1

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.:
Assailed in this petition for review on certiorari is the December 21, 1995 Decision 1 of the Court of
Appeals2 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
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
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 Resolution8 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.
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.
This Court adopts the view under American jurisprudence that expenses incurred in the
extrajudicial settlement of the estate should be allowed as a deduction from the gross estate.
"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. . . .
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.
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
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax Appeals
modified its previous ruling by reducing the refundable amount to P76,502.43 since it found that a deficiency

interest should be imposed and the compromise penalty excluded.

previous ruling regarding the legality of the deductions

13

However, the tax court upheld its

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. ]
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 state 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:
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

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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.
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. . . .
xxx

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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
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 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. 241wphi1
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.1wphi1.nt
SO ORDERED.
REPUBLIC ACT No. 4917
AN ACT PROVIDING THAT RETIREMENT BENEFITS OF EMPLOYEES OF PRIVATE FIRMS SHALL
NOT BE SUBJECT TO ATTACHMENT, LEVY, EXECUTION, OR ANY TAX WHATSOEVER.
Section 1. Any provision of law to the contrary notwithstanding, the retirement benefits received by officials
and employees of private firms, whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment,
garnishment, levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of
the official or employee concerned to the private benefit plan or that arising from liability imposed in a
criminal action: Provided, That the retiring official or employee has been in the service of the same employer
for at least ten (10) years and is not less than fifty years of age at the time of his retirement: Provided,
further, That the benefits granted under this Act shall be availed of by an official or employee only
once: Provided, finally, That in case of separation of an official or employee from the service of the employer
due to death, sickness or other physical disability or for any cause beyond the control of the said official or
employee, any amount received by him or by his heirs from the employer as a consequence of such
separation shall likewise be exempt as hereinabove provided.
As used in this Act, the term "reasonable private benefit plan" means a pension, gratuity, stock bonus or
profit sharing plan maintained by an employer for the benefit of some or all of his officials and employees,
wherein contributions are made by such employer or officials and employees, or both, for the purpose of
distributing to such officials and employees the earnings and principal of the fund thus accumulated, and
wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used
for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.
Section 2. This Act shall take effect upon its approval.
Approved: June 17, 1967

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
Decision1 of 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 forcertiorari 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 forCertiorari 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-185-91-002452 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 certiorariand 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; 8the 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

10

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.)

11

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

12

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

13

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 conference relative to her tax
liabilities, was furnished the counsel of Mrs. Marcos Dean Antonio Coronel (Annex "B",
p. 211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law
Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices, petitioner never
lifted a finger to protest the assessments, (upon which the Levy and sale of properties
were based), nor appealed the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several opportunities
given him to file a protest and to thereafter appeal to the Court of Tax Appeals, the tax
assessments subject of this case, upon which the levy and sale of properties were based,
could no longer be contested (directly or indirectly) via this instant petition for certiorari. 20
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.

14

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 liability arose, or if there be none, to
the occupant of the property in question.
xxx xxx xxx
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April
12, 1993 at his office at the Batasang Pambansa. 21 We cannot therefore, countenance petitioner's
insistence that he was denied due process. Where there was an opportunity to raise objections to
government action, and such opportunity was disregarded, for no justifiable reason, the party claiming
oppression then becomes the oppressor of the orderly functions of government. He who comes to court
must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of
established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of
Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.

G.R. No. L-22734

September 15, 1967

COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.
Office
of
the
Solicitor
Manuel B. Pineda for and in his own behalf as respondent.

General

for

petitioner.

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

15

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

P2,707.44
===========
P14.50
===========

3. Real Estate dealer's tax for the fourth

quarter of 1946 and the whole year of P207.50
1947
===========
Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the
Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining to him
as one of the heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The Commissioner
appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax
for the year 1947 but held that the right to assess and collect the taxes for 1945 and 1946 has not
prescribed. For 1945 and 1946 the returns were filed on August 24, 1953; assessments for both taxable
years were made within five years therefrom or on October 19, 1953; and the action to collect the tax was
filed within five years from the latter date, on August 7, 1957. For taxable year 1947, however, the return was
filed on March 1, 1948; the assessment was made on October 19, 1953, more than five years from the date
the return was filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly, We
remanded the case to the Tax Court for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the
payment corresponding to his share of the following taxes:
Deficiency income tax
1945
P135.83
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.1awphl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax
due the estate only up to the extent of and in proportion to any share he received. He relies on Government
of the Philippine Islands v. Pamintuan 2 where We held that "after the partition of an estate, heirs and

16

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 taxes 4a 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.

G.R. No. L-43082

June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

17

Pablo
Lorenzo
and
Delfin
Joven
Office of the Solicitor-General Hilado for defendant-appellant.

for

plaintiff-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. I direct that ten (10) years after my death my property be given to 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:

18

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 taxpayer 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, giftmortis 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

19

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

20

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."

21

(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;

22

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 thecestui 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 hiscestui 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; Muoz & 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.)

23

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.
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

24

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.11vvphi1.nt
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.1awphi1.nt
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

25

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

26

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 P3,530,645.249 . 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 Court10 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.l^vvphi1.netAmbiguity 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

27

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.
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
. . . 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

28

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 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.
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.

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