments purely for service. This test
and deductibility in the case of
compensation payments is whether
they are reasonable and are, in fact,
payments purely for service. This test
and its practical application may be
further stated and illustrated as
follows:

We find that these suspicions were adequately met by

the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus,
testified that the payments were not made in one lump
sum but periodically and in different amounts as each
payee's need arose. 19 It should be remembered that
this was a family corporation where strict business
procedures were not applied and immediate issuance
of receipts was not required. Even so, at the end of the
year, when the books were to be closed, each payee
made an accounting of all of the fees received by him
or her, to make up the total of
P75,000.00. 20 Admittedly, everything seemed to be
informal. This arrangement was understandable,
however, in view of the close relationship among the
persons in the family corporation.

Any amount paid in the form of

compensation, but not in fact as the
purchase price of services, is not
deductible. (a) An ostensible salary
paid by a corporation may be a
distribution of a dividend on stock. This
is likely to occur in the case of a
corporation having few stockholders,
Practically all of whom draw salaries. If
in such a case the salaries are in
excess of those ordinarily paid for
similar services, and the excessive
payment correspond or bear a close
relationship to the stockholdings of the
officers of employees, it would seem
likely that the salaries are not paid
wholly for services rendered, but the
excessive payments are a distribution
of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G.
No. 18, 325.)

We agree with the respondent court that the amount of

the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate
Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still
had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the
total commission. This was a reasonable proportion,
considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of
the Sugar Estate properties. This finding of the
respondent court is in accord with the following
provision of the Tax Code:
SEC. 30. Deductions from gross
income.--In computing net income
there shall be allowed as deductions

It is worth noting at this point that most of the payees

were not in the regular employ of Algue nor were they
its controlling stockholders. 23

(a) Expenses:
(1) In general.--All the ordinary and
necessary expenses paid or incurred

The Solicitor General is correct when he says that the

burden is on the taxpayer to prove the validity of the
claimed deduction. In the present case, however, we
Page 14 of 15
TAX

find that the onus has been discharged satisfactorily.

The private respondent has proved that the payment of
the fees was necessary and reasonable in the light of
the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an
experimental enterprise and involve themselves in a
new business requiring millions of pesos. This was no
mean feat and should be, as it was, sufficiently
recompensed.

But even as we concede the inevitability and

indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and
in accordance with the prescribed procedure. If it is
not, then the taxpayer has a right to complain and the
courts will then come to his succor. For all the
awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate,
as it has here, that the law has not been observed.

It is said that taxes are what we pay for civilization

society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the
taxing authorities, every person who is able to must
contribute his share in the running of the government.
The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their
moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.

We hold that the appeal of the private respondent from

the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125.
And we also find that the claimed deduction by the
private respondent was permitted under the Internal
Revenue Code and should therefore not have been
disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of
Tax Appeals is AFFIRMED in toto, without costs.
SO ORDERED.

Page 15 of 15
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