G.R. No. L-43082 June 18, 1937
I direct that ten (10) years after my death my property be given to
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of
the estate of Thomas Hanley, deceased, brought this action in the Court of
First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then
the Collector of Internal Revenue, for the refund of the amount of P2,052.74,
paid by the plaintiff as inheritance tax on the estate of the deceased, and for
the collection of interst thereon at the rate of 6 per cent per annum,
computed from September 15, 1932, the date when the aforesaid tax was
[paid under protest. The defendant set up a counterclaim for P1,191.27
alleged to be interest due on the tax in question and which was not included
in the original assessment. From the decision of the Court of First Instance of
Zamboanga dismissing both the plaintiff's complaint and the defendant's
counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga,
Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and
personal properties. On june 14, 1922, proceedings for the probate of his will
and the settlement and distribution of his estate were begun in the Court of
First Instance of Zamboanga. The will was admitted to probate. Said will
provides, among other things, as follows:
4. I direct that any money left by me be given to my nephew Matthew
Hanley.
5. I direct that all real estate owned by me at the time of my death be
not sold or otherwise disposed of for a period of ten (10) years after
my death, and that the same be handled and managed by the
executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon,
Ireland, and that he be directed that the same be used only for the
education of my brother's children and their descendants.
6.
the above mentioned Matthew Hanley to be disposed of in the way
he thinks most advantageous.
xxx xxx xxx
8. I state at this time I have one brother living, named Malachi
Hanley, and that my nephew, Matthew Hanley, is a son of my said
brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best
interests of ther estate to appoint a trustee to administer the real properties
which, under the will, were to pass to Matthew Hanley ten years after the two
executors named in the will, was, on March 8, 1924, appointed trustee.
Moore took his oath of office and gave bond on March 10, 1924. He acted as
trustee until February 29, 1932, when he resigned and the plaintiff herein
was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue, alleging that the estate left by the deceased at the time of
his death consisted of realty valued at P27,920 and personalty valued at
P1,465, and allowing a deduction of P480.81, assessed against the estate an
inheritance tax in the amount of P1,434.24 which, together with the penalties
for deliquency in payment consisting of a 1 per cent monthly interest from
July 1, 1931 to the date of payment and a surcharge of 25 per cent on the
tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a
motion in the testamentary proceedings pending before the Court of First
Instance of Zamboanga (Special proceedings No. 302) praying that the
trustee, plaintiff herein, be ordered to pay to the Government the said sum of
P2,052.74. The motion was granted. On September 15, 1932, the plaintiff
paid said amount under protest, notifying the defendant at the same time that
unless the amount was promptly refunded suit would be brought for its
recovery. The defendant overruled the plaintiff's protest and refused to refund
the said amount hausted, plaintiff went to court with the result herein above
indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased,
passed to his instituted heir, Matthew Hanley, from the moment of
the death of the former, and that from the time, the latter became the
owner thereof.
II. In holding, in effect, that there was deliquency in the payment of
inheritance tax due on the estate of said deceased.
 III. In holding that the inheritance tax in question be based upon the
value of the estate upon the death of the testator, and not, as it
should have been held, upon the value thereof at the expiration of
the period of ten years after which, according to the testator's will,
the property could be and was to be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the
net amount of the estate subject to said tax, the amounts allowed by
the court as compensation to the "trustees" and paid to them from
the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in denying
his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns
the following error besides:
The lower court erred in not ordering the plaintiff to pay to the
defendant the sum of P1,191.27, representing part of the interest at
the rate of 1 per cent per month from April 10, 1924, to June 30,
1931, which the plaintiff had failed to pay on the inheritance tax
assessed by the defendant against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this
appeal: (a) When does the inheritance tax accrue and when must it be
satisfied? (b) Should the inheritance tax be computed on the basis of the
value of the estate at the time of the testator's death, or on its value ten years
later? (c) In determining the net value of the estate subject to tax, is it proper
to deduct the compensation due to trustees? (d) What law governs the case
at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be
given retroactive effect? (e) Has there been deliquency in the payment of the
inheritance tax? If so, should the additional interest claimed by the defendant
in his appeal be paid by the estate? Other points of incidental importance,
raised by the parties in their briefs, will be touched upon in the course of this
opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the
same. Section 1536 as amended, of the Administrative Code, imposes the
tax upon "every transmission by virtue of inheritance, devise, bequest,
gift mortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution
of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It
is in reality an excise or privilege tax imposed on the right to succeed to,
receive, or take property by or under a will or the intestacy law, or deed,
grant, or gift to become operative at or after death. Acording to article 657 of
the Civil Code, "the rights to the succession of a person are transmitted from
the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs
succeed immediately to all of the property of the deceased ancestor. The
property belongs to the heirs at the moment of the death of the ancestor as
completely as if the ancestor had executed and delivered to them a deed for
the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also,
Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13;
Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491;
Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321;
Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario
vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil.,
317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of
Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the
Civil Code is applicable to testate as well as intestate succession, it operates
only in so far as forced heirs are concerned. But the language of article 657
of the Civil Code is broad and makes no distinction between different classes
of heirs. That article does not speak of forced heirs; it does not even use the
word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil
Procedure regarding the authentication and probate of a will as a necessary
condition to effect transmission of property does not affect the general rule
laid down in article 657 of the Civil Code. The authentication of a will implies
its due execution but once probated and allowed the transmission is effective
as of the death of the testator in accordance with article 657 of the Civil
Code. Whatever may be the time when actual transmission of the inheritance
takes place, succession takes place in any event at the moment of the
decedent's death. The time when the heirs legally succeed to the inheritance
may differ from the time when the heirs actually receive such inheritance.
"Poco importa", says Manresa commenting on article 657 of the Civil Code,
"que desde el falleimiento del causante, hasta que el heredero o legatario
entre en posesion de los bienes de la herencia o del legado, transcurra
mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de
la muerte, y asi lo ordena el articulo 989, que debe considerarse como
complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil
Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does
not follow that the obligation to pay the tax arose as of the date. The time for
the payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543
of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. —
The following shall not be taxed:
 (a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy
by the fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in
favor of another beneficiary, in accordance with the desire of
the predecessor.
In the last two cases, if the scale of taxation appropriate to the new
beneficiary is greater than that paid by the first, the former must pay
the difference.
SEC. 1544. When tax to be paid. — The tax fixed in this article shall
be paid:
(a) In the second and third cases of the next preceding
section, before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the
death of the predecessor; but if judicial testamentary or
intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the
executor or administrator before delivering to each
beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed, interest
at the rate of twelve per centum per annum shall be added as part of
the tax; and to the tax and interest due and unpaid within ten days
after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.
A certified of all letters testamentary or of admisitration shall be
furnished the Collector of Internal Revenue by the Clerk of Court
within thirty days after their issuance.
It should be observed in passing that the word "trustee", appearing in
subsection (b) of section 1543, should read "fideicommissary" or "cestui que
trust". There was an obvious mistake in translation from the Spanish to the
English version.
The instant case does fall under subsection (a), but under subsection (b), of
section 1544 above-quoted, as there is here no fiduciary heirs, first heirs,
legatee or donee. Under the subsection, the tax should have been paid
before the delivery of the properties in question to P. J. M. Moore as trustee
on March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the
real properties are concerned, did not and could not legally pass to the
instituted heir, Matthew Hanley, until after the expiration of ten years from the
death of the testator on May 27, 1922 and, that the inheritance tax should be
based on the value of the estate in 1932, or ten years after the testator's
death. The plaintiff introduced evidence tending to show that in 1932 the real
properties in question had a reasonable value of only P5,787. This amount
added to the value of the personal property left by the deceased, which the
plaintiff admits is P1,465, would generate an inheritance tax which, excluding
deductions, interest and surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the estate to
impose inheritance taxes takes its being and if, upon the death of the
decedent, succession takes place and the right of the estate to tax vests
instantly, the tax should be measured by the vlaue of the estate as it stood at
the time of the decedent's death, regardless of any subsequent contingency
value of any subsequent increase or decrease in value. (61 C. J., pp. 1692,
1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p.
137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44
Law. ed., 969.) "The right of the state to an inheritance tax accrues at the
moment of death, and hence is ordinarily measured as to any beneficiary by
the value at that time of such property as passes to him. Subsequent
appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p.
72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of
and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent
remainders, taxation is postponed until the estate vests in possession or the
contingency is settled. This rule was formerly followed in New York and has
been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and
Wisconsin. This rule, horever, is by no means entirely satisfactory either to
the estate or to those interested in the property (26 R. C. L., p. 231.).
Realizing, perhaps, the defects of its anterior system, we find upon
examination of cases and authorities that New York has varied and now
requires the immediate appraisal of the postponed estate at its clear market
value and the payment forthwith of the tax on its out of the corpus of the
estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber,
86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501;
72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post,
85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord
Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas.,
888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a
transmission by inheritance is taxable at the time of the predecessor's death,
notwithstanding the postponement of the actual possession or enjoyment of
the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or
depreciation.
(c) Certain items are required by law to be deducted from the appraised
gross in arriving at the net value of the estate on which the inheritance tax is
to be computed (sec. 1539, Revised Administrative Code). In the case at bar,
the defendant and the trial court allowed a deduction of only P480.81. This
sum represents the expenses and disbursements of the executors until
March 10, 1924, among which were their fees and the proven debts of the
deceased. The plaintiff contends that the compensation and fees of the
trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL,
NN, OO), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to
determine the net sum which must bear the tax, when an inheritance is
concerned, there shall be deducted, in case of a resident, . . . the judicial
expenses of the testamentary or intestate proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his services
(Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it
does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax. There is no statute in the
Philippines which requires trustees' commissions to be deducted in
determining the net value of the estate subject to inheritance tax (61 C. J., p.
1705). Furthermore, though a testamentary trust has been created, it does
not appear that the testator intended that the duties of his executors and
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp.,
893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the
contrary, in paragraph 5 of his will, the testator expressed the desire that his
real estate be handled and managed by his executors until the expiration of
the period of ten years therein provided. Judicial expenses are expenses of
administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate
Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation
of a trustee, earned, not in the administration of the estate, but in the
management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration
expenses. . . . Service rendered in that behalf have no reference to closing
the estate for the purpose of a distribution thereof to those entitled to it, and
are not required or essential to the perfection of the rights of the heirs or
legatees. . . . Trusts . . . of the character of that here before the court, are
created for the the benefit of those to whom the property ultimately passes,
are of voluntary creation, and intended for the preservation of the estate. No
sound reason is given to support the contention that such expenses should
be taken into consideration in fixing the value of the estate for the purpose of
this tax."
(d) The defendant levied and assessed the inheritance tax due from the
estate of Thomas Hanley under the provisions of section 1544 of the Revised
Administrative Code, as amended by section 3 of Act No. 3606. But Act No.
3606 went into effect on January 1, 1930. It, therefore, was not the law in
force when the testator died on May 27, 1922. The law at the time was
section 1544 above-mentioned, as amended by Act No. 3031, which took
effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at
the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on
Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be
required to guess the outcome of pending measures. Of course, a tax statute
may be made retroactive in its operation. Liability for taxes under retroactive
legislation has been "one of the incidents of social life." (Seattle vs. Kelleher,
195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that
a tax statute should operate retroactively should be perfectly clear. (Scwab
vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank,
257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs.
Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its
operation, whether it enacts, amends, or repeals an inheritance tax, unless
the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of
section 5 of Regulations No. 65 of the Department of Finance makes section
3 of Act No. 3606, amending section 1544 of the Revised Administrative
Code, applicable to all estates the inheritance taxes due from which have not
been paid, Act No. 3606 itself contains no provisions indicating legislative
intent to give it retroactive effect. No such effect can begiven the statute by
this court.
The defendant Collector of Internal Revenue maintains, however, that certain
provisions of Act No. 3606 are more favorable to the taxpayer than those of
Act No. 3031, that said provisions are penal in nature and, therefore, should
operate retroactively in conformity with the provisions of article 22 of the
Revised Penal Code. This is the reason why he applied Act No. 3606 instead
of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per
cent is based on the tax only, instead of on both the tax and the interest, as
provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days
from notice and demand by rthe Collector of Internal Revenue within which to
pay the tax, instead of ten days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an
offense committed against the state which, under the Constitution, the
Executive has the power to pardon. In common use, however, this sense has
been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation,
and even those which, without expressly prohibiting certain acts, impose a
penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally,
which impose taxes collected by the means ordinarily resorted to for the
collection of taxes are not classed as penal laws, although there are
authorities to the contrary. (See Sutherland, Statutory Construction, 361;
Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4
C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal
Code is not applicable to the case at bar, and in the absence of clear
legislative intent, we cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a
certain time and the tax may be paid within another given time. As stated by
this court, "the mere failure to pay one's tax does not render one delinqent
until and unless the entire period has eplased within which the taxpayer is
authorized by law to make such payment without being subjected to the
payment of penalties for fasilure to pay his taxes within the prescribed
period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent's property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the
Revised Administrative Code. This contention is well taken and is sustained.
The appointment of P. J. M. Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true
that the word "trust" is not mentioned or used in the will but the intention to
create one is clear. No particular or technical words are required to create a
testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though
apt for the purpose, are not necessary. In fact, the use of these two words is
not conclusive on the question that a trust is created (69 C. J., p. 714). "To
create a trust by will the testator must indicate in the will his intention so to do
by using language sufficient to separate the legal from the equitable estate,
and with sufficient certainty designate the beneficiaries, their interest in the
ttrust, the purpose or object of the trust, and the property or subject matter
thereof. Stated otherwise, to constitute a valid testamentary trust there must
be a concurrence of three circumstances: (1) Sufficient words to raise a trust;
(2) a definite subject; (3) a certain or ascertain object; statutes in some
jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.)
There is no doubt that the testator intended to create a trust. He ordered in
his will that certain of his properties be kept together undisposed during a
fixed period, for a stated purpose. The probate court certainly exercised
sound judgment in appointment a trustee to carry into effect the provisions of
the will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate
vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The
mere fact that the estate of the deceased was placed in trust did not remove
it from the operation of our inheritance tax laws or exempt it from the
payment of the inheritance tax. The corresponding inheritance tax should
have been paid on or before March 10, 1924, to escape the penalties of the
laws. This is so for the reason already stated that the delivery of the estate to
the trustee was in esse delivery of the same estate to the cestui que trust,
the beneficiary in this case. A trustee is but an instrument or agent for
the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689;
57 Law. ed., 1086). When Moore accepted the trust and took possesson of
the trust estate he thereby admitted that the estate belonged not to him but to
his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692,
n. 63). He did not acquire any beneficial interest in the estate. He took such
legal estate only as the proper execution of the trust required (65 C. J., p.
528) and, his estate ceased upon the fulfillment of the testator's wishes. The
estate then vested absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we
have reached. Were we to hold that the payment of the tax could be
postponed or delayed by the creation of a trust of the type at hand, the result
would be plainly disastrous. Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their beneficiaries until after
the lapse of a certain period of time. In the case at bar, the period is ten
years. In other cases, the trust may last for fifty years, or for a longer period
which does not offend the rule against petuities. The collection of the tax
would then be left to the will of a private individual. The mere suggestion of
this result is a sufficient warning against the accpetance of the essential to
the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435;
10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558;
Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator
Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed.,
150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.)
The obligation to pay taxes rests not upon the privileges enjoyed by, or the
protection afforded to, a citizen by the government but upon the necessity of
money for the support of the state (Dobbins vs. Erie Country, supra). For this
reason, no one is allowed to object to or resist the payment of taxes solely
because no personal benefit to him can be pointed out. (Thomas vs. Gay,
169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will
not enlarge, by construction, the government's power of taxation (Bromley vs.
McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also
will not place upon tax laws so loose a construction as to permit evasions on
merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580;
Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No.
16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461,
481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs.
Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty,
39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When
proper, a tax statute should be construed to avoid the possibilities of tax
evasion. Construed this way, the statute, without resulting in injustice to the
taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax
system. Thus, no court is allowed to grant injunction to restrain the collection
of any internal revenue tax ( sec. 1578, Revised Administrative Code;
Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas
(47 Phil., 461), this court had occassion to demonstrate trenchment
adherence to this policy of the law. It held that "the fact that on account of
riots directed against the Chinese on October 18, 19, and 20, 1924, they
were prevented from praying their internal revenue taxes on time and by
mutual agreement closed their homes and stores and remained therein, does
not authorize the Collector of Internal Revenue to extend the time prescribed
for the payment of the taxes or to accept them without the additional penalty
of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United
States, ". . . that the modes adopted to enforce the taxes levied should be
interfered with as little as possible. Any delay in the proceedings of the
officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment
to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66;
Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the payment of interest
and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when
Moore became trustee. The interest due should be computed from that date
and it is error on the part of the defendant to compute it one month later. The
provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra),
and neither the Collector of Internal Revenuen or this court may remit or
decrease such interest, no matter how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the Collector of Internal Revenue, a surcharge
of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2,
Revised Administrative Code). Demand was made by the Deputy Collector of
Internal Revenue upon Moore in a communiction dated October 16, 1931
(Exhibit 29). The date fixed for the payment of the tax and interest was
November 30, 1931. November 30 being an official holiday, the tenth day fell
on December 1, 1931. As the tax and interest due were not paid on that date,
the estate became liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth
error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due
from the estate of Thomas Hanley inaccordance with the conclusions we
have reached.
At the time of his death, the deceased left real properties valued at P27,920
and personal properties worth P1,465, or a total of P29,385. Deducting from
this amount the sum of P480.81, representing allowable deductions under
secftion 1539 of the Revised Administrative Code, we have P28,904.19 as
the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised
Administrative Code, should be imposed at the rate of one per centum upon
the first ten thousand pesos and two per centum upon the amount by which
the share exceed thirty thousand pesos, plus an additional two hundred per
centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred
per centum, or P965.16, we have as primary tax, correctly computed by the
defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible
under section 1544 of the Revised Administrative Code. First should be
added P1,465.31 which stands for interest at the rate of twelve per centum
per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6
months and 5 days. To the tax and interest thus computed should be added
the sum of P724.88, representing a surhcarge of 25 per cent on both the tax
and interest, and also P10, the compromise sum fixed by the defendant (Exh.
29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of
P1,581.69 is legally due from the estate. This last sum is P390.42 more than
the amount demanded by the defendant in his counterclaim. But, as we
cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27 the amount stated in the
counterclaim.
The judgment of the lower court is accordingly modified, with costs against
the plaintiff in both instances. So ordered.
Republic of the Philippines
P21,052
SUPREME COURT
Manila
Subsequently, on November 10, 1956, the petitioner filed an amended
EN BANC return for the calendar year 1955, claiming therein an additional
deduction in the amount of P47,868.70 representing interest paid on
G.R. No. L-16626 October 29, 1966 the donee's gift tax, thereby reporting a taxable net income of
P18,113.42 and a tax due thereon in the sum of P3,167.00. The claim
for deduction was based on the provisions of Section 30(b) (1) of the
COMMISSIONER OF INTERNAL REVENUE, petitioner,
Tax Code, which authorizes the deduction from gross income of
vs.
interest paid within the taxable year on indebtedness. A claim for the
CARLOS PALANCA, JR., respondent.
refund of alleged overpaid income taxes for the year 1955 amounting
to P17,885.01, which is the difference between the amount of
Office of the Solicitor General for petitioner. P21,052.01 he paid as income taxes under his original return and of
Manuel B. San Jose for respondent. P3,167.00, was filed together with this amended return. In a
communication dated June 20, 1957, the respondent (BIR) denied the
REGALA, J.: claim for refund.

This is an appeal by the Government from the decision of the Court of Tax On August 27, 1957, the petitioner reiterated his claim for refund, and
Appeals in CTA Case No. 571 ordering the petitioner to refund to the at the same time requested that the case be elevated to the Appellate
respondent the amount of P20,624.01 representing alleged over-payment of Division of the Bureau of Internal Revenue for decision. The reiterated
income taxes for the calendar year 1955. The facts are: claim was denied on October 14, 1957.

Sometime in July, 1950, the late Don Carlos Palanca, Sr. donated in
favor of his son, the petitioner, herein shares of stock in La Tondeña,
Inc. amounting to 12,500 shares. For failure to file a return on the
donation within the statutory period, the petitioner was assessed the
sums of P97,691.23, P24,442.81 and P47,868.70 as gift tax, 25%
surcharge and interest, respectively, which he paid on June 22, 1955.
On March 1, 1956, the petitioner filed with the Bureau of Internal
Revenue his income tax return for the calendar year 1955, claiming,
among others, a deduction for interest amounting to P9,706.45 and
reporting a taxable income of P65,982.12. On the basis of this return,
he was assessed the sum of P21,052.91, as income tax, which he
paid, as follows:
Taxes withheld by La Tondeña Inc. from Mr. Palanca's
wages
Payment under Income Tax Receipt No. 677395 dated
May 11, 1956
On November 2, 1957, the petitioner requested that the case be
referred to the Conference Staff of the Bureau of Internal Revenue for
review. Later, on November 6, 1957, he requested the respondent to
hold his action on the case in abeyance until after the Court of Tax
Appeals renders its division on a similar case. And on November 7,
1957, the respondent denied the claim for the refund of the sum of
P17,885.01.
Meanwhile, the Bureau of Internal Revenue considered the transfer of
12,500 shares of stock of La Tondeña Inc. to be a transfer in
contemplation of death pursuant to Section 88(b) of the National
Internal Revenue Code. Consequently, the respondent assessed
against the petitioner the sum of P191,591.62 as estate and
inheritance taxes on the transfer of said 12,500 shares of stock. The
amount of P17,002.74 paid on June 22, 1955 by the petitioner as gift
tax, including interest and surcharge, under Official Receipt No. 2855
P13,172.41 was applied to his estate and inheritance tax liability. On the tax liability
of P191,591.62, the petitioner paid the amount of P60,581.80 as
interest for delinquency as follows:
3,939.80

Payment under Income Tax Receipt dated August 14, 1% monthly interest on P76,724.38 P22,633.69
1956 3,939.80 September 2, 1952 to February 16, 1955

1% monthly interest on P71,264.77 1,068.97
February 16, 1955 to March 31, 1955
1% monthly interest on P114,867.24 4,287.99
September 2, 1952 to April 16, 1953
1% monthly interest on P50,832.77 1,372.48
March 31, 1955 to June 22, 1955
1% monthly interest on P119,155.23 31,218.67
April 16, 1953 to June 22, 1955
Total P60,581.80
On August 12, 1958, the petitioner once more filed an amended
income tax return for the calendar year 1955, claiming, in addition to
the interest deduction of P9,076.45 appearing in his original return, a
deduction in the amount of P60,581.80, representing interest on the
estate and inheritance taxes on the 12,500 shares of stock, thereby
reporting a net taxable income for 1955 in the amount of P5,400.32
and an income tax due thereon in the sum of P428.00. Attached to this
amended return was a letter of the petitioner, dated August 11, 1958,
wherein he requested the refund of P20,624.01 which is the difference
between the amounts of P21,052.01 he paid as income tax under his
original return and of P428.00.
Without waiting for the respondent's decision on this claim for refund,
the petitioner filed his petition for review before this Court on August
13, 1958. On July 24, 1959, the respondent denied the petitioner's
request for the refund of the sum of P20,624.01.
The Commissioner of Internal Revenue now seeks the reversal of the Court of
Tax Appeal's ruling on the aforementioned petition for review. Specifically, he
takes issue with the said court's determination that the amount paid by
respondent Palanca for interest on his delinquent estate and inheritance tax is
deductible from the gross income for that year under Section 30 (b) (1) of the
Revenue Code, and, that said respondent's claim for refund therefor has not
prescribed.
On the first point, the Commissioner urges that a tax is not an indebtedness.
Citing American cases, he argues that there is a material and fundamental
distinction between a "tax" and a "debt." (Meriwether v. Garrett, 102 U.S. 427;
Liberty Mutual Ins. Co. v. Johnson Shipyards Corporation, 5 AFTR pp. 5504,
5507; City of Camden v. Allen, 26 N.J. Law, p. 398). He adopts the view that
"debts are due to the government in its corporate capacity, while taxes are due
to the government in its sovereign capacity. A debt is a sum of money due
upon contract express or implied or one which is evidenced by a judgment.
Taxes are imposts levied by government for its support or some special
purpose which the government has recognized." In view of the distinction,
then, the Commissioner submits that the deductibility of "interest on
indebtedness" from a person's income tax under Section 30(b) (1) cannot
extend to "interest on taxes."
We find for the respondent. While "taxes" and "debts" are distinguishable legal
concepts, in certain cases as in the suit at bar, on account of their nature, the
distinction becomes inconsequential. This qualification is recognized even in
the United States. Thus,
The term "debt" is properly used in a comprehensive sense as
embracing not merely money due by contract, but whatever one is
bound to render to another, either for contract or the requirements of
the law. (Camden vs. Fink Coule and Coke Co., 61 ALR 584).
Where statutes impose a personal liability for a tax, the tax becomes
at least in a broad sense, a debt. (Idem.)
Some American authorities hold that, especially for remedial
purposes, Federal taxes are debts. (Tax Commission vs. National
Malleable Castings Co., 35 ALR 1448)
In our jurisdiction, the rule is settled that although taxes already due have not,
strictly speaking, the same concept as debts, they are, however obligations
that may be considered as such. (Sambrano vs. Court of Tax Appeals, G.R.
no. L-8652, March 30, 1957). In a more recent case Commissioner of Internal
Revenue vs. Prieto, G.R. No. L-13912, September 30, 1960, we explicitly
announced that while the distinction between "taxes" and "debts" was
recognized in this jurisdiction, the variance in their legal conception does not
extend to the interests paid on them, at least insofar as Section 30 (b) (1) of
the National Internal Revenue Code is concerned. Thus,
Under the law, for interest to be deductible, it must be shown that there
be an indebtedness, that there should be interest upon it, and that
what is claimed as an interest deduction should have been paid or
accrued within the year. It is here conceded that the interest paid by
respondent was in consequence of the late payment of her donor's
tax, and the same was paid within the year it is sought to be deducted.
The only question to be determined, as stated by the parties, is
whether or not such interest was paid upon an indebtedness within the
contemplation of Section 30(b) (1) of the Tax Code, the pertinent part
of which reads:
 Sec. 30. Deductions from gross income — In computing net
income there shall be allowed as deductions —
xxx xxx xxx
"Interest:
(1) In general. — The amount of interest paid within the
taxable year on indebtedness, except on indebtedness
incurred or continued to purchase or carry obligations the
interest upon which is exempt from taxation as income under
this Title.
The term "indebtedness" as used in the Tax Code of the
United States containing similar provisions as in the above-
quoted section has been defined as the unconditional and
legally enforceable obligation for the payment of money.
(Federal Taxes Vol. 2, p. 13, 019, Prentice Hall, Inc.; Mertens'
Law of Federal Income Taxation, Vol. 4, p. 542.) Within the
meaning of that definition, it is apparent that a tax may be
considered an indebtedness. . . . (Emphasis supplied)
"It follows that the interest paid by herein respondent for the
late payment of her donor's tax is deductible from her gross
income under section 30 (b) of the Tax Code above-quoted."
We do not see any element in this case which can justify a departure from or
abandonment of the doctrine in the Prieto case above. In both this and the said
case, the taxpayer sought the allowance as deductible items from the gross
income of the amounts paid by them as interests on delinquent tax liabilities.
Of course, what was involved in the cited case was the donor's tax while the
present suit pertains to interest paid on the estate and inheritance tax. This
difference, however, submits no appreciable consequence to the rationale of
this Court's previous determination that interests on taxes should be
considered as interests on indebtedness within the meaning of Section 30(b)
(1) of the Tax Code. The interpretation we have placed upon the said section
was predicated on the congressional intent, not on the nature of the tax for
which the interest was paid.
On the issue of prescription: There were actually two claims for refund filed by
the herein respondent, Carlos Palanca, Jr., anent the case at bar. The first one
was on November 10, 1956, when he filed a claim for refund on the interest
paid by him on the donee's gift tax of P17,885.10, as originally demanded by
the Bureau of Internal Revenue. The second one was the one filed by him on
August 12, 1958, which was a claim for refund on the interest paid by him on
the estate and inheritance tax assessed by the same Bureau in the amount of
P20,624.01. Actually, this second assessment by the Bureau was for the same
transaction as that for which they assessed respondent Palanca the above
donee's gift tax. The Bureau, however, on further consideration, decided that
the donation of the stocks in question was made in contemplation of death,
and hence, should be assessed as an inheritance. Thus the second
assessment. The first claim was denied by the petitioner for the first time on
June 20, 1957. Thereafter, the said denial was twice reiterated, on October 14,
1957 and November 7, 1957, upon respondent Palanca's plea for the
reconsideration of the ruling of June 20, 1957. The second claim was filed with
the Court of Tax Appeals on August 13, 1958, or even before the same had
been denied by the petitioner. Respondent Palanca's second claim was denied
by the latter on July 24, 1959.
The petitioner contends that under Section 11 of Republic Act 1124, 1 the
herein claimant's claim for refund has prescribed since the same was filed
outside the thirty-day period provided for therein. According to the petitioner,
the said prescriptive period commenced to run on October 14, 1947 when the
denial by the Bureau of Internal Revenue of the respondent Palanca's claim
for refund, under his letter of November 10, 1956, became final. Considering
that the case was filed with the Court of Tax Appeals only on August 13, 1958,
then it is urged that the same had prescribed.
The petitioner also invokes prescription, at least with respect to the sum of
P17,112.21, under Section 306 of the Tax Code. 2 He claims that for the
calendar year 1955, respondent Palanca paid his income tax as follows:
Taxes withheld by La Tondeña Inc. from Mr. Palanca's
wages P13,172
Payment under Income Tax Receipt No. 677395 dated
May 11, 1956 3,939.89
Payment under Income Tax Receipt No. 742334 dated
August 14, 1956 3,939.89
P21,952
Therefore, the petitioner contends, the amounts paid by claimant Palanca
under his withheld tax and under Receipt No. 677395 dated May 11, 1956 may
no longer be refunded since the claim therefor was filed in court only on August
13, 1958, or beyond two years of their payment.
We find the petitioner's contention on prescription untenable.
In the first place, the 30-day period under Section 11 of Republic Act 1125 did
not even commence to run in this incident. It should be recalled that while the
herein petitioner originally assessed the respondent-claimant for alleged gift
tax liabilities, the said assessment was subsequently abandoned and in its lieu,
a new one was prepared and served on the respondent-taxpayer. In this new
assessment, the petitioner charged the said respondent with an entirely new
liability and for a substantially different amount from the first. While initially the
petitioner assessed the respondent for donee's gift tax in the amount of
P170,002.74, in the subsequent assessment the latter was asked to pay
P191,591.62 for delinquent estate and inheritance tax. Considering that it is
the interest paid on this latter-assessed estate and inheritance tax that
respondent Palanca is claiming refund for, then the thirty-day period under the
abovementioned section of Republic Act 1125 should be computed from the
receipt of the final denial by the Bureau of Internal Revenue of the said claim.
As has earlier been recited, respondent Palanca's claim in this incident was
filed with the Court of Tax Appeals even before it had been denied by the
herein petitioner or the Bureau of Internal Revenue. The case was filed with
the said court on August 13, 1958 while the petitioner denied the claim subject
of the said case only on July 24, 1959.

In the second place, the claim at bar refers to the alleged overpayment by
respondent Palanca of his 1955 income tax. Inasmuch as the said account
was paid by him by installment, then the computation of the two-year
prescriptive period, under Section 306 of the National Internal Revenue Code,
should be from the date of the last installment. (Antonio Prieto, et al. vs.
Collector of Internal Revenue, G.R. No. L-11976, August 29, 1961)
Respondent Palanca paid the last installment on his 1955 income tax account
on August 14, 1956. His claim for refund of the alleged overpayment on it was
filed with the court on August 13, 1958. It was, therefore, still timely instituted.

WHEREFORE, the decision appealed from is affirmed in full, without

pronouncement on costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar,

Sanchez and Castro, JJ., concur.
THIRD DIVISION
[G.R. No. 123206. March 22, 2000]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF
APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.
RESOLUTION
GONZAGA-REYES, J.: Supr-ema
Assailed in this petition for review on certiorari is the December 21, 1995
Decision[1] of the Court of Appeals[2] in CA-G.R. Sp. No. 34399 affirming the
June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate
of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing
erroneously paid estate taxes for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during
the second World War, was a part of the infamous Death March by reason of
which he suffered shock and became insane. His sister Josefina Pajonar
became the guardian over his person, while his property was placed under the
guardianship of the Philippine National Bank (PNB) by the Regional Trial Court
of Dumaguete City, Branch 31, in Special Proceedings No. 1254. He died on
January 10, 1988. He was survived by his two brothers Isidro P. Pajonar and
Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and
Mario Jandog and niece Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property
under guardianship valued at P3,037,672.09 in Special Proceedings No. 1254.
However, the PNB did not file an estate tax return, instead it advised Pedro
Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on
his estate. On April 5, 1988, pursuant to the assessment by the Bureau of
Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes in the amount
of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court
of Dumaguete City for the issuance in her favor of letters of administration of
the estate of her brother. The case was docketed as Special Proceedings No.
2399. On July 18, 1988, the trial court appointed Josefina Pajonar as the
regular administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for
deficiency estate tax, the estate of Pedro Pajonar paid estate tax in the amount
of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir
of Pedro Pajonar's estate, filed a protest on January 11, 1989 with the BIR
praying that the estate tax payment in the amount of P1,527,790.98, or at least
some portion of it, be returned to the heirs.[3] Jur-is
However, on August 15, 1989, without waiting for her protest to be resolved by
the BIR, Josefina Pajonar filed a petition for review with the Court of Tax
Appeals (CTA), praying for the refund of P1,527,790.98, or in the alternative,
P840,202.06, as erroneously paid estate tax.[4] The case was docketed as
CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to
refund Josefina Pajonar the amount of P252,585.59, representing erroneously
paid estate tax for the year 1988.[5]
Among the deductions from the gross estate allowed by the CTA were the
amounts of P60,753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50,000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship.[6]Juri-ssc
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration[7] of the CTA's May 6, 1993 decision asserting, among others,
that the notarial fee for the Extrajudicial Settlement and the attorney's fees in
the guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution[8] ordering the
Commissioner of Internal Revenue to refund Josefina Pajonar, as
administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
representing erroneously paid estate tax for the year 1988. Also, the CTA
upheld the validity of the deduction of the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTA's May 6, 1993 Decision and its June
7, 1994 Resolution, questioning the validity of the abovementioned
deductions. On December 21, 1995, the Court of Appeals denied the
Commissioner's petition.[9]
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 [10] of the
National Internal Revenue Code[11] (Tax Code) which provides for the
allowable deductions from the gross estate of the decedent. More particularly,
the question is whether the notarial fee paid for the extrajudicial settlement in
the amount of P60,753 and the attorney's fees in the guardianship proceedings
in the amount of P50,000 may be allowed as deductions from the gross estate
of decedent in order to arrive at the value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of
the appellate courts. J-jlex
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the
testamentary or intestate proceedings are allowed as a
deduction to the gross estate. The amount of P60,753.00 is
quite extraordinary for a mere notarial fee.
Upon a motion for reconsideration filed by the Commissioner of Internal
Revenue, the Court of Tax Appeals modified its previous ruling by reducing
This Court adopts the view under American jurisprudence that
the refundable amount to P76,502.43 since it found that a deficiency interest
expenses incurred in the extrajudicial settlement of the estate
should be imposed and the compromise penalty excluded.[13] However, the tax
should be allowed as a deduction from the gross estate.
court upheld its previous ruling regarding the legality of the deductions -
"There is no requirement of formal administration. It is
sufficient that the expense be a necessary contribution toward
the settlement of the case." [ 34 Am. Jur. 2d, p.765; Nolledo,
Bar Reviewer in Taxation, 10th Ed. (1990), p. 481 ]
xxx.....xxx.....xxx
The attorney's fees of P50,000.00, which were already
incurred but not yet paid, refers to the guardianship
proceeding filed by PNB, as guardian over the ward of Pedro
Pajonar, docketed as Special Proceeding No. 1254 in the
RTC (Branch XXXI) of Dumaguete City. x x x
xxx.....xxx.....xxx
The guardianship proceeding had been terminated upon
delivery of the residuary estate to the heirs entitled thereto.
Thereafter, PNB was discharged of any further responsibility.
Attorney's fees in order to be deductible from the gross estate
must be essential to the collection of assets, payment of debts
or the distribution of the property to the persons entitled to
it. The services for which the fees are charged must relate to
the proper settlement of the estate. [ 34 Am. Jur. 2d 767. ] In
this case, the guardianship proceeding was necessary for the
distribution of the property of the late Pedro Pajonar to his
rightful heirs. Sc-juris
xxx.....xxx.....xxx
PNB was appointed as guardian over the assets of the late
Pedro Pajonar, who, even at the time of his death, was
incompetent by reason of insanity. The expenses incurred in
the guardianship proceeding was but a necessary expense in
the settlement of the decedent's estate. Therefore, the
attorney's fee incurred in the guardianship proceedings
amounting to P50,000.00 is a reasonable and necessary
business expense deductible from the gross estate of the
decedent.[12]
It is significant to note that the inclusion of the estate tax law
in the codification of all our national internal revenue laws with
the enactment of the National Internal Revenue Code in 1939
were copied from the Federal Law of the United States.
[UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax
Code, promulgated by Presidential Decree No. 1158, effective
June 3, 1977, reenacted substantially all the provisions of the
old law on estate and gift taxes, except the sections relating
to the meaning of gross estate and gift. [ Ibid, p. 286. ] Nc-
mmis
In the United States, [a]dministrative expenses, executor's
commissions and attorney's fees are considered allowable
deductions from the Gross Estate. Administrative expenses
are limited to such expenses as are actually and necessarily
incurred in the administration of a decedent's estate.
[PRENTICE-HALL, Federal Taxes Estate and Gift Taxes
(1936), p. 120, 533. ] Necessary expenses of administration
are such expenses as are entailed for the preservation and
productivity of the estate and for its management for purposes
of liquidation, payment of debts and distribution of the residue
among the persons entitled thereto. [Lizarraga Hermanos vs.
Abada, 40 Phil. 124. ] They must be incurred for the settlement
of the estate as a whole. [34 Am. Jur. 2d, p. 765. ] Thus, where
there were no substantial community debts and it was
unnecessary to convert community property to cash, the only
practical purpose of administration being the payment of
estate taxes, full deduction was allowed for attorney's fees
 and miscellaneous expenses charged wholly to decedent's
estate. [ Ibid., citing Estate of Helis, 26 T .C. 143 (A). ]
Petitioner stated in her protest filed with the BIR that "upon the
death of the ward, the PNB, which was still the guardian of the
estate, (Annex 'Z' ), did not file an estate tax return; however, it
advised the heirs to execute an extrajudicial settlement, to pay
taxes and to post a bond equal to the value of the estate, for
which the estate paid P59,341.40 for the premiums. (See
Annex 'K')." [p. 17, CTA record. ] Therefore, it would appear
from the records of the case that the only practical purpose of
settling the estate by means of an extrajudicial settlement
pursuant to Section 1 of Rule 74 of the Rules of Court was for
the payment of taxes and the distribution of the estate to the
heirs. A fortiori, since our estate tax laws are of American
origin, the interpretation adopted by American Courts has
some persuasive effect on the interpretation of our own estate
tax laws on the subject.
Anent the contention of respondent that the attorney's fees of
P50,000.00 incurred in the guardianship proceeding should
not be deducted from the Gross Estate, We consider the same
unmeritorious. Attorneys' and guardians' fees incurred in a
trustee's accounting of a taxable inter vivos trust attributable
to the usual issues involved in such an accounting was held
to be proper deductions because these are expenses incurred
in terminating an inter vivos trust that was includible in the
decedent's estate. (Prentice Hall, Federal Taxes on Estate
and Gift, p.120, 861] Attorney's fees are allowable deductions
if incurred for the settlement of the estate. It is noteworthy to
point that PNB was appointed the guardian over the assets of
the deceased. Necessarily the assets of the deceased formed
part of his gross estate. Accordingly, all expenses incurred in
relation to the estate of the deceased will be deductible for
estate tax purposes provided these are necessary and
ordinary expenses for administration of the settlement of the
estate.[14]
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the
Court of Appeals held that: Newmiso
2. Although the Tax Code specifies "judicial expenses of the
testamentary or intestate proceedings," there is no reason
why expenses incurred in the administration and settlement of
an estate in extrajudicial proceedings should not be allowed.
However, deduction is limited to such administration
expenses as are actually and necessarily incurred in the
collection of the assets of the estate, payment of the debts,
and distribution of the remainder among those entitled thereto.
Such expenses may include executor's or administrator's
fees, attorney's fees, court fees and charges, appraiser's fees,
clerk hire, costs of preserving and distributing the estate and
storing or maintaining it, brokerage fees or commissions for
selling or disposing of the estate, and the like. Deductible
attorney's fees are those incurred by the executor or
administrator in the settlement of the estate or in defending or
prosecuting claims against or due the estate. (Estate and Gift
Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p.
176 ).
xxx.....xxx.....xxx
It is clear then that the extrajudicial settlement was for the
purpose of payment of taxes and the distribution of the estate
to the heirs. The execution of the extrajudicial settlement
necessitated the notarization of the same. Hence the Contract
of Legal Services of March 28, 1988 entered into between
respondent Josefina Pajonar and counsel was presented in
evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial
Settlement. It follows then that the notarial fee of P60,753.00
was incurred primarily to settle the estate of the deceased
Pedro Pajonar. Said amount should then be considered an
administration expenses actually and necessarily incurred in
the collection of the assets of the estate, payment of debts
and distribution of the remainder among those entitled thereto.
Thus, the notarial fee of P60,753 incurred for the Extrajudicial
Settlement should be allowed as a deduction from the gross
estate.
3. Attorney's fees, on the other hand, in order to be deductible
from the gross estate must be essential to the settlement of
the estate. Acctmis
The amount of P50,000.00 was incurred as attorney's fees in
the guardianship proceedings in Spec. Proc. No. 1254.
Petitioner contends that said amount are not expenses of the
testamentary or intestate proceedings as the guardianship
proceeding was instituted during the lifetime of the decedent
when there was yet no estate to be settled.
 Again , this contention must fail.
The guardianship proceeding in this case was necessary for
the distribution of the property of the deceased Pedro Pajonar.
As correctly pointed out by respondent CTA, the PNB was
appointed guardian over the assets of the deceased, and that
necessarily the assets of the deceased formed part of his
gross estate. x x x
xxx.....xxx.....xxx
It is clear therefore that the attorney's fees incurred in the
guardianship proceeding in Spec. Proc. No. 1254 were
essential to the distribution of the property to the persons
entitled thereto. Hence, the attorney's fees incurred in the
guardianship proceedings in the amount of P50,000.00
should be allowed as a deduction from the gross estate of the
decedent.[15]
The deductions from the gross estate permitted under section 79 of the Tax
Code basically reproduced the deductions allowed under Commonwealth Act
No. 466 (CA 466), otherwise known as the National Internal Revenue Code of
1939,[16] and which was the first codification of Philippine tax laws. Section 89
(a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses
of the testamentary or intestate proceedings" for purposes of determining the
value of the net estate. Philippine tax laws were, in turn, based on the federal
tax laws of the United States.[17] In accord with established rules of statutory
construction, the decisions of American courts construing the federal tax code
are entitled to great weight in the interpretation of our own tax laws.[18] Scc-alr
giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate.[23] Neither may attorney's fees
incident to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate.[24]
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement
is clearly a deductible expense since such settlement effected a distribution of
Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to
PNB for acting as the guardian of Pedro Pajonar's property during his lifetime
should also be considered as a deductible administration expense. PNB
provided a detailed accounting of decedent's property and gave advice as to
the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming
the questioned resolution of the Court of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is
AFFIRMED. The notarial fee for the extrajudicial settlement and the attorney's
fees in the guardianship proceedings are allowable deductions from the gross
estate of Pedro Pajonar.
SO ORDERED.

Judicial expenses are expenses of administration. [19] Administration expenses,

as an allowable deduction from the gross estate of the decedent for purposes
of arriving at the value of the net estate, have been construed by the federal
and state courts of the United States to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to
the persons entitled to it."[20] In other words, the expenses must be essential
to the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible.[21] This distinction
has been carried over to our jurisdiction. Thus, in Lorenzo v. Posadas[22] the
Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the
decedent's estate when it appeared that such trustee was appointed for the
purpose of managing the decedent's real estate for the benefit of the
testamentary heir. In another case, the Court disallowed the premiums paid on
the bond filed by the administrator as an expense of administration since the
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18994 June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of
First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the
late Walter Scott Price, respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court
of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul
certain orders of the court and for an order in this Court directing the
respondent court below to execute the judgment in favor of the Government
against the estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R.
No. L-14674, January 30, 1960, this Court declared as final and executory the
order for the payment by the estate of the estate and inheritance taxes,
charges and penalties, amounting to P40,058.55, issued by the Court of First
Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the
Intestate Estate of the Late Walter Scott Price." In order to enforce the claims
against the estate the fiscal presented a petition dated June 21, 1961, to the
court below for the execution of the judgment. The petition was, however,
denied by the court which held that the execution is not justifiable as the
Government is indebted to the estate under administration in the amount of
P262,200. The orders of the court below dated August 20, 1960 and
September 28, 1960, respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs.
Simeona K. Price, Administratrix of the estate of her late husband
Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands
dated September 19, 1956 and acknowledged before Notary Public
Salvador V. Esguerra, legal adviser in Malacañang to Executive
Secretary De Leon dated December 14, 1956, the note of His
Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August
2, 1958, directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act No. 2700
appropriating the sum of P262.200.00 for the payment to the Leyte
Cadastral Survey, Inc., represented by the administratrix Simeona K.
Price, as directed in the above note of the President. Considering
these facts, the Court orders that the payment of inheritance taxes in
the sum of P40,058.55 due the Collector of Internal Revenue as
ordered paid by this Court on July 5, 1960 in accordance with the order
of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674,
be deducted from the amount of P262,200.00 due and payable to the
Administratrix Simeona K. Price, in this estate, the balance to be paid
by the Government to her without further delay. (Order of August 20,
1960)
The Court has nothing further to add to its order dated August 20, 1960
and it orders that the payment of the claim of the Collector of Internal
Revenue be deferred until the Government shall have paid its
accounts to the administratrix herein amounting to P262,200.00. It
may not be amiss to repeat that it is only fair for the Government, as a
debtor, to its accounts to its citizens-creditors before it can insist in the
prompt payment of the latter's account to it, specially taking into
consideration that the amount due to the Government draws interests
while the credit due to the present state does not accrue any interest.
(Order of September 28, 1960)
The petition to set aside the above orders of the court below and for the
execution of the claim of the Government against the estate must be denied
for lack of merit. The ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased person, as an inheritance tax,
is for the claimant to present a claim before the probate court so that said court
may order the administrator to pay the amount thereof. To such effect is the
decision of this Court in Aldamiz vs. Judge of the Court of First Instance of
Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules
of Court for the payment of debts and expenses of administration. The
proper procedure is for the court to order the sale of personal estate
or the sale or mortgage of real property of the deceased and all debts
or expenses of administrator and with the written notice to all the heirs
legatees and devisees residing in the Philippines, according to Rule
89, section 3, and Rule 90, section 2. And when sale or mortgage of
real estate is to be made, the regulations contained in Rule 90, section
7, should be complied with.1äwphï1.ñët
 Execution may issue only where the devisees, legatees or heirs have
entered into possession of their respective portions in the estate prior
to settlement and payment of the debts and expenses of
administration and it is later ascertained that there are such debts and
expenses to be paid, in which case "the court having jurisdiction of the
estate may, by order for that purpose, after hearing, settle the amount
of their several liabilities, and order how much and in what manner
each person shall contribute, and may issue execution if
circumstances require" (Rule 89, section 6; see also Rule 74, Section
4; Emphasis supplied.) And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate
proceedings to settle the estate of a deceased person, the properties
belonging to the estate are under the jurisdiction of the court and such
jurisdiction continues until said properties have been distributed among the
heirs entitled thereto. During the pendency of the proceedings all the estate is
in custodia legis and the proper procedure is not to allow the sheriff, in case of
the court judgment, to seize the properties but to ask the court for an order to
require the administrator to pay the amount due from the estate and required
to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that
the court having jurisdiction of the estate had found that the claim of the estate
against the Government has been recognized and an amount of P262,200 has
already been appropriated for the purpose by a corresponding law (Rep. Act
No. 2700). Under the above circumstances, both the claim of the Government
for inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable is well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with
the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and
extinguished both debts to the concurrent amount, eventhough the
creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the
judgment for taxes against the estate of the deceased Walter Scott Price.
Furthermore, the petition for certiorari and mandamus is not the proper
remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

 RAFAEL ARSENIO S. DIZON, in his G.R. No. 140944 Petitioner alleged that several requests for extension of the period to file the
capacity as the Judicial Administrator of the required estate tax return were granted by the BIR since the assets of the
Estate of the deceased JOSE P. Present: estate, as well as the claims against it, had yet to be collated, determined and
FERNANDEZ, identified. Thus, in a letter[8] dated March 14, 1990, Justice Dizon authorized
Petitioner, YNARES-SANTIAGO, J., Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the
Chairperson, Estate the required estate tax return and to represent the same in securing a
AUSTRIA-MARTINEZ, Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales
- versus - CHICO-NAZARIO, wrote a letter[9] addressed to the BIR Regional Director for San Pablo City and
NACHURA, and filed the estate tax return[10] with the same BIR Regional Office, showing
REYES, JJ. therein a NIL estate tax liability, computed as follows:
COURT OF TAX APPEALS
and COMMISSIONER OF INTERNAL Promulgated: COMPUTATION OF TAX
REVENUE,
Respondents. April 30, 2008 Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
x------------------------------------------------------------------------------------x Net Share in Conjugal Estate NIL
DECISION xxx
Net Taxable Estate NIL .
NACHURA, J.: Estate Tax Due NIL .[11]

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision[2] dated April 30, 1999 which affirmed the Decision[3] of the Court of
Tax Appeals (CTA) dated June 17, 1997.[4]
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G.
Umali issued Certification Nos. 2052[12] and 2053[13] stating that the taxes due
on the transfer of real and personal properties[14] of Jose had been fully paid
and said properties may be transferred to his heirs. Sometime in August 1990,
Justice Dizon passed away. Thus, on October 22, 1990, the probate court
appointed petitioner as the administrator of the Estate.[15]

Petitioner requested the probate court's authority to sell several properties

The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition
for the probate of his will[5] was filed with Branch 51 of the Regional Trial Court
(RTC) of Manila (probate court).[6] The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty.
Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). In a
letter[7] dated October 13, 1988, Justice Dizon informed respondent
Commissioner of the Bureau of Internal Revenue (BIR) of the special
proceedings for the Estate.
forming part of the Estate, for the purpose of paying its creditors, namely:
Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine et.
de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State Investment
House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a major
creditor of the Estate was not included, as it did not file a claim with the probate
court since it had security over several real estate properties forming part of
the Estate.[16]
However, on November 26, 1991, the Assistant Commissioner for Collection
of the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice
No. FAS-E-87-91-003269,[17] demanding the payment of P66,973,985.40 as Manila, docketed as Sp. Proc.
deficiency estate tax, itemized as follows: No. 87-42980 (pp. 107-108, BIR
records); "B" & "B-1
Deficiency Estate Tax- 1987
3. Pleading entitled "Compliance"
Estate tax P31,868,414.48 filed with the probate Court
25% surcharge- late filing 7,967,103.62 submitting the final inventory
late payment 7,967,103.62 of all the properties of the
Interest 19,121,048.68 deceased (p. 106, BIR records); "C"
Compromise-non filing 25,000.00
non payment 25,000.00 4. Attachment to Exh. "C" which
no notice of death 15.00 is the detailed and complete
no CPA Certificate 300.00 listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"
Total amount due & collectible P66,973,985.40[18]
5. Claims against the estate filed
by Equitable Banking Corp. with
In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the the probate Court in the amount
reconsideration of the said estate tax assessment. However, in her of P19,756,428.31 as of March 31,
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and 1988, together with the Annexes
reiterated that the estate is liable for the payment of P66,973,985.40 as to the claim (pp. 64-88, BIR records); "D" to "D-24"
deficiency estate tax. On May 3, 1994, petitioner received the letter of denial.
On June 2, 1994, petitioner filed a petition for review[21] before respondent 6. Claim filed by Banque de L'
CTA. Trial on the merits ensued. Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January 31,
As found by the CTA, the respective parties presented the following pieces of 1988 (pp. 262-265, BIR records); "E" to "E-3"
evidence, to wit:
7. Claim of the Manila Banking
In the hearings conducted, petitioner did not present testimonial evidence but Corporation (MBC) which as of
merely documentary evidence consisting of the following: November 7, 1987 amounts to
P65,158,023.54, but recomputed
Nature of Document (sic) Exhibits as of February 28, 1989 at a
total amount of P84,199,160.46;
1. Letter dated October 13, 1988 together with the demand letter
from Arsenio P. Dizon addressed from MBC's lawyer (pp. 194-197,
to the Commissioner of Internal BIR records); "F" to "F-3"
Revenue informing the latter of
the special proceedings for the 8. Demand letter of Manila Banking
settlement of the estate (p. 126, Corporation prepared by Asedillo,
BIR records); "A" Ramos and Associates Law Offices
addressed to Fernandez Hermanos,
2. Petition for the probate of the Inc., represented by Jose P.
will and issuance of letter of Fernandez, as mortgagors, in the
administration filed with the total amount of P240,479,693.17
Regional Trial Court (RTC) of as of February 28, 1989
(pp. 186-187, BIR records); "G" & "G-1"
9. Claim of State Investment
House, Inc. filed with the
RTC, Branch VII of Manila,
docketed as Civil Case No.
86-38599 entitled "State
Investment House, Inc.,
Plaintiff, versus Maritime
Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants,"
(pp. 200-215, BIR records); "H" to "H-16"
10. Letter dated March 14, 1990
of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"
11. Letter dated April 17, 1990
from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"
12. Estate Tax Return filed by
the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"
13. Certified true copy of the
Letter of Administration
issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S.
Dizon as Judicial Administrator
of the estate of Jose P.
Fernandez; (p. 102, CTA records)
and "L"
14. Certification of Payment of
estate taxes Nos. 2052 and
2053, both dated April 27, 1990,
issued by the Office of the
Regional Director, Revenue
Region No. 4-C, San Pablo
City, with attachments
(pp. 103-104, CTA records.). "M" to "M-5"
Respondent's [BIR] counsel presented on June 26, 1995 one witness in the
person of Alberto Enriquez, who was one of the revenue examiners who
conducted the investigation on the estate tax case of the late Jose P.
Fernandez. In the course of the direct examination of the witness, he identified
the following:
Documents/
Signatures BIR Record
1. Estate Tax Return prepared by
the BIR; p. 138
2. Signatures of Ma. Anabella
Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do-
3. Memorandum for the Commissioner,
dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144
4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do-
5. Signature of Ma. Anabella A.
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-
6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-
7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-
8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139 Nevertheless, the CTA did not fully adopt the assessment made by the BIR
and it came up with its own computation of the deficiency estate tax, to wit:
9. Signature of Alberto
Enriquez at the lower Conjugal Real Property P 5,062,016.00
portion of Exh. "3"; -do- Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
10. Signature of Ma. Anabella A. Less: Deductions 26,250,000.00
Abuloc at the lower Net Conjugal Estate P 11,834,015.93
portion of Exh. "3"; -do- Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
11. Signature of Raymond S. Add: Capital/Paraphernal
Gallardo at the lower Properties P44,652,813.66
portion of Exh. "3"; -do- Less: Capital/Paraphernal
Deductions 44,652,813.66
12. Signature of Maximino Net Taxable Estate P 50,569,821.62
V. Tagle at the lower ============
portion of Exh. "3"; -do-
Estate Tax Due P 29,935,342.97
13. Demand letter (FAS-E-87-91-00), Add: 25% Surcharge for Late Filing 7,483,835.74
signed by the Asst. Commissioner Add: Penalties for-No notice of death 15.00
for Collection for the Commissioner No CPA certificate 300.00
of Internal Revenue, demanding Total deficiency estate tax P 37,419,493.71
payment of the amount of =============
P66,973,985.40; and p. 169 exclusive of 20% interest from due date of its payment until full payment
thereof
14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22] [Sec. 283 (b), Tax Code of 1987].[25]

Thus, the CTA disposed of the case in this wise:

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this
Court's ruling in Vda. de Oate v. Court of Appeals,[23] the CTA opined that the
aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as
evidence for respondent, considering that respondent has been declared to
have waived the presentation thereof during the hearing on March 20, 1996,
still they could be considered as evidence for respondent since they were
properly identified during the presentation of respondent's witness, whose
testimony was duly recorded as part of the records of this case. Besides, the
documents marked as respondent's exhibits formed part of the BIR records of
the case.[24]
WHEREFORE, viewed from all the foregoing, the Court finds the petition
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
Fernandez are hereby ordered to pay to respondent the amount
of P37,419,493.71 plus 20% interest from the due date of its payment until full
payment thereof as estate tax liability of the estate of Jose P. Fernandez who
died on November 7, 1987.
SO ORDERED.[26]
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for
review.[27]
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with
the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not
deprive the BIR Commissioner of her authority to re-examine or re-assess the
said return filed on behalf of the Estate.[28]
On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA
denied in its Resolution[30] dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally
offered by the respondent BIR by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is contrary to the Rules of Court
and rulings of this Honorable Court;
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estate tax return prepared and filed by respondent
BIR knowing that the probate court appointed administrator of the estate of
Jose P. Fernandez had previously filed one as in fact, BIR Certification
Clearance Nos. 2052 and 2053 had been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
disallowing the valid and enforceable claims of creditors against the estate, as
lawful deductions despite clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
validating erroneous double imputation of values on the very same estate
properties in the estate tax return it prepared and filed which effectively bloated
the estate's assets.[31]
The petitioner claims that in as much as the valid claims of creditors against
the Estate are in excess of the gross estate, no estate tax was due; that the
lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine laid
down in Vda. de Oatehas already been abandoned in a long line of cases in
which the Court held that evidence not formally offered is without any weight
or value; that Section 34 of Rule 132 of the Rules on Evidence requiring a
formal offer of evidence is mandatory in character; that, while BIR's witness
Alberto Enriquez (Alberto) in his testimony before the CTA identified the pieces
of evidence aforementioned such that the same were marked, BIR's failure to
formally offer said pieces of evidence and depriving petitioner the opportunity
to cross-examine Alberto, render the same inadmissible in evidence; that
assuming arguendo that the ruling in Vda. de Oate is still applicable, BIR failed
to comply with the doctrine's requisites because the documents herein
remained simply part of the BIR records and were not duly incorporated in the
court records; that the BIR failed to consider that although the actual payments
made to the Estate creditors were lower than their respective claims, such
were compromise agreements reached long after the Estate's liability had
been settled by the filing of its estate tax return and the issuance of
BIR Certification Nos. 2052 and 2053; and that the reckoning date of the
claims against the Estate and the settlement of the estate tax due should be
at the time the estate tax return was filed by the judicial administrator and the
issuance of said BIR Certifications and not at the time the aforementioned
Compromise Agreements were entered into with the Estate's creditors.[32]
On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are
considered evidence even if the same were not formally offered; that the filing
of the estate tax return by the Estate and the issuance of BIR Certification Nos.
2052 and 2053 did not deprive the BIR of its authority to examine the return
and assess the estate tax; and that the factual findings of the CTA as affirmed
by the CA may no longer be reviewed by this Court via a petition for review. [33]
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the
admission of the pieces of evidence which were not formally offered by the
BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of
record. As cases filed before it are litigated de novo, party-litigants shall prove
every minute aspect of their cases. Indubitably, no evidentiary value can be
given the pieces of evidence submitted by the BIR, as the rules on
documentary evidence require that these documents must be formally offered
before the CTA.[34] Pertinent is Section 34, Rule 132 of the Revised Rules on
Evidence which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has
not been formally offered. The purpose for which the evidence is offered must
be specified.
The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated
this Court's previous rulings in People v. Napat-a[35] and People v. Mate[36] on
the admission and consideration of exhibits which were not formally offered
during the trial. Although in a long line of cases many of which were decided
after Vda. de Oate, we held that courts cannot consider evidence which has
not been formally offered,[37] nevertheless, petitioner cannot validly assume
that the doctrine laid down in Vda. de Oate has already been abandoned.
Recently, in Ramos v. Dizon,[38] this Court, applying the said doctrine, ruled
that the trial court judge therein committed no error when he admitted and
considered the respondents' exhibits in the resolution of the case,
notwithstanding the fact that the same
were not formally offered. Likewise, in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,[39] the Court made reference to said
doctrine in resolving the issues therein. Indubitably, the doctrine laid down
in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the
same must be formally offered. Corollarily, the mere fact that a particular
document is identified and marked as an exhibit does not mean that it has
already been offered as part of the evidence of a party. In Interpacific Transit,
Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction
between identification of documentary evidence and its formal offer as an
exhibit. We said that the first is done in the course of the trial and is
accompanied by the marking of the evidence as an exhibit while the second is
done only when the party rests its case and not before. A party, therefore, may
opt to formally offer his evidence if he believes that it will advance his cause or
not to do so at all. In the event he chooses to do the latter, the trial court is not
authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103
SCRA 484], we relaxed the foregoing rule and allowed evidence not formally
offered to be admitted and considered by the trial court provided the following
requirements are present, viz.: first, the same must have been duly identified
by testimony duly recorded and, second, the same must have been
incorporated in the records of the case.[40]
From the foregoing declaration, however, it is clear that Vda. de Oate is merely
an exception to the general rule. Being an exception, it may be applied only
when there is strict compliance with the requisites mentioned therein;
otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court
should prevail.
In this case, we find that these requirements have not been satisfied. The
assailed pieces of evidence were presented and marked during the trial
particularly when Alberto took the witness stand. Alberto identified these
pieces of evidence in his direct testimony.[41] He was also subjected to cross-
examination and re-cross examination by petitioner.[42] But Albertos account
and the exchanges between Alberto and petitioner did not sufficiently describe
the contents of the said pieces of evidence presented by the BIR. In fact,
petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be
summoned to testify, inasmuch as Alberto was incompetent to answer
questions relative to the working papers.[43] The lead examiner never testified.
Moreover, while Alberto's testimony identifying the BIR's evidence was duly
recorded, the BIR documents themselves were not incorporated in the records
of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist
at all in the instant case. In the aforementioned cases, the exhibits were
marked at the pre-trial proceedings to warrant the pronouncement that the
same were duly incorporated in the records of the case. Thus, we held
in Ramos:
In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked during the pre-
trial of the case thus, they have been incorporated into the records. Further,
Elpidio himself explained the contents of these exhibits when he was
interrogated by respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents'
exhibits were marked and admitted during the pre-trial stage as shown by the
Pre-Trial Order quoted earlier.[44]
While the CTA is not governed strictly by technical rules of evidence, [45] as
rules of procedure are not ends in themselves and are primarily intended as
tools in the administration of justice, the presentation of the BIR's evidence is
not a mere procedural technicality which may be disregarded considering that
it is the only means by which the CTA may ascertain and verify the truth of
BIR's claims against the Estate.[46] The BIR's failure to formally offer these
pieces of evidence, despite CTA's directives, is fatal to its cause.[47] Such
failure is aggravated by the fact that not even a single reason was advanced
by the BIR to justify such fatal omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to present its evidence[48] in
the hearing of February 21, 1996, but BIR's counsel failed to appear. [49] The
CTA denied petitioner's motion to consider BIR's presentation of evidence as
waived, with a warning to BIR that such presentation would be considered
waived if BIR's evidence would not be presented at the next hearing. Again, in
the hearing of March 20, 1996, BIR's counsel failed to appear. [50] Thus, in its
Resolution[51] dated March 21, 1996, the CTA considered the BIR to have
waived presentation of its evidence. In the same Resolution, the parties were
directed to file their respective memorandum. Petitioner complied but BIR
failed to do so.[52] In all of these proceedings, BIR was duly notified. Hence, in
this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v.
Parocha:[53]
A formal offer is necessary because judges are mandated to rest their findings
of facts and their judgment only and strictly upon the evidence offered by the
parties at the trial. Its function is to enable the trial judge to know the purpose
or purposes for which the proponent is presenting the evidence. On the other
hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino
v. Court of Appeals ruled that the formal offer of one's evidence is deemed
waived after failing to submit it within a considerable period of time. It explained
that the court cannot admit an offer of evidence made after a lapse of three (3)
months because to do so would "condone an inexcusable laxity if not non-
compliance with a court order which, in effect, would encourage needless
delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court
had reasonable ground to consider that petitioners had waived their right to
make a formal offer of documentary or object evidence. Despite several
extensions of time to make their formal offer, petitioners failed to comply with
their commitment and allowed almost five months to lapse before finally
submitting it. Petitioners' failure to comply with the rule on admissibility of
evidence is anathema to the efficient, effective, and expeditious dispensation
of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the
merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest
respect and will not be disturbed on appeal unless it is shown that the lower
courts committed gross error in the appreciation of facts. [54] In this case,
however, we find the decision of the CA affirming that of the CTA tainted with
palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have
been condoned. As a mode of extinguishing an obligation, [55] condonation or
remission of debt[56] is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the
creditor renounces the enforcement of the obligation, which is extinguished in
its entirety or in that part or aspect of the same to which the remission refers.
It is an essential characteristic of remission that it be gratuitous, that there is
no equivalent received for the benefit given; once such equivalent exists, the
nature of the act changes. It may become dation in payment when the creditor
receives a thing different from that stipulated; or novation, when the object or
principal conditions of the obligation should be changed; or compromise, when
the matter renounced is in litigation or dispute and in exchange of some
concession which the creditor receives.[57]
Verily, the second issue in this case involves the construction of Section
79[58] of the National Internal Revenue Code[59] (Tax Code) which provides for
the allowable deductions from the gross estate of the decedent. The specific
question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that
the said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors.
Claims against the estate, as allowable deductions from the gross estate under
Section 79 of the Tax Code, are basically a reproduction of the deductions
allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466
(CA 466), otherwise known as the National Internal Revenue Code of 1939,
and which was the first codification of Philippine tax laws. Philippine tax laws
were, in turn, based on the federal tax laws of the United States. Thus,
pursuant to established rules of statutory construction, the decisions of
American courts construing the federal tax code are entitled to great weight in
the interpretation of our own tax laws.[60]
It is noteworthy that even in the United States, there is some dispute as to
whether the deductible amount for a claim against the estate is fixed as of the
decedent's death which is the general rule, or the same should be adjusted to
reflect post-death developments, such as where a settlement between the
parties results in the reduction of the amount actually paid. [61] On one hand,
the U.S. court ruled that the appropriate deduction is the value that the claim
had at the date of the decedent's death.[62]Also, as held in Propstra v.
U.S., [63] where a lien claimed against the estate was certain and enforceable
on the date of the decedent's death, the fact that the claimant subsequently
settled for lesser amount did not preclude the estate from deducting the entire
amount of the claim for estate tax purposes. These pronouncements
essentially confirm the general principle that post-death developments are not are REVERSED and SET ASIDE. The Bureau of Internal Revenue's
material in determining the amount of the deduction. deficiency estate tax assessment against the Estate of Jose P. Fernandez is
hereby NULLIFIED. No costs.

On the other hand, the Internal Revenue Service (Service) opines that post- SO ORDERED.
death settlement should be taken into consideration and the claim should be
allowed as a deduction only to the extent of the amount actually
paid.[64] Recognizing the dispute, the Service released Proposed Regulations
in 2007 mandating that the deduction would be limited to the actual amount
paid.[65]

In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of
Appeals held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply
the Ithaca Trust date-of-death valuation principle to enforceable claims against
the estate. As we interpret Ithaca Trust, when the Supreme Court announced
the date-of-death valuation principle, it was making a judgment about the
nature of the federal estate tax specifically, that it is a tax imposed on the act
of transferring property by will or intestacy and, because the act on which the
tax is levied occurs at a discrete time, i.e., the instance of death, the net value
of the property transferred should be ascertained, as nearly as possible, as of
that time. This analysis supports broad application of the date-of-death
valuation rule.[67]

We express our agreement with the date-of-death valuation rule, made

pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States.[68] First. There is no law, nor do we discern any legislative intent in our
tax laws, which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be considered in
determining the net value of the estate. It bears emphasis that tax burdens are
not to be imposed, nor presumed to be imposed, beyond what the statute
expressly and clearly imports, tax statutes being construed strictissimi
juris against the government.[69] Any doubt on whether a person, article or
activity is taxable is generally resolved against taxation.[70] Second. Such
construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death.[71] Therefore,
the claims existing at the time of death are significant to, and should be made
the basis of, the determination of allowable deductions.

WHEREFORE, the instant Petition is GRANTED. Accordingly, the

assailed Decision dated April 30, 1999 and the Resolution dated November 3,
1999 of the Court of Appeals in CA-G.R. S.P. No. 46947
G.R. No. 120880 June 5, 1997
FERDINAND R. MARCOS II, petitioner,
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again
assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the
Decision 1of the Court of Appeals dated November 29, 1994 in CA-G.R. SP
No. 31363, where the said court held:
In view of all the foregoing, we rule that the deficiency
income tax assessments and estate tax assessment, are
already final and (u)nappealable-and-the subsequent levy of
real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the
National Internal Revenue Code. This summary tax remedy
is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not
affected or precluded by the pendency of any other tax
remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby
rendered DISMISSING the petition for certiorari with prayer
for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED.
More than seven years since the demise of the late Ferdinand E. Marcos, the
former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are
still unresolved, the latter issue being now before this Court for resolution.
Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the
decedent, questions the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy
of Levy on Real Properties, estate and income tax delinquencies upon the
estate and properties of his father, despite the pendency of the proceedings
on probate of the will of the late president, which is docketed as Sp. Proc.
No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition
for Certiorari and Prohibition with an application for writ of preliminary
injunction and/or temporary restraining order on June 28, 1993, seeking to —
I. Annul and set aside the Notices of Levy on real property
dated February 22, 1993 and May 20, 1993, issued by
respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26,
1993;
III. Enjoin the Head Revenue Executive Assistant Director II
(Collection Service), from proceeding with the Auction of the
real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its
Decision 2 on November 29, 1994, ruling that the deficiency assessments for
estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable,
and may thus be enforced by the summary remedy of levying upon the
properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.
WHEREFORE, premises considered judgment is hereby
rendered DISMISSING the petition for Certiorari with prayer
for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED.
Unperturbed, petitioner is now before us assailing the validity of the appellate
court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN
RULING THAT THE SUMMARY TAX REMEDIES
RESORTED TO BY THE GOVERNMENT ARE NOT
AFFECTED AND PRECLUDED BY THE PENDENCY OF
THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF
THE LATE PRESIDENT'S ALLEGED WILL. TO THE
CONTRARY, THIS PROBATE PROCEEDING PRECISELY
PLACED ALL PROPERTIES WHICH FORM PART OF THE
LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF
THE PROBATE COURT TO THE EXCLUSION OF ALL
OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN
SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OF PETITIONER AND HIS PARENTS
HAD ALREADY BECOME FINAL AND UNAPPEALABLE,
THERE WAS NO NEED TO GO INTO THE MERITS OF
THE GROUNDS CITED IN THE PETITION. INDEPENDENT
OF WHETHER THE TAX ASSESSMENTS HAD ALREADY
BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND
METHOD IN WHICH TAX COLLECTION IS SOUGHT TO
BE ENFORCED BY RESPONDENTS COMMISSIONER
AND DE GUZMAN. THUS, RESPONDENT COURT
SHOULD HAVE FAVORABLY CONSIDERED THE MERITS
OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property
were issued beyond the period provided in
the Revenue Memorandum Circular No. 38-
68.
(2) [a] The numerous pending court cases
questioning the late President's ownership
or interests in several properties (both
personal and real) make the total value of
his estate, and the consequent estate tax
due, incapable of exact pecuniary
determination at this time. Thus,
respondents' assessment of the estate tax
and their issuance of the Notices of Levy
and Sale are premature, confiscatory and
oppressive.
[b] Petitioner, as one of the late President's
compulsory heirs, was never notified, much
less served with copies of the Notices of
Levy, contrary to the mandate of Section
213 of the NIRC. As such, petitioner was
never given an opportunity to contest the
Notices in violation of his right to due
process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE
PETITION, RESPONDENT COURT MANIFESTLY ERRED
IN RULING THAT IT HAD NO POWER TO GRANT
INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF
THE NIRC NOTWITHSTANDING, COURTS POSSESS THE
POWER TO ISSUE A WRIT OF PRELIMINARY
INJUNCTION TO RESTRAIN RESPONDENTS
COMMISSIONER'S AND DE GUZMAN'S ARBITRARY
METHOD OF COLLECTING THE ALLEGED DEFICIENCY
ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby
adopted:
On September 29, 1989, former President Ferdinand Marcos
died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to
conduct investigations and examinations of the tax liabilities
and obligations of the late president, as well as that of his
family, associates and "cronies". Said audit team concluded
its investigation with a Memorandum dated July 26, 1991.
The investigation disclosed that the Marcoses failed to file a
written notice of the death of the decedent, an estate tax
returns [sic], as well as several income tax returns covering
the years 1982 to 1986, — all in violation of the National
Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs.
Imelda R. Marcos before the Regional Trial of Quezon City
for violations of Sections 82, 83 and 84 (has penalized under
Sections 253 and 254 in relation to Section 252 — a & b) of
the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the
preparation and filing of the Estate Tax Return for the estate
of the late president, the Income Tax Returns of the Spouses
Marcos for the years 1985 to 1986, and the Income Tax
Returns of petitioner Ferdinand "Bongbong" Marcos II for the
years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1)
Deficiency estate tax assessment no. FAC-2-89-91-002464
(against the estate of the late president Ferdinand Marcos in
the amount of P23,293,607,638.00 Pesos); (2) Deficiency
income tax assessment no. FAC-1-85-91-002452 and
Deficiency income tax assessment no. FAC-1-86-91-002451
(against the Spouses Ferdinand and Imelda Marcos in the
amounts of P149,551.70 and P184,009,737.40 representing
deficiency income tax for the years 1985 and 1986); (3)
Deficiency income tax assessment nos. FAC-1-82-91-
002460 to FAC-1-85-91-002463 (against petitioner
Ferdinand "Bongbong" Marcos II in the amounts of P258.70
pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60
Pesos representing his deficiency income taxes for the years
1982 to 1985).
The Commissioner of Internal Revenue avers that copies of
the deficiency estate and income tax assessments were all
personally and constructively served on August 26, 1991 and
September 12, 1991 upon Mrs. Imelda Marcos (through her
caretaker Mr. Martinez) at her last known address at No. 204
Ortega St., San Juan, M.M. (Annexes "D" and "E" of the
Petition). Likewise, copies of the deficiency tax assessments
issued against petitioner Ferdinand "Bongbong" Marcos II
were also personally and constructively served upon him
(through his caretaker) on September 12, 1991, at his last
known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the
Petition). Thereafter, Formal Assessment notices were
served on October 20, 1992, upon Mrs. Marcos c/o
petitioner, at his office, House of Representatives, Batasan
Pambansa, Quezon City. Moreover, a notice to Taxpayer
inviting Mrs. Marcos (or her duly authorized representative or
counsel), to a conference, was furnished the counsel of Mrs.
Marcos, Dean Antonio Coronel — but to no avail.
The deficiency tax assessments were not protested
administratively, by Mrs. Marcos and the other heirs of the
late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-
two notices of levy on real property against certain parcels of
land owned by the Marcoses — to satisfy the alleged estate
tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property
were issued for the purpose of satisfying the deficiency
income taxes.
On May 26, 1993, additional four (4) notices of Levy on real
property were again issued. The foregoing tax remedies
were resorted to pursuant to Sections 205 and 213 of the
National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty.
Loreto Ata (counsel of herein petitioner) calling the attention
of the BIR and requesting that they be duly notified of any
action taken by the BIR affecting the interest of their client
Ferdinand "Bongbong" Marcos II, as well as the interest of
the late president — copies of the aforesaid notices were,
served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record,
"De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law
Office".
Notices of sale at public auction were posted on May 26,
1993, at the lobby of the City Hall of Tacloban City. The
public auction for the sale of the eleven (11) parcels of land
took place on July 5, 1993. There being no bidder, the lots
were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos
II filed the instant petition for certiorari and prohibition under
Rule 65 of the Rules of Court, with prayer for temporary
restraining order and/or writ of preliminary injunction.
It has been repeatedly observed, and not without merit, that the enforcement
of tax laws and the collection of taxes, is of paramount importance for the
sustenance of government. Taxes are the lifeblood of the government and
should be collected without unnecessary hindrance. However, 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. 3
Whether or not the proper avenues of assessment and collection of the said
tax obligations were taken by the respondent Bureau is now the subject of
the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of
properties of the late President Marcos effected by the BIR are null and void
for disregarding the established procedure for the enforcement of taxes due
upon the estate of the deceased. The case of Domingo vs. Garlitos 4 is
specifically cited to bolster the argument that "the ordinary procedure by
which to settle claims of indebtedness against the estate of a deceased,
person, as in an inheritance (estate) tax, is for the claimant to present a claim
before the probate court so that said court may order the administrator to pay
the amount therefor." This remedy is allegedly, exclusive, and cannot be
effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded
from denying a request by the government for the immediate payment of
taxes, and should order the payment of the same only within the period fixed
by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The
Administratrix of the Estate of Echarri (67 Phil 502), where it was held that:
The case of Pineda vs. Court of First Instance of Tayabas
and Collector of Internal Revenue (52 Phil 803), relied upon
by the petitioner-appellant is good authority on the
proposition that the court having control over the
administration proceedings has jurisdiction to entertain the
claim presented by the government for taxes due and to
order the administrator to pay the tax should it find that the
assessment was proper, and that the tax was legal, due and
collectible. And the rule laid down in that case must be
understood in relation to the case of Collector of Customs
vs. Haygood, supra., as to the procedure to be followed in a
given case by the government to effectuate the collection of
the tax. Categorically stated, where during the pendency of
judicial administration over the estate of a deceased person
a claim for taxes is presented by the government, the court
has the authority to order payment by the administrator; but,
in the same way that it has authority to order payment or
satisfaction, it also has the negative authority to deny the
same. While there are cases where courts are required to
perform certain duties mandatory and ministerial in
character, the function of the court in a case of the present
character is not one of them; and here, the court cannot be
an organism endowed with latitude of judgment in one
direction, and converted into a mere mechanical contrivance
in another direction.
On the other hand, it is argued by the BIR, that the state's authority to collect
internal revenue taxes is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes over
the same. According to the respondent, claims for payment of estate and
income taxes due and assessed after the death of the decedent need not be
presented in the form of a claim against the estate. These can and should be
paid immediately. The probate court is not the government agency to decide
whether an estate is liable for payment of estate of income taxes. Well-
settled is the rule that the probate court is a court with special and limited
jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual, is
not a trifling thing. The court's jurisdiction, once invoked, and made effective,
cannot be treated with indifference nor should it be ignored with impunity by
the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication; 5 to determine who are the heirs of
the decedent; 6 the recognition of a natural child; 7 the status of a woman
claiming to be the legal wife of the decedent; 8 the legality of disinheritance of
an heir by the testator; 9 and to pass upon the validity of a waiver of
hereditary rights. 10
The pivotal question the court is tasked to resolve refers to the authority of
the Bureau of Internal Revenue to collect by the summary remedy of levying
upon, and sale of real properties of the decedent, estate tax deficiencies,
without the cognition and authority of the court sitting in probate over the
supposed will of the deceased.
The nature of the process of estate tax collection has been described as
follows:
Strictly speaking, the assessment of an inheritance tax does
not directly involve the administration of a decedent's estate,
although it may be viewed as an incident to the complete
settlement of an estate, and, under some statutes, it is made
the duty of the probate court to make the amount of the
inheritance tax a part of the final decree of distribution of the
estate. It is not against the property of decedent, nor is it a
claim against the estate as such, but it is against the interest
or property right which the heir, legatee, devisee, etc., has in
the property formerly held by decedent. Further, under some
statutes, it has been held that it is not a suit or controversy
between the parties, nor is it an adversary proceeding
between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held
that the hearing and determination of the cash value of the
assets and the determination of the tax are adversary
 proceedings. The proceeding has been held to be
necessarily a proceeding in rem. 11
In the Philippine experience, the enforcement and collection of estate tax, is
executive in character, as the legislature has seen it fit to ascribe this task to
the Bureau of Internal Revenue. Section 3 of the National Internal Revenue
Code attests to this:
Sec. 3. Powers and duties of the Bureau. — The powers and
duties of the Bureau of Internal Revenue shall comprehend
the assessment and collection of all national internal revenue
taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith,
including the execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the ordinary courts.
Said Bureau shall also give effect to and administer the
supervisory and police power conferred to it by this Code or
other laws.
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal
treatment of claims for taxes charged against the estate of the decedent.
Such taxes, we said, were exempted from the application of the statute of
non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the
government. Vectigalia nervi sunt rei publicae — taxes are the sinews of the
state.
Taxes assessed against the estate of a deceased person,
after administration is opened, 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.
Such liberal treatment of internal revenue taxes in the probate proceedings
extends so far, even to allowing the enforcement of tax obligations against
the heirs of the decedent, even after distribution of the estate's properties.
Claims for taxes, whether assessed before or after the death
of the deceased, can be collected from the heirs even after
the distribution of the properties of the decedent. They are
exempted from the application of the statute of non-claims.
The heirs shall be liable therefor, in proportion to their share
in the inheritance. 13
Thus, the Government has two ways of collecting the taxes
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. Another remedy, pursuant to the
lien created by Section 315 of the Tax Code upon all
property and rights to property belong 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. (Commissioner of Internal
Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate
taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement
court which is bidden not to authorize the executor or judicial administrator of
the decedent's estate to deliver any distributive share to any party interested
in the estate, unless it is shown a Certification by the Commissioner of
Internal Revenue that the estate taxes have been paid. This provision
disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper
administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
Sec. 229. Protesting of assessment. — When the
Commissioner of Internal Revenue 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 Commissioner shall issue an
assessment based on his findings.
 Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation in such form
and manner as may be prescribed by implementing
regulations within (30) days from receipt of the assessment;
otherwise, the assessment shall become final and
unappealable.
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 Court of Tax Appeals within
thirty (30) days from receipt of said decision; otherwise, the
decision shall become final, executory and demandable. (As
inserted by P.D. 1773)
Apart from failing to file the required estate tax return within the time required
for the filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left
by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have
been validly undertaken by the Government, collection thereof may have
been done in violation of the law. Thus, the manner and method in which the
latter is enforced may be questioned separately, and irrespective of the
finality of the former, because the Government does not have the unbridled
discretion to enforce collection without regard to the clear provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No. 38-
68, implementing Sections 318 and 324 of the old tax code (Republic Act
5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:
. . . the Notices of Levy on Real Property (Annexes O to NN
of Annex C of this Petition) in satisfaction of said
assessments were still issued by respondents well beyond
the period mandated in Revenue Memorandum Circular No.
38-68. These Notices of Levy were issued only on 22
February 1993 and 20 May 1993 when at least seventeen
(17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of
distraint of personal property were first issued by
respondents, the latter should have complied with Revenue
Memorandum Circular No. 38-68 and issued these Notices
of Levy not earlier than three (3) months nor later than six (6)
months from 12 September 1991. In accordance with the
Circular, respondents only had until 12 March 1992 (the last
day of the sixth month) within which to issue these Notices of
Levy. The Notices of Levy, having been issued beyond the
period allowed by law, are thus void and of no effect. 15
We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through
the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Article 223 of
the NIRC, which pertinently provides:
Sec. 223. Exceptions as to a 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 (10) years
after the discovery of the falsity, fraud, or
omission: Provided, That, in a fraud assessment which has
become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for
the collection thereof.
xxx xxx xxx
(c) Any internal revenue tax which has been assessed within
the period of limitation above prescribed, may be collected
by distraint or levy or by a proceeding in court within three
years following the assessment of the tax.
xxx xxx xxx
The omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the petitioner's
cause, as under the above-cited provision, in case of failure to file a return,
the tax may be assessed at any time within ten years after the omission, and
any tax so assessed may be collected by levy upon real property within three
years following the assessment of the tax. Since the estate tax assessment
had become final and unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is now no reason why
the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue
paved in Section 229 of the NIRC on protests on assessments of internal
revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning
the late president's ownership or interests in several properties (both real and
personal) make the total value of his estate, and the consequent estate tax
due, incapable of exact pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their issuance of the Notices
of Levy and sale are premature and oppressive." He points out the pendency
of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by
the government to question the ownership and interests of the late President
in real and personal properties located within and outside the Philippines.
Petitioner, however, omits to allege whether the properties levied upon by the
BIR in the collection of estate taxes upon the decedent's estate were among
those involved in the said cases pending in the Sandiganbayan. Indeed, the
court is at a loss as to how these cases are relevant to the matter at issue.
The mere fact that the decedent has pending cases involving ill-gotten wealth
does not affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from
the findings of the Department of Justice's Panel of Prosecutors as per its
resolution of 20 September 1991. Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate
of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment
of estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau
of Internal Revenue, 16 whose determinations and assessments are
presumed correct and made in good faith. 17 The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does
not appear to have been arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the
judicial affirmance of said assessment. 18 In this instance, petitioner has not
pointed out one single provision in the Memorandum of the Special Audit
Team which gave rise to the questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes charged. But
mere rhetoric cannot supply the basis for the charge of impropriety of the
assessments made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with
the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext
of grave abuse of discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the established institutions for
governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the
main, Certiorari may not be used as a substitute for a lost appeal or
remedy. 19 This judicial policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the
petitioner, we find the respondent appellate court's pronouncements sound
and resilient to petitioner's attacks.
Anent grounds 3(b) and (B) — both alleging/claiming lack of
notice — We find, after considering the facts and
circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments,
levy and sale, sent to herein petitioner Ferdinand
"Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments
personally given to the caretaker of Mrs. Marcos at the
latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment
personally given to the caretaker of petitioner also at his last
known address on September 12, 1991 — the subsequent
notices given thereafter could no longer be ignored as they
were sent at a time when petitioner was already here in the
Philippines, and at a place where said notices would surely
be called to petitioner's attention, and received by
responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were
served upon Mrs. Marcos c/o the petitioner, at his office,
House of Representatives, Batasan Pambansa, Q.C.
(Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to
 taxpayer dated October 8, 1992 inviting Mrs. Marcos to a liability arose, or if there be none, to the occupant of the
conference relative to her tax liabilities, was furnished the property in question.
counsel of Mrs. Marcos — Dean Antonio Coronel (Annex
"B", p. 211, ibid). Thereafter, copies of Notices were also xxx xxx xxx
served upon Mrs. Imelda Marcos, the petitioner and their
counsel "De Borja, Medialdea, Ata, Bello, Guevarra and
The foregoing notwithstanding, the record shows that notices of warrants of
Serapio Law Office", on April 7, 1993 and June 10, 1993.
distraint and levy of sale were furnished the counsel of petitioner on April 7,
Despite all of these Notices, petitioner never lifted a finger to 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his
protest the assessments, (upon which the Levy and sale of office at the Batasang Pambansa. 21 We cannot therefore, countenance
properties were based), nor appealed the same to the Court
petitioner's insistence that he was denied due process. Where there was an
of Tax Appeals.
opportunity to raise objections to government action, and such opportunity
was disregarded, for no justifiable reason, the party claiming oppression then
There being sufficient service of Notices to herein petitioner becomes the oppressor of the orderly functions of government. He who
(and his mother) and it appearing that petitioner continuously comes to court must come with clean hands. Otherwise, he not only taints his
ignored said Notices despite several opportunities given him name, but ridicules the very structure of established authority.
to file a protest and to thereafter appeal to the Court of Tax
Appeals, — the tax assessments subject of this case, upon
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition.
which the levy and sale of properties were based, could no
The Decision of the Court of Appeals dated November 29, 1994 is hereby
longer be contested (directly or indirectly) via this instant AFFIRMED in all respects.
petition for certiorari. 20
SO ORDERED.
Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has
an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.

We do not agree. In the case of notices of levy issued to satisfy the

delinquent estate tax, the delinquent taxpayer is the Estate of the decedent,
and not necessarily, and exclusively, the petitioner as heir of the deceased.
In the same vein, in the matter of income tax delinquency of the late
president and his spouse, petitioner is not the taxpayer liable. Thus, it follows
that service of notices of levy in satisfaction of these tax delinquencies upon
the petitioner is not required by law, as under Section 213 of the NIRC, which
pertinently states:

xxx xxx xxx

. . . Levy shall be effected by writing upon said certificate a

description of the property upon which levy is made. At the
same time, written notice of the levy shall be mailed to or
served upon the Register of Deeds of the province or city
where the property is located and upon the delinquent
taxpayer, or if he be absent from the Philippines, to his agent
or the manager of the business in respect to which the
Republic of the Philippines 1% monthly interest from
SUPREME COURT November 30, 1953 to
Manila April 15, 1957 720.77
Compromise for late filing 80.00
EN BANC
Compromise for late
payment 40.00
G.R. No. L-22734 September 15, 1967
Total amount due P2,707.44
COMMISSIONER OF INTERNAL REVENUE, petitioner, ===========
vs.
Additional residence tax for P14.50
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO 2.
1945 ===========
PINEDA, respondent.
3. Real Estate dealer's tax for the
Office of the Solicitor General for petitioner. fourth quarter of 1946 and the P207.50
Manuel B. Pineda for and in his own behalf as respondent. whole year of 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."
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 P1,779.69
Add: 5% surcharge 88.98
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 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
 P135.8
1945
3
1946 436.95
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.1awphîl.nèt
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 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, 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, 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 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.
G.R. No. 149909 October 11, 2007
TERESA, MARIA CHRISTINA, GENARO III, MARIA LUISA, CRISPIN JR.,
VINCENT and RASCHEL, all surnamed GABRIEL, petitioners,
vs.
HON. COURT OF APPEALS, EMMA, CORAZON and RAMONA, all
surnamed RONQUILLO, respondents.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari,1 questioning
Resolutions2 dated May 25, 2001 and September 11, 2001 of the Court of
Appeals (CA) in CA-G.R. SP No. 64127, entitled "TERESA, MARIA
CHRISTINA, GENARO III, MARIA LUISA, CRISPIN JR., VINCENT and
RASCHEL, all surnamed GABRIEL v. HON. REGIONAL TRIAL COURT OF
PASIG CITY, EMMA, CORAZON and RAMONA, all surnamed RONQUILLO."
Petitioners are the heirs of the late Atty. Crispin F. Gabriel (Atty. Gabriel), who
was designated as the sole executor of the last will and testament of the
deceased Genaro G. Ronquillo (Ronquillo) whose will was probated in 1978
before the Regional Trial Court of Pasig City in Sp. Proc. No. 8857.3 On the
other hand, respondents are the heirs of the testator Ronquillo.
On July 26, 1993, the probate court issued an Order4 fixing the amount of
compensation of Atty. Gabriel as executor in the amount of Php426,000.00 as
of December 1992, plus Php3,000.00 a month thereafter until the final
liquidation of the estate. At the time of the filing of the present petition, there
has been no final liquidation of the Ronquillo estate. Upon the death of Atty.
Gabriel on March 19, 1998, his uncollected compensation reached
Php648,000.00.5
While still acting as executor, Atty. Gabriel, with prior approval of the probate
court, sold three parcels of land situated at Quiapo, Manila to William Lee for
Php18,000,000.00.6 Due to certain disagreements between Atty. Gabriel and
the respondents, a portion of the proceeds in the amount of Php1,422,000.00
was deposited with the probate court. The said sum included the
compensation of Atty. Gabriel. Allegedly, to prevent the release of the
compensation, respondents filed a notice with the probate court that there was
a pending tax investigation with the Bureau of Internal Revenue concerning
unpaid taxes of the estate from the sale of the land.7
On April 3, 2001, petitioners filed a Petition for Certiorari, Prohibition and
Mandamus with Preliminary Injunction and Prayer for Temporary Restraining
Order in the CA.8 Petitioners questioned the twin orders of the probate court,
particularly (1) the court's refusal to order the release of the amount of
Php648,000.00 representing the compensation of Atty. Gabriel as the executor
of the last will and testament; and (2) the court's insistence to hear
respondents' allegation of non-payment of taxes resulting from the sale of the
properties located at Quiapo, Manila, for which reason the compensation of
Atty. Gabriel should not be released until resolution by the probate court on
this matter.9
In the meantime, the parties came to an agreement to divide the amount
deposited in court. Petitioners received Php284,400.00, and thus, there still
remained a balance of Php363,600.00.10
On May 25, 2001, the first questioned Resolution11 was rendered by the CA,
the pertinent portion of which reads:
An examination of the instant petition for certiorari, prohibition and
mandamus reveals that:
1. The verification and certification of non-forum shopping was
signed by only one (Teresa S. Gabriel) of the seven
petitioners, and there is no showing or proof that she was duly
authorized to sign on behalf of her co-petitioners; and
2. There is no written explanation why copies of the petition
had to be furnished the respondents by way of registered mail
rather than through the preferred personal service.
WHEREFORE, premises considered, for being insufficient in form and
substance pursuant to Section 1, 2 & 3, par. 2, Rule 65, in relation to
Section 3 pars. 3 & 5, Rule 46 and Section 11, Rule 13 both of the
1997 Rules of Civil Procedure, the petition for certiorari, prohibition
and mandamus is hereby DENIED DUE COURSE and
accordingly DISMISSED.
SO ORDERED.12
On September 11, 2001, the second assailed Resolution13 was issued by the
CA, the relevant portion of which reads:
For failure of petitioners to cure the defects that resulted in the
dismissal of their petition, per Resolution dated May 25, 2001, the
"Motion for Reconsideration" of the Resolution dated June 6, 2001, is
hereby DENIED for lack of merit.
 SO ORDERED.
Petitioners presented the following issues in their Memorandum: 1) whether
there was substantial compliance with the certification of non-forum shopping
before the CA; 2) whether the written explanation of why personal service was
not done is a mandatory requirement in pleadings filed before the CA; 3)
whether the remaining balance of compensation of Atty. Gabriel should be
released; and 4) whether the probate court can take cognizance of the tax
controversies.14
The petition is devoid of merit. The CA committed no reversible error in issuing
the assailed Resolutions.
On the first issue regarding the certification against forum shopping, the Rules
of Court provides that the plaintiff or the principal party shall certify under oath
in the complaint or other initiatory pleading the requirements as mandated
under Section 5, Rule 7.15 The said requirements are mandatory, and
therefore, strict compliance thereof is necessary for the proper administration
of justice.
In the petition filed by the petitioners in the CA, the verification and the
certification against forum shopping were signed by Teresa Gabriel alone,
albeit there were seven petitioners therein.16 In their
Memorandum,17 petitioners proffer the view that the signature of Teresa, being
the mother of the rest of the petitioners, should be considered as substantial
compliance, for she was willing to take the risk of contempt and perjury should
she be found lying. According to petitioners, what is fatal is the utter lack of
signatory in the certification.18
In numerous decisions,19 this Court has been consistent in stringently
enforcing the requirement of verification20and certification of non-forum
shopping. When there is more than one petitioner, a petition signed solely by
one of them is defective, unless he was authorized by his co-parties to
represent them and to sign the certification. The attestation contained in the
certification of non-forum shopping requires personal knowledge by the party
who executed the same.21
In the instant case, the records are bereft of anything that would show that
Teresa was authorized by the other petitioners to file the petition. In the
certification against forum shopping, the principal party is required to certify
under oath as to the matters contained therein and failure to comply with the
requirements shall not be curable by amendment but shall be a ground for the
dismissal of the case. Personal knowledge of the party executing the same is
important and a similar requirement applies to the verification. Thus, the
verification and certification signed only by Teresa are utterly defective, and it
is within the prerogative of the court to dismiss the petition.
As aptly stated in Ortiz v. CA,22 substantial compliance will not suffice in a
matter involving strict observance. The attestation contained in the certification
of non-forum shopping requires personal knowledge by the party who
executed the same. To deserve the Court's consideration, petitioners must
show reasonable cause for failure to personally sign the certification. They
must convince the Court that the outright dismissal of the petition would defeat
the administration of justice. In this case, the petitioners did not give any
explanation to warrant their exemption from the strict application of the rule.
Downright disregard of the rules cannot justly be rationalized by harking on the
policy of liberal construction.23
On the second issue, the written explanation why another mode of service was
resorted to is a mandatory and indispensable requirement in pleadings or
papers filed before all the courts of the land. Parties must exert their best to
effect personal service. The Rules of Court24 provides that personal service of
petitions and other pleadings is the general rule, while a resort to other modes
of service and filing is the exception.25 Strictest compliance with Section 11 of
Rule 13 is mandated by the Court,26 and noncompliance therewith is a ground
for the denial of the petition or the expulsion of the pleading from the records.
This Court will no longer dwell on the third issue because it is a matter that
should be ventilated before the probate court.
As to the fourth issue, the probate court can rightfully take cognizance of the
unpaid taxes of the estate of the deceased; if the estate is found liable, the
probate court has the discretion to order the payment of the said taxes. 27
Finally, petitioners should bear in mind that the right to appeal is not a natural
right or a part of due process. It is merely a statutory privilege, and may be
exercised only in the manner and in accordance with the provisions of the law.
The party who seeks to avail of the remedy of appeal must comply with the
requirements of the rules; otherwise, the appeal is lost. Rules of procedure are
required to be followed, except only when, for the most persuasive of reasons,
they may be relaxed to relieve the litigant of an injustice not commensurate
with the degree of his thoughtlessness in not complying with the procedure
prescribed.28
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of
merit. The Resolutions of the Court of Appeals dated May 25, 2001 and
September 11, 2001 are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
[G.R. No. 120721. February 23, 2005]
MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA,
AVELINO V. CRUZ, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS, respondents.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Civil Procedure, assailing the decision of the Court of Appeals in CA G.R. SP
No. 27134, entitled Comissioner of Internal Revenue v. Manuel G. Abello, Jose
C. Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals,
which reversed and set aside the decision of the Court of Tax Appeals (CTA),
ordering the Commissioner of Internal Revenue (Commissioner) to withdraw
his letters dated April 21, 1988 and August 4, 1988 assessing donors taxes
and to desist from collecting donors taxes from petitioners.
During the 1987 national elections, petitioners, who are partners in the
Angara, Abello, Concepcion, Regala and Cruz (ACCRA) law firm,
contributed P882,661.31 each to the campaign funds of Senator Edgardo
Angara, then running for the Senate. In letters dated April 21, 1988, the Bureau
of Internal Revenue (BIR) assessed each of the petitioners P263,032.66 for
their contributions. On August 2, 1988, petitioners questioned the assessment
through a letter to the BIR. They claimed that political or electoral contributions
are not considered gifts under the National Internal Revenue Code (NIRC),
and that, therefore, they are not liable for donors tax. The claim for exemption
was denied by the Commissioner.[1]
On September 12, 1988, petitioners filed a petition for review with the
CTA, which was decided on October 7, 1991 in favor of the petitioners. As
aforestated, the CTA ordered the Commissioner to desist from collecting
donors taxes from the petitioners.[2]
On appeal, the Court of Appeals reversed and set aside the CTA decision
on April 20, 1994.[3] The appellate Court ordered the petitioners to pay donors
tax amounting to P263,032.66 each, reasoning as follows:
The National Internal Revenue Code, as amended, provides:
Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected,
and paid upon the transfer by any person, resident, or non-resident, of the
property by gift, a tax, computed as provided in Section 92. (b) The tax shall
apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.
Pursuant to the above-quoted provisions of law, the transfer of property by
gift, whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible, is
subject to donors or gift tax.
A gift is generally defined as a voluntary transfer of property by one to
another without any consideration or compensation therefor (28 C.J. 620;
Santos vs. Robledo, 28 Phil. 250).
In the instant case, the contributions are voluntary transfers of property in the
form of money from private respondents to Sen. Angara, without
considerations therefor. Hence, they squarely fall under the definition of
donation or gift.
As correctly pointed out by the Solicitor General:
The fact that the contributions were given to be used as campaign funds of
Sen. Angara does not affect the character of the fund transfers as donation
or gift. There was thereby no retention of control over the disposition of the
contributions. There was simply an indication of the purpose for which they
were to be used. For as long as the contributions were used for the purpose
for which they were intended, Sen. Angara had complete and absolute power
to dispose of the contributions. He was fully entitled to the economic benefits
of the contributions.
Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on
the transfer of property by gift.
The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988,
which reads:
Political Contributions. For internal revenue purposes, political contributions
in the Philippines are considered taxable gift rather than taxable income. This
is so, because a political contribution is indubitably not intended by the giver
or contributor as a return of value or made because of any intent to repay
another what is his due, but bestowed only because of motives of
philanthropy or charity. His purpose is to give and to bolster the morals, the
winning chance of the candidate and/or his party, and not to employ or buy.
On the other hand, the recipient-donee does not regard himself as
exchanging his services or his product for the money contributed. But more
importantly he receives financial advantages gratuitously.
When the U.S. gift tax law was adopted in the Philippines (before May 7,
1974), the taxability of political contributions was, admittedly, an unsettled
issue; hence, it cannot be presumed that the Philippine Congress then had
intended to consider or treat political contributions as non-taxable gifts when
it adopted the said gift tax law. Moreover, well-settled is the rule that the
Philippines need not necessarily adopt the present rule or construction in the
United States on the matter. Generally, statutes of different states relating to
the same class of persons or things or having the same purposes are not
considered to be in pari materia because it cannot be justifiably presumed
that the legislature had them in mind when enacting the provision being
construed. (5206, Sutherland, Statutory Construction, p. 546.) Accordingly, in
the absence of an express exempting provision of law, political contributions
in the Philippines are subject to the donors gift tax. (cited in National Internal
Revenue Code Annotated by Hector S. de Leon, 1991 ed., p. 290).
In the light of the above BIR Ruling, it is clear that the political contributions
of the private respondents to Sen. Edgardo Angara are taxable gifts. The
vagueness of the law as to what comprise the gift subject to tax was made
concrete by the above-quoted BIR ruling. Hence, there is no doubt that
political contributions are taxable gifts.[4]
Petitioners filed a motion for reconsideration, which the Court of Appeals
denied in its resolution of June 16, 1995.[5]
Petitioners thereupon filed the instant petition on July 26, 1995. Raised
are the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
FAILED TO CONSIDER IN ITS DECISION THE PURPOSE
BEHIND THE ENACTMENT OF OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE INTENTION OF THE GIVERS IN
DETERMINING WHETHER OR NOT THE PETITIONERS
POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
FAILED TO CONSIDER THE DEFINITION OF AN
ELECTORAL CONTRIBUTION UNDER THE OMNIBUS
ELECTION CODE IN DETERMINING WHETHER OR NOT
POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE ADMINISTRATIVE PRACTICE OF
CLOSE TO HALF A CENTURY OF NOT SUBJECTING
POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE AMERICAN JURISPRUDENCE RELIED
UPON BY THE COURT OF TAX APPEALS AND BY THE
PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
APPLYING AMERICAN JURISPRUDENCE ON THE
GROUND THAT THIS WAS NOT KNOWN AT THE TIME THE
PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN
RESOLVING THE CASE MAINLY ON THE BASIS OF A
RULING ISSUED BY THE RESPONDENT ONLY AFTER THE
ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
DID NOT CONSTRUE THE GIFT TAX LAW LIBERALLY IN
FAVOR OF THE TAXPAYER AND STRICLTY AGAINST THE
GOVERNMENT IN ACCORDANCE WITH APPLICABLE
PRINCIPLES OF STATUTORY CONSTRUCTION?[6]
First, Fifth and Sixth Issues
Section 91 of the National Internal Revenue Code (NIRC) reads:
(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the
property by gift, a tax, computed as provided in Section 92
(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property
is real or personal, tangible or intangible.
The NIRC does not define transfer of property by gift. However, Article 18
of the Civil Code, states:
In matters which are governed by the Code of Commerce and special laws,
their deficiency shall be supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code.
Article 725 of said Code defines donation as:
. . . an act of liberality whereby a person disposes gratuitously of a thing or
right in favor of another, who accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do
an act of liberality or animus donandi.[7]
The present case falls squarely within the definition of a donation.
Petitioners, the late Manuel G. Abello[8], Jose C. Concepcion, Teodoro D.
Regala and Avelino V. Cruz, each gave P882,661.31 to the campaign funds
of Senator Edgardo Angara, without any material consideration. All three
elements of a donation are present. The patrimony of the four petitioners were
reduced by P882,661.31 each. Senator Edgardo Angaras patrimony
correspondingly increased by P3,530,645.24[9]. There was intent to do an act
of liberality or animus donandi was present since each of the petitioners gave
their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of
the NIRC is clear and unambiguous, thereby leaving no room for construction.
In Rizal Commercial Banking Corporation v. Intermediate Appellate
Court[10] the Court enunciated:
It bears stressing that the first and fundamental duty of the Court is to apply
the law. When the law is clear and free from any doubt or ambiguity, there is
no room for construction or interpretation. As has been our consistent ruling,
where the law speaks in clear and categorical language, there is no occasion
for interpretation; there is only room for application (Cebu Portland Cement
Co. v. Municipality of Naga, 24 SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly
what it says and the court has no choice but to see to it that its mandate is
obeyed (Chartered Bank Employees Association v. Ople, 138 SCRA 273
[1985]; Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v.
Development Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court
interpret or construe its true intent. Ambiguity is a condition of admitting two
or more meanings, of being understood in more than one way, or of referring
to two or more things at the same time. A statute is ambiguous if it is
admissible of two or more possible meanings, in which case, the Court is
called upon to exercise one of its judicial functions, which is to interpret the
law according to its true intent.
Second Issue
Since animus donandi or the intention to do an act of liberality is an
essential element of a donation, petitioners argue that it is important to look
into the intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature of
the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed
present when one gives a part of ones patrimony to another without
consideration. Second, donative intent is not negated when the person
donating has other intentions, motives or purposes which do not contradict
donative intent. This Court is not convinced that since the purpose of the
contribution was to help elect a candidate, there was no donative intent.
Petitioners contribution of money without any material consideration
evinces animus donandi. The fact that their purpose for donating was to aid in
the election of the donee does not negate the presence of donative intent.
Third Issue
Petitioners maintain that the definition of an electoral contribution under
the Omnibus Election Code is essential to appreciate how a political
contribution differs from a taxable gift.[11]Section 94(a) of the said Code defines
electoral contribution as follows:
The term "contribution" includes a gift, donation, subscription, loan, advance
or deposit of money or anything of value, or a contract, promise or
agreement to contribute, whether or not legally enforceable, made for the
purpose of influencing the results of the elections but shall not include
services rendered without compensation by individuals volunteering a portion
or all of their time in behalf of a candidate or political party. It shall also
include the use of facilities voluntarily donated by other persons, the money
value of which can be assessed based on the rates prevailing in the area.
Since the purpose of an electoral contribution is to influence the results
of the election, petitioners again claim that donative intent is not present.
Petitioners attempt to place the barrier of mutual exclusivity between donative
intent and the purpose of political contributions. This Court reiterates that
donative intent is not negated by the presence of other intentions, motives or
purposes which do not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that
the consideration for a gift is the liberality of the donor, while the consideration
for a political contribution is the desire of the giver to influence the result of an
election by supporting candidates who, in the perception of the giver, would
influence the shaping of government policies that would promote the general
welfare and economic well-being of the electorate, including the giver himself.
 Petitioners attempt is strained. The fact that petitioners will somehow in
the future benefit from the election of the candidate to whom they contribute,
in no way amounts to a valuable material consideration so as to remove
political contributions from the purview of a donation. Senator Angara was
under no obligation to benefit the petitioners. The proper performance of his
duties as a legislator is his obligation as an elected public servant of the Filipino
people and not a consideration for the political contributions he received. In
fact, as a public servant, he may even be called to enact laws that are contrary
to the interests of his benefactors, for the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was
to fund the campaign of Senator Angara in his bid for a senatorial seat, cannot
be considered as a material consideration so as to negate a donation.
into this issue. It is immaterial whether or not the Court of Appeals based its
decision on the BIR ruling because it is not pivotal in deciding this case. As
discussed above, Section 91 (now Section 98) of the NIRC as supplemented
by the definition of a donation found in Article 725 of the Civil Code, is clear
and unambiguous, and needs no further elucidation.
Eighth Issue
Petitioners next contend that tax laws are construed liberally in favor of
the taxpayer and strictly against the government. This rule of construction,
however, does not benefit petitioners because, as stated, there is here no
room for construction since the law is clear and unambiguous.

Fourth Issue
Petitioners raise the fact that since 1939 when the first Tax Code was
enacted, up to 1988 the BIR never attempted to subject political contributions
to donors tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government
agency charged with the execution of a statute, acquiesced in and relied
upon by all concerned over an appreciable period of time, is an authoritative
interpretation thereof, entitled to great weight and the highest respect. . . .[12]
This Court holds that the BIR is not precluded from making a new
interpretation of the law, especially when the old interpretation was flawed. It
is a well-entrenched rule that
Finally, this Court takes note of the fact that subsequent to the donations
involved in this case, Congress approved Republic Act No. 7166 on November
25, 1991, providing in Section 13 thereof that political/electoral contributions,
duly reported to the Commission on Elections, are not subject to the payment
of any gift tax. This all the more shows that the political contributions herein
made are subject to the payment of gift taxes, since the same were made prior
to the exempting legislation, and Republic Act No. 7166 provides no retroactive
effect on this point.
WHEREFORE, the petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals are AFFIRMED.
No costs.
SO ORDERED.

. . . erroneous application and enforcement of the law by public officers do

not block subsequent correct application of the statute (PLDT v. Collector of
Internal Revenue, 90 Phil. 676), and that the Government is never estopped
by mistake or error on the part of its agents (Pineda v. Court of First Instance
of Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda,
98 Phil. 711, 724).[13]

Seventh Issue

Petitioners question the fact that the Court of Appeals decision is based
on a BIR ruling, namely BIR Ruling No. 88-344, which was issued after the
petitioners were assessed for donors tax. This Court does not need to delve
EN BANC
[G.R. No. L-81311. June 30, 1988.]
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS,
INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO
C. VILLANUEVA, Petitioners, v. HON. BIENVENIDO TAN, as Commissioner
of Internal Revenue, Respondent.
[G.R. No. L-81820.]
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated
labor federations and alliances, Petitioners, v. THE EXECUTIVE
SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE, and SECRETARY OF BUDGET, Respondents.
[G.R. No. L-81921.]
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES
and JESUS B. BANAL, Petitioners, v. The HON. COMMISSIONER, BUREAU
OF INTERNAL REVENUE, Respondent.
[G.R. No. L-82152.]
RICARDO C. VALMONTE, Petitioner, v. THE EXECUTIVE SECRETARY,
SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE
and SECRETARY OF BUDGET, Respondents.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
Jaime C. Opinion for individual petitioner in G.R. No. 81311.
Banzuela Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners
in G.R. No. 81820.
Union of Lawyers and Advocates for Peoples Right collaborating counsel for
petitioners in G.R. No. 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.
DECISION
PADILLA, J.:
These four (4) petitions which have been consolidated because of the similarity
of the main issues involved therein, seek to nullify Executive Order No. 273
(EO 273, for short), issued by the President of the Philippines on 25 July 1987,
to take effect on 1 January 1988, and which amended certain sections of the
National Internal Revenue Code and adopted the value-added tax (VAT, for
short), for being unconstitutional in that its enactment is not allegedly within
the powers of the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal protection clauses and
other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that
the petitioners have failed to show justification for the exercise of its judicial
powers, viz. (1) the existence of an appropriate case; (2) an interest, personal
and substantial, of the party raising the constitutional questions; (3) the
constitutional question should be raised at the earliest opportunity; and (4) the
question of constitutionality is directly and necessarily involved in a justiciable
controversy and its resolution is essential to the protection of the rights of the
parties. According to the Solicitor General, only the third requisite — that the
constitutional question should be raised at the earliest opportunity — has been
complied with. He also questions the legal standing of the petitioners who, he
contends, are merely asking for an advisory opinion from the Court, there
being no justiciable controversy for resolution.
Objections to taxpayer’s suit for lack of sufficient personality standing, or
interest are, however, in the main procedural matters. Considering the
importance to the public of the cases at bar, and in keeping with the Court’s
duty, under the 1987 Constitution, to determine whether or not the other
branches of government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given
to them, the Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.chanrobles.com.ph : virtual law library
But, before resolving the issues raised, a brief look into the tax law in question
is in order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on
the value, added by every seller, with aggregate gross annual sales of articles
and/or services, exceeding P200,000.00, to his purchase of goods and
services, unless exempt. VAT is computed at the rate of 0% or 10% of the
gross selling price of goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on
manufacturers and producers, advance sales tax, and compensating tax on
importations. The framers of EO 273 claim that it is principally aimed to
rationalize the system of taxing goods and services; simplify tax administration;
and make the tax system more equitable, to enable the country to attain
economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before
EO 273 was issued. As pointed out by the Solicitor General, the Philippine
sales tax system, prior to the issuance of EO 273, was essentially a single
stage value added tax system computed under the "cost subtraction method"
or "cost deduction method" and was imposed only on original sale, barter or
exchange of articles by manufacturers, producers, or importers. Subsequent
sales of such articles were not subject to sales tax. However, with the issuance
of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale,
which was reduced to 1.5% upon the issuance of PD 2006 on 31 December
1985, to take effect 1 January 1986. Reduced sales taxes were imposed not
only on the second sale, but on every subsequent sale, as well. EO 273 merely
increased the VAT on every sale to 10%, unless zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on the ground that the
President had no authority to issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a
Provisional Constitution, sole legislative authority was vested upon the
President. Art. II, sec. 1 of the Provisional Constitution
states:jgc:chanrobles.com.ph
"Sec. 1. Until a legislature is elected and convened under a new Constitution,
the President shall continue to exercise legislative powers."cralaw virtua1aw
library
On 15 October 1986, the Constitutional Commission of 1986 adopted a new
Constitution for the Republic of the Philippines which was ratified in a plebiscite
conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution,
hereafter referred to as the 1987 Constitution, provides:jgc:chanrobles.com.ph
"Sec. 6. The incumbent President shall continue to exercise legislative powers
until the first Congress is convened."cralaw virtua1aw library
It should be noted that, under both the Provisional and the 1987 Constitutions,
the President is vested with legislative powers until a legislature under a new
Constitution is convened. The first Congress, created and elected under the
1987 Constitution, was convened on 27 July 1987. Hence, the enactment of
EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July
1987, was within the President’s constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened
on 30 June 1987 (not 27 July 1987). He contends that the word "convene" is
synonymous with "the date when the elected members of Congress assumed
office."cralaw virtua1aw library
The contention is without merit. The word "convene" which has been
interpreted to mean "to call together, cause to assemble, or convoke," 1 is
clearly different from assumption of office by the individual members of
Congress or their taking the oath of office. As an example, we call to mind the
interim National Assembly created under the 1973 Constitution, which had not
been "convened" but some members of the body, more particularly the
delegates to the 1971 Constitutional Convention who had opted to serve
therein by voting affirmatively for the approval of said Constitution, had taken
their oath of office.chanrobles.com.ph : virtual law library
To uphold the submission of petitioner Valmonte would stretch the definition
of the word "convene" a bit too far. It would also defeat the purpose of the
framers of the 1987 Constitution and render meaningless some other
provisions of said Constitution. For example, the provisions of Art. VI, sec. 15,
requiring Congress to convene once every year on the fourth Monday of July
for its regular session would be a contrariety, since Congress would already
be deemed to be in session after the individual members have taken their oath
of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to
convene for the purpose of enacting a law calling for a special election to elect
a President and Vice-President in case a vacancy occurs in said offices, would
also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring
Congress to convene, if not in session, to decide a conflict between the
President and the Cabinet as to whether or not the President can re-assume
the powers and duties of his office, would also be redundant. The same is true
with that portion of Art. VII, sec. 18, which requires Congress to convene within
twenty-four (24) hours following the declaration of martial law or the
suspension of the privilege of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her
power to legislate. If the framers of said Constitution had intended to terminate
the exercise of legislative powers by the President at the beginning of the term
of office of the members of Congress, they should have so stated (but did not)
in clear and unequivocal terms. The Court has no power to re-write the
Constitution and give it a meaning different from that intended.
The Court also finds no merit in the petitioners’ claim that EO 273 was issued
by the President in grave abuse of discretion amounting to lack or excess of
jurisdiction. "Grave abuse of discretion" has been defined, as
follows:jgc:chanrobles.com.ph
"‘Grave abuse of discretion’ implies such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction (Abad Santos v. Province of
Tarlac, 38 Off Gaz. 834), or, in other words, where the power is exercised in
an arbitrary or despotic manner by reason of passion or personal hostility, and
it must be so patent and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act at all in contemplation
of law. (Tavera-Luna, Inc. v. Nable, 38 Off. Gaz. 62)." 2
Petitioners have failed to show that EO 273 was issued capriciously and
whimsically or in an arbitrary or despotic manner by reason of passion or
personal hostility. It appears that a comprehensive study of the VAT was made
before EO 273 was issued. In fact, the merits of the VAT had been extensively
discussed by its framers and other government agencies involved in its
implementation, even under the past administration. As the Solicitor General
correctly stated. "The signing of E.O. 273 was merely the last stage in the
exercise of her legislative powers. The legislative process started long before
the signing when the data were gathered, proposals were weighed and the
final wordings of the measure were drafted, revised and finalized. Certainly, it
cannot be said that the President made a jump, so to speak, on the Congress,
two days before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust
and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987
Constitution, which states:jgc:chanrobles.com.ph
"Sec. 28. (1) The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation."cralaw virtua1aw library
The petitioners’ assertions in this regard are not supported by facts and
circumstances to warrant their conclusions. They have failed to adequately
show that the VAT is oppressive, discriminatory or unjust. Petitioners merely
rely upon newspaper articles which are actually hearsay and have no
evidentiary value. To justify the nullification of a law, there must be a clear and
unequivocal breach of the Constitution, not a doubtful and argumentative
implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. The Court, in City of Baguio v. De Leon, 5 said:jgc:chanrobles.com.ph
". . . In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel,
speaking for the Court, stated: ‘A tax is considered uniform when it operates
with the same force and effect in every place where the subject may be found.’
"There was no occasion in that case to consider the possible effect on such a
constitutional requirement where there is a classification. The opportunity
came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: ‘Equality
and uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of
taxation; . . .’ About two years later, Justice Tuason, speaking for this Court in
Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65)
incorporated the above excerpt in his opinion and continued; ‘Taking
everything into account, the differentiation against which the plaintiffs complain
conforms to the practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution.’
"To satisfy this requirement then, all that is needed as held in another case
decided two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the
statute or ordinance in question ‘applies equally to all persons, firms and
corporations placed in similar situation.’ This Court is on record as accepting
the view in a leading American case (Carmichael v. Southern Coal and Coke
Co., 301 US 495) that ‘inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation.’
(Lutz v. Araneta, 98 Phil. 148, 153)."cralaw virtua1aw library
The sales tax adopted in EO 273 is applied similarly on all goods and services
sold to the public, which are not exempt, at the constant rate of 0% or
10%.chanrobles virtual lawlibrary
The disputed sales tax is also equitable. It is imposed only on sales of goods
or services by persons engage in business with an aggregate gross annual
sales exceeding P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax are sales of farm
and marine products, so that the costs of basic food and other necessities,
spared as they are from the incidence of the VAT, are expected to be relatively
lower and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated
Customs Brokers Association of the Philippines that EO 273, more particularly
the new Sec. 103(r) of the National Internal Revenue Code, unduly
discriminates against customs brokers. The contested provision
states:jgc:chanrobles.com.ph
"Sec. 103. Exempt transactions. — The following shall be exempt from the
value-added tax:chanrob1es virtual 1aw library
x x x
"(r) Service performed in the exercise of profession or calling (except customs
brokers) subject to the occupation tax under the Local Tax Code, and
professional services performed by registered general professional
partnerships;"
 political branches of the government. The Court, following the time-honored
The phrase "except customs brokers" is not meant to discriminate against doctrine of separation of powers, cannot substitute its judgment for that of the
customs brokers. It was inserted in Sec. 103(r) to complement the provisions President as to the wisdom, justice and advisability of the adoption of the VAT.
of Sec. 102 of the Code which makes the services of customs brokers subject The Court can only look into and determine whether or not EO 273 was
to the payment of the VAT and to distinguish customs brokers from other enacted and made effective as law, in the manner required by, and consistent
professionals who are subject to the payment of an occupation tax under the with, the Constitution, and to make sure that it was not issued in grave abuse
Local Tax Code. Pertinent provisions of Sec. 102 read:jgc:chanrobles.com.ph of discretion amounting to lack or excess of jurisdiction; and, in this regard, the
Court finds no reason to impede its application or continued implementation.
"Sec. 102. Value-added tax on sale of services. — There shall be levied,
assessed and collected, a value-added tax equivalent to 10% percent of gross WHEREFORE, the petitions are DISMISSED. Without pronouncement as to
receipts derived by any person engaged in the sale of services. The phrase costs.
sale of services’ means the performance of all kinds of services for others for
a fee, remuneration or consideration, including those performed or rendered SO ORDERED.
by construction and service contractors; stock, real estate, commercial,
customs and immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; and similar services regardless
of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties: . . ."cralaw virtua1aw library

With the insertion of the clarificatory phrase "except customs brokers" in Sec.
103(r), a potential conflict between the two sections, (Secs. 102 and 103),
insofar as customs brokers are concerned, is averted.

At any rate, the distinction of the customs brokers from the other professionals
who are subject to occupation tax under the Local Tax Code is based upon
material differences, in that the activities of customs brokers (like those of
stock, real estate and immigration brokers) partake more of a business, rather
than a profession and were thus subjected to the percentage tax under Sec.
174 of the National Internal Revenue Code prior to its amendment by EO 273.
EO 273 abolished the percentage tax and replaced it with the VAT. If the
petitioner Association did not protest the classification of customs brokers
then, the Court sees no reason why it should protest now.

The Court takes note that EO 273 has been in effect for more than five (5)
months now, so that the fears expressed by the petitioners that the adoption
of the VAT will trigger skyrocketing of prices of basic commodities and
services, as well as mass actions and demonstrations against the VAT should
by now be evident. The fact that nothing of the sort has happened shows that
the fears and apprehensions of the petitioners appear to be more imagined
than real. It would seem that the VAT is not as bad as we are made to
believe.chanrobles.com:cralaw:red

In any event, if petitioners seriously believe that the adoption and continued
application of the VAT are prejudicial to the general welfare or the interests of
the majority of the people, they should seek recourse and relief from the