Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11622

January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents.
x---------------------------------------------------------x
G.R. No. L-11668

January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents.
BARRERA, J.:
This case relates to the determination and settlement of the hereditary estate left by the deceased Walter
G. Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on August 9,
1874 of British parents and married in the City of Manila on January 23, 1909 to Beatrice Mauricia
Stevenson another British subject) died on February 22, 1951 in San Francisco, California, U.S.A. whereto
he and his wife moved and established their permanent residence since May 10, 1945. In his will executed
in San Francisco on May 22, 1947, and which was duly probated in the Superior Court of California on April
11, 1951, Stevenson instituted his wife Beatrice as his sole heiress to the following real and personal
properties acquired by the spouses while residing in the Philippines, described and preliminary assessed
as follows:
Gross Estate
Real Property 2 parcels of land in
Baguio, covered by T.C.T. Nos. 378 and
379

P43,500.00

Personal Property
(1) 177 shares of stock of Canacao Estate
at P10.00 each

1,770.00

(2) 210,000 shares of stock of Mindanao

Mother Lode Mines, Inc. at P0.38 per
share

79,800.00

(3) Cash credit with Canacao Estate Inc.

4,870.88

(4) Cash, with the Chartered Bank of

India, Australia & China

851.97
Total Gross Assets

P130,792.85

On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of
Manila for the settlement of the estate in the Philippines. In due time Stevenson's will was duly admitted to
probate by our court and Ian Murray Statt was appointed ancillary administrator of the estate, who on July
11, 1951, filed a preliminary estate and inheritance tax return with the reservation of having the properties
declared therein finally appraised at their values six months after the death of Stevenson. Preliminary
return was made by the ancillary administrator in order to secure the waiver of the Collector of Internal
Revenue on the inheritance tax due on the 210,000 shares of stock in the Mindanao Mother Lode Mines
Inc. which the estate then desired to dispose in the United States. Acting upon said return, the Collector of
Internal Revenue accepted the valuation of the personal properties declared therein, but increased the
appraisal of the two parcels of land located in Baguio City by fixing their fair market value in the amount of
P52.200.00, instead of P43,500.00. After allowing the deductions claimed by the ancillary administrator for
funeral expenses in the amount of P2,000.00 and for judicial and administration expenses in the sum of
P5,500.00, the Collector assessed the state the amount of P5,147.98 for estate tax and P10,875,26 or
inheritance tax, or a total of P16,023.23. Both of these assessments were paid by the estate on June 6,
1952.
On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return in
pursuance f his reservation made at the time of filing of the preliminary return and for the purpose of
availing of the right granted by section 91 of the National Internal Revenue Code.
In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines,
Inc. was reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total valuation of
P79,800.00 to P42,000.00. This change in price per share of stock was based by the ancillary administrator
on the market notation of the stock obtaining at the San Francisco California) Stock Exchange six months
from the death of Stevenson, that is, As of August 22, 1931. In addition, the ancillary administrator made
claim for the following deductions:
Funeral expenses ($1,04326)

P2,086.52

Judicial Expenses:
(a) Administrator's Fee

P1,204.34

(b) Attorney's Fee

6.000.00

(c) Judicial and Administration

expenses as of August 9, 1952

1,400.05
8,604.39

Real Estate Tax for 1951 on Baguio

real properties (O.R. No. B-1
686836)
Claims against the estate:
($5,000.00) P10,000.00
Plus: 4% int. p.a. from Feb. 2 to 22,
1951
Sub-Total

652.50

P10,000.00

22.47

10,022.47
P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests
in the estate to the spouses, Douglas and Bettina Fisher, respondents herein.
On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax
return (Exh. "M-N"). This return declared the same assets of the estate stated in the amended return of
September 22, 1952, except that it contained new claims for additional exemption and deduction to wit: (1)
deduction in the amount of P4,000.00 from the gross estate of the decedent as provided for in Section 861
(4) of the U.S. Federal Internal Revenue Code which the ancillary administrator averred was allowable by
way of the reciprocity granted by Section 122 of the National Internal Revenue Code, as then held by the
Board of Tax Appeals in case No. 71 entitled "Housman vs. Collector," August 14, 1952; and (2) exemption
from the imposition of estate and inheritance taxes on the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc. also pursuant to the reciprocity proviso of Section 122 of the National Internal Revenue
Code. In this last return, the estate claimed that it was liable only for the amount of P525.34 for estate tax
and P238.06 for inheritance tax and that, as a consequence, it had overpaid the government. The refund of
the amount of P15,259.83, allegedly overpaid, was accordingly requested by the estate. The Collector
denied the claim. For this reason, action was commenced in the Court of First Instance of Manila by
respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said amount. Pursuant to
Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals which court, after hearing,
rendered decision the dispositive portion of which reads as follows:
In fine, we are of the opinion and so hold that: (a) the one-half () share of the surviving spouse in
the conjugal partnership property as diminished by the obligations properly chargeable to such
property should be deducted from the net estate of the deceased Walter G. Stevenson, pursuant to
Section 89-C of the National Internal Revenue Code; (b) the intangible personal property belonging
to the estate of said Stevenson is exempt from inheritance tax, pursuant to the provision of section
122 of the National Internal Revenue Code in relation to the California Inheritance Tax Law but
decedent's estate is not entitled to an exemption of P4,000.00 in the computation of the estate tax;
(c) for purposes of estate and inheritance taxation the Baguio real estate of the spouses should be
valued at P52,200.00, and 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.
should be appraised at P0.38 per share; and (d) the estate shall be entitled to a deduction of
P2,000.00 for funeral expenses and judicial expenses of P8,604.39.
From this decision, both parties appealed.
The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly committed by
the trial court, while the assignees, Douglas and Bettina Fisher hereinafter called respondents, made six

assignments of error. Together, the assigned errors raise the following main issues for resolution by this
Court:
(1) Whether or not, in determining the taxable net estate of the decedent, one-half () of the net estate
should be deducted therefrom as the share of tile surviving spouse in accordance with our law on conjugal
partnership and in relation to section 89 (c) of the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the
National Internal Revenue Code granting exemption from the payment of estate and inheritance taxes on
the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc.;
(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S. Internal
Revenue Code in relation to section 122 of the National Internal Revenue Code;
(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000 shares
of stock in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court;
(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and
administration expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and P10,0,22.47
representing the amount of indebtedness allegedly incurred by the decedent during his lifetime; and
(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have overpaid
the government and to be refundable to it.
In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the absence
of any ante-nuptial agreement, the contracting parties are presumed to have adopted the system of
conjugal partnership as to the properties acquired during their marriage. The application of this doctrine to
the instant case is being disputed, however, by petitioner Collector of Internal Revenue, who contends that
pursuant to Article 124 of the New Civil Code, the property relation of the spouses Stevensons ought not to
be determined by the Philippine law, but by the national law of the decedent husband, in this case, the law
of England. It is alleged by petitioner that English laws do not recognize legal partnership between
spouses, and that what obtains in that jurisdiction is another regime of property relation, wherein all
properties acquired during the marriage pertain and belong Exclusively to the husband. In further support of
his stand, petitioner cites Article 16 of the New Civil Code (Art. 10 of the old) to the effect that in testate and
intestate proceedings, the amount of successional rights, among others, is to be determined by the national
law of the decedent.
In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place in
1909, the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil Code
which became effective only in 1950. It is true that both articles adhere to the so-called nationality theory of
determining the property relation of spouses where one of them is a foreigner and they have made no prior
agreement as to the administration disposition, and ownership of their conjugal properties. In such a case,
the national law of the husband becomes the dominant law in determining the property relation of the
spouses. There is, however, a difference between the two articles in that Article 124 1 of the new Civil Code
expressly provides that it shall be applicable regardless of whether the marriage was celebrated in the
Philippines or abroad while Article 1325 2 of the old Civil Code is limited to marriages contracted in a foreign
land.
It must be noted, however, that what has just been said refers to mixed marriages between a Filipino citizen
and a foreigner. In the instant case, both spouses are foreigners who married in the Philippines.
Manresa,3 in his Commentaries, has this to say on this point:

La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y entre
espanoles. El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es espanol.
En cuanto a la regla procedente cuando dos extranjeros se casan en Espana, o dos espanoles en
el extranjero hay que atender en el primer caso a la legislacion de pais a que aquellos
pertenezean, y en el segundo, a las reglas generales consignadas en los articulos 9 y 10 de
nuestro Codigo. (Emphasis supplied.)
If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons, married
in 1909, would be the English law even if the marriage was celebrated in the Philippines, both of them
being foreigners. But, as correctly observed by the Tax Court, the pertinent English law that allegedly vests
in the decedent husband full ownership of the properties acquired during the marriage has not been proven
by petitioner. Except for a mere allegation in his answer, which is not sufficient, the record is bereft of any
evidence as to what English law says on the matter. In the absence of proof, the Court is justified,
therefore, in indulging in what Wharton calls "processual presumption," in presuming that the law of
England on this matter is the same as our law.4
Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code) to
bolster his stand. A reading of Article 10 of the old Civil Code, which incidentally is the one applicable,
shows that it does not encompass or contemplate to govern the question of property relation between
spouses. Said article distinctly speaks of amount of successional rights and this term, in speaks in our
opinion, properly refers to the extent or amount of property that each heir is legally entitled to inherit from
the estate available for distribution. It needs to be pointed out that the property relation of spouses, as
distinguished from their successional rights, is governed differently by the specific and express provisions
of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the old Civil Code.) We, therefore, find that
the lower court correctly deducted the half of the conjugal property in determining the hereditary estate left
by the deceased Stevenson.
On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents from
paying inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in virtue of
the reciprocity proviso of Section 122 of the National Internal Revenue Code, in relation to Section 13851 of
the California Revenue and Taxation Code, on the ground that: (1) the said proviso of the California
Revenue and Taxation Code has not been duly proven by the respondents; (2) the reciprocity exemptions
granted by section 122 of the National Internal Revenue Code can only be availed of by residents of foreign
countries and not of residents of a state in the United States; and (3) there is no "total" reciprocity between
the Philippines and the state of California in that while the former exempts payment of both estate and
inheritance taxes on intangible personal properties, the latter only exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified that
as an active member of the California Bar since 1931, he is familiar with the revenue and taxation laws of
the State of California. When asked by the lower court to state the pertinent California law as regards
exemption of intangible personal properties, the witness cited article 4, section 13851 (a) and (b) of the
California Internal and Revenue Code as published in Derring's California Code, a publication of the
Bancroft-Whitney Company inc. And as part of his testimony, a full quotation of the cited section was
offered in evidence as Exhibits "V-2" by the respondents.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them.5 Like any other fact, they must be alleged and proved. 6
Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our
tribunals. However, although we believe it desirable that these laws be proved in accordance with said rule,

we held in the case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of sections
300 and 301 of our Code of Civil Procedure (now section 41, Rule 123) will convince one that these
sections do not exclude the presentation of other competent evidence to prove the existence of a foreign
law." In that case, we considered the testimony of an attorney-at-law of San Francisco, California who
quoted verbatim a section of California Civil Code and who stated that the same was in force at the time
the obligations were contracted, as sufficient evidence to establish the existence of said law. In line with
this view, we find no error, therefore, on the part of the Tax Court in considering the pertinent California law
as proved by respondents' witness.
We now take up the question of reciprocity in exemption from transfer or death taxes, between the State of
California and the Philippines.F
Section 122 of our National Internal Revenue Code, in pertinent part, provides:
... And, provided, further, That no tax shall be collected under this Title in respect of intangible
personal property (a) if the decedent at the time of his death was a resident of a foreign country
which at the time of his death did not impose a transfer of tax or death tax of any character in
respect of intangible personal property of citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the decedent was a resident at the time of
his death allow a similar exemption from transfer taxes or death taxes of every character in respect
of intangible personal property owned by citizens of the Philippines not residing in that foreign
country." (Emphasis supplied).
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.
"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt from
the tax imposed by this part if the decedent at the time of his death was a resident of a territory or
another State of the United States or of a foreign state or country which then imposed a legacy,
succession, or death tax in respect to intangible personal property of its own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible
personal property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident
was exempt from legacy, succession, or death taxes of every character if the Territory or other State
of the United States or foreign state or country in which the nonresident resided allowed a similar
exemption in respect to intangible personal property of residents of the Territory or State of the
United States or foreign state or country of residence of the decedent." (Id.)
It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to
transfer or death taxes of any and every character, in the case of the Philippine law, and to legacy,
succession, or death taxes of any and every character, in the case of the California law. Therefore, if any of
the two states collects or imposes and does not exempt any transfer, death, legacy, or succession tax of
any character, the reciprocity does not work. This is the underlying principle of the reciprocity clauses in
both laws.
In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein, there
are imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the laws of
California, only inheritance tax is imposed. On the other hand, the Federal Internal Revenue Code imposes
an estate tax on non-residents not citizens of the United States, 7 but does not provide for any exemption
on the basis of reciprocity. Applying these laws in the manner the Court of Tax Appeals did in the instant

case, we will have a situation where a Californian, who is non-resident in the Philippines but has intangible
personal properties here, will the subject to the payment of an estate tax, although exempt from the
payment of the inheritance tax. This being the case, will a Filipino, non-resident of California, but with
intangible personal properties there, be entitled to the exemption clause of the California law, since the
Californian has not been exempted from every character of legacy, succession, or death tax because he is,
under our law, under obligation to pay an estate tax? Upon the other hand, if we exempt the Californian
from paying the estate tax, we do not thereby entitle a Filipino to be exempt from a similar estate tax in
California because under the Federal Law, which is equally enforceable in California he is bound to pay the
same, there being no reciprocity recognized in respect thereto. In both instances, the Filipino citizen is
always at a disadvantage. We do not believe that our legislature has intended such an unfair situation to
the detriment of our own government and people. We, therefore, find and declare that the lower court erred
in exempting the estate in question from payment of the inheritance tax.
We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-9456 &
L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller from
payment of the inheritance tax imposed by the Collector of Internal Revenue. It will be noted, however, that
the issue of reciprocity between the pertinent provisions of our tax law and that of the State of California
was not there squarely raised, and the ruling therein cannot control the determination of the case at bar. Be
that as it may, we now declare that in view of the express provisions of both the Philippine and California
laws that the exemption would apply only if the law of the other grants an exemption from legacy,
succession, or death taxes of every character, there could not be partial reciprocity. It would have to be
total or none at all.
With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S.
Federal Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our ruling in
the Lara case (supra) that the amount of $2,000.00 allowed under the Federal Estate Tax Law is in the
nature of a deduction and not of an exemption regarding which reciprocity cannot be claimed under the
provision of Section 122 of our National Internal Revenue Code. Nor is reciprocity authorized under the
Federal Law. .
On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is
contended that their assessed values, as appearing in the tax rolls 6 months after the death of Stevenson,
ought to have been considered by petitioner as their fair market value, pursuant to section 91 of the
National Internal Revenue Code. It should be pointed out, however, that in accordance with said proviso
the properties are required to be appraised at their fair market value and the assessed value thereof shall
be considered as the fair market value only when evidence to the contrary has not been shown. After all
review of the record, we are satisfied that such evidence exists to justify the valuation made by petitioner
which was sustained by the tax court, for as the tax court aptly observed:
"The two parcels of land containing 36,264 square meters were valued by the administrator of the
estate in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the assessed
value of said properties. On the other hand, defendant appraised the same at P52,200.00. It is of
common knowledge, and this Court can take judicial notice of it, that assessments for real estate
taxation purposes are very much lower than the true and fair market value of the properties at a
given time and place. In fact one year after decedent's death or in 1952 the said properties were
sold for a price of P72,000.00 and there is no showing that special or extraordinary circumstances
caused the sudden increase from the price of P43,500.00, if we were to accept this value as a fair
and reasonable one as of 1951. Even more, the counsel for plaintiffs himself admitted in open court
that he was willing to purchase the said properties at P2.00 per square meter. In the light of these

facts we believe and therefore hold that the valuation of P52,200.00 of the real estate in Baguio
made by defendant is fair, reasonable and justified in the premises." (Decision, p. 19).
In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a
domestic corporation), respondents contend that their value should be fixed on the basis of the market
quotation obtaining at the San Francisco (California) Stock Exchange, on the theory that the certificates of
stocks were then held in that place and registered with the said stock exchange. We cannot agree with
respondents' argument. The situs of the shares of stock, for purposes of taxation, being located here in the
Philippines, as respondents themselves concede and considering that they are sought to be taxed in this
jurisdiction, consistent with the exercise of our government's taxing authority, their fair market value should
be taxed on the basis of the price prevailing in our country.
Upon the other hand, we find merit in respondents' other contention that the said shares of stock
commanded a lesser value at the Manila Stock Exchange six months after the death of Stevenson.
Through Atty. Allison Gibbs, respondents have shown that at that time a share of said stock was bid for at
only P.325 (p. 103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never been
questioned nor refuted by petitioner either before this court or in the court below. In the absence of
evidence to the contrary, we are, therefore, constrained to reverse the Tax Court on this point and to hold
that the value of a share in the said mining company on August 22, 1951 in the Philippine market was
P.325 as claimed by respondents..
It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis of
the declaration made by the estate in its preliminary return. Patently, this should not have been the case, in
view of the fact that the ancillary administrator had reserved and availed of his legal right to have the
properties of the estate declared at their fair market value as of six months from the time the decedent
died..
On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of which by
the Tax Court, both petitioner and respondents have appealed..
Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the sum of
P8,604.39 for the following expenses:.
1) Administrator's fee

P1,204.34

2) Attorney's fee

6,000.00

3) Judicial and Administrative expenses

2,052.55

Total Deductions

P8,604.39

An examination of the record discloses, however, that the foregoing items were considered deductible by
the Tax Court on the basis of their approval by the probate court to which said expenses, we may presume,
had also been presented for consideration. It is to be supposed that the probate court would not have
approved said items were they not supported by evidence presented by the estate. In allowing the items in
question, the Tax Court had before it the pertinent order of the probate court which was submitted in
evidence by respondents. (Exh. "AA-2", p. 100, record). As the Tax Court said, it found no basis for
departing from the findings of the probate court, as it must have been satisfied that those expenses were
actually incurred. Under the circumstances, we see no ground to reverse this finding of fact which, under

Republic Act of California National Association, which it would appear, that while still living, Walter G.
Stevenson obtained we are not inclined to pass upon the claim of respondents in respect to the additional
amount of P86.52 for funeral expenses which was disapproved by the court a quo for lack of evidence.
In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on the
decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the Tax Court,
we find that this claim has in fact been allowed. What happened here, which a careful review of the record
will reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:
1) Administrator's fee

P1,204.34

2) Attorney's fee

6,000.00

3) Judicial and Administration expenses as of August

9, 1952

2,052.55

Total

P9,256.89

added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and
administration expenses approved by the court, making a total of P2,052.55, exactly the same figure which
was arrived at by the Tax Court for judicial and administration expenses. Hence, the difference between the
total of P9,256.98 allowed by the Tax Court as deductions, and the P8,604.39 as found by the probate
court, which is P652.50, the same amount allowed for realty taxes. An evident oversight has involuntarily
been made in omitting the P2,000.00 for funeral expenses in the final computation. This amount has been
expressly allowed by the lower court and there is no reason why it should not be. .
We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section
89(a) (1) (E) and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should have
been allowed the estate as a deduction, because it represented an indebtedness of the decedent incurred
during his lifetime. In support thereof, they offered in evidence a duly certified claim, presented to the
probate court in California by the Bank of California National Association, which it would appear, that while
still living, Walter G. Stevenson obtained a loan of $5,000.00 secured by pledge on 140,000 of his shares
of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59, record). The Tax Court
disallowed this item on the ground that the local probate court had not approved the same as a valid claim
against the estate and because it constituted an indebtedness in respect to intangible personal property
which the Tax Court held to be exempt from inheritance tax.
For two reasons, we uphold the action of the lower court in disallowing the deduction.
Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of the
decedent is necessary. This is so although the same, it is averred has been already admitted and approved
by the corresponding probate court in California, situs of the principal or domiciliary administration. It is true
that we have here in the Philippines only an ancillary administration in this case, but, it has been held, the
distinction between domiciliary or principal administration and ancillary administration serves only to
distinguish one administration from the other, for the two proceedings are separate and independent. 8 The
reason for the ancillary administration is that, a grant of administration does not ex proprio vigore, have any
effect beyond the limits of the country in which it was granted. Hence, we have the requirement that before
a will duly probated outside of the Philippines can have effect here, it must first be proved and allowed
before our courts, in much the same manner as wills originally presented for allowance therein. 9 And the

estate shall be administered under letters testamentary, or letters of administration granted by the court,
and disposed of according to the will as probated, after payment of just debts and expenses of
administration.10 In other words, there is a regular administration under the control of the court, where
claims must be presented and approved, and expenses of administration allowed before deductions from
the estate can be authorized. Otherwise, we would have the actuations of our own probate court, in the
settlement and distribution of the estate situated here, subject to the proceedings before the foreign court
over which our courts have no control. We do not believe such a procedure is countenanced or
contemplated in the Rules of Court.
Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of
Section 89, letter (d), number (1), of the National Internal Revenue Code which reads:
(d) Miscellaneous provisions (1) No deductions shall be allowed in the case of a non-resident not
a citizen of the Philippines unless the executor, administrator or anyone of the heirs, as the case
may be, includes in the return required to be filed under section ninety-three the value at the time of
his death of that part of the gross estate of the non-resident not situated in the Philippines."
In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in the
Philippines appears in the three returns submitted to the court or to the office of the petitioner Collector of
Internal Revenue. The purpose of this requirement is to enable the revenue officer to determine how much
of the indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of
the Internal Revenue Code which provides:
(b) Deductions allowed to non-resident estates. In the case of a non-resident not a citizen of the
Philippines, by deducting from the value of that part of his gross estate which at the time of his
death is situated in the Philippines
(1) Expenses, losses, indebtedness, and taxes. That proportion of the deductions specified in
paragraph (1) of subjection (a) of this section 11 which the value of such part bears the value of his
entire gross estate wherever situated;"
In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is
equivalent to the proportion that the estate in the Philippines bears to the total estate wherever situated.
Stated differently, if the properties in the Philippines constitute but 1/5 of the entire assets wherever
situated, then only 1/5 of the indebtedness may be deducted. But since, as heretofore adverted to, there is
no statement of the value of the estate situated outside the Philippines, no part of the indebtedness can be
allowed to be deducted, pursuant to Section 89, letter (d), number (1) of the Internal Revenue Code.
For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the alleged
indebtedness in the sum of P10,022.47.
In recapitulation, we hold and declare that:
(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership property
constitutes his hereditary estate subject to the estate and inheritance taxes;
(b) the intangible personal property is not exempt from inheritance tax, there existing no complete
total reciprocity as required in section 122 of the National Internal Revenue Code, nor is the
decedent's estate entitled to an exemption of P4,000.00 in the computation of the estate tax;
(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the Mindanao
Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net asset of
the deceased Stevenson.
In all other respects, the decision of the Court of Tax Appeals is affirmed.
Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a
recomputation on the basis of this decision is hereby denied in line with our recent decision in Collector of
Internal Revenue v. St. Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the
absence of a statutory provision clearly or expressly directing or authorizing such payment, and none has
been cited by respondents, the National Government cannot be required to pay interest."
WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is hereby
affirmed in all other respects not inconsistent herewith. No costs. So ordered.
Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Gutierrez David, Paredes
and Dizon, JJ., concur.

Footnotes
1 ART. 124. If the marriage is between a citizen of the Philippines and a foreigner, whether

celebrated in the Philippines or abroad, the following rules shall prevail: (1) If the husband is a
citizen of the Philippines while the wife is a foreigner, the provisions of this Code shall govern their
property relations; (2) If the husband is a foreigner and the wife is a citizen of the Philippines, the
laws of the husband's country shall be followed, without prejudice to the provisions of this Code with
regard to immovable property."
2 ART. 1325. Should the marriage be contracted in a foreign country, between a Spaniard and a

foreign woman or between a foreigner and a Spanish woman, and the contracting parties should
not make any statement or stipulation with respect to their property, it shall be understood, when
the husband is a Spaniard, that he marries under the system of the legal conjugal partnership, and
when the wife is a Spaniard, that she marries under the system of law in force in the husband's
country, all without prejudice to the provisions of this code with respect to real property. .
3 IX Manresa, Comentarios al Codigo Civil Espanol, p. 209. .
4 Yam Ka Lim vs. Collector of Customs, 30 Phil. 46; Lim & Lim vs. Collector of Customs, 36 Phil.

472; International Harvester Co. vs. Hamburg-American Line, 42 Phil. 845; Beam vs. Yatco, 46
O.G. No. 2, p. 530.).
5 Lim vs. Collector of Customs, supra; International Harvester Co. vs. Hamburg-American

Line, supra; Phil. Manufacturing Co. vs. Union Ins. Society of Canton, 42 Phil. 378; Adong vs.
Cheong Seng Gee, Phil. 53.
6 Sy Joc Leing vs. Sy Quia, 16 Phil. 138; Ching Huat vs. Co Heong, 77 Phil. 985; Adong vs.

Cheong supra.
7 See Sec. 860, Internal Revenue Code of 1939, 26 USCA 408.
8 In the matter of the testate estate of Basil Gordon Butler, G.R. No. L-3677, Nov. 29, 1951. .
9 Rule 78, Sees. 1, 2 and 3, Rules of Court. See also Hix vs. Fluemer, 54 Phil. 610. .
10 Rule 78, See. 4, lbid.

11 Expense, losses, indebtedness, and taxes which may be deducted to determine the net estate of

a citizen or resident of the Philippines.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-34583

October 22, 1931

THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late Adolphe Oscar
Schuetze,plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Araneta, De Joya, Zaragoza and Araneta for appellant.
Attorney-General Jaranilla for appellee.

VILLA-REAL, J.:
The Bank of the Philippine Islands, as administrator of the estate of the deceased Adolphe Oscar
Schuetze, has appealed to this court from the judgment of the Court of First Instance of Manila absolving
the defendant Juan Posadas, Jr., Collector of Internal Revenue, from the complaint filed against him by
said plaintiff bank, and dismissing the complaint with costs.
The appellant has assigned the following alleged errors as committed by the trial court in its judgment, to
wit:
1. The lower court erred in holding that the testimony of Mrs. Schuetze was inefficient to established
the domicile of her husband.
2. The lower court erred in holding that under section 1536 of the Administrative Code the tax
imposed by the defendant is lawful and valid.
3. The lower court erred in not holding that one-half () of the proceeds of the policy in question is
community property and that therefore no inheritance tax can be levied, at least on one-half () of
the said proceeds.
4. The lower court erred in not declaring that it would be unconstitutional to impose an inheritance
tax upon the insurance policy here in question as it would be a taking of property without due
process of law.
The present complaint seeks to recover from the defendant Juan Posadas, Jr., Collector of Internal
Revenue, the amount of P1,209 paid by the plaintiff under protest, in its capacity of administrator of the
estate of the late Adolphe Oscar Schuetze, as inheritance tax upon the sum of P20,150, which is the
amount of an insurance policy on the deceased's life, wherein his own estate was named the beneficiary.
At the hearing, in addition to documentary and parol evidence, both parties submitted the following agreed
statement of facts of the court for consideration:

It is hereby stipulated and agreed by and between the parties in the above-entitled action through
their respective undersigned attorneys:
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late Adolphe Oscar Schuetze,
is of legal age, a native of Manila, Philippine Islands, and is and was at all times hereinafter
mentioned a resident of Germany, and at the time of the death of her husband, the late Adolphe
Oscar Schuetze, she was actually residing and living in Germany;
2. That the Bank of the Philippine Islands, is and was at all times hereinafter mentioned a banking
institution duly organized and existing under and by virtue of the laws of the Philippine Islands;
3. That on or about August 23, 1928, the herein plaintiff before notary public Salvador Zaragoza,
drew a general power appointing the above-mentioned Bank of the Philippine Islands as her
attorney-in-fact, and among the powers conferred to said attorney-in-fact was the power to
represent her in all legal actions instituted by or against her;
4. That the defendant, of legal age, is and at all times hereinafter mentioned the duly appointed
Collector of Internal Revenue with offices at Manila, Philippine Islands;
5. That the deceased Adolphe Oscar Schuetze came to the Philippine Islands for the first time of
March 31, 1890, and worked in the several German firms as a mere employee and that from the
year 1903 until the year 1918 he was partner in the business of Alfredo Roensch;
6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the habit of making various trips
to Europe;
7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming from Java, and with the
intention of going to Bremen, landed in the Philippine Islands where he met his death on February
2, 1928;
8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in Germany, executed a will, in
accordance with its law, wherein plaintiff was named his universal heir;
9. That the Bank of the Philippine Islands by order of the Court of First Instance of Manila under
date of May 24, 1928, was appointed administrator of the estate of the deceased Adolphe Oscar
Schuetze;
10. That, according to the testamentary proceedings instituted in the Court of First Instance of
Manila, civil case No. 33089, the deceased at the time of his death was possessed of not only real
property situated in the Philippine Islands, but also personal property consisting of shares of stock
in nineteen (19) domestic corporations;
11. That the fair market value of all the property in the Philippine Islands left by the deceased at the
time of his death in accordance with the inventory submitted to the Court of First Instance of Manila,
civil case No. 33089, was P217,560.38;
12. That the Bank of the Philippine Islands, as administrator of the estate of the deceased rendered
its final account on June 19, 1929, and that said estate was closed on July 16, 1929;
13. That among the personal property of the deceased was found life-insurance policy No. 194538
issued at Manila, Philippine Islands, on January 14, 1913, for the sum of $10,000 by the Sun Life
Assurance Company of Canada, Manila branch, a foreign corporation duly organized and existing

under and by virtue of the laws of Canada, and duly authorized to transact business in the
Philippine Islands;
14. That in the insurance policy the estate of the said Adolphe Oscar Schuetze was named the
beneficiary without any qualification whatsoever;
15. That for five consecutive years, the deceased Adolphe Oscar Schuetze paid the premiums of
said policy to the Sun Life Assurance Company of Canada, Manila branch;
16. That on or about the year 1918, the Sun Life Assurance Company of Canada, Manila branch,
transferred said policy to the Sun Life Assurance Company of Canada, London branch;
17. That due to said transfer the said Adolphe Oscar Schuetze from 1918 to the time of his death
paid the premiums of said policy to the Sun Life Assurance Company of Canada, London Branch;
18. That the sole and only heir of the deceased Adolphe Oscar Schuetze is his widow, the plaintiff
herein;
19. That at the time of the death of the deceased and at all times thereafter including the date when
the said insurance policy was paid, the insurance policy was not in the hands or possession of the
Manila office of the Sun Life Assurance Company of Canada, nor in the possession of the herein
plaintiff, nor in the possession of her attorney-in-fact the Bank of the Philippine Islands, but the
same was in the hands of the Head Office of the Sun Life Assurance Company of Canada, at
Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine Islands as administrator of the decedent's
estate received from the Sun Life Assurance Company of Canada, Manila branch, the sum of
P20,150 representing the proceeds of the insurance policy, as shown in the statement of income
and expenses of the estate of the deceased submitted on June 18, 1929, by the administrator to
the Court of First Instance of Manila, civil case No. 33089;
21. That the Bank of the Philippine Islands delivered to the plaintiff herein the said sum of P20,150;
22. That the herein defendant on or about July 5, 1929, imposed an inheritance tax upon the
transmission of the proceeds of the policy in question in the sum of P20,150 from the estate of the
late Adolphe Oscar Schuetze to the sole heir of the deceased, or the plaintiff herein, which
inheritance tax amounted to the sum of P1,209;
23. That the Bank of the Philippine Islands as administrator of the decedent's estate and as
attorney-in-fact of the herein plaintiff, having been demanded by the herein defendant to pay
inheritance tax amounting to the sum of P1,209, paid to the defendant under protest the abovementioned sum;
24. That notwithstanding the various demands made by plaintiff to the defendant, said defendant
has refused and refuses to refund to plaintiff the above mentioned sum of P1,209;
25. That plaintiff reserves the right to adduce evidence as regards the domicile of the deceased,
and so the defendant, the right to present rebuttal evidence;
26. That both plaintiff and defendant submit this stipulation of facts without prejudice to their right to
introduce such evidence, on points not covered by the agreement, which they may deem proper
and necessary to support their respective contentions.

In as much as one of the question raised in the appeal is whether an insurance policy on said Adolphe
Oscar Schuetze's life was, by reason of its ownership, subject to the inheritance tax, it would be well to
decide first whether the amount thereof is paraphernal or community property.
According to the foregoing agreed statement of facts, the estate of Adolphe Oscar Schuetze is the sole
beneficiary named in the life-insurance policy for $10,000, issued by the Sun Life Assurance Company of
Canada on January 14, 1913. During the following five years the insured paid the premiums at the Manila
branch of the company, and in 1918 the policy was transferred to the London branch.
The record shows that the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario
Gelano on January 16, 1914.
With the exception of the premium for the first year covering the period from January 14, 1913 to January
14, 1914, all the money used for paying the premiums, i. e., from the second year, or January 16, 1914, or
when the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario Gelano, until his death
on February 2, 1929, is conjugal property inasmuch as it does not appear to have exclusively belonged to
him or to his wife (art. 1407, Civil Code). As the sum of P20,150 here in controversy is a product of such
premium it must also be deemed community property, because it was acquired for a valuable
consideration, during said Adolphe Oscar Schuetze's marriage with Rosario Gelano at the expense of the
common fund (art. 1401, No. 1, Civil Code), except for the small part corresponding to the first premium
paid with the deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second edition, Manresa treats of life
insurance in the following terms, to wit:
The amount of the policy represents the premiums to be paid, and the right to it arises the moment
the contract is perfected, for at the moment the power of disposing of it may be exercised, and if
death occurs payment may be demanded. It is therefore something acquired for a valuable
consideration during the marriage, though the period of its fulfillment, depend upon the death of one
of the spouses, which terminates the partnership. So considered, the question may be said to be
decided by articles 1396 and 1401: if the premiums are paid with the exclusive property of husband
or wife, the policy belongs to the owner; if with conjugal property, or if the money cannot be proved
as coming from one or the other of the spouses, the policy is community property.
The Supreme Court of Texas, United States, in the case of Martin vs. Moran (11 Tex. Civ. A., 509) laid down
the following doctrine:
COMMUNITY PROPERTY LIFE INSURANCE POLICY. A husband took out an endowment
life insurance policy on his life, payable "as directed by will." He paid the premiums thereon out of
community funds, and by his will made the proceeds of the policy payable to his own estate. Held,
that the proceeds were community estate, one-half of which belonged to the wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of California laid down the following doctrine:
A testator, after marriage, took out an insurance policy, on which he paid the premiums from his
salary. Held that the insurance money was community property, to one-half of which, the wife was
entitled as survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the following doctrine:
A decedent paid the first third of the amount of the premiums on his life-insurance policy out of his
earnings before marriage, and the remainder from his earnings received after marriage. Held, that

one-third of the policy belonged to his separate estate, and the remainder to the community
property.
Thus both according to our Civil Code and to the ruling of those North American States where the Spanish
Civil Code once governed, the proceeds of a life-insurance policy whereon the premiums were paid with
conjugal money, belong to the conjugal partnership.
The appellee alleges that it is a fundamental principle that a life-insurance policy belongs exclusively to the
beneficiary upon the death of the person insured, and that in the present case, as the late Adolphe Oscar
Schuetze named his own estate as the sole beneficiary of the insurance on his life, upon his death the
latter became the sole owner of the proceeds, which therefore became subject to the inheritance tax,
citing Del Val vs. Del Val (29 Phil., 534), where the doctrine was laid down that an heir appointed
beneficiary to a life-insurance policy taken out by the deceased, becomes the absolute owner of the
proceeds of such policy upon the death of the insured.
The estate of a deceased person cannot be placed on the same footing as an individual heir. The proceeds
of a life-insurance policy payable to the estate of the insured passed to the executor or administrator of
such estate, and forms part of its assets (37 Corpus Juris, 565, sec. 322); whereas the proceeds of a lifeinsurance policy payable to an heir of the insured as beneficiary belongs exclusively to said heir and does
not form part of the deceased's estate subject to administrator. (Del Val vs. Del Val, supra; 37 Corpus Juris,
566, sec. 323, and articles 419 and 428 of the Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out by a married person becomes the
exclusive owner of the proceeds upon the death of the insured even if the premiums were paid by the
conjugal partnership, so, it is argued, where the beneficiary named is the estate of the deceased whose life
is insured, the proceeds of the policy become a part of said estate upon the death of the insured even if the
premiums have been paid with conjugal funds.
In a conjugal partnership the husband is the manager, empowered to alienate the partnership property
without the wife's consent (art. 1413, Civil Code), a third person, therefore, named beneficiary in a lifeinsurance policy becomes the absolute owner of its proceeds upon the death of the insured even if the
premiums should have been paid with money belonging to the community property. When a married man
has his life insured and names his own estate after death, beneficiary, he makes no alienation of the
proceeds of conjugal funds to a third person, but appropriates them himself, adding them to the assets of
his estate, in contravention of the provisions of article 1401, paragraph 1, of the Civil Code cited above,
which provides that "To the conjugal partnership belongs" (1) Property acquired for a valuable
consideration during the marriage at the expense of the common fund, whether the acquisition is made for
the partnership or for one of the spouses only." Furthermore, such appropriation is a fraud practised upon
the wife, which cannot be allowed to prejudice her, according to article 1413, paragraph 2, of said Code.
Although the husband is the manager of the conjugal partnership, he cannot of his own free will convert the
partnership property into his own exclusive property.
As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar Schuetze, were paid
out of the conjugal funds, with the exceptions of the first, the proceeds of the policy, excluding the
proportional part corresponding to the first premium, constitute community property, notwithstanding the
fact that the policy was made payable to the deceased's estate, so that one-half of said proceeds belongs
to the estate, and the other half to the deceased's widow, the plaintiff-appellant Rosario Gelano Vda. de
Schuetze.

The second point to decide in this appeal is whether the Collector of Internal Revenue has authority, under
the law, to collect the inheritance tax upon one-half of the life-insurance policy taken out by the late Adolphe
Oscar Schuetze, which belongs to him and is made payable to his estate.
According to the agreed statement of facts mentioned above, the plaintiff-appellant, the Bank of the
Philippine Islands, was appointed administrator of the late Adolphe Oscar Schuetze's testamentary estate
by an order dated March 24, 1928, entered by the Court of First Instance of Manila. On July 13, 1928, the
Sun Life Assurance Company of Canada, whose main office is in Montreal, Canada, paid Rosario Gelano
Vda. de Schuetze upon her arrival at Manila, the sum of P20,150, which was the amount of the insurance
policy on the life of said deceased, payable to the latter's estate. On the same date Rosario Gelano Vda.
de Schuetze delivered the money to said Bank of the Philippine Islands, as administrator of the deceased's
estate, which entered it in the inventory of the testamentary estate, and then returned the money to said
widow.
Section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835 and section 1 of Act
No. 3031, contains the following relevant provision:
SEC. 1536. Conditions and rate of taxation. Every transmission by virtue of inheritance, devise,
bequest, gift mortis causa or advance in anticipation of inheritance, devise, or bequest of real
property located in the Philippine Islands and real rights in such property; of any franchise which
must be exercised in the Philippine Islands; of any shares, obligations, or bonds issued by any
corporation or sociedad anonima organized or constituted in the Philippine Islands in accordance
with its laws; of any shares or rights in any partnership, business or industry established in the
Philippine Islands or of any personal property located in the Philippine Islands shall be subject to
the following tax:
xxx

xxx

xxx

In as much as the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetze were
paid to the Bank of the Philippine Islands, as administrator of the deceased's estate, for management and
partition, and as such proceeds were turned over to the sole and universal testamentary heiress Rosario
Gelano Vda. de Schuetze, the plaintiff-appellant, here in Manila, the situs of said proceeds is the Philippine
Islands.
In his work "The Law of Taxation," Cooley enunciates the general rule governing the levying of taxes upon
tangible personal property, in the following words:
GENERAL RULE. The suits of tangible personal property, for purposes of taxation may be where
the owner is domiciled but is not necessarily so. Unlike intangible personal property, it may acquire
a taxation situs in a state other than the one where the owner is domiciled, merely because it is
located there. Its taxable situs is where it is more or less permanently located, regardless of the
domicile of the owner. It is well settled that the state where it is more or less permanently located
has the power to tax it although the owner resides out of the state, regardless of whether it has
been taxed for the same period at the domicile of the owner, provided there is statutory authority for
taxing such property. It is equally well settled that the state where the owner is domiciled has no
power to tax it where the property has acquired an actual situs in another state by reason of its
more or less permanent location in that state. ... (2 Cooley, The Law of Taxation, 4th ed., p. 975,
par. 451.)
With reference to the meaning of the words "permanent" and "in transit," he has the following to say:

PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. In order to acquire a situs in a state

or taxing district so as to be taxable in the state or district regardless of the domicile of the owner
and not taxable in another state or district at the domicile of the owner, tangible personal property
must be more or less permanently located in the state or district. In other words, the situs of
tangible personal property is where it is more or less permanently located rather than where it is
merely in transit or temporarily and for no considerable length of time. If tangible personal property
is more or less permanently located in a state other than the one where the owner is domiciled, it is
not taxable in the latter state but is taxable in the state where it is located. If tangible personal
property belonging to one domiciled in one state is in another state merely in transitu or for a short
time, it is taxable in the former state, and is not taxable in the state where it is for the time being. . . .
.
Property merely in transit through a state ordinarily is not taxable there. Transit begins when an
article is committed to a carrier for transportation to the state of its destination, or started on its
ultimate passage. Transit ends when the goods arrive at their destination. But intermediate these
points questions may arise as to when a temporary stop in transit is such as to make the property
taxable at the place of stoppage. Whether the property is taxable in such a case usually depends
on the length of time and the purpose of the interruption of transit. . . . .
. . . It has been held that property of a construction company, used in construction of a railroad,
acquires a situs at the place where used for an indefinite period. So tangible personal property in
the state for the purpose of undergoing a partial finishing process is not to be regarded as in the
course of transit nor as in the state for a mere temporary purpose. (2 Cooley, The Law of Taxation,
4th ed., pp. 982, 983 and 988, par. 452.)
If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar Schuetze and made
payable to his estate, were delivered to the Bank of the Philippine Islands for administration and
distribution, they were not in transit but were more or less permanently located in the Philippine Islands,
according to the foregoing rules. If this be so, half of the proceeds which is community property, belongs to
the estate of the deceased and is subject to the inheritance tax, in accordance with the legal provision
quoted above, irrespective of whether or not the late Adolphe Oscar Schuetze was domiciled in the
Philippine Islands at the time of his death.
By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of a life-insurance policy
payable to the insured's estate, on which the premiums were paid by the conjugal partnership, constitute
community property, and belong one-half to the husband and the other half to the wife, exclusively; (2) that
if the premiums were paid partly with paraphernal and partly conjugal funds, the proceeds are likewise in
like proportion paraphernal in part and conjugal in part; and (3) that the proceeds of a life-insurance policy
payable to the insured's estate as the beneficiary, if delivered to the testamentary administrator of the
former as part of the assets of said estate under probate administration, are subject to the inheritance tax
according to the law on the matter, if they belong to the assured exclusively, and it is immaterial that the
insured was domiciled in these Islands or outside.
1awphil.net

Wherefore, the judgment appealed from is reversed, and the defendant is ordered to return to the plaintiff
the one-half of the tax collected upon the amount of P20,150, being the proceeds of the insurance policy
on the life of the late Adolphe Oscar Schuetze, after deducting the proportional part corresponding to the
first premium, without special pronouncement of costs. So ordered.
Avancea, C.J., Johnson, Street, Malcolm, Villamor, and Ostrand, JJ., concur.

Separate Opinions

IMPERIAL, J., dissenting:

I cannot concur with the majority in holding that one-half of the insurance policy on the life of the late
Adolphe Oscar Schuetze, excepting the proportional part corresponding to the first year's premium is
community property belonging to the deceased's widow, named Rosario Gelano, and as such is not subject
to the inheritance tax.
There is no question in regard to the facts: It is admitted that Schuetze insured himself in the Sun Life
Insurance Company of Canada in Manila, and that the policy was issued on January 14, 1913, payable to
his estate after death. He died in Manila on February 2, 1928, leaving his widow as his sole testamentary
heiress. The appellant, the Bank of the Philippine Islands, as administrator of the late Schuetze's
testamentary estate, received from the insurer the amount of this policy, or the net sum of P20,150.
It is an established and generally recognized principle that in a life-insurance policy where the insured has
named a beneficiary, the proceeds belong to said beneficiary, and to him alone. "Vested Interest of
Beneficiary. In practically every jurisdiction it is the rule that in an ordinary life insurance policy made
payable to a beneficiary, and which does not authorize a change of beneficiary, the named beneficiary has
an absolute, vested interest in the policy from the date of its issuance, delivery and acceptance, and this is
true of a policy payable to the children of the insured equally, without naming them, or their executors,
administrators or assigns." (14 R.C.L., 1376.) (Del Valvs. Del Val, 29 Phil., 534 et seq.; Gercio vs. Sun Life
Assurance Co. of Canada, 48 Phil., 53 et seq.) When in a life-insurance policy the insured's estate is
named beneficiary, the proceeds must be delivered not to the decedent's heirs, but to his administrator or
legal representative. "Policy Payable to Insured, His Estate, or Legal Representatives. ... Ordinarily the
proceeds of a life insurance policy are payable to the executor or administrator of insured as assets of his
estate where by the terms of the policy the proceeds are payable to insured, his estate, his legal
representatives, his executors or administrators, his "executors, administrators, or assigns," or even his
"heirs, executors, administrators, or assigns." ..." (37 C.J., 565.) "Personal Representatives or Legal
Representatives. While there is some authority to the effect that "legal representatives" means the
persons entitled to the estate of the insured, and not his executor or administrator, the better view is that
ordinarily the proceeds of such a policy pass to his executor or administrator." (14 R.C.L., 1372.)
If the foregoing are the principles which should govern life-insurance policies with reference to beneficiaries
and the right to the proceeds of such policies, it is evident that Schuetze's estate, and not his widow or the
conjugal partnership, is entitled to the proceeds of said policy exclusively, and may receive them from the
insurer. The parties must have so understood it when the insurer delivered the net amount of the policy to
the Bank of the Philippine Islands, as judicial administrator of the insured.
It is stated in the majority opinion that the money with which the premiums were paid during the marriage of
the Schuetzes is presumed to have been taken from the conjugal funds, according to article 1407 of the
Civil Code, which provides that "All the property of the spouses shall be deemed partnership property in the
absence of proof that it belongs exclusively to the husband or to the wife." This is the very argument which

led to the settlement of the point of law raised. The provisions of the Civil Code on conjugal property have
been improperly applied without considering that a life-insurance contract is a peculiar contract governed
by special laws, such as Act No. 2427 with its amendments, and the Code of Commerce, which is still in
force. In Del Val, supra, it was already held:
We cannot agree with these contentions. The contract of life insurance is a special contract and the
destination of the proceeds thereof is determined by special laws which deal exclusively with that
subject. The Civil Code has no provisions which relate directly and specially to life insurance
contracts or to the destination of life insurance proceeds. That subject is regulated exclusively by
the Code of Commerce which provides for the terms of the contract, the relations of the parties and
the destination of the proceeds of the policy.
The main point to be decided was not whether the premiums were paid out of conjugal or personal funds of
one of the spouses, but whether or not the proceeds of the policy became assets of the insured's estate. If
it be admitted that the estate is the sole owner of the aforesaid proceeds, which cannot be denied,
inasmuch as the policy itself names the estate as the beneficiary, it is beside the point to discuss the nature
and origin of the amounts used to pay the premiums, as the title to the proceeds of the policy is vested in
the insured's estate, and any right the widow might have should be vindicated in another action. In such a
case she might be entitled to reimbursement of her share in the conjugal funds, but not in the present case,
for she has been instituted the sole testamentary heiress.
From the foregoing, it follows that as the proceeds of the policy belong to Schuetze's estate, and inasmuch
as the inheritance tax is levied upon the transmission of a deceased person's estate upon, or, on the
occasion of his death, it is clear that the whole proceeds, and not one-half thereof, are subject to such tax.
In my opinion the judgment appealed from should have been affirmed in its entirely.
Romualdez, J., concurs.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-36770

November 4, 1932

LUIS W. DISON, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Marcelino Aguas for plaintiff-appellant.
Attorney-General Jaranilla for defendant-appellant.

BUTTE, J.:
This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the defendant
Juan Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the
recovery of an inheritance tax in the sum of P2,808.73 paid under protest. The petitioner alleged in his
complaint that the tax is illegal because he received the property, which is the basis of the tax, from his
father before his death by a deed of gift inter vivos which was duly accepted and registered before the

death of his father. The defendant answered with a general denial and with a counterdemand for the sum of
P1,245.56 which it was alleged is a balance still due and unpaid on account of said tax. The plaintiff replied
to the counterdemand with a general denial. The court a quo held that the cause of action set up in the
counterdemand was not proven and dismissed the same. Both sides appealed to this court, but the crosscomplaint and appeal of the Collector of Internal Revenue were dismissed by this court on March 17, 1932,
on motion of the Attorney-General.
1awphil.net

The only evidence introduced at the trial of this cause was the proof of payment of the tax under protest, as
stated, and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his sons Luis W. Dison, the
plaintiff-appellant. This deed of gift transferred twenty-two tracts of land to the donee, reserving to the
donor for his life the usufruct of three tracts. This deed was acknowledged by the donor before a notary
public on April 16, 1928. Luis W. Dison, on April 17, 1928, formally accepted said gift by an instrument in
writing which he acknowledged before a notary public on April 20, 1928.
At the trial the parties agreed to and filed the following ingenious stipulation of fact:
1. That Don Felix Dison died on April 21, 1928;
2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis W.
Dison of all his property according to a deed of gift (Exhibit D) which includes all the property of Don
Felix Dizon;
3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of the
latter;
4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.
It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.
The theory of the plaintiff-appellant is that he received and holds the property mentioned by a
consummated gift and that Act No. 2601 (Chapter 40 of the Administrative Code) being the inheritance tax
statute, does not tax gifts. The provision directly here involved is section 1540 of the Administrative Code
which reads as follows:
Additions of Gifts and Advances. After the aforementioned deductions have been made, there
shall be added to the resulting amount the value of all gifts or advances made by the predecessor
to any of those who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis
causa.
The question to be resolved may be stated thus: Does section 1540 of the Administrative Code subject the
plaintiff-appellant to the payment of an inheritance tax?
The appellant argues that there is no evidence in this case to support a finding that the gift was simulated
and that it was an artifice for evading the payment of the inheritance tax, as is intimated in the decision of
the court below and the brief of the Attorney-General. We see no reason why the court may not go behind
the language in which the transaction is masked in order to ascertain its true character and purpose. In this
case the scanty facts before us may not warrant the inference that the conveyance, acknowledged by the
donor five days before his death and accepted by the donee one day before the donor's death, was
fraudulently made for the purpose of evading the inheritance tax. But the facts, in our opinion, do warrant
the inference that the transfer was an advancement upon the inheritance which the donee, as the sole and
forced heir of the donor, would be entitled to receive upon the death of the donor.

The argument advanced by the appellant that he is not an heir of his deceased father within the meaning of
section 1540 of the Administrative Code because his father in his lifetime had given the appellant all his
property and left no property to be inherited, is so fallacious that the urging of it here casts a suspicion upon
the appellants reason for completing the legal formalities of the transfer on the eve of the latter's death. We
do not know whether or not the father in this case left a will; in any event, this appellant could not be
deprived of his share of the inheritance because the Civil Code confers upon him the status of a forced
heir. We construe the expression in section 1540 "any of those who, after his death, shall prove to be his
heirs", to include those who, by our law, are given the status and rights of heirs, regardless of the quantity
of property they may receive as such heirs. That the appellant in this case occupies the status of heir to his
deceased father cannot be questioned. Construing the conveyance here in question, under the facts
presented, as an advance made by Felix Dison to his only child, we hold section 1540 to be applicable and
the tax to have been properly assessed by the Collector of Internal Revenue.
This appeal was originally assigned to a Division of five but referred to the court in banc by reason of the
appellant's attack upon the constitutionality of section 1540. This attack is based on the sole ground that
insofar as section 1540 levies a tax upon gifts inter vivos, it violates that provision of section 3 of the
organic Act of the Philippine Islands (39 Stat. L., 545) which reads as follows: "That no bill which may be
enacted into law shall embraced more than one subject, and that subject shall be expressed in the title of
the bill." Neither the title of Act No. 2601 nor chapter 40 of the Administrative Code makes any reference to
a tax on gifts. Perhaps it is enough to say of this contention that section 1540 plainly does not tax gifts per
se but only when those gifts are made to those who shall prove to be the heirs, devisees, legatees or
donees mortis causa of the donor. This court said in the case of Tuason and Tuason vs. Posadas 954 Phil.,
289):
lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the
letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor
of the language which refers to donations that took effect before the donor's death, and not
to mortis causa donations, which can only be made with the formalities of a will, and can only take
effect after the donor's death. Any other construction would virtually change this provision into:
". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We cannot give
to the law an interpretation that would so vitiate its language. The truth of the matter is that in this section
(1540) the law presumes that such gifts have been made in anticipation of inheritance, devise, bequest, or
gift mortis causa, when the donee, after the death of the donor proves to be his heir, devisee or
donee mortis causa, for the purpose of evading the tax, and it is to prevent this that it provides that they
shall be added to the resulting amount." However much appellant's argument on this point may fit his
preconceived notion that the transaction between him and his father was a consummated gift with no
relation to the inheritance, we hold that there is not merit in this attack upon the constitutionality of section
1540 under our view of the facts. No other constitutional questions were raised in this case.
The judgment below is affirmed with costs in this instance against the appellant. So ordered.
Avancea, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-34937

March 13, 1933

CONCEPCION VIDAL DE ROCES and her husband,

MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Feria and La O for appellants.
Attorney-General Jaranilla for appellee.
IMPERIAL, J.:
The plaintiffs herein brought this action to recover from the defendant, Collector of Internal Revenue,
certain sums of money paid by them under protest as inheritance tax. They appealed from the judgment
rendered by the Court of First Instance of Manila dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain parcels of
land situated in Manila to the plaintiffs herein, who, with their respective husbands, accepted them in the
same public documents, which were duly recorded in the registry of deeds. By virtue of said donations, the
plaintiffs took possession of the said lands, received the fruits thereof and obtained the corresponding
transfer certificates of title.
On January 5, 1926, the donor died in the City of Manila without leaving any forced heir and her will which
was admitted to probate, she bequeathed to each of the donees the sum of P5,000. After the estate had
been distributed among the instituted legatees and before delivery of their respective shares, the appellee
herein, as Collector of Internal Revenue, ruled that the appellants, as donees and legatees, should pay as
inheritance tax the sums of P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was levied
as tax on the donation to Concepcion Vidal de Roces and P1,481.52 on her legacy, and, likewise,
P12,388.95 was imposed upon the donation made to Elvira Vidal de Richards and P1,462.50 on her
legacy. At first the appellants refused to pay the aforementioned taxes but, at the insistence of the appellee
and in order not to delay the adjudication of the legacies, they agreed at last, to pay them under protest.
The appellee filed a demurrer to the complaint on the ground that the facts alleged therein were not
sufficient to constitute a cause of action. After the legal questions raised therein had been discussed, the
court sustained the demurrer and ordered the amendment of the complaint which the appellants failed to
do, whereupon the trial court dismissed the action on the ground that the afore- mentioned appellants did
not really have a right of action.
In their brief, the appellants assign only one alleged error, to wit: that the demurrer interposed by the
appellee was sustained without sufficient ground.
The judgment appealed from was based on the provisions of section 1540 Administrative Code which
reads as follows:
SEC. 1540. Additions of gifts and advances. After the aforementioned deductions have been
made, there shall be added to the resulting amount the value of all gifts or advances made by the
predecessor to any those who, after his death, shall prove to be his heirs, devisees, legatees, or
donees mortis causa.
The appellants contend that the above-mentioned legal provision does not include donations inter
vivos and if it does, it is unconstitutional, null and void for the following reasons: first, because it violates
section 3 of the Jones Law which provides that no law should embrace more than one subject, and that

subject should be expressed in the title thereof; second that the Legislature has no authority to impose
inheritance tax on donations inter vivos; and third, because a legal provision of this character contravenes
the fundamental rule of uniformity of taxation. The appellee, in turn, contends that the words "all gifts" refer
clearly to donations inter vivos and, in support of his theory, cites the doctrine laid in the case of Tuason
and Tuason vs. Posadas (54 Phil., 289). After a careful study of the law and the authorities applicable
thereto, we are the opinion that neither theory reflects the true spirit of the aforementioned provision. The
gifts referred to in section 1540 of the Revised Administration Code are, obviously, those donations inter
vivos that take effect immediately or during the lifetime of the donor but are made in consideration or in
contemplation of death. Gifts inter vivos, the transmission of which is not made in contemplation of the
donor's death should not be understood as included within the said legal provision for the reason that it
would amount to imposing a direct tax on property and not on the transmission thereof, which act does not
come within the scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code
which deals expressly with the tax on inheritances, legacies and other acquisitions mortis causa.
Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and Tuason vs.
Posadas,supra. We said therein, as we say now, that the expression "all gifts" refers to gifts inter
vivos inasmuch as the law considers them as advances on inheritance, in the sense that they are gifts inter
vivos made in contemplation or in consideration of death. In that case, it was not held that that kind of gifts
consisted in those made completely independent of death or without regard to it.
Said legal provision is not null and void on the alleged ground that the subject matter thereof is not
embraced in the title of the section under which it is enumerated. On the contrary, its provisions are
perfectly summarized in the heading, "Tax on Inheritance, etc." which is the title of Article XI. Furthermore,
the constitutional provision cited should not be strictly construed as to make it necessary that the title
contain a full index to all the contents of the law. It is sufficient if the language used therein is expressed in
such a way that in case of doubt it would afford a means of determining the legislators intention. (Lewis'
Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the circumstance that the Administrative Code
was prepared and compiled strictly in accordance with the provisions of the Jones Law on that matter
should not be overlooked and that, in a compilation of laws such as the Administrative Code, it is but
natural and proper that provisions referring to diverse matters should be found. (Ayson and Ignacio vs.
Provincial Board of Rizal and Municipal Council of Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose taxes on the transmission of real estate that
takes effect immediately and during the lifetime of the donor, and allege as their reason that such tax
partakes of the nature of the land tax which the law has already created in another part of the
Administrative Code. Without making express pronouncement on this question, for it is unnecessary, we
wish to state that such is not the case in these instance. The tax collected by the appellee on the properties
donated in 1925 really constitutes an inheritance tax imposed on the transmission of said properties in
contemplation or in consideration of the donor's death and under the circumstance that the donees were
later instituted as the former's legatees. For this reason, the law considers such transmissions in the form
of gifts inter vivos, as advances on inheritance and nothing therein violates any constitutional provision,
inasmuch as said legislation is within the power of the Legislature.
Property Subject to Inheritance Tax. The inheritance tax ordinarily applies to all property within
the power of the state to reach passing by will or the laws regulating intestate succession or by
gift inter vivos in the manner designated by statute, whether such property be real or personal,
tangible or intangible, corporeal or incorporeal. (26 R.C.L., p. 208, par. 177.)

In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540 of the
Administrative Code did not violate the constitutional provision regarding uniformity of taxation. It cannot be
null and void on this ground because it equally subjects to the same tax all of those donees who later
become heirs, legatees or donees mortis causa by the will of the donor. There would be a repugnant and
arbitrary exception if the provisions of the law were not applicable to all donees of the same kind. In the
case cited above, it was said: "At any rate the argument adduced against its constitutionality, which is the
lack of Uniformity, does not seem to be well founded. It was said that under such an interpretation, while a
donee inter vivos who, after the predecessor's death proved to be an heir, a legatee, or a donee mortis
causa, would have to pay the tax, another donee inter vivos who did not prove to he an heir, a legatee, or a
donee mortis causa of the predecessor, would be exempt from such a tax. But as these are two different
cases, the principle of uniformity is inapplicable to them."
The last question of a procedural nature arising from the case at bar, which should be passed upon, is
whether the case, as it now stands, can be decided on the merits or should be remanded to the court a
quo for further proceedings. According to our view of the case, it follows that, if the gifts received by the
appellants would have the right to recover the sums of money claimed by them. Hence the necessity of
ascertaining whether the complaint contains an allegation to that effect. We have examined said complaint
and found nothing of that nature. On the contrary, it be may be inferred from the allegations contained in
paragraphs 2 and 7 thereof that said donations inter vivos were made in consideration of the donor's death.
We refer to the allegations that such transmissions were effected in the month of March, 1925, that the
donor died in January, 1926, and that the donees were instituted legatees in the donor's will which was
admitted to probate. It is from these allegations, especially the last, that we infer a presumption juris
tantum that said donations were made mortis causa and, as such, are subject to the payment of inheritance
tax.
Wherefore, the demurrer interposed by the appellee was well-founded because it appears that the
complaint did not allege fact sufficient to constitute a cause of action. When the appellants refused to
amend the same, spite of the court's order to that effect, they voluntarily waived the opportunity offered
them and they are not now entitled to have the case remanded for further proceedings, which would serve
no purpose altogether in view of the insufficiency of the complaint.
Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance against the
appellants. So ordered.
Avancea, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.

Separate Opinions
VILLA-REAL, J., dissenting:
I sustain my concurrence in Justice Street's dissenting opinion in the case of Tuason and Tuason vs.
Posadas (54 Phil., 289).
The majority opinion to distinguish the present case from above-mentioned case of Tuason and Tuason vs.
Posadas, by interpreting section 1540 of the Administrative Code in the sense that it establishes the legal
presumption juris tantum that all gifts inter vivos made to persons who are not forced heirs but who are
instituted legatees in the donor's will, have been made in contemplation of the donor's death. Presumptions
are of two kinds: One determined by law which is also called presumption of law or of right; and another
which is formed by the judge from circumstances antecedent to, coincident with or subsequent to the

principal fact under investigation, which is also called presumption of man (presuncion de hombre).
(Escriche, Vol. IV, p. 662.) The Civil Code as well as the code of Civil Procedure establishes
presumptions juris et de jure and juris tantum which the courts should take into account in deciding
questions of law submitted to them for decision. The presumption which majority opinion wishes to draw
from said section 1540 of the Administrative Code can neither be found in this Code nor in any of the
aforementioned Civil Code and Code of Civil Procedure. Therefore, said presumption cannot be called
legal or of law. Neither can it be called a presumption of man (presuncion de hombre) inasmuch as the
majority opinion did not infer it from circumstances antecedent to, coincident with or subsequent to the
principal fact with is the donation itself. In view of the nature, mode of making and effects of donations inter
vivos, the contrary presumption would be more reasonable and logical; in other words, donations inter
vivos made to persons who are not forced heirs, but who are instituted legatees in the donor's will, should
be presumed as not made mortis causa, unless the contrary is proven. In the case under consideration, the
burden of the proof rests with the person who contends that the donation inter vivos has been made mortis
causa.
It is therefore, the undersigned's humble opinion that the order appealed from should be reversed and the
demurrer overruled, and the defendant ordered to file his answer to the complaint.
Street, J., concurs.

BPI vs. Posadas

GR No. 34583, October 22, 1931
FACTS:
BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI
Manila absolving defendant, Collector of Internal Revenue, from the complaint filed
against him in recovering the inheritance tax amounting to P1209 paid by the plaintiff,
Rosario Gelano Vda de Schuetze, under protest, and sum of P20,150 representing the
proceeds of the insurance policy of the deceased.
Rosario and Adolphe were married in January 1914. The wife was actually residing and
living in Germany when Adolphe died in December 1927. The latter while in Germany,
executed a will in March 1926, pursuant with its law wherein plaintiff was named his
universal heir. The deceased possessed not only real property situated in the
Philippines but also personal property consisting of shares of stocks in 19 domestic
corporations. Included in the personal property is a life insurance policy issued at
Manila on January 1913 for the sum of $10,000 by the Sun Life Assurance Company of
Canada, Manila Branch. In the insurance policy, the estate of the deceased was named
the beneficiary without any qualification. Rosario is the sole and only heir of the
deceased. BPI, as administrator of the decedents estate and attorney in fact of the

plaintiff, having been demanded by Posadas to pay the inheritance tax, paid under
protest. Notwithstanding various demands made by plaintiff, Posadas refused to refund
such amount.
ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.
HELD:
SC ruled that(1)the proceeds of a life-insurance policy payable to the insured's estate,
on which the premiums were paid by the conjugal partnership, constitute community
property, and belong one-half to the husband and the other half to the wife,
exclusively; (2)if the premiums were paid partly with paraphernal and partly conjugal
funds, the proceeds are likewise in like proportion paraphernal in part and conjugal in
part; and (3)the proceeds of a life-insurance policy payable to the insured's estate as
the beneficiary, if delivered to the testamentary administrator of the former as part of
the assets of said estate under probate administration, are subject to the inheritance
tax according to the law on the matter, if they belong to the assured exclusively, and it
is immaterial that the insured was domiciled in these Islands or outside.
Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected
upon the amount of P20,150, being the proceeds of the insurance policy on the life of
the late Adolphe Oscar Schuetze, after deducting the proportional part corresponding to
the first premium.

Dison v. Posadas
G.R. No. 36770 November 4, 1932
Butte, J.:
Facts:
1. Plaintiff Luis Dison filed a suit against CIR to recover inheritance tax paid under protest amounting
to P2,808.73. Felix Dison, plaintiff's father executed a deed of gift which transferred 22 tracts of land,
reserving to himself during his lifetime the usufruct of 3 tracts. The donation was formally accepted by
plaintiff.

2. The plaintiff (herein petitioner) alleged in his complaint that the tax is illegal since he received the
property by a deed of gift inter vivos duly accepted and registered before the death of his father. He
also contended that Act 2601 being an inheritance tax statute, does not tax gifts. The defendant
answered in general denial with a countermand. The court dismissed the countermand. Both sides
appealed, but the CIR appeal was dismissed.
Issue: Whether or not the gifts inter vivos are taxable (inheritance tax)
YES.
Inheritance tax is imposed upon the gift inter vivos that plaintiff received from his father as this was
really an advancement upon the inheritance to which he would be entitled upon the death of the latter.
Sec. 1540 of the Administrative Code did not tax gifts per sebut only those which are made to those
who shall prove to be heirs, devisees, legatees and donees mortis causa of the donor. The term 'heirs'
include those given the status of heirs irrespective of the quantity of property they may receive as such.

Vidal de Roces v. Posadas

G.R. No. 34937 March 13, 1933
Imperial, J.:
Facts:
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband, as well as one Elvira
Richards, received as donation several parcels of land from Esperanza Tuazon. They took possession of
the lands thereafter and likewise obtained the respective transfer certificates.
2.The donor died a year after without leaving any forced heir. In her will, which was admitted to
probate, she bequeathed to each of the donees the sum of P5,000. After the distribution of the estate but
before the delivery of their shares, the CIR (appellee) ruled that plaintiffs as donees and legatees should
pay inheritance taxes. The plaintiffs paid the taxes under protest.
3. CIR filed a demurrer on ground that the facts alleged were not sufficient to constitute a cause of
action. The court sustained the demurrer and ordered the amendment of the complaint but the
appellants failed to do so. Hence, the trial court dismissed the action on ground that plaintiffs, herein
appellants, did not really have a right of action.
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative Code does not include
donation inter vivos and if it does, it is unconstitutional, null and void for violating SEC. 3 of the Jones

Law (providing that no law shall embrace more than one subject and that the subject should be
expressed in its titles ; that the Legislature has no authority to tax donation inter vivos; finally, that said
provision violates the rule on uniformity of taxation.
5. CIR however contends that the word 'all gifts' refer clearly to donation inter vivos and cited the
doctrine in Tuason v. Posadas.
Issue: Whether or not the donations should be subjected to inheritance tax
YES. Sec. 1540 of the Administrative Code clearly refers to those donation inter vivosthat take effect
immediately or during the lifetime of the donor, but made in consideration of the death of the decedent.
Those donations not made in contemplation of the decedent's death are not included as it would be
equivalent to imposing a direct tax on property and not on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter vivos as they are considered as
advances in anticipation of inheritance since they are made in consideration of death.