CIR vs. CA, CTA and Josefina P.

Pajonar
G.R. No. 123206
March 22, 2000
FACTS:
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a
part of the infamous Death March by which he suffered shock and became insane. His sister, Josefina
Pajonar became the guardian over his person, while his property was placed under guardianship of the
Philippine National Bank (PNB). PNB filed an accounting of the decedents property under guardianship.
However, it didenot file an estate tax return, instead it advised Pedro Pajonars heirs to execute an
extrajudicial settlement and to pay the estate tax. Josefina Pajonar was appointed as the regular
administratrix of Pedro Pajonars estate. Pursuant to a second assessment by the BIR for deficiency estate
tax, the estate of Pedro Pajonar paid estate tax. Josefina Pajonar, in her capacity as administratrix and heir
of Pedro Pajonars estate filed a protest praying that a portion of the estate tax paid be returned to the
heirs. Without waiting for her protest to be resolved, Josefina Pajonar filed a petition for review with the CTA
praying for the refund. The CTA ordered the CIR to refund Josefina Pajonar. Among the deductions from
the gross estate allowed by the CTA were the amounts representing the notarial fee for the extra judicial
settlement and the attorneys fees for guardianship.
ISSUE:
Whether the notarial fee paid for the extra judicial settlement and the attorneys fees in the guardianship
proceedings may be allowed as deductions from the gross estate of decedent
RULING:
Yes. They should be allowed as deductible expenses from the gross estate. Judicial expenses are
expenses of administration. Administration expenses, as an allowable deduction from the gross estate of
the decedent for purpose s of arriving at the value of the net estate, have been construed by 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. In other words, the expenses must be
essential to the proper settlement of the estate. In this case, the notarial fee paid for the extra judicial
settlement is clearly deductible expense since such settlement effected a distribution of Pedro Pajonars
estate to his lawful heirs. Similarly, the attorneys fees paid to the PNB for acting as guardian of Pedro
Pajonars property during his lifetime should also be considered as a deductible administration expense.